<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 1998
REGISTRATION STATEMENT NO. 333-46433
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
RHODE ISLAND 4011 05-03444399
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
75 HAMMOND STREET
WORCESTER, MA 01610
(508) 755-4000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
HEIDI J. EDDINS, ESQ., VICE PRESIDENT,
SECRETARY AND GENERAL COUNSEL
PROVIDENCE AND WORCESTER RAILROAD COMPANY
75 HAMMOND STREET
WORCESTER, MA 01610
(508) 755-4000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
MARGARET D. FARRELL, ESQ. CHRISTOPHER T. JENSEN, ESQ.
HINCKLEY, ALLEN & SNYDER MORGAN, LEWIS & BOCKIUS LLP
1500 FLEET CENTER 101 PARK AVENUE
PROVIDENCE, RI 02903 NEW YORK, NY 10178
(401) 274-2000 (212) 309-6000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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,
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 statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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- -------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 3, 1998
1,025,000 SHARES
LOGO
PROVIDENCE AND WORCESTER RAILROAD COMPANY
COMMON STOCK
-----------
Of the 1,025,000 shares of common stock, par value $.50 per share (the
"Common Stock"), of Providence and Worcester Railroad Company ("P&W" or the
"Company") offered hereby, 1,000,000 shares are being sold by the Company and
25,000 shares are being sold by a shareholder of the Company (the "Selling
Shareholder"). See "Principal and Selling Shareholders." The Company will not
receive any proceeds from the sale of Common Stock by the Selling Shareholder.
The Common Stock is currently traded on the American Stock Exchange (the
"AMEX") under the symbol "PWX." On February 27, 1998, the last reported sale
price of the Common Stock on the AMEX was $17.375 per share. See "Price Range
of Common Stock and Dividend Policy."
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
-----------
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 PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share...................... $ $ $ $
- --------------------------------------------------------------------------------
Total(3)....................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Does not include additional compensation in the form of (a) a 2% non-
accountable expense allowance on the Common Stock sold by the Company in
the amount of $ , and (b) warrants (the "Underwriters' Warrants") to
purchase up to 100,000 shares of Common Stock. In addition, the Company has
agreed to indemnify the underwriters (the "Underwriters") against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses of this Offering payable by the Company estimated
at $650,000, including the non-accountable expense allowance.
(3) The principal shareholder of the Company (the "Principal Shareholder") has
granted the Underwriters a 30-day option to purchase up to 153,750
additional shares of Common Stock, solely to cover over-allotments, if any.
If all such shares are purchased, the total "Price to Public" and
"Underwriting Discounts and Commissions" will be $ and $ ,
respectively, the total "Proceeds to Company" will remain unchanged and the
total "Proceeds to Selling Shareholder," including the Principal
Shareholder, will be $ . See "Underwriting."
-----------
The Common Stock is being offered severally by the Underwriters named herein,
subject to prior sale when, as and if delivered to and accepted by the
Underwriters and subject to certain other conditions. The Underwriters reserve
the right to reject orders in whole or in part and to withdraw, cancel or
modify this Offering without notice. It is expected that delivery of
certificates representing the shares of Common Stock will be made on or about
, 1998 at the offices of Advest, Inc. in New York, New York.
-----------
ADVEST, INC.
THE DATE OF THIS PROSPECTUS IS , 1998
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>
[PHOTOGRAPH]
2. P&W serving Tilcon
Connecticut, Inc.'s trap rock
quarry at Wallingford, CT.
[PHOTOGRAPH] [PHOTOGRAPH]
1. Doublestack container train destined 3. P&W traversing Hell Gate
for P&W's Worcester intermodal facility. Bridge in New York City, with
the Triborough and 59th Street
bridges in the background.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION,
STABILIZING TRANSACTIONS, SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY
BIDS. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
[MAP OF THE COMPANY'S RAIL FREIGHT SYSTEM]
<PAGE>
[MAP OF THE COMPANY'S RAIL FREIGHT SYSTEM]
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and the financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise specified, all information in this Prospectus assumes no exercise of
the over-allotment option granted to the Underwriters. This Prospectus contains
forward-looking statements that involve risks and uncertainties. Actual events
or results may differ materially as a result of various factors, and investors
should carefully consider the information set forth under the heading "Risk
Factors."
THE COMPANY
P&W is a regional freight railroad operating in Massachusetts, Rhode Island,
Connecticut and New York. The Company is the only interstate freight carrier
serving the State of Rhode Island and possesses the exclusive and perpetual
right to conduct freight operations over the Northeast Corridor between New
Haven, Connecticut and the Massachusetts/Rhode Island border. Since commencing
independent operations in 1973, the Company, through a series of acquisitions
of connecting lines, has grown from 45 miles of track to its current system of
approximately 515 miles. P&W operates the largest double stack intermodal
terminal facilities in New England in Worcester, Massachusetts, a strategic
location for regional transportation and distribution enterprises.
The Company transports a wide variety of commodities for its customers,
including construction aggregate, iron and steel products, chemicals, lumber,
scrap metals, plastic resins, cement, processed foods and edible food stuffs,
such as frozen foods, corn syrup and animal and vegetable oils. Its customers
include The Dow Chemical Company, Exxon Corporation, Frito-Lay, Inc., General
Dynamics Corporation, Getty Petroleum Marketing Inc., International Paper
Company, Leggett & Platt, Incorporated, Mobil Oil Corporation, R.R. Donnelley &
Sons and Tilcon Connecticut, Inc. In 1997, P&W transported over 31,000 carloads
of freight and over 43,000 intermodal containers, representing an increase of
14.0% and 9.3%, respectively, over 1996 volumes. The Company also generates
income through sales of properties, grants of easements and licenses and leases
of land and tracks.
P&W's connections to multiple Class I railroads, either directly or through
connections with regional and short-line carriers, provide the Company with a
competitive advantage by allowing it to offer creative pricing and routing
alternatives to its customers. In addition, the Company's commitment to
maintaining its track and equipment to high standards enables P&W to provide
fast, reliable and efficient service.
Over the past decade, consumer product companies have increasingly turned to
intermodal transportation, i.e., the shipment of containerized cargo via more
than one mode of transportation. By using a hub-and-spoke approach to shipping,
multiple double stacked containers can be moved by rail to and from an
intermodal terminal and then either delivered to their final destinations by
trucks or transferred to ships for export. Headquartered in a major population
center in New England, the Company is well situated to capitalize on this
trend.
There are a number of development projects underway in New England to
increase port capacity along its extensive coastline and to improve the
intermodal transportation and distribution infrastructure in the region. These
projects include the Commonwealth of Massachusetts' $250 million highway
reconstruction project to create a direct Worcester connection to the
Massachusetts Turnpike and improve road connections to Worcester; the State of
Connecticut's project to restore rail access to the Port of New Haven; and the
State of Rhode Island's $120 million expansion and improvement of the Quonset
Point/Davisville port and industrial park located near the entrance to
Narragansett Bay ("Quonset/Davisville"). The Quonset/Davisville project, when
completed, will create the largest on-dock double stack and tri-level auto rail
facility in New England with substantial land to support port operations and
development.
3
<PAGE>
The Company's objective is to become the dominant rail freight carrier in New
England by capitalizing on these shipping trends and regional developments
through implementation of the following strategies:
. Pursue Opportunities to Upgrade, Expand and Enhance Existing Rail
Infrastructure. Certain of the Company's growth opportunities are contingent
upon anticipated enhancements to its existing rail system. The
Quonset/Davisville project contemplates construction of an additional rail
line with double stack and tri-level auto rail car clearances on trackage on
the Northeast Corridor over which P&W possesses the exclusive and perpetual
freight service easement. To realize the benefits of this project, the
Company is in the process of making clearance improvements on its line from
its connection with the Northeast Corridor at Central Falls, Rhode Island to
Worcester. The Company is also working with the Commonwealth of
Massachusetts to implement a statewide clearance improvement project that
will include certain P&W rail lines in Worcester County. In addition, the
Company has begun to identify and improve undergrade bridge structures to
permit heavier loadings on key line segments. These improvements should
permit the Company to capitalize on increased rail traffic anticipated from
the Quonset/Davisville development, capture more international and domestic
double stack containerized cargo and handle heavier rail cars and cargo.
. Acquire and Develop Strategically Located Terminal Properties and Intermodal
Facilities. Planned improvements associated with the Massachusetts highway
reconstruction project will significantly expand the Company's facilities
for intermodal and bulk transloading in Worcester. In addition, the project
should enhance the Company's growth opportunities for intermodal transport
by increasing the convenience of its terminal facilities as a hub for
intermodal transportation to and from the region. To capitalize on such
opportunities, the Company intends to pursue the identification and
acquisition or lease of suitable properties in the Worcester area to
increase its intermodal capacity. P&W is also exploring potential expansion
opportunities for transload and intermodal yards in the I-395 Corridor in
eastern Connecticut and is planning an intermodal facility at its South Quay
property in East Providence, Rhode Island.
. Increase Existing System Revenues Through Expanded Customer
Relationships. P&W's marketing and sales staff focuses on understanding and
addressing the raw material requirements and transportation needs of its
existing customers and businesses on its lines. The staff grows existing
business by maintaining close working relationships with both customers and
connecting carriers. In addition, the staff generates new business by
targeting companies on its lines that underutilize rail services and by
working with local economic development officials and realtors to attract
new industries to locations on the Company's system.
. Acquire Additional Rail Cars. The Company has experienced a significant
increase in the need for gondola rail cars due to an upturn in shipments of
scrap metal. The purchase of 40 100-ton gondolas with a portion of the
proceeds of this Offering should enable the Company to meet this demand and
increase its operating revenues.
. Acquire Connecting Rail Lines and Trackage Rights. In October 1997, the
Company signed an agreement to purchase the Connecticut Central Railroad
Company, a short-line railroad with operating rights over approximately 28
miles of track in central Connecticut. P&W intends to continue to expand its
business through the selective acquisition of rail properties and trackage
rights on connecting lines.
. Expand Locomotive and Rail Car Maintenance and Repair Capabilities. The
Company intends to use a portion of the proceeds of this Offering to expand
its Worcester maintenance center to increase efficiency and enable it to
provide expanded contract maintenance and repair services.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by:
The Company....................... 1,000,000 shares
The Selling Shareholder........... 25,000 shares
----------------
Total shares offered............. 1,025,000 shares
Shares of Common Stock outstanding
before this Offering.............. 2,222,830 shares
Shares of Common Stock to be
outstanding after this
Offering (1)...................... 3,422,830 shares
Use of proceeds.................... To purchase rail cars, repay debt, finance
maintenance facility expansion and for
general corporate purposes. See "Use of
Proceeds."
AMEX Symbol........................ PWX
</TABLE>
Except where otherwise indicated, all share and per share data in this
Prospectus (i) give no effect to the 100,000 shares issuable upon exercise of
the Underwriters' Warrants; (ii) assume no exercise of outstanding stock
options to purchase 41,161 shares of Common Stock; and (iii) give no effect to
the up to 27,500 shares issuable upon the purchase of the Connecticut Central
Railroad Company. See "Business -- Business Strategy," "Management -- Stock
Plans" and "Underwriting."
- --------
(1) Includes the issuance of 200,000 shares of Common Stock upon exercise of
warrants held by Massachusetts Capital Resource Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
5
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data should be read in conjunction with the Company's
audited financial statements and notes thereto and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues.............. $ 19,778 $ 19,456 $ 22,083
Operating expenses.............. 17,677 17,714 18,333
------------- ------------- -------------
Income from operations.......... 2,101 1,742 3,750
Other income.................... 581 1,660 638
Interest expense................ (1,175) (1,371) (1,358)
------------- ------------- -------------
Income before income taxes...... 1,507 2,031 3,030
Provision for income taxes...... 590 780 1,100
------------- ------------- -------------
Net income...................... $ 917 $ 1,251 $ 1,930
============= ============= =============
Diluted income per share(a)..... $ 0.43 $ 0.54 $ 0.81
============= ============= =============
Weighted average shares--
diluted........................ 2,136 2,461 2,489
============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED (B)
------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................... $71,212 $74,812
Short-term debt....................................... 2,281 772
Long-term debt, less current portion.................. 11,916 562
Shareholders' equity.................................. 38,038 54,721
</TABLE>
- --------
(a) The income per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earnings Per Share." See Note 1 to the Company's audited financial
statements included elsewhere in this Prospectus.
(b) Adjusted to reflect the sale by the Company of 1,000,000 shares of Common
Stock in this Offering (at an assumed offering price of $17.375 per share)
and the application of the net proceeds therefrom to prepay certain
indebtedness (including prepayment penalties) as described in "Use of
Proceeds." As adjusted shareholders' equity reflects an extraordinary
charge, due to the early extinguishment of debt, of $246,000 (net of tax)
which the Company expects to record in the second quarter of 1998 when the
debt is paid.
6
<PAGE>
RISK FACTORS
Investors should carefully consider the following matters in connection with
an investment in the Company's Common Stock in addition to the other
information contained in this Prospectus. This Prospectus contains "forward-
looking statements," within the meaning of the Private Securities Litigation
Reform Act of 1995, which can be identified by the use of forward-looking
terminology such as "may," "will," "would," "could," "intend," "plan,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The following matters
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties,
that could cause actual results to differ materially from those in such
forward-looking statements.
FLUCTUATIONS IN OPERATING REVENUES
Historically, the Company's operating revenues have been tied to national
and regional economic conditions, especially those impacting the manufacturing
sector, while the Company's expenses have been relatively inelastic. A
downturn in general economic conditions could materially adversely affect the
Company's business and results of operations. In addition, shifts in the New
England economy between manufacturing and service sectors could materially
affect the Company's performance. The Company's operating revenues and
expenses have also fluctuated due to unpredictable events, such as adverse
weather conditions and customer plant closings. While generally the Company
has been able to replace revenues lost due to plant closings through expansion
of existing business or replacement with new customers, there can be no
assurance that it could do so in the future. The occurrence of such
unpredictable events in the future could cause further fluctuations in
operating revenues and expenses and materially adversely affect the Company's
financial performance. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
CUSTOMER CONCENTRATION
In 1997, the Company's 10 largest customers accounted for approximately
51.5% of the Company's operating revenues. The Company's business could be
materially adversely affected if any of these customers reduces shipments of
commodities transported by the Company. A significant customer that in 1997
accounted for 4.2% of the Company's operating revenues recently announced
plans to convert its manufacturing plant to a research and development
facility over the next four years, which is expected to reduce this customer's
rail shipments. Although in the past the Company has been able to replace
revenues lost due to a reduction in existing customers' rail service
requirements, no assurance can be given that it could do so in the future. See
"Business -- Customers."
POTENTIAL DELAYS OR COMPLICATIONS WITH REGIONAL DEVELOPMENT PROJECTS
The State of Rhode Island is developing a freight rail improvement project
for the construction of an additional rail line with double stack container
and tri-level auto rail car clearances on the Northeast Corridor from P&W's
main line in Central Falls, Rhode Island to Quonset/Davisville. Part of the
Company's growth strategy is dependent upon the proposed development of
Quonset/Davisville and the related freight rail improvement project. While the
Rhode Island electorate has approved the expenditure of $72 million for the
Quonset/Davisville project, of which $50 million is to fund the freight rail
improvement project and $22 million is to be invested in the industrial park,
numerous governmental approvals are required to complete the proposed
development, and there is no assurance that State funds will be expended as
planned. Furthermore, the State of Rhode Island's portion of the freight rail
improvement project ($50 million) is expected to be matched by federal
appropriations, and there can be no assurance that such funds will be
appropriated or that, if appropriated, the proposed development will be
completed as planned. Failure of the State of Rhode Island to complete the
Quonset/Davisville development (including the freight rail improvement
project) or unforeseen delays in the development could materially adversely
affect the growth of the Company's business. Moreover, there is no assurance
that the development, if completed as planned, will generate substantial
additional rail traffic for the Company.
The Company's growth strategy is also dependent upon other state and federal
development projects, including, but not limited to, the Commonwealth of
Massachusetts' $250 million highway reconstruction project
7
<PAGE>
and the State of Connecticut's project to restore rail access to the Port of
New Haven. No assurance can be given that such development projects will be
completed as or when planned and, if completed, will generate additional
business for the Company.
COMPETITION
For customers located directly on line, which constitute the majority of the
Company's freight business, the Company is the only rail carrier directly
serving them. However, the Company competes with other freight railroads in
the location of new rail-oriented businesses in the region. The Company also
competes with other modes of transportation, particularly long-haul trucking
companies. Any improvement in the cost or quality of these alternate modes of
transportation, for example, legislation granting material increases in truck
size or allowable weight, could increase this competition and materially
adversely affect the Company's business and results of operations. The Company
believes the acquisition of Consolidated Rail Corporation ("Conrail") and its
subsequent division between CSX Corporation ("CSX") and Norfolk Southern
Railroad ("Norfolk Southern"), approval of which is pending before the United
States Surface Transportation Board (the "STB"), may present expansion
opportunities for the Company. However, the Conrail transaction may lead to
increased competition with other freight railroads, particularly in
Massachusetts, as well as efforts by Conrail's acquirers to reduce revenues to
regional and short-line carriers. See "Business -- Competition."
AVAILABILITY OF ACQUISITION OPPORTUNITIES AND ASSOCIATED RISKS
The Company believes that its ability to grow depends, in part, upon its
ability to acquire additional connecting rail lines. In making acquisitions,
the Company competes with other short-line and regional rail operators, some
of which are larger and have greater financial resources than the Company. The
growing competition for such acquisitions may cause an increase in acquisition
prices and related costs, resulting in fewer attractive acquisition
opportunities, which could materially adversely affect the Company's growth.
The Company's ability to acquire additional rail properties and related assets
may also depend upon its ability to obtain financing on satisfactory terms.
Furthermore, acquisitions of additional rail lines may be subject to
regulatory review and approval by the STB. No assurance can be given that the
Company will be able to acquire suitable additional rail lines or that, if
acquired, the Company would be able to successfully operate such additional
rail lines. In addition, the Company anticipates that it will be classified as
a Class II railroad in 1999. Acquisitions made by Class II railroads are
subject to a requirement to pay up to one year of severance for employees
affected by an acquisition, which does not apply to acquisitions by Class III
railroads, the Company's current classification. The anticipated change in the
Company's classification could increase the costs of possible future
acquisitions.
SOUTH QUAY LITIGATION AND DEVELOPMENT
The Company has invested approximately $11 million in the development of
approximately 33 acres of reclaimed formerly tide flowed land in East
Providence, Rhode Island (the "South Quay"), which land is adjacent to 12
acres owned by the Company. The Company has obtained a judgment from the Rhode
Island Superior Court confirming the Company's fee simple absolute title in
the South Quay, which judgment has been appealed to the Rhode Island Supreme
Court by the State of Rhode Island and the Rhode Island Coastal Resources
Management Council (the "Coastal Council"). The Company anticipates that the
Rhode Island Supreme Court will not issue a decision in the case until 1999.
Failure of the Rhode Island Supreme Court to confirm P&W's title in the South
Quay could materially adversely affect the Company's ability to develop this
property. Moreover, regardless of the outcome, the pending litigation is
likely to delay any commercial development of the property and to result in
increased legal expenses to the Company. See "Business -- Legal Proceedings."
In addition, P&W currently plans to develop the South Quay as an intermodal
facility but may not be able to attract an adequate level of investment or
user commitment to permit commercial development for such use. Furthermore,
certain types of commercial development of the South Quay would be subject to
extensive
8
<PAGE>
permitting requirements by regulatory agencies, including the Coastal Council.
If the Company is unable to attract adequate investment or user commitments or
is unable to obtain the financing or permits necessary to develop the
property, the Company may not realize a return on its investment and could
incur a non-recurring charge to earnings based on any reduction in the
realizable value of the property. See "Business -- Business Strategy."
LABOR ISSUES
Substantially all of the Company's non-management employees are represented
by national railroad labor organizations. The Company's collective bargaining
agreements with its unions are evergreen contracts which do not expire but may
be amended on or after June 1, 1998 for the United Transportation Union,
December 31, 1999 for the Transportation Communication Union and July 1, 2000
for the Brotherhood of Railroad Signalmen. The Company's inability to
satisfactorily conclude negotiations with the unions could materially
adversely affect the Company's operations and financial performance.
Similarly, any protracted work stoppages against the Company's connecting
railroads could materially adversely affect the Company's business and results
of operations. Historically, Congress has intervened in such events to avoid
disruptions in interstate commerce, but there can be no assurance that it
would do so in the future.
All railroad industry employees are covered by the Railroad Retirement Act
and the Railroad Unemployment Insurance Act in lieu of Social Security and
other federal and state unemployment insurance programs, and the Federal
Employers Liability Act in lieu of state workers' compensation. Significant
increases in the taxes payable pursuant to the Railroad Retirement Act would
increase the Company's costs of operations. See "Business -- Employees."
RELATIONSHIPS WITH OTHER RAILROADS
The railroad industry in the United States is dominated by a small number of
large Class I carriers that have substantial market control and negotiating
leverage. A majority of the Company's carloadings is interchanged with a Class
I carrier, Conrail. A decision by Conrail, or its proposed acquirers, CSX and
Norfolk Southern, to discontinue transporting certain commodities or to use
alternate modes of transportation, such as motor carriers, would materially
adversely affect the Company's business. See "Business -- Industry Overview."
The Company's ability to provide rail service to its customers depends in
large part upon its ability to maintain cooperative relationships with all its
connecting carriers with respect to, among other matters, freight rates, car
supply, interchange and trackage rights. A deterioration in the operations of,
relationships with or service provided by those connecting carriers could
materially adversely affect the Company's business.
AVAILABILITY OF GOVERNMENT PROGRAMS
In the past, the Company has worked with federal and state agencies to
improve its rail infrastructure and has been effective in obtaining federal
and state financial support for such projects. However, there can be no
assurance that such federal and state programs or funds will be available in
the future or that the Company will be eligible to participate in such
programs. Failure to participate in federal and state programs or to receive
federal or state funding for rail infrastructure improvements would cause the
Company to incur the full cost of rail infrastructure improvements and
significantly increase its costs of rail maintenance. See "Business --Business
Strategy."
POTENTIAL FOR INCREASED GOVERNMENTAL REGULATION AND MANDATED UPGRADE TO
PROPERTY
The Company is subject to governmental regulation by the STB, the Federal
Railroad Administration (the "FRA") and other federal, state and local
regulatory authorities with respect to certain rates and railroad operations,
as well as a variety of health, safety, labor, environmental and other
matters, all of which could potentially affect the competitive position and
profitability of the Company. Management of the Company believes that the
regulatory freedoms granted by the Staggers Rail Act of 1980 (the "Staggers
Rail Act") have been beneficial to the Company by giving it flexibility to
adjust prices and operations to respond to market forces and industry changes.
However, various interests, and certain members of the United States House of
9
<PAGE>
Representatives and Senate (which have jurisdiction over the federal
regulation of railroads), have from time to time expressed their intention to
support legislation that would eliminate or reduce significant freedoms
granted by the Staggers Rail Act. If enacted, these proposals, or court or
administrative rulings to the same effect under current law, could materially
adversely affect the Company's business and results of operations.
The Company anticipates that its STB classification as a Class III railroad
will change to Class II in 1999, which may require the Company to comply with
any future safety mandates on more accelerated timetables than apply to Class
III railroads.
As a result of the planned introduction of high speed passenger service on
the Northeast Corridor, the FRA has issued a proposed order requiring that all
locomotives operating on the Northeast Corridor between New Haven, Connecticut
and Boston, Massachusetts be equipped with automatic civil speed enforcement
systems, the cost of which is anticipated to be at least $45,000 per
locomotive. The proposed order does not address whether the federally funded
high speed project or the Company would bear the costs of required locomotive
retrofits. While federal funding has been provided in the past to implement
mandated improvements relating to the high speed project, there can be no
assurance that funding for such mandates will be provided in the future. The
introduction of new unfunded mandates for equipment retrofit or other physical
plant requirements could materially adversely affect the Company's results of
operations.
CASUALTY LOSSES
The Company has obtained insurance coverage for losses arising from personal
injury and for property damage in the event of derailments or other accidents
or occurrences. The Company believes that its insurance coverage is adequate
based on its experience. However, under catastrophic circumstances such as
accidents involving passenger trains or spillage of hazardous materials, the
Company's liability could exceed its insurance limits. The Company transports
hazardous chemicals throughout its system and conducts operations on the
Northeast Corridor on which there is heavy passenger traffic. Insurance is
available from only a limited number of insurers, and there can be no
assurance that insurance protection at the Company's current levels will
continue to be available or, if available, will be obtainable on terms
acceptable to the Company. Losses or other liabilities incurred by the Company
which are not covered by insurance or which exceed the Company's insurance
limits could materially adversely affect the Company's financial condition,
liquidity and results of operations.
CONCENTRATION OF OWNERSHIP
Immediately following this Offering, Robert H. Eder, the Company's Chairman
and Chief Executive Officer and the Principal Shareholder, together with his
wife, will own of record 29.1% of the outstanding Common Stock (24.6% assuming
exercise in full of the Underwriters' over-allotment option) and 77% of the
Preferred Stock. Holders of Preferred Stock are entitled to elect two-thirds
of the Company's Board of Directors and to vote separately as a class on all
other matters voted on by shareholders. Consequently, the Principal
Shareholder will continue to be able to exercise effective control over most
corporate actions and outcomes of matters requiring a shareholder vote,
including the election of directors. See "Principal and Selling Shareholders"
and "Description of Capital Stock."
ENVIRONMENTAL MATTERS
The Company's railroad operations and real estate ownership are subject to
extensive federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters and
the handling, storage, transportation and disposal of waste and other
materials. The Company transports hazardous materials and periodically uses
hazardous materials in its operations. While the Company believes it is in
substantial compliance with all applicable environmental laws and regulations,
any allegations or findings to the effect that the Company had violated laws
or regulations could materially adversely affect the Company's business and
results of operations. The Company operates on properties that have been used
for rail operations for over a century. There can be no assurance that
historic releases of hazardous waste or materials will not be
10
<PAGE>
discovered, requiring remediation of Company properties and that the costs of
such remediation would not be material. See "Business -- Environmental
Matters."
RELIANCE ON KEY PERSONNEL
The Company's success is dependent on certain management and personnel,
including Robert H. Eder, its Chairman and Chief Executive Officer, and
Orville R. Harrold, its President and Chief Operating Officer. The loss of the
services of one or both of these executives could materially adversely affect
the Company's business and results of operations. While the Company believes
that it would be able to locate suitable replacements for these executives,
there can be no assurance it would be able to do so. The Company does not have
employment agreements with these executives and does not maintain any key
person life insurance. See "Management."
ANTI-TAKEOVER MEASURES; POTENTIAL ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER
PROVISIONS
The Company is subject to the Rhode Island Business Combination Act which,
except for certain limited exceptions, prohibits business combinations
involving certain shareholders of publicly held corporations for a period of
five years after such shareholders acquire 10% or more of the outstanding
voting stock of the corporation.
P&W was specially chartered by an act of the Rhode Island General Assembly.
The Company's charter provides that one-third of the Board is elected by the
holders of Common Stock and the remainder are elected by the holders of
Preferred Stock. This provision, although intended to help assure the
stability and continuity of the Company's governance, may have the effect of
making an acquisition of the Company more difficult. See "Description of
Capital Stock."
YEAR 2000 COMPLIANCE
The Company has substantially completed modification of its computer systems
to address the Year 2000 issue. However, the Company relies, in part, on data
generated by other railroads. While the Company believes that it will be able
to address the problems, if any, generated by such other railroads' failure to
account for the Year 2000 issue, there can be no assurance that the Company
will be able to do so without disruption to its operations or that any such
disruption would not be material. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have outstanding an
aggregate of 3,422,830 shares of Common Stock. An aggregate of 3,219,984 of
such shares will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless owned by "affiliates" of the Company, as that term is defined in
Rule 144 under the Securities Act. Sales of a substantial number of previously
issued shares of Common Stock in the public market following this Offering
could materially adversely affect the market price of the Common Stock. The
Company, its executive officers and directors and certain principal
shareholders, who after this Offering will own in the aggregate approximately
1,310,000 shares of Common Stock, have agreed that for a period of 180 days
(90 days in the case of the Selling Shareholder) after the date of this
Prospectus, they will not, subject to certain exceptions, directly or
indirectly offer, sell, announce an intention to sell, contract to sell or
otherwise dispose of any Common Stock without the prior written consent of
Advest, Inc. Certain shareholders have the right, subject to limitations, to
require the Company to register for sale to the public all or a portion of the
Common Stock held by them. See "Shares Eligible for Future Sale."
11
<PAGE>
THE COMPANY
P&W, a Rhode Island corporation, is a regional freight railroad operating in
Massachusetts, Rhode Island, Connecticut and New York over approximately 515
miles of track. Originally incorporated in 1844 by legislative charter, the
Company operated independently from 1847 to 1888, at which time its rail
system was leased to a predecessor of the New York, New Haven and Hartford
Railroad. It remained under lease until 1973, when it commenced independent
operations over 45 miles of trackage between Central Falls, Rhode Island and
Worcester with a branch to East Providence, Rhode Island. Since 1973, the
Company has experienced steady expansion through a series of strategic
acquisitions of rail properties and trackage rights.
In 1974, P&W purchased a line extending from Worcester to Gardner,
Massachusetts to afford the Company an additional interline connection. Also
in 1974, P&W gained the right to serve customers between Central Falls and
Providence, Rhode Island. In 1976, the Company acquired a portion of the
Groton, Connecticut to Worcester main line extending south from Worcester to
Plainfield, Connecticut, and two branch lines extending from this line. In
1980, P&W acquired the rest of the Groton to Worcester main line from
Plainfield to Groton.
The Company acquired the Warwick Railroad in 1980 and the Moshassuck Valley
Railroad in 1981. In 1982, P&W acquired all of the lines and operating rights
of Conrail in Rhode Island and Conrail's exclusive freight easement on
Amtrak's Northeast Corridor from the Massachusetts/Rhode Island border to Old
Saybrook, Connecticut. As a result of the 1982 acquisition, P&W became the
only interstate rail freight carrier in Rhode Island.
In 1991, the Company acquired the exclusive freight easement on the
Northeast Corridor from Old Saybrook to New Haven and two branch lines within
the City of New Haven, including the line servicing the Port of New Haven. In
1993, the Company acquired a portion of Conrail's Middletown Secondary line
extending from Wallingford, Connecticut to New Haven. The Company also
acquired freight service rights on segments of the Waterbury branch and the
Danbury branch, both lines owned by the State of Connecticut, as well as
trackage rights over the Maybrook Secondary line between Derby and Danbury,
Connecticut and the Northeast Corridor between New Haven and South Norwalk,
Connecticut. This transaction enabled the Company to significantly expand its
construction aggregate hauling business and led to P&W's acquisition in 1996
of the exclusive right to handle the transport of construction aggregate
between three quarries operated by Tilcon Connecticut, Inc. located in
Wallingford, Wauregan and Branford, Connecticut to Fresh Pond Junction on Long
Island, New York.
From 1980 through 1987, the Company was a wholly-owned subsidiary of Capital
Properties, Inc., a publicly held corporation ("Capital Properties"). On
January 1, 1988, through a series of transactions, the shareholders of Capital
Properties received, as a distribution with respect to each share of Capital
Properties capital stock held, one share of the Common Stock and one share of
the Company's Preferred Stock, and Capital Properties ceased to have any
ownership interest in the Company. Upon completion of the transactions, the
Company became an independent, publicly-held corporation. See "Use of
Proceeds" and "Certain Transactions."
The Company's principal executive offices are located at 75 Hammond Street,
Worcester, Massachusetts 01610. The Company's telephone number is (508) 755-
4000.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the Common
Stock offered hereby at an assumed offering price of $17.375 per share, after
deducting underwriting discounts and estimated expenses, are expected to be
approximately $15.5 million. Of such proceeds, approximately $2.0 million will
be used to purchase gondola rail cars and approximately $1.6 million will be
used to expand the Company's Worcester maintenance facility. See "Business--
Business Strategy." The remainder of the proceeds will be used to repay up to
approximately $11.7 million in indebtedness and for capital expenditures,
working capital and general corporate purposes. The foregoing represents
estimates, and the actual amount and timing of such use of proceeds will
depend upon numerous factors. Pending application of the proceeds, the net
proceeds of this Offering will be invested in investment grade, short-term
debt instruments. The Company will not receive any proceeds from the sale of
shares by the Selling Shareholder or by the Principal Shareholder pursuant to
the over-allotment option.
The Company intends to retire its outstanding debt obligations to Capital
Properties, CIT Group, Inc. ("CIT") and Massachusetts Capital Resource Company
("MCRC"). The Company's indebtedness to Capital Properties arose out of the
separation of the Company from Capital Properties, its former parent. See
"Certain Transactions." At March 2, 1998, the total principal due on the note
to Capital Properties was approximately $4.0 million. The note bears interest
at the rate of 10% per annum and matures on December 31, 2007. There is no
prepayment penalty. The Company's indebtedness to CIT arises out of equipment
financing and has a current principal balance of approximately $3.2 million.
This debt bears interest at a rate of 8.69% per annum and is payable in
monthly installments until June 2003. At March 2, 1998, the estimated
prepayment penalty was approximately $32,000.
MCRC, a private investment fund, provided P&W with $5.0 million in financing
in December 1995, for which the Company issued a subordinated note (the "MCRC
Note"), which bears interest at the rate of 10% per annum and is payable in
quarterly installments with a maturity date of December 31, 2005. In
connection with the financing, the Company also issued to MCRC warrants for
the purchase of up to 200,000 shares of Common Stock at an exercise price of
$7.10 per share (the "MCRC Warrants"). Upon the completion of this Offering at
an assumed offering price of $17.375, pursuant to the terms of the MCRC Note
and the MCRC Warrants, MCRC must apply $1.4 million of the amount due under
the MCRC Note toward the exercise of the MCRC Warrants. P&W intends to repay
the remaining balance due on the MCRC Note, in the principal amount of $3.6
million, with the proceeds of this Offering. At March 2, 1998, the estimated
prepayment penalty was $288,000, assuming the exercise of the MCRC Warrants.
The Company owes Bestfoods (formerly named CPC International, Inc.) $220,000
plus interest at the rate of 8.75% per annum (approximately $262,000 in total)
under a 1995 Settlement Agreement relating to an environmental claim, which
will be due and payable upon closing of this Offering.
13
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is quoted on the AMEX under the symbol "PWX." Prior to
March 5, 1997, the Common Stock was traded on The Nasdaq National Market
("NASDAQ") under the symbol "PWRR." The following table sets forth, for the
periods indicated, the high and low sale price per share for the Common Stock
as reported on the AMEX and NASDAQ. Also included are dividends paid per share
of Preferred Stock and Common Stock during these quarterly periods.
<TABLE>
<CAPTION>
COMMON STOCK
TRADING PRICES DIVIDENDS PAID
--------------- ----------------
HIGH LOW PREFERRED COMMON
------- ------- --------- ------
<S> <C> <C> <C> <C>
1996
First Quarter................................ $ 8 1/2 $ 6 3/4 $ -0- $ -0-
Second Quarter............................... 8 1/2 7 1/2 5.00 .05
Third Quarter................................ 8 1/2 6 1/2 -0- -0-
Fourth Quarter............................... 8 6 1/2 -0- .05
1997
First Quarter................................ 10 3/8 7 1/2 5.00 -0-
Second Quarter............................... 12 1/2 9 3/4 -0- .06
Third Quarter................................ 14 1/4 10 5/8 -0- -0-
Fourth Quarter............................... 22 1/4 13 1/4 -0- .06
1998
First Quarter (through February 27, 1998).... 18 7/8 15 5/8 5.00 .03
</TABLE>
On February 27, 1998, the last reported sale price of the Common Stock on
the AMEX was $17.375 per share. As of February 27, 1998, there were
approximately 700 holders of record of the Common Stock.
The Company has paid semi-annual dividends on the Common Stock and an annual
non-cumulative 10% dividend on the Preferred Stock since 1989. The non-
cumulative Preferred Stock dividend is fixed by the Company's Charter at the
rate of $5.00 per share per year, out of funds legally available for the
payment of dividends. In 1997, the Company raised its Common Stock dividend
20%, from $.05 a share semi-annually to $.06 a share. At a meeting of the
Board of Directors held January 28, 1998, the Board modified the Company's
dividend policy to pay a $.03 per share dividend on the Common Stock
quarterly. Although the Board of Directors presently anticipates continuing
this policy, the declaration of cash dividends on the Common Stock will be at
the discretion of the Board of Directors based on the Company's earnings,
financial condition, capital requirements and other relevant factors,
including applicable law and any restrictions set forth in credit facilities
entered into by the Company. Currently, the terms of the MCRC Note (which the
Company intends to repay with the proceeds of this Offering) limit dividend
payments to 25% of the Company's net income.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at December
31, 1997 and as adjusted to give effect to this Offering at an assumed
offering price of $17.375 per share and the application of the net proceeds
therefrom; and to reflect the exercise of the MCRC Warrants through the
cancellation of $1.4 million of the MCRC Note. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations --Liquidity and Capital Resources" and the Company's audited
financial statements of the Company and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
---------- ------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt........................................ $ 2,281 $ 772
---------- ----------
Long-term debt, less current portion................... 11,916 562
---------- ----------
Shareholders' equity:
Preferred Stock, $50 par value, 6,817 shares authorized
(653 as adjusted)(a); 653 shares issued and outstand-
ing at December 31, 1997.............................. 33 33
Common Stock, $.50 par value, 3,023,436 shares autho-
rized (15,000,000 as adjusted) (a); 2,221,933 shares
issued and outstanding at December 31, 1997 and
3,421,933 as adjusted ................................ 1,111 1,711
Additional paid-in capital............................. 6,665 22,994
Retained earnings...................................... 30,229 29,983
---------- ----------
Total shareholders' equity............................. 38,038 54,721
---------- ----------
Total capitalization................................... $ 52,235 $ 56,055
========== ==========
</TABLE>
- --------
(a) The Company's shareholders have approved an amendment to the Company's
Charter to decrease the Company's authorized Preferred Stock to 653 shares
and to increase the Company's authorized Common Stock to 15,000,000
shares, which amendment will become effective prior to completion of this
Offering.
15
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below with respect to the Company's
statements of income for each of the three years in the period ended December
31, 1997, and with respect to the balance sheets at December 31, 1996 and
1997, are derived from the financial statements that have been audited by
Deloitte & Touche LLP, independent auditors, and which are included elsewhere
in this Prospectus. The statement of income data for the years ended December
31, 1993 and 1994, and the balance sheet data at December 31, 1993, 1994 and
1995 are derived from audited financial statements not included herein. The
data should be read in conjunction with the Company's audited financial
statements and notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the other information
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues......... $ 18,657 $ 20,292 $ 19,778 $ 19,456 $ 22,083
Operating expenses......... 16,336 17,202 17,677 17,714 18,333
-------- -------- -------- -------- --------
Income from operations..... 2,321 3,090 2,101 1,742 3,750
Other income............... 707 1,206 581 1,660 638
Interest expense........... (1,353) (1,285) (1,175) (1,371) (1,358)
-------- -------- -------- -------- --------
Income before income
taxes..................... 1,675 3,011 1,507 2,031 3,030
Provision for income
taxes..................... 570 1,200 590 780 1,100
-------- -------- -------- -------- --------
Net income................. 1,105 1,811 917 1,251 1,930
Preferred Stock dividend... 32 31 3 3 3
-------- -------- -------- -------- --------
Net income available to
common shareholders....... $ 1,073 $ 1,780 $ 914 $ 1,248 $ 1,927
======== ======== ======== ======== ========
Basic income per share..... $ 0.76 $ 0.99 $ 0.45 $ 0.57 $ 0.87
======== ======== ======== ======== ========
Diluted income per share... $ 0.54 $ 0.87 $ 0.43 $ 0.54 $ 0.81
======== ======== ======== ======== ========
Weighted average shares--
basic(a).................. 1,406 1,796 2,043 2,178 2,209
======== ======== ======== ======== ========
Weighted average shares--
diluted(a)................ 2,042 2,077 2,136 2,461 2,489
======== ======== ======== ======== ========
Cash dividends declared on
Common Stock.............. $ 141 $ 173 $ 205 $ 218 $ 267
======== ======== ======== ======== ========
<CAPTION>
AT DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets............... $ 60,706 $ 61,496 $ 68,012 $ 68,491 $ 71,212
Short-term debt............ 1,590 758 612 2,117 2,281
Long-term debt, less
current portion........... 11,378 10,485 12,977 12,131 11,916
Shareholders' equity....... 31,113 32,914 34,455 36,061 38,038
</TABLE>
- --------
(a) The income per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Accounting Standards No. 128,
"Earnings per Share." See Note 1 to the Company's audited financial
statements included elsewhere in this Prospectus.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
audited financial statements and notes thereto included elsewhere in this
Prospectus.
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
The Company is a regional freight railroad operating in Massachusetts, Rhode
Island, Connecticut and New York.
The Company generates operating revenues primarily from the movement of
freight in both conventional freight cars and in intermodal containers on flat
cars over its rail lines. Freight revenues are recorded at the time delivery
is made to the customer or the connecting carrier. Modest non-freight
operating revenues are derived from demurrage, switching, weighing, special
train and other transportation services as well as from services rendered to
freight customers and other outside parties by the Company's Maintenance of
Way, Communications and Signals and Maintenance of Equipment Departments.
Operating revenues also include amortization of deferred grant income.
The Company's operating expenses consist of salaries and wages and related
payroll taxes and employee benefits, depreciation, insurance and casualty
claim expense, diesel fuel, car hire, property taxes, materials and supplies,
purchased services and other expenses. Many of the Company's operating
expenses are of a relatively fixed nature and do not increase or decrease
proportionately with increases or decreases in operating revenues unless the
Company's management takes specific actions to restructure the Company's
operations.
When comparing the Company's results of operations from one year to another,
the following factors should be taken into consideration. First, the Company
has historically experienced fluctuations in operating revenues and expenses
due to unpredictable events such as one-time freight moves and customer plant
expansions and shut-downs. Second, the Company's freight volumes are
susceptible to increases and decreases due to changes in national and regional
economic conditions.
The Company also generates income through sales of properties, grants of
easements and licenses and leases of land and tracks. Income or loss from
sale, condemnation and disposal of property and equipment and grants of
easements is recorded at the time the transaction is consummated and
collectibility is assured. This income varies significantly from year to year.
Over the last ten years, such income has ranged from a low of $460,000 to a
high of $2.6 million with an annual average over this period of $1.3 million.
The Company has one customer, Tilcon Connecticut, Inc., which accounted for
approximately 12.1%, 12.6% and 15.1% of its operating revenues in 1995, 1996
and 1997, respectively. The Company does not believe that this customer will
cease to be a rail shipper or will significantly decrease its freight volume
in the foreseeable future. In the event that this customer should cease or
significantly reduce its rail freight operations, management believes that the
Company could restructure its operations to reduce operating costs by an
amount sufficient to offset the decrease in operating revenues.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the Company's operating revenues by category
in dollars and as a percentage of operating revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Freight Revenues:
Conventional carloads........... $17,352 87.7% $17,050 87.6% $19,001 86.0%
Containers...................... 1,524 7.7 1,508 7.8 1,675 7.6
Non-Freight Operating Revenues:
Transportation services......... 528 2.7 455 2.3 632 2.9
Other........................... 374 1.9 443 2.3 775 3.5
------- ----- ------- ----- ------- -----
Total......................... $19,778 100.0% $19,456 100.0% $22,083 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
The following table sets forth conventional carload freight revenues by
commodity group in dollars and as a percentage of such revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1996 1997
------------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Chemicals and plastics............ $ 7,548 43.5% $ 7,366 43.2% $ 8,000 42.1%
Construction aggregate............ 3,054 17.6 3,086 18.1 3,762 19.8
Food and agricultural products.... 3,019 17.4 2,864 16.8 2,831 14.9
Forest and paper products......... 2,308 13.3 2,319 13.6 2,546 13.4
Scrap metal and waste............. 538 3.1 477 2.8 969 5.1
Other............................. 885 5.1 938 5.5 893 4.7
------- ----- ------- ----- ------- -----
Total......................... $17,352 100.0% $17,050 100.0% $19,001 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
The following table sets forth a comparison of the Company's operating
expenses expressed in dollars and as a percentage of operating revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1995 1996 1997
------------- ------------- ------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C>
Salaries, wages, payroll taxes and
employee benefits................ $ 9,997 50.6% $10,686 54.9% $11,023 49.9%
Casualties and insurance.......... 1,373 6.9 800 4.1 572 2.6
Depreciation...................... 1,790 9.1 1,940 10.0 2,054 9.3
Diesel fuel....................... 522 2.6 656 3.4 708 3.2
Car hire, net..................... 708 3.6 605 3.1 598 2.7
Purchased services, including
legal and professional fees...... 1,749 8.8 1,213 6.2 1,762 8.0
Repairs and maintenance of
equipment........................ 714 3.6 687 3.5 943 4.3
Track and signal materials........ 1,877 9.5 1,257 6.4 1,866 8.4
Other materials and supplies...... 796 4.0 848 4.4 1,012 4.6
Other............................. 1,302 6.6 1,318 6.8 1,325 6.0
------- ----- ------- ----- ------- ----
Total............................ 20,828 105.3 20,010 102.8 21,863 99.0
Less capitalized and recovered
costs........................... 3,151 15.9 2,296 11.8 3,530 16.0
------- ----- ------- ----- ------- ----
Total......................... $17,677 89.4% $17,714 91.0% $18,333 83.0%
======= ===== ======= ===== ======= ====
</TABLE>
18
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Operating Revenues
Operating revenues increased $2.6 million, or 13.5%, to $22.1 million in
1997 from $19.5 million in 1996. This increase was comprised of a $2.0 million
(11.4%) increase in conventional freight revenues, a $167,000 (11.1%) increase
in net container freight revenues and a $509,000 (56.7%) increase in non-
freight operating revenues.
The increases in conventional and container freight revenues were primarily
the result of increases in freight traffic volume. The Company's conventional
freight carloadings increased by 3,806, or 14.0%, to 31,047 carloadings in
1997 from 27,241 in 1996. Total intermodal containers handled increased by
3,707, or 9.3%, to 43,408 containers in 1997 from 39,701 in 1996. Average
revenue per conventional carloading decreased slightly, principally due to a
shift in the relative volume of commodities handled toward construction
aggregate, which commands a comparatively lower freight rate. The average rate
received per intermodal container increased slightly due to rate increases
attributable to increases in certain railroad industry cost indices.
The Company experienced increases in shipments by many of the Company's
freight customers, attributable primarily to improved national and regional
economic conditions as well as the Company's marketing efforts. The increase
also reflected the addition of several new customers utilizing the Company's
rail services.
The $509,000 increase in non-freight operating revenues resulted primarily
from increases in Maintenance of Way Department billings and from special
train and other transportation revenues. Such revenues can vary significantly
from year to year depending upon customer needs.
Operating Expenses
Operating expenses increased $619,000, or 3.5%, to $18.3 million in 1997
from $17.7 million in 1996. Operating expenses as a percentage of operating
revenues ("operating ratio"), however, decreased to 83.0% in 1997 from 91.0%
in 1996. The small increase in operating expenses and the decrease in the
operating ratio were attributable to the relatively fixed nature of the
Company's operating expenses and the fact that capitalized costs for track and
bridge projects as well as costs recovered from government grants for public
improvements, such as surfacing and signals for grade crossings, increased
$1.2 million, or 53.7%, to $3.5 million in 1997 from $2.3 million in 1996.
Casualties and insurance expense decreased $228,000, or 28.5%, to $572,000
in 1997 from $800,000 in 1996, principally due to the absence of any
expenditures in 1997 for casualty losses in excess of amounts previously
reserved. Casualty loss expense was $171,000 in 1996.
Purchased services and track and signal materials expense increased $1.2
million, or 46.9%, to $3.6 million in 1997 from $2.5 million in 1996. This
increase was primarily attributable to the increased capital projects and cost
recovery programs carried out in 1997.
Other Income
Other income decreased $1.0 million, or 61.6%, to $638,000 in 1997 from $1.7
million in 1996, due primarily to a decrease in net gains from the sale,
condemnation and disposal of properties and easements. The 1996 amount
reflected a $1.0 million condemnation award.
Interest Expense
Interest expense was virtually unchanged between 1996 and 1997. Interest on
approximately $730,000 of debt incurred to finance the acquisition of three
locomotives during the second quarter of 1997 was essentially offset by
interest reductions resulting from principal payments on existing
indebtedness.
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Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Operating Revenues
Operating revenues decreased $322,000, or 1.6%, to $19.5 million in 1996
from $19.8 million in 1995. This decrease was comprised primarily of a
$302,000 (1.7%) decrease in conventional carload revenues. Other non-freight
operating revenues were virtually unchanged between the two years.
The decreases in conventional and container freight revenues were primarily
due to decreases in traffic volumes partially offset by higher average
revenues received per conventional carloading and per container. The Company's
conventional freight carloadings decreased 1,898, or 6.5%, to 27,241
carloadings in 1996 from 29,139 in 1995. Total intermodal containers handled
decreased 1,510, or 3.7%, to 39,701 in 1996 from 41,211 in 1995. Increases in
the average revenue received per conventional carloading were primarily due to
a change in the mix of commodities toward higher revenue items while the
increase in the average revenue received per container resulted from rate
increases tied to increases in certain railroad industry cost indices.
The decreases in both carload and container traffic volume in 1996 from 1995
were attributable to an economic slowdown which first became apparent late in
the third quarter of 1995. Adverse weather conditions in the first quarter of
1996 also contributed to the decline in traffic. During the third quarter of
1996, as a result of improving economic conditions, conventional traffic
volume began to return to 1995 levels. Conventional traffic volume for the
fourth quarter of 1996 exceeded the prior year's level by 7.0% and, as
previously noted, these higher traffic levels carried forward into 1997.
Operating Expenses
Operating expenses remained relatively stable at approximately $17.7 million
in 1995 and 1996. The operating ratio increased in 1996 to 91.0% from 89.4% in
1995.
Casualties and insurance expense decreased $573,000, or 41.7%, to $800,000
in 1996 from $1.4 million in 1995. This decrease was primarily attributable to
a decrease in the cost of casualty and environmental claims, which decreased
$557,000 to $171,000 in 1996 from $728,000 in 1995. The high level of claims
in 1995 was attributable to a large environmental claim that was settled
during that year.
Purchased services and track and signal materials expense decreased $1.1
million, or 31.9%, to $2.5 million in 1996 from $3.6 million in 1995. This
decrease was attributable to a lower level of capital projects and cost
recovery programs carried out during 1996.
Other Income
Other income increased $1.1 million, or 185.7%, to $1.7 million in 1996 from
$581,000 in 1995 due to substantially higher net gains realized from the sale,
condemnation and disposal of properties and easements. In 1996, the Company
received $1.0 million from the State of Rhode Island's condemnation of an
abandoned rail line.
Interest Expense
Interest expense increased $196,000, or 16.7%, to $1.4 million in 1996 from
$1.2 million in 1995. This increase was principally the result of interest on
the subordinated note payable to MCRC, in the principal amount of $5.0
million, which originated in December 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has relied primarily on cash generated from operations to fund
working capital and capital expenditures relating to ongoing operations, while
relying on borrowed funds to finance acquisitions and equipment needs,
primarily rolling stock. The Company generated $3.2 million, $1.5 million and
$3.5 million of cash from operations in 1995, 1996 and 1997, respectively. The
Company's total cash and cash
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equivalents increased by $1.4 million in 1995, but decreased by $1.3 million
and $167,000 in 1996 and 1997, respectively. The principal utilization of cash
during the three-year period was for expenditures for property and equipment
acquisitions, principal payments on long-term debt obligations, reduction of
current liabilities and payment of dividends.
During 1995, 1996 and 1997, the Company generated approximately $108,000,
$1.3 million and $230,000, respectively, from the sales and disposals of
properties not considered essential for railroad operations and from
easements, including the $1.0 million condemnation award received in 1996. The
Company holds various properties which could be made available for sale,
lease, license or grants of easements. Revenues from sales of properties and
easements can vary significantly from year to year.
Substantially all of the mainline track owned by the Company meets FRA Class
3 standards (permitting freight train speeds of 40 miles per hour), and the
Company intends to continue to maintain this track at this level. The Company
expended $1.7 million, $1.9 million and $2.5 million for track structure and
bridge improvements in 1995, 1996 and 1997, respectively. Deferred grant
income in the amount of $785,000 in 1995, $671,000 in 1996 and $935,000 in
1997 financed a portion of these improvements. In addition, the Company
received $588,000 of grant proceeds in 1997 to purchase track materials for a
three-year track improvement project commenced in 1997, which the Company
expects to complete by 2000. The track materials were purchased during 1997
and are included in "materials and supplies" on the accompanying balance sheet
as of December 31, 1997. Management estimates that approximately $2.0 million
of improvements to the Company's track structure and bridges will be made in
1998, provided that sufficient funds, including grant proceeds, are available.
Improvements to the Company's track structure are made, for the most part, by
the Company's Maintenance of Way Department personnel.
The Company acquired and renovated three used locomotives during the second
quarter of 1997 at a total cost of $730,000, financed through long-term
borrowings from a commercial lender. Expenditures incurred on this project are
included as expenditures for equipment additions in the accompanying
statements of cash flows.
The Company's principal bank renewed the Company's revolving line of credit
in June 1997 and increased the maximum borrowings allowed from $1.5 million to
$1.8 million. Loans in the amount of $1.4 million were outstanding under this
line of credit as of December 31, 1997. The average interest rate for 1997 was
9.3%.
The Company obtained $5.0 million from MCRC in December 1995 in exchange for
a 10% subordinated note and warrants to purchase 200,000 shares of the
Company's Common Stock at an exercise price of $7.10 per share. A portion of
the proceeds was utilized to repay the outstanding principal balance on a $1.8
million term note. The remaining proceeds have been used for additions to
property and equipment and for working capital purposes. MCRC must apply $1.4
million of the amount due on the MCRC note toward the exercise of the MCRC
warrants upon the Company's consummation of a public offering of its Common
Stock at a purchase price of not less than $14.20 per share which results in
gross proceeds to the Company of not less than $10 million.
At December 31, 1997, the Company had long-term senior debt and subordinated
debt outstanding totaling $12.8 million, of which $931,000 is due within one
year. Comparable figures at December 31, 1996 were $12.8 million and $677,000,
respectively.
The Company concluded an agreement in October 1997 to acquire all of the
outstanding stock of Connecticut Central Railroad Company ("Conn Central") in
exchange for shares of Common Stock. The Company expects to complete this
acquisition during the second quarter of 1998. Management is not able to
predict the total impact of this acquisition upon future operations but
estimates that rail freight revenues from existing customers of Conn Central
will total approximately $500,000 per year at the current level of operations.
In addition, management intends to pursue additional growth opportunities that
may be available on these lines.
In 1997, the Company paid dividends in the amount of $5.00 per share on its
outstanding Preferred Stock and $0.12 per share on its outstanding Common
Stock. Continued payment of such dividends is contingent upon the Company's
continuing to have the necessary financial resources available and is limited
by the MCRC agreement to 25% of the Company's net income.
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The Company believes that expected cash flows from operating activities and
cash flows from financing activities will be sufficient to fund the Company's
capital requirements for at least the next 12 months. To the extent that the
Company is successful in consummating acquisitions or implementing its
expansion plans, it may be necessary to finance such acquisitions or expansion
plans through the issuance of additional equity securities, incurrence of
indebtedness or both.
INFLATION
In recent years, inflation has not had a significant impact on the Company's
operations.
SEASONALITY
Historically, the Company's operating revenues are lowest for the first
quarter due to the absence of aggregate shipments during this period and to
winter weather conditions.
YEAR 2000 COMPLIANCE
The Company operates a mainframe computer with a PC network and employs
three in-house programmers who write and maintain a substantial portion of the
Company's software programs. The Company utilizes Electronic Data Interchange
and Interline Settlement Systems through Railinc in Washington, D.C. for the
interchange of rail cars and revenue allocations with other railroads. The
Company has compatible back up mainframe systems at both its Worcester,
Massachusetts and Plainfield, Connecticut facilities.
Preparations for the year 2000 have been underway for six years and changes
to the Company's programs are substantially complete. Due to the short
periodic cycle of rail car movements, the exchange of data covers time periods
where "Year 2000" compliance is not a major factor and should not adversely
affect the Company's business. The Company does rely on waybills and car
supply and revenue data generated by other railroads in the interchange of
rail cars. The failure of these railroads to supply accurate data could
disrupt the Company's operations. Railinc has informed the Company that it is
currently addressing the Year 2000 issue and the Company believes that its
programs can be readily modified to accommodate any resulting changes which
may be required.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards of
related disclosures about products and services, geographic areas and major
customers. Both standards will be adopted by the Company during the first
quarter of 1998 and are not expected to have material effects on its financial
position and results of operations.
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BUSINESS
GENERAL
P&W is a regional freight railroad operating in Massachusetts, Rhode Island,
Connecticut and New York. The Company is the only interstate freight carrier
serving the State of Rhode Island and possesses the exclusive and perpetual
right to conduct freight operations over the Northeast Corridor between New
Haven, Connecticut and the Massachusetts/Rhode Island border. Since commencing
independent operations in 1973, the Company, through a series of acquisitions
of connecting lines, has grown from 45 miles of track to its current system of
approximately 515 miles. P&W operates the largest double stack intermodal
terminal facilities in New England in Worcester, a strategic location for
regional transportation and distribution enterprises.
The Company transports a wide variety of commodities for its customers,
including construction aggregate, iron and steel products, chemicals, lumber,
scrap metals, plastic resins, cement, processed foods and edible food stuffs,
such as frozen foods, corn syrup and animal and vegetable oils. Its customers
include The Dow Chemical Company, Exxon Corporation, Frito-Lay, Inc., General
Dynamics Corporation, Getty Petroleum Marketing Inc., International Paper
Company, Leggett & Platt, Incorporated, Mobil Oil Corporation, R.R. Donnelley
& Sons and Tilcon Connecticut, Inc. In 1997, P&W transported over 31,000
carloads of freight and over 43,000 intermodal containers, representing an
increase of 14.0% and 9.3%, respectively, over 1996 volumes. The Company also
generates income through sales of properties, grants of easements and licenses
and leases of land and tracks.
P&W's connections to multiple Class I railroads, either directly or through
connections with regional and short-line carriers, provide the Company with a
competitive advantage by allowing it to offer creative pricing and routing
alternatives to its customers. In addition, the Company's commitment to
maintaining its track and equipment to high standards enables P&W to provide
fast, reliable and efficient service.
INDUSTRY OVERVIEW
General
Railroads are divided into three classes based on operating revenues: Class
I, $255 million or more; Class II, $20.4 million to $255 million; and Class
III, less than $20.4 million. As a result of mergers and consolidations, there
are only nine Class I railroads in the country. These large systems handle 91%
of the nation's rail freight business.
The rail freight industry underwent a revitalization after the passage of
the Staggers Rail Act, which deregulated the pricing and types of services
provided by railroads. As a result, railroads were able to achieve significant
productivity gains and operating cost decreases while gaining pricing
flexibility. Rail freight service became more competitive with other
transportation modes with respect to both quality and price. The volume of
freight moved by rail has risen dramatically since 1980 and profitability has
improved significantly.
One result of the revitalization of the industry has been the growth of
regional (over 350 miles) and short-line railroads, which has been fueled by a
trend among Class I railroads to divest certain branch lines in order to focus
on their long-haul core systems. There are now more than 500 of these regional
and short-line railroads. They operate in all 50 states, account for over one-
fourth of all rail track, employ 11% of all rail workers and generate about 9%
of all rail revenue.
Generally, freight railroads handle two types of traffic: conventional
carloads and intermodal containers used in the shipment of goods via more than
one mode of transportation, e.g., by ship, rail and truck. By using a hub-and-
spoke approach to shipping, multiple containers can be moved by rails to and
from an intermodal terminal and then either delivered to their final
destinations by trucks or transferred to ships for export. Over the past
decade, commodity shippers have increasingly turned to intermodal
transportation principally as an alternative to long-haul trucking. The
development of new intermodal technology, which allows containers to be moved
by
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rail double stacked (i.e., stacked one on top of the other) in specially
designed railcars, together with increasing highway traffic congestion and the
shortage of long-haul truck drivers have contributed to this trend.
Breakup of Conrail
In October 1996, CSX and Conrail announced plans to merge. In response to
the merger announcement, Norfolk Southern announced a competing tender offer
to acquire Conrail. Subsequently, CSX and Norfolk Southern agreed to divide
Conrail and filed for approval of the transaction with the STB in June 1997.
Based upon management's review of publicly available information currently
included in the filing regarding the breakup of Conrail, CSX will acquire all
of Conrail's properties and operating rights in New England.
While the impact of the proposed merger on future traffic patterns and the
resultant effect on P&W's railroad operations are uncertain at this time, P&W
does not anticipate any significant negative impact as a result of the merger,
and believes that the merger may create additional business for the Company as
a result of longer Class I single line service on competitive routes.
Furthermore, the continued implementation of the North American Free Trade
Agreement is expected to increase trade between the northeast and South
American manufacturing centers via Gulf Coast ports. The introduction of
longer single line service between the southeast and New England via CSX,
together with P&W's intermodal facility, should position the Company to
capture more international and domestic double stack containerized cargo.
REGIONAL DEVELOPMENTS
There are a number of development projects underway in New England to
increase port capacity along the extensive coastline and to improve the
intermodal transportation and distribution infrastructure in the region. These
projects present significant opportunities for the Company to increase its
business.
Quonset/Davisville
The State of Rhode Island has proposed a development plan for a 3,000 acre
industrial park, commonly known as "Quonset/Davisville," located near the
entrance of Narragansett Bay. The site, which is owned by the Rhode Island
Economic Development Corporation, contains nearly 1,000 acres of developable
property, three active piers, an on-site airport and on-site rail. The plan
contemplates creating the largest on-dock double stack container and tri-level
auto rail facility in New England with a deepwater port and related
facilities, including increased intermodal container storage and automobile
handling capacity. To facilitate the port development, the State plans a $120
million freight rail improvement project to be funded with both State and
federal funds which will provide additional track capacity and double stack
clearances on the Northeast Corridor between Quonset/Davisville and the
Company's mainline connection at Central Falls, Rhode Island. The freight rail
improvement project and first phase of the proposed development will require
numerous governmental approvals and will take approximately four years to
implement. The State's plan anticipates that, upon completion of the proposed
development, Quonset/Davisville will become a substantial port of entry for
automobiles, containerized cargo and other commodities and will generate
substantial additional rail traffic to and from the industrial park.
Massachusetts Highway Improvement Program
The Commonwealth of Massachusetts is in the process of implementing a $250
million highway reconstruction project to create a direct Worcester connection
to the Massachusetts Turnpike and significantly increase traffic capacity on
the highway connecting Providence and Worcester. A population of 7.2 million
resides within a 50 miles radius of Worcester. The highway project, which is
scheduled in phases for completion over the next three years, is expected to
significantly improve access and shorten travel times to and from Worcester
for this population as well as businesses located throughout New England.
Port of New Haven
The State of Connecticut is in the process of rebuilding the Tomlinson
Bridge in New Haven, which will provide rail access to the Port of New Haven.
In conjunction with this project, the Company is working with the
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City of New Haven and area users of the rail systems to fund a design for the
restoration of local street rail service directly to port properties.
Completion of this project, which is scheduled for late 2000, will provide the
Company with increased access to customers at the Port of New Haven.
BUSINESS STRATEGY
By aggressively pursuing opportunities to upgrade, expand and enhance its
existing rail infrastructure, acquiring and developing strategically located
terminal properties, expanding relationships with existing customers,
acquiring additional rail cars, acquiring connecting rail lines and expanding
its contract maintenance and repair capabilities, the Company intends to
become the dominant rail freight carrier in New England. In particular, the
Company's business strategy involves the following:
. Pursue Opportunities to Upgrade, Expand and Enhance Existing Rail
Infrastructure. Certain of the Company's growth opportunities are
contingent upon anticipated enhancements to its existing rail system. The
Quonset/Davisville development plan contemplates construction of an
additional rail line with double stack container and tri-level auto rail
car clearances on trackage on the Northeast Corridor over which P&W
possesses the exclusive and perpetual right to conduct freight
operations. To realize the benefits of this project, P&W is in the
process of making clearance improvements on its line from its connection
with the Northeast Corridor at Central Falls, Rhode Island to Worcester.
The Company is also working with the Commonwealth of Massachusetts to
implement a statewide clearance improvement project that will include
certain P&W rail lines in Worcester County. In response to the trend
among shippers to purchase heavier load rail cars, the Company has begun
to identify and improve undergrade bridge structures to permit heavier
loadings on key line segments. These improvements should permit the
Company to capitalize on the increased rail traffic anticipated from the
Quonset/Davisville development, capture more international and domestic
double stack containerized cargo, and handle heavier rail cars and cargo.
. Acquire and Develop Strategically Located Terminal Properties and
Intermodal Facilities. Headquartered at a major population center of New
England, the Company is well situated to capitalize on the trend of
shipping goods throughout the region by rail in intermodal containers.
P&W currently provides rail service to two intermodal yards in the City
of Worcester totaling approximately 30 acres. Planned improvements
expected to occur over the next three years associated with the
Massachusetts highway reconstruction project will significantly expand
the Company's facilities for intermodal and bulk transloading in
Worcester. In addition, the project should enhance the Company's growth
opportunities by increasing the convenience of its terminal facilities as
a hub for intermodal transportation to and from the region. To capitalize
on such opportunities, the Company intends to pursue the identification
and acquisition or lease of suitable properties in the Worcester area to
increase its intermodal capacity. P&W is also exploring potential
expansion opportunities for transload and intermodal yards in the I-395
Corridor in eastern Connecticut (which runs parallel to the Company's
Norwich branch) and is planning an intermodal facility at the South Quay.
In addition, the Company commenced legal proceedings to enforce its right
to acquire New Haven Station which it believes is triggered by Conrail's
pending sale of these properties to CSX. If the Company is successful in
acquiring Conrail's New Haven Station, it could present a significant
growth opportunity. See "Legal Proceedings."
. Increase Existing System Revenues Through Expanded Customer
Relationships. The Company's marketing and sales staff focuses on
understanding and addressing the raw material requirements and
transportation needs of its existing customers and businesses on its
lines. The staff grows existing business by maintaining close working
relationships with both customers and connecting carriers. In addition,
the staff generates new business by targeting companies on its lines that
underutilize rail service and by working with local economic development
officials and realtors to attract new industries to locations on the
Company's system. Unlike single connection small carriers, P&W is able to
offer its customers creative pricing and routing alternatives, and
expects the division of the Conrail system to increase the opportunities
for such offerings. P&W also expects its recently executed agreement with
CSX for the movement of increased rail traffic between New Haven and
Fresh Pond Junction on Long
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Island to enable it to generate additional business. Completion of the
Port of New Haven project should also provide the Company with increased
opportunities for business with the Port's tenants.
. Acquire Additional Rail Cars. The Company intends to use a portion of the
proceeds of this Offering to acquire 40 100-ton gondola rail cars at a
cost of approximately $50,000 each, for use in the movement of scrap
metals, hazardous and non-hazardous bulk waste and coiled wire. Because
P&W serves as primarily a terminating carrier (i.e., the Company delivers
raw materials to shippers on its line), in the past it has been able to
rely on its connecting carriers for car supply originating at the
suppliers' locations. Currently, due to the generally good economy and a
significant upturn in business at a metals recycling facility on the
Company's system, the Company has been unable to meet demand for
gondolas. The availability of additional gondolas should enable the
Company to derive greater freight revenues as well as car hire income
(payments made to the Company by other carriers for time the Company's
cars are on such carrier's line).
. Acquire Connecting Rail Lines and Trackage Rights. In October 1997, P&W
signed an agreement to purchase the Connecticut Central Railroad Company,
a short-line railroad headquartered in Middletown, Connecticut with
operating rights over approximately 28 miles of track in central
Connecticut. The Company believes this line is strategically located for
new business development and for a possible connection with other rail
lines operating in and around Hartford, Connecticut. P&W intends to
continue to expand its business though the selective acquisition of rail
properties and trackage rights on connecting lines.
. Expand Locomotive and Rail Car Maintenance and Repair
Capabilities. Unlike many other regional and short-line railroads, the
Company maintains multiple maintenance and engine house facilities and
its physical plant is in good condition. The Company intends to use a
portion of the proceeds of this Offering to expand its Worcester
maintenance facility to increase the efficiency of routine maintenance
and repairs. These facility improvements, together with an increase in
maintenance personnel, should also enable the Company to provide expanded
contract maintenance and repair services. The Company has provided
locomotive and rail car repair services to Conrail, Amtrak, Massachusetts
Bay Transportation Authority and certain of its freight customers.
RAILROAD OPERATIONS
The Company's rail freight system extends over approximately 515 miles of
track. The Company interchanges freight traffic with Conrail at Worcester,
Massachusetts and at New Haven, Connecticut; with the Springfield Terminal
Railway Company (formerly Boston and Maine Railroad) at Gardner,
Massachusetts; with the New England Central Railroad (formerly Central Vermont
Railway) at New London, Connecticut; and with the New York and Atlantic
Railroad (formerly Long Island Railroad) at Fresh Pond Junction on Long
Island. Through its connections, P&W links 79 communities on its lines. It
operates four classification yards (areas containing tracks used to group
freight cars destined for a particular industry or interchange), located in
Worcester, Massachusetts, Cumberland, Rhode Island and Plainfield and New
Haven, Connecticut.
By agreement with a private operator, the Company operates two approved
customs intermodal yards in Worcester. A customs intermodal yard is an area
containing tracks used for the loading and unloading of containers. These
yards are U.S. Customs bonded, and international traffic must be inspected and
approved by U.S. Customs officials. The intermodal facility serves primarily
as a terminal for movement of container traffic from the Far East destined for
points in New England. Several major container ship lines utilize double stack
train service through this terminal. P&W works closely with the terminal
operator to develop and maintain strong relationships with steamship lines
involved in international intermodal transportation.
Customers
The Company serves over 150 customers in Massachusetts, Rhode Island,
Connecticut and New York. The Company's 10 largest customers accounted for
approximately 51.5% of operating revenues in 1997. In 1997, Tilcon
Connecticut, Inc., which ships construction aggregate from three separate
quarries on P&W's system to asphalt production plants in Connecticut and New
York, accounted for approximately 15.1% of the Company's operating revenues.
No other customer accounted for 10% or more of its total operating revenues in
1997.
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In recent years, P&W has benefited from the expansion of existing customers'
facilities as well as the location of new customers on its railroad. For
example, during 1997, two of the Company's manufacturing customers increased
production at facilities on P&W's lines by approximately 35% and 25%,
respectively, which resulted in increased rail service to these companies. In
the past two years, the development of Quonset/Davisville and growth of
certain customers' operations at this industrial park has resulted in a 29%
increase in the Company's rail traffic to and from the park.
Certain other P&W customers have recently made or announced developments
that the Company anticipates will provide increased revenues. For example, a
food distributor in Worcester was recently awarded a contract to distribute
frozen french fries to fast food restaurants in the New England region. In
addition, a major office supply retailer has recently concluded construction
of a regional, rail-served distribution facility in Killingly, Connecticut and
is now receiving rail service from the Company.
Markets
The Company transports a wide variety of commodities for its customers. In
1997, chemicals and plastics and construction aggregate were the two largest
commodity groups transported by the Company, constituting 42% and 20%,
respectively, of conventional carload freight revenues. The following table
summarizes the Company's conventional carload freight revenues by commodity
group as a percentage of such revenues:
<TABLE>
<CAPTION>
COMMODITY 1993 1994 1995 1996 1997
--------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Chemicals and Plastics............................ 46% 46% 44% 43% 42%
Construction Aggregate............................ 11 15 18 18 20
Food and Agricultural Products.................... 16 16 17 17 15
Forest and Paper Products......................... 15 14 13 14 13
Scrap Metal and Waste............................. 4 3 3 3 5
Other............................................. 8 6 5 5 5
--- --- --- --- ---
Total........................................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
Sales and Marketing
P&W's sales and marketing staff of three people has over 45 years of
combined experience in pricing and marketing railroad services. The sales and
marketing staff focuses on understanding and addressing the raw material
requirements and transportation needs of its existing customers and businesses
on its lines. The staff grows existing business by maintaining close working
relationships with both customers and connecting carriers. The sales and
marketing staff strives to generate new business for the Company through (i)
targeting companies already on P&W's rail lines but not currently using rail
services, (ii) working with state and local development officials, developers
and real estate brokers to encourage the development of industry on the
Company's rail lines and (iii) identifying and targeting the non-rail
transportation of goods into and out of the region in which the Company
operates. Unlike many other regional and short-line railroads, the Company is
able to offer its customers creative pricing and routing alternatives because
of its multiple connections to other carriers.
Safety
An important component of the Company's operating strategy is conducting
safe railroad operations for the benefit and protection of employees,
customers and the communities served by its rail lines. Since commencing
active operations in 1973, the Company has committed significant resources to
track maintenance to minimize the risk of derailments and believes its rail
system is in good condition.
Employee safety is also an important part of the Company's operating policy.
P&W has dramatically reduced the frequency and severity of employee injuries
through a comprehensive safety program which includes extensive training,
personal protection equipment and incentives. Employees attend annual classes
and take annual exams regarding operating and safety rules and practices. The
Company's safety program also includes a hot line which is used to report
safety issues directly to the safety director, a safety suggestion program
which includes financial
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incentives and a peer recognition program for colleagues to discuss safety
rules and good work habits. Since it began its safety program in 1981, the
Company has made dramatic improvements to its safety records both in terms of
the frequency and severity of injuries while significantly increasing its
operations and expanding its workforce. Reportable injuries have declined to
below 10 incidents per year for the past five years, as compared to over 100
reportable injuries in 1981. The Company has won three E.H. Harriman industry
safety awards in the last five years.
Rail Traffic
Rail traffic is classified as on-line or overhead traffic. On-line traffic
is traffic that originates or terminates with shippers located on a railroad.
Overhead traffic passes from one connecting carrier to another and neither
originates nor terminates with shippers located on a railroad. Presently, P&W
is solely an on-line carrier but expects to provide overhead service in the
future for certain rail traffic to and from Long Island.
Rail freight rates can be in various forms. Generally, customers are given a
"through" rate, a single figure encompassing the rail transportation of a
commodity from point of origin to point of destination, regardless of the
number of carriers which handle the car. Rates are developed by the carriers
based on the commodity, volume, distance and competitive market
considerations. The entire freight bill is paid either to the originating
carrier ("prepaid") or to the destination carrier ("collect") and divided
between all carriers which handle the move. The basis for the division varies
and can be based on factors (or revenue requirements) independently
established by each carrier which comprise the through rate, or on a
percentage basis established by division agreements among the carriers. A
carrier such as P&W, which actually places the car at the customer's location
and attends to the customer's daily switching requirements, receives revenue
greater than an amount based simply on mileage hauled.
Employees
As of January 1, 1998, the Company had 147 full-time employees, 112 of which
were represented by three national railroad labor organizations. The Company's
employees have been represented by unions since the Company commenced
independent operations in 1973.
The Company's initial agreement with the United Transportation Union
covering the trainmen was unusual in the railroad industry since it provided
the Company with discretion in determining crew sizes, eliminated craft
distinctions and provided a guaranteed annual wage for a maximum number of
hours worked. The Company's collective bargaining agreements have been in
effect since February 1973 for trainmen, since May 1974 for clerical
employees, dispatchers and police and since June 1974 for maintenance
employees. These contracts do not expire but are subject to re-negotiation
after the agreed-upon moratoriums. The moratorium periods are typically three
to five years in length. The labor agreements may next be amended at June 1,
1998 for the United Transportation Union (trainmen), December 31, 1999 for the
Transportation Communication Union (clerical) and July 1, 2000 for the
Brotherhood of Railroad Signalmen (maintenance). The Company considers its
employee and labor relations to be good.
COMPETITION
The Company is the only rail carrier serving businesses located on-line.
However, the Company competes with other carriers in the location of new rail-
oriented businesses in the region. The Company also competes with other modes
of transportation, particularly long-haul trucking companies, for the
transportation of commodities. Any improvement in the cost or quality of these
alternate modes of transportation, for example, legislation granting material
increases in truck size or allowable weight, could increase competition and
may materially adversely affect the Company's business and results of
operations. As a means of competing, P&W strives to offer greater convenience
and better service than competing carriers and at costs lower than some
competing non-rail carriers. The Company also competes by participating in
efforts to attract new industry to the areas which it serves.
Certain rail competitors, including Conrail and CSX, are larger or better
capitalized than the Company. While P&W believes the acquisition and division
of Conrail will lead to expansion opportunities, the Conrail
28
<PAGE>
transaction may lead to increased competition with other freight railroads,
particularly in Massachusetts, and efforts by CSX and Norfolk Southern to
reduce revenue to connecting regional and short-line carriers.
The Company believes that its ability to grow depends, in part, upon its
ability to acquire additional connecting rail lines. In making acquisitions,
P&W competes with other short-line and regional rail operators, some of which
are larger and have greater financial resources than the Company.
PROPERTIES
Track
P&W's rail system extends over approximately 515 miles of track, of which it
owns approximately 170 miles. The Company has the right to use the remaining
345 miles pursuant to perpetual easements and long-term trackage rights
agreements. Under certain of these agreements, the Company pays fees based on
usage.
Of the approximately 515 miles of track on which the Company operates, 341
miles, or 66%, are in FRA Class 3 condition or better, which permits speeds of
40 miles per hour for freight trains. An additional 59 miles of track, or 12%,
of the Company's trackage are in FRA Class 2 condition, which permits speeds
up to 25 miles per hour. The remaining 116 miles, or 22%, are in FRA Class 1
or FRA Excepted condition, which permits maximum speeds of 10 miles per hour.
Of the 116 miles of FRA Class 1 or FRA Excepted track, 35 miles, or 30%, are
owned and maintained by other railroads; of the remaining 81 miles of FRA
Class 1 or FRA Excepted track, the Company operates on only 35 miles, or 30%,
and the balance of 46 miles, or 40%, is not currently in use. The following
chart shows the percentage value of the Company's trackage by FRA
classification.
TRACK CONDTION
Class 2
12%
Class 1 or
excepted [PIE CHART APPEARS HERE]
22%
Class 3 or Higher
66%
Part of the Company's operating strategy is to maintain and improve the
classification of its trackage in order to allow the Company to operate at
maximum freight train speeds to consistently provide its customers with fast,
reliable and efficient rail service. P&W believes that regular track
maintenance is important to the long-term prosperity of the Company. The
Company is responsible for maintaining 207 of the 515 miles of track included
within its operating system. Of the remaining 308 miles of track, 186 miles
are maintained by Amtrak and 122 miles are maintained by other railroads or
are currently not in use. Substantially all of the mainline track owned by the
Company is maintained in FRA Class 3 condition.
29
<PAGE>
Of the approximately 515 miles of the Company's system, 283 miles, or 55%,
are located in Connecticut, 103 miles, or 20%, are located in Massachusetts,
102 miles, or 20%, are located in Rhode Island and 28 miles, or 5%, are
located in New York.
New York
5% Massachusetts
20%
[PIE CHART APPEARS HERE]
Rhode Island
20%
Connecticut
55%
Rail Facilities
P&W owns land and a building with approximately 69,500 square feet of floor
space in Worcester, Massachusetts. The building houses the Company's executive
and administrative offices and some of the Company's storage space.
Approximately 2,100 square feet are leased to an outside tenant.
The Company owns and operates three principal classification yards located
in Worcester, Massachusetts, Cumberland, Rhode Island and Plainfield,
Connecticut and also operates a classification yard in New Haven, Connecticut.
In addition, the Company has maintenance facilities in Plainfield and
Worcester. P&W plans to expand the Worcester facility in order to increase the
efficiency of routine maintenance and repairs and increase the Company's
ability to provide contract maintenance. P&W believes that its executive and
administrative office facilities, classification yards and maintenance
facilities are adequate to support its current level of operations. See "Use
of Proceeds" and "--Business Strategy."
Other Properties
The Company owns or has the right to use a total of approximately 130 acres
of real estate located along the principal railroad lines from downtown
Providence through Pawtucket, Rhode Island. Of this amount, P&W owns
approximately eight acres in Pawtucket and has a perpetual easement for
railroad purposes over the remaining 122 acres.
The Company has invested approximately $11 million in the development of the
South Quay, which is adjacent to 12 acres of land owned by the Company. This
investment has resulted in the creation of approximately 33 acres of
waterfront land that are the subject of a title dispute pending before the
Rhode Island Supreme Court. See "-- Legal Proceedings."
P&W actively manages its real estate assets in order to maximize revenues.
The income from property management is derived from sales and leasing of
properties and tracks and grants of easements to government agencies, utility
companies and other parties for the installation of overhead or underground
cables, pipelines and transmission wires as well as recreational uses such as
bike paths. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
30
<PAGE>
Rolling Stock
The following schedule sets forth the rolling stock owned by the Company as
of December 31, 1997:
<TABLE>
<CAPTION>
DESCRIPTION NUMBER
----------- ------
<S> <C>
Locomotive............................................................ 24
Gondola............................................................... 37
Flat Car.............................................................. 4
Ballast Car........................................................... 36
Passenger Equipment................................................... 5
Caboose............................................................... 2
---
Total............................................................... 108
===
</TABLE>
The 24 diesel electric locomotives are used on a daily basis, are maintained
to a high standard, comply with all FRA and Association of American Railroads
rules and regulations and are adequate for the needs of the Company's freight
operations. The 37 100-ton capacity gondolas and four flat cars are considered
modern rail cars and are used by certain P&W customers. Other rail freight
customers use their own freight cars or obtain such equipment from other
sources. The 36 ballast cars are used in track maintenance. From time to time,
the Company has leased ballast cars to other adjoining railroads. The
passenger equipment and cabooses are not utilized in P&W's rail freight
operations but are used on an occasional basis for Company functions,
excursions and charter trips.
Equipment
P&W has a state-of-the-art digital touch control dispatching system at its
Worcester operations center permitting two-way radio contact with every train
crew and maintenance vehicle on its lines. The system also enables each train
crew to maintain radio contact with other crew members. The Company maintains
a computer facility in Worcester with back-up computer facilities in Worcester
and Plainfield, Connecticut to assure the Company's ability to operate in the
event of disruption of service in Worcester. The Company also has state-of-
the-art automatic train defect detectors at strategic locations which inspect
passing trains and audibly communicate the results to train crews and
dispatchers in order to protect against equipment failure en route.
The Company maintains a modern fleet of track maintenance equipment and
aggressively pursues available opportunities to work with federal and state
agencies for the rehabilitation of bridges, grade crossings and track. The
Company's locomotives are equipped with the cab signal technology necessary
for operations on the Northeast Corridor and will be equipped with automatic
civil speed enforcement systems which will be required upon the introduction
of high speed passenger service on the Northeast Corridor scheduled for late
1999.
GOVERNMENTAL REGULATION
The Company is subject to governmental regulation by the STB, the FRA and
other federal, state and local regulatory authorities with respect to certain
rates and railroad operations, as well as a variety of health, safety, labor,
environmental and other matters, all of which could potentially affect the
competitive position and profitability of the Company. Additionally, the
Company is subject to STB regulation and may be required to obtain STB
approval prior to its acquisition of any new railroad properties. Management
of the Company believes that the regulatory freedoms granted by the Staggers
Rail Act have been beneficial to the Company by giving it flexibility to
adjust prices and operations to respond to market forces and industry changes.
However, various interests, and certain members of the United States House of
Representatives and Senate (which have jurisdiction over federal regulation of
railroads), have from time to time expressed their intention to support
legislation that would eliminate or reduce significant freedoms granted by the
Staggers Rail Act.
As a result of the planned introduction of high speed passenger service on
the Northeast Corridor, the FRA has issued an order requiring that all
locomotives operating on the Northeast Corridor between New Haven and Boston
be equipped with automatic civil speed enforcement systems, the cost of which
is anticipated to be at least $45,000 per locomotive. The proposed order does
not address whether the federally funded high speed project or the Company
will bear the costs of required locomotive retrofits.
31
<PAGE>
ENVIRONMENTAL MATTERS
The Company's railroad operations and real estate ownership are subject to
extensive federal, state and local environmental laws and regulations
concerning, among other things, emissions to the air, discharges to waters and
the handling, storage, transportation and disposal of waste and other
materials. The Company handles, stores, transports and disposes of petroleum
and other hazardous substances and wastes. The Company also transports
hazardous substances for third parties and arranges for the disposal of
hazardous wastes generated by the Company. The Company believes that it is in
material compliance with applicable environmental laws and regulations.
LEGAL PROCEEDINGS
In 1995, the Company entered into a Settlement Agreement with the Selling
Shareholder, Bestfoods, pursuant to which Bestfoods (formerly known as CPC
International, Inc.) released the Company from any claims arising out of the
contamination of certain property formerly owned by a subsidiary of Bestfoods.
Bestfoods' insurance carrier (which to date has denied coverage to Bestfoods)
has notified the Company that it intends to bring suit against the Company to
enforce its alleged rights of subrogation. The Company believes that since
Bestfoods has released the Company from any liability, its carrier has no
right of subrogation and its claim is without merit. Moreover, under the
Settlement Agreement, Bestfoods is obligated to defend, indemnify and hold
harmless the Company for any claims which arise from such contamination,
including claims of the insurance carrier.
The Company has invested approximately $11 million in the development of the
South Quay, approximately 33 acres of reclaimed formerly tide flowed land
which is adjacent to 12 acres owned by the Company. On April 25, 1996, the
Company filed an action in Rhode Island Superior Court seeking to confirm the
Company's fee simple absolute title in the South Quay. The State of Rhode
Island and the Coastal Council objected to the Company's petition. Acting on
motions for summary judgment filed by both sides, the Superior Court ruled
that the Company is the owner of the South Quay in fee simple absolute. The
State and Coastal Council have appealed this decision to the Rhode Island
Supreme Court. The Company intends to vigorously defend the appeal and
advocate that the Rhode Island Supreme Court should affirm the Superior Court
decision. A decision from the Rhode Island Supreme Court is expected in 1999.
A finding that the Company possesses only a 50 year license should not prevent
the utilization of the South Quay as an intermodal facility.
In connection with the division of Conrail, the Company instituted a lawsuit
against Conrail in the United States District Court in the District of
Columbia on November 12, 1997 in which the Company contends that, pursuant to
a 1982 Order of the United States Special Court established pursuant to the
Regional Rail Reorganization Act of 1973, the Company is entitled to acquire
New Haven Station and that Conrail is not permitted to convey it to CSX. New
Haven Station includes all of Conrail's rail properties in New Haven and
related facilities (including a classification yard) necessary for the
operations of P&W. Conrail disagrees with the Company's position. On January
22, 1998, the District Court dismissed the Company's claim without prejudice,
finding that its claim was not ripe for adjudication prior to the STB's
decision on the breakup of Conrail. The Company plans to reinstitute the claim
when it is ripe for adjudication.
32
<PAGE>
MANAGEMENT
The Company's Charter and Bylaws provide that the members of the Board of
Directors (the "Board") shall be elected separately by the Company's two
classes of stock. Holders of Common Stock elect one-third of the Board of
Directors and the holders of Preferred Stock elect the remainder of the Board.
Directors are elected to serve until the next annual meeting and until their
successors have been duly elected by the shareholders. There are currently
three directors elected by the holders of the Common Stock and seven directors
elected by the holders of the Preferred Stock. Officers are elected by and
serve at the discretion of the Board of Directors.
DIRECTORS AND EXECUTIVE OFFICERS
The current directors and executive officers, their ages and their positions
held with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert H. Eder(a)....... 65 Chairman of the Board and Chief Executive Officer
Orville R. Harrold(b)... 65 President, Chief Operating Officer and Director
Robert J. Easton(b)..... 54 Treasurer and Director
Heidi J. Eddins......... 41 Vice President, Secretary and General Counsel
Frank W. Barrett(b)..... 58 Director
Phillip D. Brown(b)..... 54 Director
John H. Cronin(b)....... 64 Director
J. Joseph Garrahy(b).... 67 Director
John J. Healy(b)........ 61 Director
William J. LeDoux(a).... 66 Director
Charles M. McCollam,
Jr.(a)................. 65 Director
</TABLE>
--------
(a) Elected by holders of Common Stock.
(b) Elected by holders of Preferred Stock.
The following is a brief summary of the background of each director,
executive officer and key employee.
DIRECTORS AND EXECUTIVE OFFICERS
Robert H. Eder, Chairman of the Board and Chief Executive Officer. Mr. Eder
became President of the Company in 1966 and led the Company through its
efforts to become an independent operating company. He has been Chairman of
the Board since 1980. He is a graduate of Harvard College and Harvard Law
School. He (with his wife) is also majority owner and Chairman of an
affiliated company, Capital Properties, a real estate holding company. Mr.
Eder is admitted to practice law in Rhode Island and New York.
Orville R. Harrold, President, Chief Operating Officer and Director. Mr.
Harrold has been with the Company since the commencement of independent
operations in February 1973. Over the past 25 years, he has held the positions
of Chief Engineer and General Manager, becoming President in 1980. Mr. Harrold
has a bachelors degree in mechanical engineering from the Pratt Institute,
Brooklyn, New York and has been employed in the railroad industry in various
capacities since 1960.
Heidi J. Eddins, Vice President, Secretary and General Counsel. Mrs. Eddins
joined the Company in 1983 as Assistant General Counsel, becoming General
Counsel and Assistant Secretary in 1984, Secretary in 1988 and Vice President
in 1997. Prior to joining the Company, she was in private practice at the law
firm of Updike, Kelly and Spellacy in Hartford, Connecticut. She is a 1981
graduate of the University of Connecticut Law School and holds a bachelors
degree from Boston College. Mrs. Eddins is admitted to practice law in
Connecticut, Massachusetts and Rhode Island.
33
<PAGE>
Robert J. Easton, Treasurer and Director. Mr. Easton has been with the
Company since 1986, initially as Controller. He was promoted to the position
of Treasurer and Controller in 1988. Prior to joining the Company, Mr. Easton
had 21 years of experience in public accounting. He is a Certified Public
Accountant with a bachelors degree in accounting from the University of
Rochester.
Frank W. Barrett, Director. Mr. Barrett has been a Director of the Company
since 1995. He has been Executive Vice President at Springfield Institution
for Savings since December 1993. From 1990 until that time, Mr. Barrett was
the Senior Vice President, Credit Administration, of First New Hampshire Bank.
Phillip D. Brown, Director. Mr. Brown has been a Director of the Company
since 1995. He has been President and Chief Executive Officer of Unibank for
Savings, a regional bank in central Massachusetts since August 1993. From 1990
until that time, Mr. Brown was the President of Citizens Bank of
Massachusetts.
John H. Cronin, Director. Mr. Cronin has been a Director of the Company
since 1986. Since 1971 until his retirement in 1996, Mr. Cronin was owner and
President of Ideal Products, Inc., a wholesale entertainment supply company.
J. Joseph Garrahy, Director. Mr. Garrahy has been a Director of the Company
since 1992. He is a former four term Governor of Rhode Island and, since 1990,
has been an independent business consultant in the State of Rhode Island.
John J. Healy, Director. Mr. Healy has been a Director of the Company since
1991. He has been President of Worcester Affiliated Mfg. L.L.C., an
independent business consulting firm involved in efforts to revitalize
manufacturing in Massachusetts, since January 1997. Prior thereto, Mr. Healy
was President and Chief Executive Officer of HMA Behavioral Health, Inc., a
behavioral health care management service provider.
William J. LeDoux, Director. Mr. LeDoux has been a Director of the Company
since 1990. He has been engaged in the private practice of law in the City of
Worcester since 1963.
Charles M. McCollam, Jr., Director. Mr. McCollam has been a Director of the
Company since 1996. He owns and operates a number of insurance businesses in
the State of Connecticut and was the Chief of Staff to a former governor of
Connecticut.
OTHER KEY EMPLOYEES
Robert E. Baumuller, Chief Mechanical Officer. Mr. Baumuller has been with
P&W since 1981 when he joined the Company as Assistant Chief Mechanical
Officer. He was promoted to Chief Mechanical Officer in 1989. Mr. Baumuller is
responsible for maintenance and repair of all of the Company's running
equipment, including its locomotive fleet of 24 units, all track maintenance
equipment, inspection, maintenance and repair of the Company's rail cars as
well as rail cars received in interline service and maintenance of the
Company's passenger equipment. Mr. Baumuller is also responsible for the
identification and evaluation of locomotive and rail car purchases. Mr.
Baumuller has been in the railroad industry since 1963 and worked in various
positions related to equipment maintenance for the Vermont Railway, Inc. and
the New York City Transit Authority.
P. Scott Conti, Chief Engineer. Mr. Conti has been with the Company since
1988 and is responsible for all activities of the Maintenance of Way and
Engineering Department which maintains the Company's tracks, bridges,
buildings and grade crossings. Mr. Conti is responsible for overseeing all
construction activity on or affecting railroad property and works closely with
municipal and state agencies. From June 1988 to December 1997, Mr. Conti
served as Engineering Manager and, in January 1998, he was promoted to Chief
Engineer. Prior to joining the Company, Mr. Conti was employed by Perini
Corporation in various project engineering management positions, including as
project manager for a major track rehabilitation project in New York City.
34
<PAGE>
David F. Fitzgerald, Superintendent of Transportation. Mr. Fitzgerald has
been with the Company since December 1973, beginning in train and engine
service. He was later promoted to the position of Trainmaster for the
Company's Connecticut operations, Assistant General Trainmaster and General
Trainmaster before being appointed to his current position of Superintendent
of Transportation in 1981. Mr. Fitzgerald manages daily train operations and
the customer service center, including customer service agents and train
dispatchers.
Frank K. Rogers, Director of Marketing and Sales. Mr. Rogers joined the
Company as Director of Marketing and Sales in 1994. From 1993 through 1994, he
was Director of Marketing for California Northern Railroad Company. From 1987
to 1992, Mr. Rogers was Marketing Manager and Assistant General Manager of
Eureka Southern Railroad Company. He holds a bachelors degree in business
administration with a transportation emphasis from Northeastern University.
BOARD COMMITTEES
The Board of Directors has established an Executive Committee, an Audit
Committee and a Stock Option and Compensation Committee.
Messrs. Eder, Harrold and Easton serve as members of the Executive
Committee. The members of the Audit Committee are John H. Cronin, Chairman, J.
Joseph Garrahy and Phillip D. Brown. William J. LeDoux, Chairman, John J.
Healy and Frank W. Barrett serve as members of the Stock Option and
Compensation Committee.
DIRECTOR COMPENSATION
Each director who is not an employee of the Company receives an attendance
fee for each meeting of the Board equal to $500 plus the product of $50
multiplied by the number of years of service as a director. Each member of the
Audit Committee and the Stock Option and Compensation Committee receives $300
for each attended meeting of the committee and the Chairman of each committee
receives an additional $50 attendance fee.
During the month of January of each year, each non-employee director who
served on the Board on the preceding December 31 is granted options for the
purchase of 100 shares of Common Stock, plus options for an additional 10
shares of Common Stock for each full year of service. The exercise price for
such options is the last sale price of the Common Stock on the last business
day of the preceding year, and the term of each option is 10 years (subject to
earlier termination if the grantee ceases to serve as a director), provided
however that no option is exercisable within six months following the date of
grant.
35
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or accrued to each
person who served as the Company's chief executive officer and each of the
other four most highly compensated executive officers of the Company
(together, the "Named Executive Officers") during the three year period ended
December 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------- ------------------
SECURITIES
UNDERLYING OPTIONS
OTHER ANNUAL TO PURCHASE ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(A) COMPENSATION COMMON STOCK COMPENSATION(B)
- --------------------------- ---- --------- ------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Robert H. Eder........... 1997 $288,530 0 0 $47,453
Chairman of the Board and 1996 289,216 0 0 47,617
Chief Executive Officer 1995 272,513 0 0 48,117
Orville R. Harrold....... 1997 234,588 0 913 42,526
President and Chief 1996 231,787 0 932 40,508
Operating Officer 1995 222,421 0 888 40,510
Ronald P. Chrzanowski.... 1997 133,241 $28,193(d) 451 12,000
Chief Engineer until
12/31/97 1996 129,059 0 451 9,066
(Vice President and 1995 123,003 0 448 7,396
Director until
11/13/97)(c)
Heidi J. Eddins.......... 1997 138,920 0 311 10,702
Vice President,
Secretary 1996 133,997 0 313 9,381
and General Counsel 1995 127,444 0 301 7,713
Robert J. Easton......... 1997 123,232 0 210 9,353
Treasurer 1996 120,191 0 210 8,430
1995 113,706 0 203 6,880
</TABLE>
- --------
(a) Includes amounts taxable to employees for personal use of Company-owned
vehicles.
(b) Includes amounts paid directly to the retirement accounts of management
staff under the Company's simplified employee pension plan, and, in the
case of Robert H. Eder and Orville R. Harrold, includes for 1997 premiums
paid for life insurance coverage in the amounts of $35,453 and $30,526,
respectively.
(c) Mr. Chrzanowski left the Company to join its former parent company,
Capital Properties, as President and a Director.
(d) Includes value of a vehicle transferred to Mr. Chrzanowski ($18,193) and
$10,000 paid to him to cover additional income taxes attributable to the
transfer of the vehicle.
STOCK PLANS
In July 1989, the shareholders adopted the Company's Non-Qualified Stock
Option Plan (the "Stock Option Plan") that provides for the granting to
employees, officers and directors (excluding Mr. Eder) of options to purchase
up to the greater of 50,000 shares or 5% of the number of shares of Common
Stock outstanding (which equated to 111,097 shares at December 31, 1997). To
date, options to purchase 77,398 shares of the Common Stock have been granted
under the Stock Option Plan.
Pursuant to the Company's Employee Stock Purchase Plan, eligible employees
(which excludes Mr. Eder) may purchase registered shares of Common Stock at
85% of the market price for such shares. An aggregate of 200,000 shares of
Common Stock are authorized for issuance under the Employee Stock Purchase
Plan. Any shares purchased under the Employee Stock Purchase Plan are subject
to a two year lock-up. To date, 2,846 shares have been purchased under the
Employee Stock Purchase Plan.
36
<PAGE>
The Company's Profit Sharing Plan provides for the issuance of Common Stock
to an account for the benefit of eligible employees covered by collective
bargaining agreements. To date, 124,992 shares have been issued under the
Profit Sharing Plan.
The Company's Safety Incentive Plan provides for the issuance of up to
15,000 shares of Common Stock to eligible management employees as an incentive
for the satisfaction of certain safety standards. To date, 1,000 shares have
been issued pursuant to the Safety Incentive Plan.
The Company's Non-Qualified Stock Option Plan, Employee Stock Purchase Plan,
Safety Incentive Plan and Profit Sharing Plan are collectively referred to as
the "Stock Plans."
OPTION GRANTS IN LAST FISCAL YEAR
The following table contains information concerning the grant of stock
options under the Stock Option Plan to the Named Executive Officers during the
Company's last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS GRANTED
OPTIONS TO EMPLOYEES EXERCISE EXPIRATION GRANT DATE
NAME GRANTED(A) IN FISCAL 1997 PRICE DATE PRESENT VALUE(B)
---- ---------- --------------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Orville R. Harrold...... 913 11% $7.875 01/02/07 $2,702
Ronald P. Chrzanowski... 451 5 7.875 01/02/07 1,335
Heidi J. Eddins......... 311 4 7.875 01/02/07 921
Robert J. Easton........ 210 3 7.875 01/02/07 622
</TABLE>
- --------
(a) The options were all granted on January 2, 1997 and became exercisable on
July 2, 1997.
(b) Amounts represent the fair value of each option granted and were estimated
as of the date of the grant using the Black-Scholes option-pricing model
with the following weighted average assumptions: expected volatility of
29%; expected life of 7 years; risk-free interest rate of 5.75%; and
expected dividend payment rate, as a percentage of the share price on the
date of grant, of 1.26%.
OPTION EXERCISES AND FISCAL YEAR END VALUES
The following table contains information with respect to stock options held
by the Named Executive Officers as of December 31, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY AT
DECEMBER 31, 1997 DECEMBER 31, 1997(B)
SHARES --------------------- --------------------
ACQUIRED ON VALUE EXERCISABLE / EXERCISABLE /
NAME EXERCISE REALIZED(A) UNEXERCISABLE UNEXERCISABLE
---- ----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Orville R. Harrold...... 1,214 $5,494 1,567/0 $14,808/0
Ronald P. Chrzanowski... 451 2,594 417/0 4,118/0
Heidi J. Eddins......... 632 3,770 784/0 8,147/0
Robert J. Easton........ 210 1,469 830/0 8,876/0
</TABLE>
- --------
(a) Based on the last sale price of the Common Stock on the date of exercise
minus the exercise price.
(b) Based on the difference between the exercise price of each grant and the
closing price of the Company's Common Stock on the AMEX on December 31,
1997, which was $18 3/8.
37
<PAGE>
CERTAIN TRANSACTIONS
On January 1, 1988, in accordance with a plan of distribution, shares of the
Company were distributed to the shareholders of Capital Properties on a pro
rata basis. Mr. Eder and his wife own 52.3% of the outstanding common stock of
Capital Properties. As part of the plan, the Company issued to Capital
Properties a promissory note in the amount of $9,377,000 payable over a period
of 20 years with interest at 12% per year, prepayable at any time without
penalty. The Capital Properties note is secured by a first mortgage on the
Company's operating right-of-way in Worcester County, Massachusetts. During
1995, the Company and Capital Properties negotiated an agreement reducing the
interest rate to 10% and providing for the Company's prepayment of $1,800,000
on its note. Payments by the Company together with the interest rate
adjustment result in a current monthly payment of principal and interest over
the remaining twelve-year term of the note in the amount of $53,000. Fifty
percent (50%) of any additional prepayments will reduce the required monthly
payments. Prior to negotiating the agreement, the Company made additional
voluntary prepayments totaling $300,000, $55,000 and $200,000 during 1994,
1995 and 1996, respectively. The Company intends to repay the balance of the
Capital Properties note (approximately $4.0 million at March 2, 1998) with the
proceeds of this Offering. See "Use of Proceeds."
In 1995, the Company also entered into an agreement with Capital Properties
releasing a portion of the collateral securing the note in exchange for the
right to have the Company convey the Wilkesbarre Pier in East Providence,
Rhode Island for the sum of one dollar to the purchaser of Capital Properties'
petroleum terminal facilities in East Providence, Rhode Island. Effective
January 1, 1998, a wholly-owned subsidiary of Capital Properties which
acquired the petroleum terminal facilities, exercised the purchase right and
acquired the Wilkesbarre Pier. The Company retained the right to use the pier
for certain purposes.
38
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of February 9, 1998, and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, by (i) each
person who is known by the Company to beneficially own more than 5% of the
outstanding shares of Common Stock immediately prior to this Offering; (ii)
the Selling Shareholder; (iii) each of the Company's directors; and (iv) all
directors and executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES OWNED
BEFORE OFFERING OWNERSHIP AFTER OFFERING
-------------------- --------------------------------
NAME NUMBER PERCENTAGE SHARES OFFERED NUMBER PERCENTAGE
- ---- --------- ---------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Robert H. Eder(a)....... 1,046,492 46.0% 0 (k) 1,046,492(k) 30.1%(k)
Orville R. Harrold(b)... 22,710 * 0 22,710 *
Robert J. Easton(c)..... 2,111 * 0 2,111 *
Heidi J. Eddins(d)...... 3,927 * 0 3,927 *
Frank W. Barrett(e)..... 610 * 0 610 *
Phillip D. Brown(f)..... 210 * 0 210 *
John H. Cronin.......... 1,430 * 0 1,430 *
J. Joseph Garrahy....... 1,000 * 0 1,000 *
John J. Healy(g)........ 840 * 0 840 *
William J. LeDoux(h).... 1,480 * 0 1,480 *
Charles M. McCollam,
Jr. ................... 500 * 0 500 *
Massachusetts Capital
Resource Company(i).... 200,000 8.3% 0 200,000 5.8%
Bestfoods............... 108,155 4.9% 25,000 83,155 2.4%
All executive officers
and directors as a
group (11 people)(j)... 1,081,310 47.5% 0 (l) 1,081,310(l) 31.1%(l)
</TABLE>
- --------
* Less than one percent
(a) Mr. Eder's business address is 75 Hammond Street, Worcester, Massachusetts
01610. Includes 74,580 shares of Common Stock owned by Mr. Eder's wife and
assumes the conversion of the 500 shares of Preferred Stock owned by Mr.
Eder.
(b) Includes (i) 1,700 shares of Common Stock held by Mr. Harrold's wife, (ii)
2,600 shares of Common Stock held by a custodian in an individual
retirement account for the benefit of Mr. Harrold and (iii) 1,467 shares
of Common Stock under stock options exercisable within 60 days.
(c) Includes 118 shares of Common Stock held by Mr. Easton's wife in her name
and 830 shares of Common Stock issuable under stock options exercisable
within 60 days.
(d) Includes 900 shares of Common Stock held by Ms. Eddins' minor children
under the Uniform Gift to Minors Act and 784 shares of Common Stock
issuable under stock options exercisable within 60 days.
(e) Includes 110 shares of Common Stock issuable under stock options
exercisable within 60 days.
(f) Includes 110 shares of Common Stock issuable under stock options
exercisable within 60 days.
(g) Includes 540 shares of Common Stock issuable under stock options
exercisable within 60 days.
(h) Includes 880 shares of Common Stock issuable under stock options
exercisable within 60 days.
(i) MCRC's address is 420 Boylston Street, Boston, Massachusetts 02116.
Includes the 200,000 shares of Common Stock issuable upon the exercise of
the MCRC Warrant. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
(j) Includes 50,000 shares of Common Stock issuable upon conversion of
Preferred Stock and 4,721 shares of Common Stock issuable under stock
options exercisable within 60 days.
(k) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Shares Offered, Ownership
After Offering--Number and Ownership After Offering--Percentage will be
153,750, 892,742 and 25.7%, respectively.
(l) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, the Shares Offered, Ownership
After Offering--Number and Ownership After Offering--Percentage will be
153,750, 927,560 and 26.7%, respectively.
39
<PAGE>
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The following summary description of the Company's capital stock is believed
to reflect all material provisions of the Company's Charter, as amended, but
is not necessarily complete. Reference is made to the Company's Charter, as
amended, which is filed with the Commission as an exhibit to the Registration
Statement of which this Prospectus is a part.
COMMON STOCK
The Company is authorized to issue up to 3,023,436 shares of Common Stock,
$.50 par value per share. As of the date hereof, 2,222,830 shares of Common
Stock are issued and outstanding and held by 700 shareholders of record. Upon
the completion of this Offering, there will be 3,422,830 shares of Common
Stock issued and outstanding. The Company's shareholders have approved an
amendment to the Company's Charter which will increase the Company's
authorized Common Stock to 15,000,000 shares, which amendment will become
effective prior to the completion of this Offering.
The holders of Common Stock are entitled to one vote for each share in the
election of one-third of the Board of Directors proposed to be elected at any
meeting of shareholders, voting separately as a class. The holders of Common
Stock and the holders of the Preferred Stock are entitled to one vote per
share, voting as separate classes and not together, upon all other matters
voted on by shareholders. The holders of Common Stock have no preemptive or
other subscription rights. The holders of Common Stock are entitled to such
dividends as may be declared from time to time thereon by the Board from funds
available therefor. See "Price Range of Common Stock and Dividend Policy."
Upon a dissolution or liquidation of the Company, holders of Common Stock and
Preferred Stock are entitled to receive on a 1-to-100 pro rata basis all
assets of the Company available for distribution after payments are made to
the Company's creditors.
PREFERRED STOCK
The amendment to the Company's Charter approved by the Company's
shareholders will reduce the number of shares of Preferred Stock, $50 par
value per share, which the Company is authorized to issue from 6,817 to 653
shares. As of the date of this Prospectus, 653 shares of Preferred Stock are
issued and outstanding and held by eight shareholders of record.
The holders of Preferred Stock are entitled to one vote for each share in
the election of two-thirds of the Board of Directors proposed to be elected at
any meeting of shareholders, voting separately as a class. The holders of
Preferred Stock and the holders of Common Stock are entitled to one vote per
share, voting as a separate classes and not together, upon all other matters
voted on by shareholders.
Non-cumulative annual dividends on the Preferred Stock are payable at the
rate of $5.00 per share. Each share of Preferred Stock is convertible at any
time, at the holder's option, into 100 shares of Common Stock. The holders of
Preferred Stock have no preemptive or other subscription rights.
Upon a dissolution or liquidation of the Company, holders of Common Stock
and Preferred Stock are entitled to receive on a 1-to-100 pro rata basis all
assets of the Company available for distribution after payments are made to
the Company's creditors.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CHARTER AND STATE LAW
The Company is chartered by special act of the Rhode Island General
Assembly. The Company's Charter and Rhode Island state law contain provisions
that may make the acquisition of control of the Company by means of a tender
offer, open market purchases, proxy fight or otherwise more difficult.
40
<PAGE>
Additional Common Stock
Upon filing of the amendment to the Company's Charter the Company's Board of
Directors will be authorized to issue up to 15,000,000 shares of Common Stock.
The Company believes that the availability of additional Common Stock will
provide it with increased flexibility in structuring possible financing
acquisitions and in meeting other corporate needs which may arise.
Rhode Island Anti-takeover Statute
The Rhode Island Business Combination Act prohibits business combinations
involving a shareholder of a publicly held corporation for a period of five
years after such shareholder acquires 10% or more of the outstanding voting
stock of the corporation, unless the board of directors approves the
transaction by which such shareholder acquires 10% or more of the outstanding
voting stock. The Business Combination Act also permits business combinations
involving such a shareholder which occur more than five years after such
shareholder acquires 10% or more of the outstanding voting stock when (i) the
board of directors or disinterested shareholders holding two-thirds of the
outstanding voting common stock of a publicly held corporation approve the
underlying transaction or (ii) the aggregate value of the cash and non-cash
consideration to be received by the shareholders satisfies statutory financial
formulas. The Business Combination Act applies to all publicly held Rhode
Island corporations doing business in the state which do not elect to be
exempted from its effect, and the Company has not so elected to be exempt.
DIRECTORS' LIABILITY
As authorized by Rhode Island Law, the Company's Charter provides that no
director of the Company will be personally liable to the Company or its
shareholders for monetary damages for breach of fiduciary duty as a director
except liability: (a) for any breach of the director's duty of loyalty to the
Company or its shareholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases and (d) for any transaction for which the director derives an
improper personal benefit. The effect of this provision is to eliminate the
rights of the Company and its shareholders (through shareholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of the fiduciary duty of care as a director (including breaches
resulting from negligent or grossly negligent behavior) except in the
situations described in clauses (a) through (d) above. This provision does not
limit or eliminate the rights of the Company or any shareholder to seek non-
monetary relief such as an injunction or rescission in the event of a breach
of a director's duty of care. In addition, the Charter provides that if the
Rhode Island Law is amended to authorize the further elimination or limitation
of the liability of a director, then the liability of the directors shall be
eliminated or limited to the fullest extent permitted by the Rhode Island Law,
as so amended.
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust, c/o Boston EquiServe, limited partnership, P.O.
Box 8040, Boston, Massachusetts 02266-8040, (781) 575-3400, is the Company's
transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have 3,422,820 shares
of Common Stock outstanding. Of these shares, 3,219,974 shares will be freely
tradable without restrictions or further registration under the Securities
Act, except for any shares purchased or acquired by "affiliates" of the
Company (as that term is defined under the rules and regulations of the
Securities Act), which shares will be subject to the resale limitations of
Rule 144 under the Securities Act.
The remaining 202,846 outstanding shares of Common Stock owned by certain
shareholders of the Company are "restricted securities," as that term is
defined in Rule 144, that may not be sold in the absence of
41
<PAGE>
registration under the Securities Act unless an exemption from registration is
available, including the exemption provided by Rule 144.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of acquisition of restricted shares of Common
Stock from the Company or an affiliate of the Company, a person (or persons
whose shares are aggregated) may sell, within any three-month period, a number
of shares that does not exceed the greater of (i) 1% of the then outstanding
shares of Common Stock of the Company (34,228 shares immediately after this
Offering) or (ii) the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the date on which a notice of sale is filed
with the Securities and Exchange Commission (the "Commission"). Sales under
Rule 144 are subject to certain other restrictions relating to the manner of
sale, notice and the availability of current public information about the
Company. If a period of two years has elapsed since the later of the date of
the acquisition of restricted shares of Common Stock from the Company or from
any affiliate of the Company, a person (or persons whose shares are
aggregated) who is not at any time during the 90 days preceding a sale an
"affiliate" is entitled to sell such shares under Rule 144 without regard to
the volume and other limitations of Rule 144 described above.
Notwithstanding the limitations on sale described above, otherwise
restricted securities may be sold at any time through an effective
registration statement pursuant to the Securities Act. As of February 9, 1998,
options to purchase a total of 41,161 shares of Common Stock were outstanding.
An additional 462,269 shares of Common Stock will be available for future
stock option grants and other awards under the Company's Stock Plans. The
Company has filed Registration Statements covering the shares of Common Stock
reserved for issuance under the Stock Option Plan and the Employee Stock
Purchase Plan. As of February 9, 1998, 222,227 registered shares of Common
Stock were available for future stock option grants and other awards under the
Stock Option Plan and Employee Stock Purchase Plan. See "Management -- Stock
Plans."
Under the terms of the Secured Subordinated Note and Warrant Purchase
Agreement by and between the Company and MCRC, MCRC has the right to require
the Company to register all or a portion of 200,000 shares of Common Stock
issuable under the MCRC Warrants (subject to certain limitations) at any time
for sale to the public. The Company will pay all out-of-pocket expenses of any
such registrations, other than MCRC's pro rata share of any underwriting
discounts and commissions, and will indemnify MCRC against certain
liabilities, including liabilities under the federal securities laws, in
connection therewith. Under the terms of the Settlement Agreement by and
between the Company and the Selling Shareholder dated December 12, 1995, the
Selling Shareholder has the right to require the Company to register all or a
portion of the 83,155 shares of Common Stock held by the Selling Shareholder
(subject to certain limitations) at any time for sale to the public. The
Company will pay all out-of-pocket expenses of any such registrations, other
than fees and expenses of the Selling Shareholder's counsel and the Selling
Shareholder's pro rata share of any registration fees, underwriting discounts
and commissions, except if the registration is exclusively a secondary
offering, in which case the Selling Shareholder will bear its proportionate
share of the expenses of the registration and offering. The Company will
indemnify the Selling Shareholder against certain liabilities, including
liabilities under the federal securities law, in connection with any such
registrations.
The Company, its executive officers and directors and MCRC have agreed that
for a period of 180 days (90 days in the case of the Selling Shareholder)
after the date of this Prospectus, subject to certain exceptions, they will
not, without the prior written consent of Advest, Inc., offer, sell, solicit
any offer to buy, contract to sell, encumber, distribute, pledge, grant any
option for the sale of or otherwise dispose of or, with respect to the
Company, file with the Commission a registration statement under the
Securities Act relating to, or, with respect to the shareholders, exercise any
registration rights with respect to, any shares of Common Stock or securities
convertible into or exchangeable or exercisable for any shares of Common
Stock. See "Underwriting."
42
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement (the "Underwriting Agreement") among the Company, the Selling
Shareholder, the Principal Shareholder and the underwriters named below (the
"Underwriters"), for whom Advest, Inc. is acting as the representative (the
"Representative"), each of the Underwriters has severally agreed to purchase,
and the Company and the Selling Shareholder have agreed to sell to each of the
Underwriters, the respective number of shares of Common Stock set forth
opposite the name of each of the Underwriters below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
----------- ---------
<S> <C>
Advest, Inc. ...................................................
Schneider Securities, Inc. .....................................
---------
Total......................................................... 1,025,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to approval of certain matters by their counsel and to various
other conditions precedent. The Underwriters are committed to purchase and pay
for all of the shares of Common Stock offered hereby, if any are purchased.
The Underwriters have advised the Company and the Selling Shareholder that
they propose to offer the shares of the Common Stock to the public at the
offering price set forth on the cover page of this Prospectus and to certain
selected dealers at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the public
offering of the shares, the public offering price, concession and reallowance
to dealers may be changed by the Underwriters. The Common Stock is offered
subject to receipt and acceptance by the Underwriters, and to certain other
conditions, including the right to reject orders in whole or in part.
The Company has agreed to pay to Advest, Inc., the Representative, and
Schneider Securities, Inc., one of the proposed Underwriters, a non-
accountable expense allowance equal to two percent of the aggregate public
offering price of the Common Stock sold by the Company, of which $50,000 has
already been paid.
The Principal Shareholder has granted to the Underwriters an option,
exercisable during the 30-day period beginning on the date of this Prospectus,
to purchase up to 153,750 additional shares of Common Stock (the "Option
Shares"), solely to cover over-allotments, if any, at the public offering
price less the underwriting discounts set forth on the cover page of this
Prospectus. To the extent that this option to purchase is exercised, each
Underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of Option Shares as the number set forth
next to such Underwriter's name in the preceding table bears to the sum of the
total number of shares of Common Stock in such table.
The Company, its executive officers and directors, and certain principal
shareholders have agreed that for a period of 180 days (90 days in the case of
the Selling Shareholder) after the date of this Prospectus, subject to certain
exceptions, they will not directly or indirectly offer, sell, announce an
intention to sell, solicit any offer to buy, contract to sell, encumber,
distribute, pledge, grant any option for the sale of or otherwise dispose of,
or, with respect to the Company, file with the Commission a registration
statement under the Securities Act relating to, or, with respect to the
shareholders, exercise any registration rights with respect to, any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of Common Stock without the prior written consent of Advest, Inc.
43
<PAGE>
Subject to certain limitations, the Company, the Selling Shareholder and the
Principal Shareholder have agreed to indemnify the Underwriters against, and
to contribute to losses arising out of, certain liabilities, including
liabilities under the Securities Act.
The Company has granted to Advest, Inc., subject to certain exceptions, a
right of first refusal to provide investment banking services, including with
respect to financings, mergers and acquisitions and financial advisory and
fairness opinions, to the Company for a period of three (3) years from the
date of this Prospectus.
In connection with this Offering, the Company has agreed to sell to Advest,
Inc. and Schneider Securities, Inc., for nominal consideration, warrants (the
"Underwriters' Warrants"), which confer the right to purchase up to 100,000
shares of Common Stock. The Underwriters' Warrants are initially exercisable
at the price of $ per share of Common Stock (155% of the public offering
price) (the "Exercise Price") for a period of four years commencing one year
from the effective date of the Registration Statement of which this Prospectus
is a part. The Underwriters' Warrants are restricted from sale, transfer,
assignment or hypothecation for a period of one year from such effective date,
except to members of the selling group or their respective officers or
partners. The shares of Common Stock issuable upon exercise of the
Underwriters' Warrants are identical to those offered hereby. The
Underwriters' Warrants contain provisions providing for adjustment of the
Exercise Price and the number and type of securities issuable upon the
exercise thereof upon the occurrence of certain events. The Underwriters'
Warrants grant to the holders thereof certain demand and "piggyback" rights of
registration of the securities issuable upon the exercise thereof.
The Underwriters have advised the Company that, pursuant to Regulation M
promulgated under the Securities Exchange Act of 1934, as amended, certain
persons participating in this Offering may engage in transactions, including
stabilizing bids, syndicate covering transactions or the imposition of penalty
bids, which may have the effect of stabilizing or maintaining the market price
of the Common Stock at a level above that which might otherwise prevail in the
open market. A "stabilizing bid" is a bid for or the purchase of the Common
Stock on behalf of the Underwriters for the purpose of fixing or maintaining
the price of the Common Stock. A "syndicate covering transaction" is the bid
for or the purchase of the Common Stock on behalf of the Underwriters to
reduce a short position incurred by the Underwriters in connection with this
Offering. A "penalty bid" is an arrangement permitting the Underwriters to
reclaim the selling concession otherwise accruing to a selling group member in
connection with this Offering if the Common Stock originally sold by such
selling group member is purchased by the Underwriters in a syndicate covering
transaction and has therefore not been effectively placed by such selling
group member. These transactions may be effected on the AMEX or otherwise and,
if commenced, may be discontinued at any time.
The foregoing is a brief summary of certain provisions of the Underwriting
Agreement and does not purport to be a complete statement of its terms and
conditions. A copy of the Underwriting Agreement is on file with the
Commission as an exhibit to the Registration Statement of which this
Prospectus is a part.
LEGAL MATTERS
Certain legal matters relating to this Offering will be passed upon for the
Company by Hinckley, Allen & Snyder, Providence, Rhode Island. Certain legal
matters relating to this Offering are being passed upon for the Underwriters
by Morgan, Lewis & Bockius LLP, New York, New York.
EXPERTS
The financial statements included in this Prospectus and the related
financial statement schedule included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in the Registration Statement,
and are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
44
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the securities offered hereby.
This Prospectus, which constitutes a part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, and reference is hereby made to the Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company and this Offering. Any statements contained herein
concerning the provisions of any document are not necessarily complete, and,
in each instance, reference is made to the copy of such document filed as an
exhibit to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. Copies of
the Registration Statement may be inspected without charge and copied at
prescribed rates at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. The Registration
Statement and exhibits thereto may also be obtained on the World Wide Web site
maintained by the Commission at http://www.sec.gov. Such information
concerning the Company can also be inspected at the offices of the AMEX at 86
Trinity Place, New York, New York 10006.
45
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets as of December 31, 1996 and 1997.......................... F-3
Statements of Income for the Years Ended December 31, 1995, 1996 and
1997.................................................................... F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1995,
1996 and 1997........................................................... F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997.................................................................... F-6
Notes to Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Providence and Worcester Railroad Company:
We have audited the accompanying balance sheets of Providence and Worcester
Railroad Company as of December 31, 1996 and 1997, and the related statements
of income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the 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, such financial statements present fairly, in all material
respects, the financial position of Providence and Worcester Railroad Company
as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997
in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Worcester, Massachusetts
January 30, 1998
F-2
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
BALANCE SHEETS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
ASSETS
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Current Assets:
Cash and equivalents.......................................... $ 686 $ 519
Accounts receivable, net of allowance for doubtful accounts of
$125 in 1996 and 1997 (Notes 3 and 4)........................ 2,537 2,345
Materials and supplies........................................ 1,021 2,086
Prepaid expenses and other.................................... 121 167
Deferred income taxes (Note 7)................................ 400 204
------- -------
Total Current Assets......................................... 4,765 5,321
Property and Equipment, net (Notes 2 and 4).................... 63,726 65,891
------- -------
Total Assets................................................... $68,491 $71,212
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank (Note 3).................................. $ 1,440 $ 1,350
Current portion of long-term debt (Note 4).................... 677 931
Accounts payable.............................................. 2,861 2,083
Accrued expenses (Note 5)..................................... 907 931
------- -------
Total Current Liabilities.................................... 5,885 5,295
------- -------
Long-Term Debt, Less Current Portion (Note 4).................. 12,131 11,916
------- -------
Profit-Sharing Plan Contribution (Note 9)...................... 226 337
------- -------
Deferred Grant Income (Note 1)................................. 5,571 6,945
------- -------
Deferred Income Taxes (Note 7)................................. 8,617 8,681
------- -------
Commitments and Contingent Liabilities (Note 8)................
Shareholders' Equity (Notes 8, 9 and 10):
Preferred stock, 10% noncumulative, $50 par value; authorized
6,817 shares; issued and outstanding 653 shares.............. 33 33
Common stock, $.50 par value; authorized 3,023,436 shares;
issued and outstanding 2,188,244 shares in 1996 and 2,221,933
shares in 1997............................................... 1,094 1,111
Additional paid-in capital.................................... 6,365 6,665
Retained earnings............................................. 28,569 30,229
------- -------
Total Shareholders' Equity................................... 36,061 38,038
------- -------
Total Liabilities and Shareholders' Equity..................... $68,491 $71,212
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Operating Revenues -- Freight and Non-Freight.... $ 19,778 $ 19,456 $ 22,083
-------- -------- --------
Operating Expenses:
Maintenance of way and structures............... 2,469 2,815 3,035
Maintenance of equipment........................ 1,538 1,555 1,874
Transportation.................................. 5,106 4,917 4,987
General and administrative...................... 4,095 3,859 3,764
Depreciation.................................... 1,790 1,940 2,054
Taxes, other than income taxes.................. 1,971 2,023 2,021
Car hire, net................................... 708 605 598
-------- -------- --------
Total Operating Expenses....................... 17,677 17,714 18,333
-------- -------- --------
Income from Operations........................... 2,101 1,742 3,750
-------- -------- --------
Other Income (Note 6)............................ 581 1,660 638
-------- -------- --------
Interest Expense (Notes 3 and 4):
Capital Properties, Inc......................... (668) (437) (410)
Other........................................... (507) (934) (948)
-------- -------- --------
Total Interest Expense......................... (1,175) (1,371) (1,358)
-------- -------- --------
Income before Income Taxes....................... 1,507 2,031 3,030
Provision for Income Taxes (Note 7).............. 590 780 1,100
-------- -------- --------
Net Income....................................... $ 917 $ 1,251 $ 1,930
Preferred Stock Dividends........................ 3 3 3
-------- -------- --------
Net Income Available to Common Shareholders...... $ 914 $ 1,248 $ 1,927
======== ======== ========
Basic Income Per Share........................... $ .45 $ .57 $ .87
======== ======== ========
Diluted Income Per Share......................... $ .43 $ .54 $ .81
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND
1997
----------------------------------------------------
ADDITIONAL TOTAL
PREFERRED COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995.... $ 33 $ 1,005 $ 5,046 $ 26,830 $ 32,914
Issuance of 55,000 common
shares in payment of an
environmental claim....... 28 363 391
Issuance of 40,606 common
shares to fund the
Company's 1994 profit
sharing plan
contribution.............. 20 315 335
Issuance of 4,374 common
shares for stock options
exercised................. 2 24 26
Issuance of common stock
warrants (Note 4)......... 80 80
Dividends paid:
Preferred stock, $5.00 per
share.................... (3) (3)
Common stock, $.10 per
share.................... (205) (205)
Net income for the year.... 917 917
---- ------- ------- -------- --------
Balance, December 31, 1995.. 33 1,055 5,828 27,539 34,455
Issuance of 53,155 common
shares in payment of an
environmental claim....... 27 352 379
Issuance of 20,925 common
shares to fund the
Company's 1995 profit
sharing plan contribution
(Note 9)..................... 10 157 167
Issuance of 4,123 common
shares for stock options
exercised and other....... 2 28 30
Dividends paid:
Preferred stock, $5.00 per
share.................... (3) (3)
Common stock, $.10 per
share.................... (218) (218)
Net income for the year.... 1,251 1,251
---- ------- ------- -------- --------
Balance, December 31, 1996.. 33 1,094 6,365 28,569 36,061
Issuance of 22,550 common
shares to fund the
Company's 1996 profit
sharing plan contribution
(Note 9).................. 11 215 226
Issuance of 11,139 common
shares for stock options
exercised, employee stock
purchases and other....... 6 85 91
Dividends paid:
Preferred stock, $5.00 per
share.................... (3) (3)
Common stock, $.12 per
share.................... (267) (267)
Net income for the year.... 1,930 1,930
---- ------- ------- -------- --------
Balance, December 31, 1997.. $ 33 $ 1,111 $ 6,665 $ 30,229 $ 38,038
==== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................... $ 917 $ 1,251 $ 1,930
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation................................... 1,790 1,940 2,054
Amortization of deferred grant income.......... (121) (136) (149)
Gains from sale, condemnation and disposal of
property and equipment........................ (64) (1,103) (157)
Deferred income taxes.......................... 220 600 260
Other, net..................................... 19 26 65
Increase (decrease) in cash from:
Accounts receivable........................... (636) 68 217
Materials and supplies........................ (68) (290) (1,065)
Prepaid expenses and other.................... (12) 18 (46)
Accounts payable and accrued expenses......... 1,132 (914) 422
-------- -------- --------
Net cash flows from operating activities........ 3,177 1,460 3,531
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............. (4,490) (5,465) (5,160)
Proceeds from sale and condemnation of property
and equipment.................................. 108 1,319 230
Proceeds from deferred grant income............. 378 901 1,475
-------- -------- --------
Net cash flows used by investing activities..... (4,004) (3,245) (3,455)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (payments) under line of credit.. (120) 1,440 (90)
Payments of long-term debt...................... (4,254) (789) (699)
Dividends paid.................................. (208) (221) (270)
Proceeds from long-term debt.................... 6,800 730
Issuance of common shares for stock options
exercised and employee stock purchases......... 26 29 86
-------- -------- --------
Net cash flows from (used by) financing
activities..................................... 2,244 459 (243)
-------- -------- --------
Increase (Decrease) in Cash and Equivalents..... 1,417 (1,326) (167)
Cash and Equivalents, Beginning of Year......... 595 2,012 686
-------- -------- --------
Cash and Equivalents, End of Year............... $ 2,012 $ 686 $ 519
======== ======== ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during year for:
Interest....................................... $ 1,269 $ 1,333 $ 1,328
======== ======== ========
Income taxes................................... $ 543 $ 60 $ 873
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company is an interstate freight carrier conducting railroad operations
in Massachusetts, Rhode Island, Connecticut and New York.
One customer accounted for approximately 12.1%, 12.6% and 15.1% of the
Company's operating revenues in 1995, 1996 and 1997, respectively.
CASH AND EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents for purposes of
classification in the balance sheets and statements of cash flows. Cash
equivalents are stated at cost, which approximates fair market value.
MATERIALS AND SUPPLIES
Materials and supplies, which consist of items for the improvement and
maintenance of track structure and equipment, are stated at cost, determined
on a first-in, first-out basis, and are charged to expense or added to the
cost of property and equipment when used.
PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost (including self-
construction costs). Acquired railroad property is recorded at the purchased
cost. Major renewals or betterments are capitalized while routine maintenance
and repairs, which do not improve or extend asset lives, are charged to
expense when incurred. Gains or losses on sales or other dispositions are
credited or charged to income. Depreciation is provided using the straight-
line method over the estimated useful lives of the assets as follows:
<TABLE>
<CAPTION>
DEPRECIABLE PROPERTIES ESTIMATED USEFUL LIVES
---------------------- ----------------------
<S> <C>
Track structure....................................... 20 to 67 years
Buildings and other structures........................ 33 to 45 years
Equipment............................................. 4 to 25 years
</TABLE>
In 1996, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets to be
Disposed of." This standard requires that long-lived assets and certain
identifiable intangibles held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. The Company continually evaluates whether
later events and circumstances have occurred that indicate assets may not be
recoverable. When factors indicate that assets should be evaluated for
possible impairment, the Company uses an estimate of the related undiscounted
future cash flows over the remaining lives of the assets in measuring whether
the assets are recoverable.
DEFERRED GRANT INCOME
The Company has availed itself of various federal and state programs
administered by the States of Connecticut and Rhode Island and by the
Commonwealth of Massachusetts for reimbursement of expenditures for capital
improvements. In order to receive reimbursement, the Company must submit
requests for the projects,
F-7
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
including cost estimates. The Company receives from 70% to 100% of the costs
of such projects, which have included bridges, track structure and public
improvements. To the extent that such grant proceeds are used for capital
improvements to bridges and track structure, they are recorded as deferred
grant income and amortized into operating revenues on a straight-line basis
over the estimated useful lives of the related improvements ($121 in 1995,
$136 in 1996, and $149 in 1997).
Grant proceeds utilized to finance public improvements, such as grade
crossings and signals, are recorded as a direct offset to the related expense.
Although the Company cannot predict the extent and length of future grant
programs, it intends to continue filing requests for such grants when they are
available.
REVENUE RECOGNITION
Freight revenues are recorded at the time delivery is made to the customer
or the connecting carrier.
Income or loss from sale, condemnation and disposal of property and
equipment and easements is recorded at the time the transaction is consummated
and collectibility is assured.
INCOME TAXES
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." This standard requires the Company to compute deferred income
taxes based on the differences between the financial statement and tax basis
of assets and liabilities using enacted rates in effect in the years in which
the differences are expected to reverse.
INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128 "Earnings per Share," which establishes standards for computing
and presenting earnings per share and applies to entities with publicly held
common stock or potential common stock. Prior to 1997, the Company computed
income per common share using the methods outlined in Accounting Principles
Board ("APB") Opinion No. 15, "Earnings per Share," and its interpretations.
The Company adopted SFAS No. 128 in 1997 and restated its earnings per share
for 1995 and 1996. Previously reported income per common share for years prior
to 1997 did not differ materially from that computed using SFAS 128.
Basic income per common share is computed using the weighted average number
of common shares outstanding during each year. Diluted income per common share
reflects the effect of the Company's outstanding convertible preferred stock,
options and warrants (using the treasury stock method), except where such
items would be antidilutive.
A reconciliation of net income available to common shareholders for the
computation of diluted income per share is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
------------------
1995 1996 1997
---- ------ ------
<S> <C> <C> <C>
Net income available to common shareholders............. $914 $1,248 $1,930
Interest expense impact (net of tax) on assumed
conversion of debt to exercise warrants................ 0 84 84
---- ------ ------
Net income available to common shareholders assuming
dilution............................................... $914 $1,332 $2,014
==== ====== ======
</TABLE>
F-8
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A reconciliation of weighted average shares used for the basic computation
and that used for the diluted computation is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Weighted average shares-basic................ 2,042,569 2,178,382 2,208,820
Dilutive effect of convertible preferred
stock, options and warrants................. 93,184 282,295 280,450
--------- --------- ---------
Weighted average shares-diluted.............. 2,135,753 2,460,677 2,489,270
========= ========= =========
</TABLE>
EMPLOYEE STOCK OPTION PLAN
The Company accounts for stock-based awards to employees using the intrinsic
value method in accordance with APB Opinion No. 25, "Accounting for Stock
Issued to Employees."
USE OF ESTIMATES
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results may differ from those estimates.
The Company's principal estimates include reserves for accounts receivable,
useful lives of properties, accrued liabilities, including health insurance
claims and legal and environmental contingencies, and deferred income taxes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107 "Disclosures About Fair Value of Financial Instruments"
requires disclosure of the fair value of certain financial instruments.
The following methods and assumptions are used to estimate the fair value of
each class of financial instrument held or owed by the Company:
Current assets and current liabilities: The carrying value approximates
fair value due to the short maturity of these items.
Long-term debt: The fair value of the Company's long-term debt is based
on secondary market indicators. Since the Company's debt is not quoted,
estimates are based on each obligation's characteristics, including
remaining maturities, interest rate, credit rating, collateral,
amortization schedule and liquidity. The carrying amount approximates fair
value.
ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information." SFAS 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. SFAS 131
establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Both standards will be adopted by the Company during the first
quarter of 1998 and are not expected to have material effects on its financial
position and results of operations.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to be consistent with the
current year presentation.
F-9
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Land and improvements....................................... $ 9,020 $ 9,128
South Quay property......................................... 11,339 11,464
Track structure............................................. 45,833 48,241
Buildings and other structures.............................. 5,955 5,318
Equipment................................................... 15,991 17,196
------- -------
88,138 91,347
Less accumulated depreciation............................... 24,412 25,456
------- -------
Total property and equipment, net......................... $63,726 $65,891
======= =======
</TABLE>
Land and improvements include property held for resale having a net book
value of approximately $400.
SOUTH QUAY PROPERTY
Pursuant to permits issued by the United States Department of the Army Corps
of Engineers and the Rhode Island Coastal Resources Management Council, the
Company has developed 33 acres of waterfront land in East Providence, Rhode
Island (the "South Quay") designed to capitalize on the growth of intermodal
transportation, utilizing rail, water and highway connections. The property
has highway access ( 1/2 mile from I-195), direct rail access and is adjacent
to a 12 acre site also owned by the Company.
The permits for the property allow for the construction of a dock along the
west face of the South Quay. Unless extended, the existing permits expire in
1998. The Company intends to apply for extensions of its existing permits to
enable the Company to construct a vessel unloading area if it is able to
attract user or investment commitments. The Company has also recently engaged
in discussions with potential users interested in utilizing the property for
off loading bulk products such as salt and construction aggregate. In
addition, the Company has explored the development of the facility for off
loading container vessels and barges.
The Company will need additional terminal capacity to achieve expected
growth in its intermodal container business. The Company currently intends to
use a portion of the property as an intermodal terminal facility to provide it
with such capacity. This development will not occur until the Company
completes the overhead clearance project required for the State of Rhode
Island's freight rail improvement project.
The Company intends to explore all development opportunities for the South
Quay and believes its costs will be fully recovered from future leases of the
property, associated rail freight revenues, particularly intermodal double
stack container trains, and possible port charges such as wharfage, dockage
and storage.
The Company, relying on Rhode Island Supreme Court decisions concerning
title to formerly tide flowed property, filed a lawsuit in 1996 in Rhode
Island Superior Court seeking to confirm the Company's fee simple absolute
title to the South Quay. Acting on motions for summary judgment from the
Company and the State of Rhode Island and Coastal Resources Management Council
("Coastal Council"), the Superior Court ruled that the Company is the fee
simple absolute owner of the South Quay. The State and Coastal Council have
appealed the decision to the Rhode Island Supreme Court contending that the
Company possesses only a 50 year exclusive license to develop and occupy the
South Quay, which license must be renewed at the end of the term. A decision
from the Rhode Island Supreme Court is expected in 1999. A finding that the
Company possesses only a 50 year license should not prevent the utilization of
the South Quay as an intermodal facility.
F-10
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
3. NOTES PAYABLE, BANK
The Company has a revolving line of credit with its principal bank in the
amount of $1,750 expiring June 1, 1998. Borrowings outstanding under this line
of credit are due on demand, bear interest at the bank's prime rate plus one-
half of one percent (9% at December 31, 1997) and are secured by the Company's
accounts receivable. In addition, the Company pays a commitment fee of one-
half of one percent per year on the unused portion of the line of credit.
Loans in the amount of $1,440 and $1,350 were outstanding under this line of
credit at December 31, 1996 and 1997, respectively.
4. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
10% note payable to Capital Properties, Inc. (which, with
the Company, has a common controlling shareholder), certain
real estate pledged as collateral, presently payable in
monthly installments of principal and interest of $53 to
2007....................................................... $ 4,211 $ 3,993
8.69% note payable to a commercial lender, certain equipment
and track structure along with a second lien on accounts
receivable pledged as collateral, payable in monthly
installments of principal and interest of $62 to 2003...... 3,669 3,229
7.9% note payable to a commercial lender, three locomotives
pledged as collateral, payable in monthly installments of
principal and interest of $15 to 2002 (i).................. 689
10% subordinated note payable to Massachusetts Capital
Resource Company ("MCRC"), effective interest rate of
10.3%, Massachusetts track structure pledged as collateral,
payable in quarterly installments of interest only through
September 1998 and interest and principal payments
increasing from $63 to $188 commencing in December 1998
with a final principal payment of $1,250 due December 31,
2005 (ii).................................................. 4,928 4,936
------- -------
Total long-term debt...................................... 12,808 12,847
Less current portion...................................... 677 931
------- -------
Long-term debt, less current portion...................... $12,131 $11,916
======= =======
</TABLE>
--------
(i) In July 1997, the Company completed the acquisition and renovation of
three used locomotives at a total cost of $730 financed through long-
term borrowings from a commercial lender. The interest rate, which is
variable, is set at 2.35% over the 30 day Commercial Paper rate
(approximately 7.9% as of December 31, 1997). The Company has the
option of converting to a fixed rate of interest set at 2.1% over the
then current weekly average rate of three year U.S. Treasury Constant
Maturities. The amount of the monthly payments will be adjusted
annually in August to reflect the effects of the variable interest
rates in effect during the previous year.
(ii) In December 1995, the Company concluded an agreement with MCRC whereby
the Company received $5,000 in exchange for a subordinated note
payable in the amount of $4,920 and warrants to purchase 200,000
shares of the Company's common stock at an exercise price of $7.10 per
share. The warrants
F-11
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
are exercisable through December 31, 2005. MCRC must apply $1,420 of the
amount due on its subordinate note toward the exercise of the warrants
upon the Company's consummation of a public offering of its common stock
at a purchase price of not less than $14.20 per share which results in
gross proceeds to the Company of not less than $10,000. The value
assigned to the warrants of $80 was derived from a valuation made by
MCRC on the date of issue. The value assigned to the warrants is being
amortized over the life of the debt. The agreement contains various
covenants which, among other things, limit the payment of dividends to
25% of the Company's net income and require the Company to maintain
certain ratios of leverage and interest coverage.
The following is a summary of the maturities of long-term debt as of December
31, 1997:
<TABLE>
<S> <C>
Year ending December 31:
1998............................................................... $ 931
1999............................................................... 1,179
2000............................................................... 1,328
2001............................................................... 1,611
2002............................................................... 1,030
Thereafter......................................................... 6,768
-------
$12,847
=======
</TABLE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1996 1997
------ ------
<S> <C> <C>
Casualty and environmental claims............................. $ 320 $ 279
Other......................................................... 587 652
------ ------
$ 907 $ 931
====== ======
</TABLE>
Casualty loss and environmental claims expense, included in transportation
expense, amounted to $728 in 1995 and $171 in 1996. The Company did not incur
any casualty loss and environmental claims expense in 1997.
6. OTHER INCOME
Other income consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
----------------- --------
<S> <C> <C> <C>
Gain from sale, condemnation and disposal of
property and equipment and easements, net...... $ 64 $ 1,103 $ 157
Rentals and license fees, under various
operating leases............................... 494 494 470
Interest........................................ 23 63 11
------- --------- -------
$ 581 $ 1,660 $ 638
======= ========= =======
</TABLE>
F-12
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1996 1997
-------------------------
<S> <C> <C> <C>
Current:
Federal......................................... $ 320 $ 150 $ 750
State........................................... 50 30 90
------- ------- ---------
370 180 840
Deferred, Federal and State....................... 220 600 260
------- ------- ---------
$ 590 $ 780 $ 1,100
======= ======= =========
</TABLE>
The following summarizes the estimated tax effect of significant cumulative
temporary differences that are included in the net deferred income tax
provision:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Depreciation................................. $ 85 $ 87 $ 148
General business tax credits................. 400 238 588
Deferred grant income........................ (91) (271) (478)
Gain from sale, condemnation and disposal of
properties and equipment.................... (14) 319 (17)
Accrued casualty and environmental claims.... (169) 218 14
Other........................................ 9 9 5
-------- -------- --------
$ 220 $ 600 $ 260
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of (a) temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, and
(b) tax credit carryforwards. The tax effects of significant items comprising
the Company's net deferred income tax liability as of December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
<S> <C> <C>
Deferred income tax liabilities --
Differences between book and tax basis of properties...... $10,956 $11,087
------- -------
Deferred income tax assets:
Tax credit carryforwards.................................. 649 61
Deferred grant income..................................... 1,909 2,387
Accrued casualty losses................................... 113 99
Other..................................................... 68 63
------- -------
2,739 2,610
------- -------
Net deferred income tax liability......................... $ 8,217 $ 8,477
======= =======
</TABLE>
F-13
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A reconciliation of the U.S. federal statutory rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory rate..................... 34% 34% 34%
Depreciation of properties acquired from
bankrupt railroads having a tax basis in
excess cost............................... (1) (1) (1)
Non-deductible expenses.................... 4 4 1
State income tax, net of federal income tax
benefit................................... 2 1 2
-------- -------- --------
Effective tax rate......................... 39% 38% 36%
======== ======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is a defendant in certain lawsuits relating to casualty losses,
many of which are covered by insurance subject to a deductible. The Company
believes that adequate provision has been made in the financial statements for
any expected liabilities which may result from disposition of such lawsuits.
The Company was notified by CPC International, Inc. (now "Bestfoods") and
the United States Environmental Protection Agency that the Company was alleged
to be a potentially responsible party for some or all of the costs of
remediation of a Superfund site, reportedly due to the impact of a 1974
incident involving a rail car. In December 1995, the Company concluded an
agreement with Bestfoods ("Agreement") in which the Company agreed to pay $990
in settlement of all claims against it relating to this incident. The Company
issued 55,000 shares of its common stock, having a value of $391, to Bestfoods
in December 1995 in partial payment of this claim. An additional 53,155
shares, having a value of $379, were issued in January 1996. The Company has
the option of paying the remaining liability of $220 in cash or by the
issuance of approximately 31,000 shares of unregistered, restricted common
stock of the Company. This remaining liability must be paid by the earlier of
June 30, 1999, or the closing of a public offering of at least 565,000 shares
of common stock. The Agreement further provides that, in the event Bestfoods
recovers insurance proceeds for its costs, the Company is entitled to receive
10% of the net recovery after deduction of litigation expenses. Bestfoods is
actively engaged in litigation with an insurer seeking such a recovery.
Bestfood's insurance carrier (which to date has denied coverage to Bestfoods)
has notified the Company that it intends to bring suit against the Company to
enforce its alleged rights of subrogation. The Company believes that since
Bestfoods has released the Company from any liability, its carrier has no
right of subrogation and its claim is without merit. Moreover, under the
Agreement, Bestfoods is obligated to defend, indemnify and hold harmless the
Company for any claims which arise from such contamination, including claims
of the insurance carrier.
While it is possible that some of the foregoing matters may be settled at a
cost greater than that provided for, it is the opinion of management based
upon the advice of counsel that the ultimate liability, if any, will not be
material to the Company's financial statements.
In October 1997, the Company's Board of Directors approved an agreement to
purchase all of the outstanding common stock of Connecticut Central Railroad
Company ("Conn Central") for 20,000 shares of newly issued common stock of the
Company. If certain financial and other conditions are met, Conn Central's
shareholders will receive an additional 7,500 shares of the Company's common
stock one year from the date of the closing. The transaction is expected to be
completed in the second quarter of 1998 following approval or exemption by the
United States Surface Transportation Board. Conn Central is a shortline
railroad headquartered in Middletown, Connecticut which has operating rights
over approximately 28 miles in central Connecticut and connects to the
Company's Middletown Secondary line. After completion of the acquisition, Conn
Central will be merged into the Company.
F-14
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
9. EMPLOYEE BENEFIT PLANS
STOCK OPTION PLAN
The Company has a non-qualified stock option plan ("SOP") covering all
management personnel having a minimum of one year of service with the Company
and who are not holders of a majority of either its outstanding common stock
or its outstanding preferred stock. In addition, the Company's outside
directors are eligible to participate in the SOP. The SOP covers 50,000 common
shares or 5% of the shares of common stock outstanding, whichever is greater
(111,097 shares at December 31, 1997). Options granted under the SOP, which
are fully vested when granted, are exercisable over a ten year period at the
market price for the Company's common stock as of the date the options are
granted.
Changes in stock options outstanding are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
-------------------
NUMBER EXERCISE FAIR
OF SHARES PRICE VALUE
--------- --------- --------
<S> <C> <C> <C>
Outstanding at January 1, 1995............... 30,357 $ 6.03
Granted...................................... 7,808 7.00 $ 2.29
Exercised.................................... (4,374) 5.89
------
Outstanding and exercisable at December 31,
1995........................................ 33,791 6.27
Granted...................................... 7,790 6.88 2.21
Exercised.................................... (3,823) 5.99
Expired...................................... (2,604) 6.17
------
Outstanding and exercisable at December 31,
1996........................................ 35,154 6.44
Granted...................................... 7,970 7.88 $2.96
Exercised.................................... (7,593) 6.63
Expired...................................... (1,513) 5.98
------
Outstanding and exercisable at December 31,
1997........................................ 34,018 $6.76
======
</TABLE>
The fair value of options on their grant date was measured using the Black-
Scholes options pricing model. Key assumptions used to apply this pricing
model are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Average risk-free
interest rate.......... 5.9% 6.4% 5.75%
Expected life of option
grants................. 7.0 years 7.0 years 7.0 years
Expected volatility of
underlying stock....... 22% 22% 29%
Expected dividend
payment rate, as a
percentage of the share
price on the date of
grant.................. 1.43% 1.45% 1.26%
</TABLE>
It should be noted that the option pricing model used was designed to value
readily tradable stock options with relatively short useful lives. The options
granted to employees are not tradable and have contractual lives of up to ten
years. However, management believes that the assumptions used to value the
options and the model applied yield a reasonable estimate of the fair value of
the grants made under the circumstances.
F-15
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
The following table sets forth information regarding options at December 31,
1997:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------------
RANGE OF NUMBER
NUMBER EXERCISE CURRENTLY EXERCISE REMAINING
OF OPTIONS PRICES EXERCISABLE PRICE LIFE (IN YEARS)
---------- ----------- ----------- -------- ---------------
<S> <C> <C> <C> <C>
6,430 $3.25--4.38 6,430 $3.78 4.1
22,046 5.50--7.88 22,046 7.19 7.0
5,542 8.50 5,542 8.50 2.0
</TABLE>
The Company has elected to remain with the accounting prescribed by APB 25,
instead of adopting SFAS No. 123, "Accounting for Stock-Based Compensation".
Therefore, no compensation cost has been recognized for the SOP. Had
compensation cost for the Company's SOP been determined on the fair value of
the grant dates for awards under the SOP consistent with the method of SFAS
123, the Company's net income and income per share would have been as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1995 1996 1997
--------------- --------
<S> <C> <C> <C>
Net income:
As reported....................................... $ 917 $ 1,251 $ 1,930
Pro forma......................................... 914 1,245 1,921
Basic income per share:
As reported....................................... .45 .57 .87
Pro forma......................................... .45 .57 .87
Diluted income per share:
As reported....................................... .43 .54 .81
Pro forma......................................... .43 .54 .80
</TABLE>
DEFINED CONTRIBUTION RETIREMENT PLANS
The Company has a deferred profit-sharing plan ("Plan") which covers all of
its employees who are members of its collective bargaining units.
Contributions to the Plan are required in years in which the Company has
income from "railroad operations" as defined in the Plan. Contributions are to
be equal to at least 10% but not more than 15% of the greater of income before
income taxes or income from railroad operations subject to a maximum
contribution of $3.5 per eligible employee. Contributions to the Plan may be
made in cash or in shares of the Company's common stock. Contributions accrued
under this Plan amounted to $167 in 1995, $226 in 1996 and $337 in 1997. The
Company made its 1995 and 1996 contributions and intends to make its 1997
contribution in newly issued shares of its common stock.
The Company also has a Simplified Employee Pension Plan ("SEPP") which
covers substantially all employees who are not members of one of its
collective bargaining units. Contributions to the SEPP are discretionary and
are determined annually as a percentage of each covered employee's
compensation. Contributions accrued under the SEPP amounted to $159 in 1995,
$189 in 1996 and $196 in 1997.
EMPLOYEE STOCK PURCHASE PLAN
The Company has an Employee Stock Purchase Plan ("ESPP") under which
eligible employees may purchase registered shares of common stock at 85% of
the market price for such shares. An aggregate of 200,000 shares of common
stock are authorized for issuance under the ESPP. Any shares purchased under
the ESPP are subject to a two year lock-up. As of December 31, 1997, 2,846
shares have been purchased under the ESPP.
F-16
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
10. PREFERRED STOCK
Each share of the Company's $50 par value preferred stock is convertible
into 100 shares of common stock at the option of the shareholder. The
noncumulative annual stock dividend is fixed by the Company's Charter at the
rate of $5.00 per share, out of funds legally available for the payment of
dividends.
The holders of preferred stock are entitled to one vote for each share in
the election of two-thirds of the Board of Directors. The holders of preferred
stock and holders of common stock are entitled to one vote per share, voting
in separate classes, upon matters voted on by shareholders.
F-17
<PAGE>
[PHOTOGRAPH]
1. Three B-23-7 locomotives acquired by P&W in July 1997.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE
SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION
OF, ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN
ANY CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
The Company.............................................................. 12
Use of Proceeds.......................................................... 13
Price Range of Common Stock and Dividend Policy.......................... 14
Capitalization........................................................... 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 23
Management............................................................... 33
Certain Transactions..................................................... 38
Principal and Selling Shareholders....................................... 39
Description of Capital Stock............................................. 40
Shares Eligible for Future Sale.......................................... 41
Underwriting............................................................. 43
Legal Matters............................................................ 44
Experts.................................................................. 44
Available Information.................................................... 45
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,025,000 SHARES
LOGO
PROVIDENCE
AND
WORCESTER
RAILROAD COMPANY
COMMON STOCK
---------------
PROSPECTUS
---------------
ADVEST, INC.
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the issuance and distribution of the securities being registered. All the
amounts shown are estimated, except the Securities and Exchange Commission
Registration Fee, the NASD Filing Fee and the AMEX Listing Fee.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............... $ 6,753
NASD Filing Fee................................................... 2,789
AMEX Listing Fee.................................................. 17,500
Blue Sky Fees and Expenses (includes fees and expenses of coun-
sel)............................................................. 7,500
Transfer Agent and Registrar Fees................................. 3,000
Accounting Fees and Expenses...................................... 75,000
Legal Fees and Expenses........................................... 130,000
Non-accountable Expense Allowance................................. 347,500
Printing, Engraving and Delivery Expenses......................... 50,000
Miscellaneous..................................................... 9,958
--------
Total........................................................... $650,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article SIXTH of the Company's Charter provides that a director shall not be
liable to the Registrant or its shareholders for breach of fiduciary duty as a
director, other than liability for (a) breach of the director's duty of
loyalty to the Company or its shareholders, (b) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(c) unlawful payment of a dividend or unlawful stock purchase or redemption,
or (d) any transaction from which the director derived an improper personal
benefit.
Section 4.1 of the Rhode Island Business Corporation Act authorizes
indemnification of directors and officers of Rhode Island corporations.
Article XI of the Company's By-laws (i) authorizes the indemnification of
directors and officers (the "Indemnified Person") under specified
circumstances to the fullest extent authorized, (ii) provides for the
advancement of expenses to the Indemnified Persons for defending any
proceedings related to the specified circumstances and (iii) gives the
Indemnified Persons the right to bring suit against the Company to enforce the
foregoing rights to indemnification and advancement of expenses.
The Underwriting Agreement filed as Exhibit 1 to this Registration Statement
provides for indemnification of the Company, its directors and officers and
certain other persons against certain liabilities, including liabilities under
the Securities Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The table below sets forth all sales of the Registrant's securities within
the past three years which were not registered under the Securities Act in
reliance on the exemption provided by Section 4(2) thereof. No underwriting
discounts or commissions were paid in connection with any such sales.
<TABLE>
<CAPTION>
DATE OF TITLE AND AMOUNT NAME OR CLASS OF CONSIDERATION PAID TO OR
TRANSACTION OF SECURITIES PERSONS TO WHOM SOLD RECEIVED BY REGISTRANT
----------- ---------------- -------------------- ------------------------
<C> <C> <C> <S>
December 1995 Common Stock Massachusetts Capital $80,000
Purchase Warrant Resource Company
for 200,000 shares
of Common Stock at
an exercise price
of $7.10 per share
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
DATE OF TITLE AND AMOUNT NAME OR CLASS OF CONSIDERATION PAID TO OR
TRANSACTION OF SECURITIES PERSONS TO WHOM SOLD RECEIVED BY REGISTRANT
----------- ---------------- -------------------- ------------------------
<C> <C> <C> <S>
December 1995 55,000 shares of Bestfoods (formerly Partial consideration
Common Stock named CPC International, pursuant to 1995
Inc.) Settlement Agreement
between the Company and
Bestfoods (the
"Settlement Agreement"),
valued at $391,000.
1995 40,606 shares of Employees $335,000 pursuant to the
Common Stock terms of the Company's
Profit Sharing Plan
January 1996 53,155 shares of Bestfoods Partial consideration
Common Stock pursuant to the
Settlement Agreement,
valued at $379,000
1996 20,925 shares of Employees $167,000 pursuant to the
Common Stock terms of the Company's
Profit-Sharing Plan
1996 300 shares of Employees $2,175 pursuant to the
Common Stock terms of the Company's
Safety Incentive Plan
1997 22,550 shares of Employees $226,000 pursuant to the
Common Stock terms of the Company's
Profit-Sharing Plan
1997 700 shares of Employees $5,950 pursuant to the
Common Stock terms of the Company's
Safety Incentive Plan
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
a.Exhibits.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriters' Warrants.
3.1* Form of Restated Charter.
3.2 By-laws, as amended (filed as Exhibit 4.2 to Form S-8 Registration
Statement No. 333-02975 and by this reference incorporated herein).
5 Opinion of Hinckley, Allen & Snyder.
10.1 Secured Subordinated Note and Warrant Purchase Agreement dated as of
December 19, 1995 by and between the Company and Massachusetts Cap-
ital Resource Company, including Form of Secured Subordinated Notes
and Form of Common Stock Purchase Warrants.
10.2 Settlement Agreement and Release dated as of December 12, 1995, by
and between the Company and CPC International, Inc. (now
"Bestfoods").
10.3 Providence and Worcester Railroad Company Non-Qualified Stock Option
Plan.
23.1 Consent of Hinckley, Allen & Snyder (included in Exhibit 5).
23.2 Consent of Deloitte & Touche LLP.
24* Power of Attorney.
27 Financial Data Schedule.
</TABLE>
--------
*Previously filed with this Registration Statement.
b.Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
II-2
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes as follows:
(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 on 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 is 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 the initial
bona fide offering thereof.
(3) 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 provisions described in Item 14, or otherwise, the
registrant has been advised 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. 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 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.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 1 TO REGISTRATION STATEMENT TO
BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE
CITY OF WORCESTER, COMMONWEALTH OF MASSACHUSETTS, ON MARCH 2, 1998.
Providence and Worcester Railroad
Company
/s/ Robert H. Eder
By: _________________________________
ROBERT H. EDER CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATE OR DATES INDICATED.
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
/s/ Robert H. Eder Chief Executive March 2, 1998
- ------------------------------------- Officer and
ROBERT H. EDER Chairman (Principal
Executive Officer)
* President, Chief March 2, 1998
- ------------------------------------- Operating Officer
ORVILLE R. HARROLD and Director
/s/ Robert J. Easton Treasurer, March 2, 1998
- ------------------------------------- Controller and
ROBERT J. EASTON Director (Principal
Financial and
Accounting Officer)
* Director March 2, 1998
- -------------------------------------
FRANK W. BARRETT
* Director March 2, 1998
- -------------------------------------
PHILIP D. BROWN
* Director March 2, 1998
- -------------------------------------
JOHN H. CRONIN
* Director March 2, 1998
- -------------------------------------
J. JOSEPH GARRAHY
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
* Director March 2, 1998
- -------------------------------------
JOHN J. HEALY
* Director March 2, 1998
- -------------------------------------
WILLIAM J. LEDOUX
* Director March 2, 1998
- -------------------------------------
CHARLES M. MCCOLLAM, JR.
/s/ Heidi J. Eddins *Attorney-in-Fact
- -------------------------------------
HEIDI J. EDDINS,
</TABLE>
II-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of
Providence and Worcester Railroad Company:
We have audited the financial statements of Providence and Worcester
Railroad Company as of December 31, 1996 and 1997, and for each of the three
years in the period ended December 31, 1997, and have issued our report
thereon dated January 30, 1998. Our audits also included the financial
statement schedule of Providence and Worcester Railroad Company, listed in
Item 16(b) of this Registration Statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
Deloitte & Touche LLP
Worcester, Massachusetts
January 30, 1998
S-1
<PAGE>
SCHEDULE II
PROVIDENCE AND WORCESTER RAILROAD COMPANY
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSAND DOLLARS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
COLUMN
COLUMN A COLUMN B COLUMN C ADDITIONS COLUMN D E
-------- --------- -------------------- ------------- -------
(1)
BALANCE CHARGED (2) CHARGED BALANCE
AT TO COSTS TO OTHER AT END
BEGINNING AND ACCOUNTS OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE(B) DEDUCTIONS(A) PERIOD
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year ended December 31,
1995.................... $125 $125
==== ====
Year ended December 31,
1996.................... $125 $ 7 $ (7) $125
==== === ==== ====
Year ended December 31,
1997.................... $125 $43 $(43) $125
==== === ==== ====
</TABLE>
- --------
(A)Bad debts written off.
(B) Recovery of bad debts previously written off.
S-2
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1 --Form of Underwriting Agreement
1.2 --Form of Underwriters' Warrants
3.1* --Form of Restated Charter
3.2 --By-laws, as amended (filed as Exhibit 4.2 to Form S-8 Registration
Statement No. 333-02975 and by this reference incorporated herein)
5 --Opinion of Hinckley, Allen & Snyder
10.1 --Secured Subordinated Note and Warrant Purchase Agreement dated as of
December 19, 1995 by and between the Company and Massachusetts
Capital Resource Company, including Form of Secured Subordinated
Notes and Form of Common Stock Purchase Warrants
10.2 --Settlement Agreement and Release dated as of December 12, 1995, by
and between the Company and CPC International, Inc. (now "Bestfoods")
10.3 --Providence and Worcester Railroad Company Non-Qualified Stock Option
Plan
23.1 --Consent of Hinckley, Allen & Snyder (included in Exhibit 5)
23.2 --Consent of Deloitte & Touche LLP
24* --Power of Attorney
27 --Financial Data Schedule
</TABLE>
- --------
* Previously filed with this Registration Statement.
b. Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
<PAGE>
EXHIBIT 1.1
1,025,000 SHARES
PROVIDENCE AND WORCESTER RAILROAD COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
March __, 1998
ADVEST, INC.
As Representative (the "Representative")
of the several Underwriters
named in Schedule I hereto
c/o Advest, Inc.
One Rockefeller Plaza, 20th Floor
New York, New York 10020
Ladies and Gentlemen:
Providence and Worcester Railroad Company, a Rhode Island corporation
(the "Company"), and a certain shareholder of the Company named in Schedule II
hereto (the "Selling Shareholder"), propose to sell to the several Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of 1,025,000 shares
(the "Firm Stock") of the Company's Common Stock, par value $.50 per share (the
"Common Stock"). Of the 1,025,000 shares of the Firm Stock, 1,000,000 are being
sold by the Company and 25,000 by the Selling Shareholder.
In addition, in order to cover over-allotments in the sale of the Firm
Stock, Robert H. Eder, the principal shareholder of the Company (the "Principal
Shareholder"), proposes to grant to the Underwriters an option to purchase up to
an additional 153,750 shares of the Common Stock on the terms and for the
purposes set forth in Section 3 (the "Option Stock"). The Firm Stock and the
Option Stock, if purchased, are hereinafter referred to collectively as the
"Stock." This is to confirm the agreement concerning the purchase of the Stock
from the Company, the Selling Shareholder and the Principal Shareholder by the
Underwriters.
1. Representations, Warranties and Agreements of the Company. The
Company represents, warrants and agrees to and with the Underwriters and the
Selling Shareholder that:
(a) A registration statement on Form S-1 and Amendment No. 1
with respect to the Stock has (i) been prepared by the Company in
conformity with the requirements of the United States Securities Act
of 1933 (the "Securities Act")
<PAGE>
and the rules and regulations (the "Rule and Regulations") of the
United States Securities and Exchange Commission (the "Commission")
thereunder, (ii) been filed with the Commission under the Securities
Act and (iii) become effective under the Securities Act. Copies of
such registration statement and the amendment thereto have been
delivered by the Company to you as the Representative of the
Underwriters. As used in this Agreement, "Effective Time" means the
date and the time as of which such registration statement, or the most
recent post-effective amendment thereto, if any, was declared
effective by the Commission; "Effective Date" means the date of the
Effective Time; "Preliminary Prospectus" means each prospectus
included in such registration statement, or amendments thereof, before
it became effective under the Securities Act and any prospectus filed
with the Commission by the Company with the consent of the
Representative pursuant to Rule 424(a) of the Rules and Regulations;
"Registration Statement" means such registration statement, as amended
at the Effective Time and thereafter amended by post-effective
amendment, including all information contained in the final prospectus
filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations in accordance with Section 6 hereof and deemed to be a
part of the registration statement as of the Effective Time pursuant
to paragraph (b) of Rule 430A of the Rules and Regulations; and
"Prospectus" means such final prospectus, as first filed with the
Commission pursuant to paragraph (1) or (4) of Rule 424(b) of the
Rules and Regulations. To the Company's knowledge, the Commission has
not issued any order suspending the effectiveness of the Registration
Statement or preventing or suspending the use of any Preliminary
Prospectus.
(b) When any Preliminary Prospectus was filed with the
Commission, it contained all statements required to be stated therein
in accordance with, and complied in all material respects with the
requirements of, the Securities Act and the Rules and Regulations.
The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will, when they become effective or are filed with the
Commission, as the case may be, conform in all respects to the
requirements of the Securities Act and the Rules and Regulations and
do not and will not, as of the applicable effective date (as to the
Registration Statement and any amendment thereto) and as of the
applicable filing date (as to the Prospectus and any amendment or
supplement thereto) contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; provided that
no representation or warranty is made as to information contained in
or omitted from the Registration Statement or the Prospectus in
reliance upon and in conformity with written information furnished to
the Company through the Representative by or on behalf of any
Underwriter specifically for inclusion therein or furnished by or on
behalf of and
2
<PAGE>
relating to the Selling Shareholder or the Principal Shareholder
specifically for use therein.
(c) The Company and its subsidiary (as defined in Section 17)
have been duly incorporated and are validly existing as corporations
in good standing under the laws of their respective jurisdictions of
incorporation, are duly qualified to do business and are in good
standing as foreign corporations in each jurisdiction in which their
respective ownership or lease of property or the conduct of their
respective businesses requires such qualification except where the
failure to so qualify would not have a material adverse effect on the
consolidated financial position, shareholders' equity, results of
operations, business or prospects of the Company and its subsidiary,
taken as a whole, and have all power and authority, and all material
licenses, permits, clearances, easements, certifications,
registrations, approvals, consents and franchises, necessary to own or
lease and operate their respective properties and assets and to
conduct their businesses as described in the Registration Statement
and Prospectus subject in each case to such qualifications as may be
set forth in the Prospectus; and the sole subsidiary of the Company is
not a "significant subsidiary," as such term is defined in Rule 405 of
the Rules and Regulations.
(d) The Company and its subsidiary have sufficient interest in
their real and personal property to permit the operation of a freight
railroad as described in the Prospectus.
(e) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company have been duly and validly authorized and issued, are fully
paid and non-assessable and conform to the description thereof
contained in the Prospectus, and none of such shares have been issued
in violation of any preemptive rights; all of the issued shares of
capital stock of the subsidiary of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable
and are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims; and no options, warrants
or other rights to purchase, agreements or other obligations to issue
or other rights to convert any obligations into shares of capital
stock or ownership interests in the subsidiary of the Company are
outstanding.
(f) The offers and sales of the outstanding shares of the
Company's capital stock, whether described in the Registration
Statement or otherwise, were made in conformity in all material
respects with applicable federal and state securities laws.
(g) The shares of the Stock have been duly and validly
authorized and, when issued and delivered against payment therefor as
provided herein, will be duly and validly issued, fully paid and non-
assessable and the issuance thereof will
3
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not be subject to any preemptive rights, rights of first refusal or
similar rights; and the Stock will conform to the description thereof
contained in the Prospectus.
(h) The Company has reserved and kept available for the exercise
of the Warrants (as defined in Section 3(c) hereof) such number of
authorized but unissued shares of Common Stock as are sufficient to
permit the exercise in full of the Warrants. The Warrant Shares (as
defined in Section 3(c) hereof), when issued and sold pursuant to the
Warrants, will be duly and validly issued, fully paid and
nonassessable and none of them will be issued in violation of any
preemptive or other similar right binding on the Company.
(i) The Company has full power and authority to enter into,
deliver and perform this Agreement and the Warrants (as defined in
Section 3(c) hereof) and to issue and sell the Stock, the Warrants and
the Warrant Shares (as defined in Section 3(c) hereof); and this
Agreement and the Warrants have been duly authorized, executed and
delivered by the Company.
(j) The execution, delivery and performance of this Agreement by
the Company and the consummation of the transactions contemplated
hereby will not conflict with or result in a breach or violation of
any of the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or its subsidiary is a
party or by which the Company or its subsidiary is bound or to which
any of the property or assets of the Company or its subsidiary is
subject, nor will such actions result in any violation of the
provisions of the charter or by-laws or similar governing instruments
of the Company or its subsidiary or any statute or any order, rule or
regulation of any court or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its subsidiary or any
of their properties or assets; and except for the registration of the
Stock under the Securities Act and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and applicable state securities laws and the rules of the
American Stock Exchange, Inc. (the "AMEX") and the National
Association of Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution of the Stock by the Underwriters,
no consent, approval, authorization or order of, or filing or
registration with, any such court or governmental agency or body is
required for the execution, delivery and performance of this Agreement
by the Company and the consummation of the transactions contemplated
hereby.
(k) The execution, delivery and performance of the Warrants (as
defined in Section 3(c) hereof) by the Company and the consummation of
the transactions contemplated thereby will not conflict with or result
in a breach or violation of any
4
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of the terms or provisions of, or constitute a default under, any
material indenture, mortgage, deed of trust, loan agreement or other
agreement or instrument to which the Company or its subsidiary is a
party or by which the Company or its subsidiary is bound or to which
any of the property or assets of the Company or its subsidiary is
subject, nor will such actions result in any violation of the
provisions of the charter or by-laws or similar governing instruments
of the Company or its subsidiary or any statute or any order, rule or
regulation of any court or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or its subsidiary or any
of their properties or assets; and except for the registration of the
Warrants and the Warrant Shares (as defined in Section 3(c) hereof)
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act, and applicable state securities laws and the rules of the AMEX
and the NASD, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of the
Warrants by the Company and the consummation of the transactions
contemplated thereby.
(l) There are no contracts, agreements or understandings between
the Company and any person granting such person the right (other than
rights which have been waived or satisfied) to require the Company to
include such securities in the securities registered pursuant to the
Registration Statement; and there are no options or warrants for the
purchase of, other outstanding rights to purchase, agreements or
obligations to issue or agreements or other rights to convert or
exchange any obligation or security into, capital stock of the Company
or securities convertible into or exchangeable for capital stock of
the Company, except as described in the Prospectus.
(m) Except as described in the Registration Statement, the
Company has not sold or issued any shares of Common Stock during the
six-month period preceding the date of the Prospectus, including any
sales pursuant to Rule 144A under, or Regulation D or S of, the
Securities Act, other than shares issued pursuant to employee benefit
plans, qualified stock options plans or other employee compensation
plans or pursuant to outstanding options, rights or warrants.
(n) Neither the Company nor its subsidiary has sustained, since
the date of the latest audited financial statements included in the
Prospectus, any material loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action,
order or decree, otherwise than as set forth or contemplated in the
Prospectus; and, since such date, there has not been any change in the
capital stock or long-term debt of the Company or its subsidiary
(other than scheduled
5
<PAGE>
principal payments) or any material adverse change, or any development
involving a prospective material adverse change, in or affecting the
general affairs, management, business, prospects, obligations,
financial position, shareholders' equity or results of operations of
the Company and its subsidiary, otherwise than as set forth or
contemplated in the Prospectus.
(o) The financial statements (including the related notes and
supporting schedules) filed as part of the Registration Statement or
included in the Prospectus present fairly the financial condition and
results of operations of the entities purported to be shown thereby,
at the dates and for the periods indicated, and have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis throughout the periods involved; the financial
information included in the Prospectus under the caption "Prospectus
Summary" and "Selected Financial Data" (including any as adjusted
financial information) and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" accurately presents the
information shown therein and has been prepared on a basis consistent
with that of the audited financial statements of the Company included
in the Registration Statement; and the other historical and pro forma,
financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or
supplement thereto) are accurately presented and prepared on a basis
consistent with the books and records of the Company.
(p) Deloitte & Touche LLP, which have certified certain
financial statements of the Company, whose report appears in the
Prospectus and which have delivered the initial letter referred to in
Section 9(g) hereof, are independent public accountants as required by
the Securities Act and the Rules and Regulations.
(q) All real property owned by the Company and its subsidiary is
free and clear of all liens, encumbrances and defects, except such as
are described in the Prospectus or such as do not materially affect
the value of such property for railroad operations and do not
materially interfere with the use made and proposed to be made of such
property by the Company and its subsidiary; all real property and
buildings held under lease or trackage rights agreement by the Company
and its subsidiary are held by them under valid, subsisting and
enforceable leases or trackage rights agreements, as the case may be,
with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the
Company and its subsidiary.
(r) Except as described in the Prospectus, the Company and its
subsidiary carry, or are covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of their respective
businesses and the value of their
6
<PAGE>
respective properties and as is customary for companies engaged in
similar businesses in similar industries.
(s) Except as described in the Prospectus, the Company and its
subsidiary own or possess adequate rights to use all material patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights and licenses
necessary for the conduct of their respective businesses and have no
reason to believe that the conduct of their respective businesses will
conflict with, and have not received any notice of any claim of
conflict with, any such rights of others.
(t) There are no legal or governmental claims, actions or
proceedings pending or, to the knowledge of the Company, threatened
against the Company or its subsidiary to which the Company or its
subsidiary is a party or of which any property or assets of the
Company or its subsidiary is the subject that are required to be
described in the Registration Statement or the Prospectus but are not
described as required.
(u) The statements in the Registration Statement and Prospectus,
insofar as they are descriptions of or references to statutes,
regulations, contracts, agreements or other documents, are accurate in
all material respects and present or summarize fairly, in all material
respects, the information required to be disclosed under the
Securities Act or the Rules and Regulations, and there are no
statutes, regulations, contracts or other documents which are required
to be described in the Prospectus or filed as exhibits to the
Registration Statement by the Securities Act or the Rules and
Regulations which have not been described in the Prospectus or filed
as exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations.
(v) No relationship, direct or indirect, exists between or among
the Company on the one hand, and the directors, officers,
shareholders, customers or suppliers of the Company on the other hand,
which is required to be described in the Prospectus which is not so
described.
(w) No labor dispute or disturbance by the employees of the
Company or its subsidiary exists or, to the knowledge of the Company,
is imminent which might be expected to have a material adverse effect
on the consolidated financial position, shareholders' equity, results
of operations, business or prospects of the Company and its
subsidiary, taken as a whole; and the Company has no knowledge of any
existing or threatened labor disturbance by the employees of any of
the principal suppliers, contractors or customers of the Company or
its subsidiary that would materially adversely affect the consolidated
financial position, shareholders'
7
<PAGE>
equity, results of operations, business or prospects of the Company
and its subsidiary, taken as a whole.
(x) The Company is in compliance in all material respects with
all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event"
(as defined in ERISA) has occurred with respect to any "pension plan"
(as defined in ERISA) for which the Company would have any liability;
the Company has not incurred and does not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or
withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of
the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and
each "pension plan" for which the Company would have any liability
that is intended to be qualified under Section 401(a) of the Code is
so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of
such qualification.
(y) The Company and its subsidiary have filed all federal,
state, local and foreign income and franchise tax returns required to
be filed through the date hereof and have paid all taxes due thereon,
and no tax deficiency has been determined adversely to the Company or
its subsidiary which has had (nor does the Company have any knowledge
of any tax deficiency which, if determined adversely to the Company or
its subsidiary, might have) a material adverse effect on the
consolidated financial position, shareholders' equity, results of
operations, business or prospects of the Company and its subsidiary,
taken as a whole.
(z) Since the date as of which information is given in the
Prospectus through the date hereof, and except as may otherwise be
disclosed in the Prospectus, the Company has not (i) issued or granted
any securities (except pursuant to the exercise of warrants and
options outstanding on the date of the Prospectus or pursuant to
employee benefit plans described in the Prospectus), (ii) incurred any
liability or obligation, direct or contingent, other than liabilities
and obligations which were incurred in the ordinary course of
business, (iii) entered into any transaction not in the ordinary
course of business or (iv) declared or paid any dividend on its
capital stock (other than regular dividends declared on January 28,
1998).
(aa) The Company and its subsidiary each (i) makes and keeps
accurate books and records and (ii) maintains internal accounting
controls which provide reasonable assurance that (A) transactions are
executed in accordance with management's authorization, (B)
transactions are recorded as necessary to permit preparation of its
financial statements and to maintain accountability for its assets,
(C) access to its assets is permitted only in accordance with
management's
8
<PAGE>
authorization and (D) the reported accountability for its assets is
compared with existing assets at reasonable intervals.
(bb) Neither the Company nor its subsidiary (i) is in violation
of its charter or by-laws or similar governing instruments, (ii) is in
default in any material respect, and no event has occurred which, with
notice or lapse of time or both, would constitute such a default, in
the due performance or observance of any term, covenant or condition
contained in any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which it is a party or
by which it is bound or to which any of its properties or assets is
subject or (iii) is in violation in any material respect of any law,
ordinance, governmental rule, regulation, order, permit or court
decree to which it or its property or assets may be subject, including
with respect to any known release of hazardous wastes or other
hazardous materials.
(cc) Neither the Company nor its subsidiary, nor, to the
Company's knowledge, any director, officer, agent, employee or other
person associated with or acting on behalf of the Company or its
subsidiary, has used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating
to political activity; made any direct or indirect unlawful payment to
any foreign or domestic government official or employee from corporate
funds; violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
(dd) Neither the Company nor its subsidiary is an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission
thereunder.
(ee) There are no engagements or arrangements between the Company
and an investment bank or third party pursuant to which such investment
bank or third party has been granted any rights to underwrite securities of
the Company or would be entitled to receive a fee in the event of a private
placement of securities, public offering of securities or merger or
acquisition involving the Company, except for any rights to underwrite
contemplated by this Agreement, any arrangements for which fees are
reflected in Item 13 of Part II of the Registration Statement and any
arrangement described in the Prospectus under the caption "Underwriting."
2.A Representations, Warranties and Agreements of the Selling
Shareholder. The Selling Shareholder represents, warrants and agrees to and with
the Company, the Underwriters and the Principal Shareholder that:
9
<PAGE>
(a) The Selling Shareholder has, and immediately prior to the
First Delivery Date (as defined in Section 5 hereof) the Selling
Shareholder will have, good and valid title to the shares of Stock to
be sold by the Selling Shareholder hereunder on such date, free and
clear of all liens, encumbrances, equities or claims; and upon
delivery of such shares and payment therefor pursuant hereto, good and
valid title to such shares, free and clear of all liens, encumbrances,
equities or claims, will pass to the several Underwriters.
(b) The Selling Shareholder has full right, power and authority
to enter into this Agreement and to sell, transfer and deliver the
Stock to be sold by the Selling Shareholder hereunder, and this
Agreement has been duly authorized, executed and delivered by the
Selling Shareholder and constitutes the legal, valid and binding
obligation of the Selling Shareholder enforceable in accordance with
its terms; the execution, delivery and performance of this Agreement
by the Selling Shareholder and the consummation by the Selling
Shareholder of the transactions contemplated hereby will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to
which the Selling Shareholder is a party or by which the Selling
Shareholder is bound or to which any of the property or assets of the
Selling Shareholder is subject, nor will such actions result in any
violation of the provisions of the charter or by-laws of the Selling
Shareholder or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Selling Shareholder or the property or assets of the Selling
Shareholder; and, except for the registration of the Stock under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act, applicable state securities laws and the rules of the AMEX or the
NASD in connection with the purchase and distribution of the Stock by
the Underwriters, no consent, approval, authorization or order of, or
filing or registration with, any such court or governmental agency or
body is required for the execution, delivery and performance of this
Agreement by the Selling Shareholder and the consummation by the
Selling Shareholder of the transactions contemplated hereby.
(c) The Registration Statement and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact regarding the Selling Shareholder;
provided that no
10
<PAGE>
representation or warranty is made as to information contained in or
omitted from the Registration Statement or the Prospectus in reliance
upon and in conformity with written information furnished to the
Company or the Selling Shareholder through the Representative by or on
behalf of any Underwriter specifically for inclusion therein.
(d) The Selling Shareholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the shares of the
Stock.
2.B Representations, Warranties and Agreements of the Principal
Shareholder. The Principal Shareholder represents, warrants and agrees:
(a) The Principal Shareholder has, and immediately prior to the
Second Delivery Date (as defined in Section 5 hereof), the Principal
Shareholder will have, good and valid title to the shares of the
Option Stock to be sold by the Principal Shareholder hereunder on such
date (if the Underwriters exercise the option granted under Section
3(b) hereof), free and clear of all liens, encumbrances, equities or
claims; and upon delivery of such shares and payment therefor pursuant
hereto, good and valid title to such shares, free and clear of all
liens, encumbrances, equities or claims, will pass to the several
Underwriters.
(b) The Principal Shareholder has full right, power and authority
to enter into this Agreement and to sell, transfer and deliver the
Option Stock to be sold by the Principal Shareholder hereunder, and
this Agreement has been duly executed and delivered by the Principal
Shareholder.
(c) The execution, delivery and performance of this Agreement by
the Principal Shareholder and the consummation by the Principal
Shareholder of the transactions contemplated hereby will not conflict
with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any material indenture,
mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Principal Shareholder is a party or by which
the Principal Shareholder is bound or to which any of the property or
assets of the Principal
11
<PAGE>
Shareholder is subject, nor will such actions result in any violation
of the provisions of any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Principal Shareholder or the property or assets of the Principal
Shareholder; and, except for the registration of the Option Stock
under the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the Exchange
Act, applicable state securities laws and the rules of the AMEX or the
NASD in connection with the purchase and distribution of the Option
Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution, delivery
and performance of this Agreement, by the Principal Shareholder and
the consummation by the Principal Shareholder of the transactions
contemplated hereby.
(d) The Registration Statement and the Prospectus and any further
amendments or supplements to the Registration Statement or the
Prospectus, when they become effective or are filed with the
Commission, as the case may be, do not and will not, as of the
applicable effective date (as to the Registration Statement and any
amendment thereto) and as of the applicable filing date (as to the
Prospectus and any amendment or supplement thereto) contain an untrue
statement of a material fact regarding the Principal Shareholder or
omit to state a material fact required to be stated therein or
necessary to make the statements therein regarding the Principal
Shareholder not misleading; provided that no representation or
warranty is made as to information contained in or omitted from the
Registration Statement or the Prospectus in reliance upon and in
conformity with written information furnished to the Company or the
Principal Shareholder through the Representative by or on behalf of
any Underwriter specifically for inclusion therein or by or on behalf
of and relating to the Selling Shareholder specifically for use
therein.
(e) The Principal Shareholder has examined the Registration
Statement and the Prospectus (as amended or supplemented) and has no
knowledge that the Registration Statement, as of the effective date,
or the Prospectus (or any amendment or supplement thereto), as of the
applicable filing date, contains any untrue statement of a material
fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) The Principal Shareholder has not taken and will not take,
directly or indirectly, any action which is designed to or which has
constituted or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the shares of the
Stock.
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<PAGE>
3. Purchase of the Stock and the Warrants by the Underwriters. On
the basis of the representations and warranties contained in, and subject to the
terms and conditions of, this Agreement:
(a) The Company agrees to sell 1,000,000 shares of the Firm Stock and
the Selling Shareholder hereby agrees to sell the number of shares of the Firm
Stock set opposite its name in Schedule II hereto to the several Underwriters
and each of the Underwriters, severally and not jointly, agrees to purchase the
number of shares of the Firm Stock set opposite that Underwriter's name in
Schedule I hereto. Each Underwriter shall be obligated to purchase from the
Company and from the Selling Shareholder that number of shares of the Firm Stock
which represents the same proportion of the number of shares of the Firm Stock
to be sold by the Company and by the Selling Shareholder as the number of shares
of the Firm Stock set forth opposite the name of such Underwriter in Schedule I
represents of the total number of shares of the Firm Stock to be purchased by
all of the Underwriters pursuant to this Agreement. The respective purchase
obligations of the Underwriters with respect to the Firm Stock shall be rounded
among the Underwriters to avoid fractional shares, as the Representative may
determine.
(b) The Principal Shareholder grants to the Underwriters an option to
purchase up to 153,750 shares of Option Stock. Such option is granted solely
for the purpose of covering over-allotments in the sale of Firm Stock and is
exercisable as provided in Section 5 hereof. Shares of Option Stock shall be
purchased severally for the account of the Underwriters in proportion to the
number of shares of Firm Stock set opposite the name of such Underwriters in
Schedule I hereto. The respective purchase obligations of each Underwriter with
respect to the Option Stock shall be adjusted by the Representative so that no
Underwriter shall be obligated to purchase Option Stock other than in 100 share
amounts. The price of both the Firm Stock and any Option Stock shall be $_____
per share.
(c) On the First Delivery Date (as hereinafter defined), the Company
agrees to sell to Advest, Inc. (for its own account and not as Representative of
the several Underwriters) and Schneider Securities, Inc., for an aggregate price
of $100.00, warrants (the "Warrants") to purchase up to 100,000 shares of the
Common Stock (i.e., 10% of the number of shares of Firm Stock sold by the
----
Company) (the "Warrant Shares") at an exercise price per Warrant Share equal to
155% of the public offering price listed on the cover page of the Prospectus.
The Warrants will be exercisable at any time during a period of four (4) years
commencing on the first anniversary of the effective date of the Registration
Statement up to the fifth anniversary thereof. The Warrants will be restricted
from sale, transfer, assignment or hypothecation for a period of one year from
the effective date of the Registration Statement, except to members of the
selling group and their respective officers and partners. Each Warrant shall be
substantially identical to the form of Warrant filed as an exhibit to the
Registration Statement.
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<PAGE>
4. Offering of Stock by the Underwriters. Upon authorization by the
Representative of the release of the Firm Stock, the several Underwriters
propose to offer the Firm Stock for sale upon the terms and conditions set forth
in the Prospectus.
5. Delivery of and Payment for the Stock. Delivery of and payment
for the Firm Stock shall be made at the office of Morgan, Lewis & Bockius LLP,
101 Park Avenue, New York, NY 10178, at 10:00 A.M., New York City time, on the
[third] [fourth] full business day following the date of this Agreement or at
such other date or place as shall be determined by agreement between the
Representative and the Company, except that physical delivery of such
certificates shall be made at the office of the Depository Trust Company, 55
North Water Street, New York, New York 10041. This date and time are sometimes
referred to as the "First Delivery Date." On the First Delivery Date, the
Company and the Selling Shareholder shall deliver or cause to be delivered
certificates representing the Firm Stock to the Representative for the account
of each Underwriter against payment to the Company and the Selling Shareholder
of the purchase price by wire transfer of immediately available funds to such
accounts as the Company and the Selling Shareholder, as the case may be, shall
designate in writing, at least 48 hours in advance of such Delivery Date. Time
shall be of the essence, and delivery at the time and place specified pursuant
to this Agreement is a further condition of the obligation of each Underwriter
hereunder. Upon delivery, the Firm Stock shall be registered in such names and
in such denominations as the Representative shall request in writing not less
than two full business days prior to the First Delivery Date. For the purpose of
expediting the checking and packaging of the certificates for the Firm Stock,
the Company and the Selling Shareholder shall make the certificates representing
the Firm Stock available for inspection by the Representative at the office of
the Depository Trust Company, 55 North Water Street, New York, New York 10041
(or at such other location specified by you in writing at least 48 hours prior
to such Delivery Date), not later than 2:00 P.M., New York City time, on the
business day prior to the First Delivery Date.
At any time on or before the thirtieth day after the date of this
Agreement (or, if such 30th day shall be a Saturday or Sunday or a holiday, on
the next business day thereafter when the AMEX is open for trading) the option
granted in Section 3 may be exercised by written notice being given to the
Principal Shareholder by the Representative. Such notice shall set forth the
aggregate number of shares of Option Stock as to which the option is being
exercised, the names in which the shares of Option Stock are to be registered,
the denominations in which the shares of Option Stock are to be issued and the
date and time, as determined by the Representative, when the shares of Option
Stock are to be delivered; provided, however, that this date and time shall not
be earlier than the First Delivery Date nor earlier than the second business day
after the date on which the option shall have been exercised nor later than the
fifth business day after the date on which the option shall have been exercised.
In the event the Underwriters elect to purchase all or a portion of the Option
Stock, the Company and the Principal Shareholder agree to furnish or cause to
be furnished to the Underwriters all of the certificates, letters and opinions,
and to satisfy all of the other conditions set forth in Section 9 hereof
(excluding paragraphs (e) and (k) thereof) at each Delivery Date (as hereinafter
defined). (The date and time the shares of Option Stock are delivered are
sometimes referred to as the "Second Delivery Date" and the First Delivery Date
and the Second Delivery Date are sometimes each referred to as a "Delivery
Date.")
Delivery of and payment for the Option Stock shall be made at the
place specified in the first sentence of the first paragraph of this Section 5
(or at such other place as shall be
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<PAGE>
determined by agreement between the Representative and the Principal
Shareholder) at 10:00 A.M., New York City time, on the Second Delivery
Date. On the Second Delivery Date, the Principal Shareholder shall deliver or
cause to be delivered the certificates representing the Option Stock to the
Representative for the account of each Underwriter against payment to the
Principal Shareholder of the purchase price by wire transfer of immediately
available funds to such account as the Principal Shareholder shall designate in
writing at least 48 hours in advance of such Delivery Date. Time shall be of the
essence, and delivery at the time and place specified pursuant to this Agreement
is a further condition of the obligation of each Underwriter hereunder. Upon
delivery, the Option Stock shall be registered in such names and in such
denominations as the Representative shall request in the aforesaid written
notice. For the purpose of expediting the checking and packaging of the
certificates for the Option Stock, the Principal Shareholder shall make the
certificates representing the Option Stock available for inspection by the
Representative at the office of the Depository Trust Company, 55 North Water
Street, New York, New York 10041 (or at such other location specified by you in
writing at least 48 hours prior to such Delivery Date), not later than 2:00
P.M., New York City time, on the business day prior to the Second Delivery Date.
6. Further Agreements of the Company. The Company agrees:
(a) To prepare the Prospectus in a form approved by the
Representative and to file such Prospectus pursuant to Rule 424(b)
under the Securities Act not later than Commission's close of business
on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required
by Rule 430A(a)(3) under the Securities Act; to make no further
amendment or any supplement to the Registration Statement or to the
Prospectus except as permitted herein; to advise the Representative,
promptly after it receives notice thereof, of the time when any
amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended or
supplemented Prospectus has been filed and to furnish the
Representative with copies thereof; to advise the Representative,
promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus, of the
suspension of the qualification of the Stock for offering or sale in
any jurisdiction, of the initiation or threatening of any proceeding
for any such purpose, or of any request by the Commission for the
amending or supplementing of the Registration Statement or the
Prospectus or for additional information; and, in the event of the
issuance of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or the Prospectus or suspending
any such qualification, to use promptly its best efforts to obtain its
withdrawal;
(b) To furnish promptly to the Representative and to counsel for
the Underwriters a signed copy of the Registration Statement as
originally filed with the Commission, and each amendment thereto filed
with the Commission, including all consents and exhibits filed
therewith;
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(c) To deliver promptly to the Representative such number of the
following documents as the Representative shall reasonably request:
(i) conformed copies of the Registration Statement as originally filed
with the Commission and each amendment thereto (in each case excluding
exhibits other than this Agreement) and (ii) each Preliminary
Prospectus, the Prospectus and any amended or supplemented Prospectus
and, if the delivery of a Prospectus is required at any time after the
Effective Time in connection with the offering or sale of the Stock or
any other securities relating thereto and if at such time any events
shall have occurred as a result of which the Prospectus as then
amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made when such Prospectus is delivered, not
misleading, or, if for any other reason it shall be necessary to amend
or supplement the Prospectus in order to comply with the Securities
Act or the Exchange Act, to notify the Representative and, upon its
request, to file such document and to prepare and furnish without
charge to each Underwriter and to any dealer in securities as many
copies as the Representative may from time to time reasonably request
of an amended or supplemented Prospectus that will correct such
statement or omission or effect such compliance;
(d) To file promptly with the Commission any amendment to the
Registration Statement or the Prospectus or any supplement to the
Prospectus that may, in the judgment of the Company or the
Representative, be required by the Securities Act or requested by the
Commission;
(e) Prior to filing with the Commission any amendment to the
Registration Statement or supplement to the Prospectus or any
Prospectus pursuant to Rule 424 of the Rules and Regulations, to
furnish a copy thereof to the Representative and counsel for the
Underwriters and obtain the consent of the Representative to the
filing;
(f) As soon as practicable after the Effective Date, to make
generally available to the Company's security holders and to deliver
to the Representative an earnings statement of the Company and its
subsidiary (which need not be audited) complying with Section 11(a) of
the Securities Act and the Rules and Regulations (including, at the
option of the Company, Rule 158);
(g) For a period of five years following the Effective Date, to
furnish to the Representative copies of all materials furnished by the
Company to its shareholders and all public reports and all reports and
financial statements furnished by the Company to the principal
national securities exchange upon which the Common Stock may be listed
pursuant to requirements of or agreements with
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such exchange or to the Commission pursuant to the Exchange Act or any
rule or regulation of the Commission thereunder;
(h) Promptly from time to time to take such action as the
Representative may reasonably request to qualify the Stock for
offering and sale under the securities laws of such jurisdictions as
the Representative may request and to comply with such laws so as to
permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the
distribution of the Stock; provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or
to file a general consent to service of process in any jurisdiction;
(i) For a period of 180 days from the date of the Prospectus,
not to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise transfer or dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of
Common Stock or securities convertible into or exchangeable for Common
Stock (other than the Stock and shares issued pursuant to employee
benefit plans, qualified stock option plans or other employee
compensation plans existing on the date hereof or pursuant to
currently outstanding options, warrants, rights or agreements), or
sell or grant options, rights or warrants with respect to any shares
of Common Stock or securities convertible into or exchangeable for
Common Stock (other than the grant of options or issuance of Common
Stock pursuant to option, stock purchase and employee benefit plans
existing on the date hereof), or (2) enter into any swap or other
derivatives transaction or agreement that transfers to another, in
whole or in part, any of the economic benefits or risks of ownership
of such shares of Common Stock, whether any such transaction described
in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case without
the prior written consent of Advest, Inc.; and to cause each officer
and director, the Selling Shareholder and any other shareholder of the
Company who beneficially owns (as such term is defined in Rule 13d-1
under the Exchange Act) 5% or more of the Common Stock to furnish to
the Representative prior to the First Delivery Date, a letter or
letters, in form and substance satisfactory to counsel for the
Underwriters, pursuant to which each such person shall agree to the
following: For a period of 180 days (90 days, in the case of the
Selling Shareholder) from the date of the Prospectus (the "Lock-Up
Period") (A) (i) not to sell, offer to sell, solicit an offer to buy,
contract to sell, encumber, distribute, pledge, grant any option for
the sale of, or otherwise transfer or dispose of, directly or
indirectly, in one or a series of transactions, any shares of Common
Stock or any options or warrants to purchase any shares of Common
Stock without the prior written consent of Advest, Inc.; (ii) not to
announce or disclose any intention to do anything after the expiration
of the Lock-Up Period which the person is prohibited, as provided in
(i), from doing
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during the Lock-Up Period; and (iii) to waive during the Lock-up
Period any right it may have to cause the Company to register pursuant
to the Securities Act shares of Common Stock and agree not to exercise
any registration rights during such Lock-up Period; and (B) not to
engage in any hedging or other transaction which is designed to or
reasonably expected to lead to or result in a disposition of any
shares of Common Stock or any options or warrants to purchase any
shares of Common Stock during the Lock-Up Period even if such shares
would be disposed of by someone other than the person;
(j) To apply the net proceeds from the sale of the Stock being
sold by the Company as set forth in the Prospectus;
(k) Prior to the Effective Date, to apply for the listing of the
Stock on the AMEX and to use its best efforts to complete that
listing, subject only to official notice of issuance, prior to the
First Delivery Date;
(l) To take such steps as shall be necessary to ensure that
neither the Company nor its subsidiary shall become an "investment
company" within the meaning of such term under the Investment Company
Act of 1940 and the rules and regulations of the Commission
thereunder;
(m) Prior to the termination of the underwriting syndicate
contemplated by this Agreement, neither the Company nor any of its
officers, directors or affiliates will (i) take, directly or
indirectly, any action designed to cause or to result in, or that
might reasonably be expected to cause or result in, the stabilization
or manipulation of the price of any security of the Company or (ii)
sell, bid for, purchase or pay anyone any compensation for soliciting
purchases of, the Stock;
(n) To pay Advest, Inc. and Schneider Securities, Inc. a non-
accountable expense allowance equal to 2.0% of the aggregate public
offering price of the shares of the Stock sold by the Company to the
Underwriters hereunder, less $25,000 previously paid to Schneider
Securities, Inc. and $25,000 previously paid to Advest, Inc. upon the
initial filing of the Registration Statement; and
(o) For a period of three (3) years from the date of the
Prospectus, Advest, Inc. shall have the right of first refusal to
provide investment banking services ("Investment Banking Services"),
including with respect to financings, mergers and acquisitions,
financial advisory and fairness opinions, to the Company. Specifically
excluded from Advest, Inc.'s right of first refusal are public or
private offerings of the Company's shares in exchange for properties,
assets or stock of other individuals or corporations. The Company
agrees to consult with Advest, Inc. with regard to any such Investment
Banking Services prior to consulting any other prospective investment
banker(s) and will offer Advest, Inc. the opportunity to provide any
such Investment Banking Services on terms not less favorable to the
Company than it can secure elsewhere. Advest, Inc. shall have thirty
(30) days in which to accept such offer. However, the Company shall
not be required to consult with Advest, Inc. concerning any borrowings
from banks and institutional lenders or concerning financing under any
equipment leasing or similar arrangements.
7. A. Further Agreement of the Selling Shareholder. The Selling
Shareholder agrees:
(a) For a period of 90 days from the date of the Prospectus, not
to, directly or indirectly, (1) offer for sale, sell, pledge or
otherwise transfer or dispose of (or enter into any transaction or
device which is designed to, or could be expected to, result in the
disposition by any person at any time in the future of) any shares of
Common Stock or securities convertible into or exchangeable for Common
Stock (other than the Stock) or (2) enter into any swap or other
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derivatives transaction or agreement that transfers to another, in
whole or in part, any of the economic benefits or risks of ownership
of such shares of Common Stock, whether any such transaction described
in clause (1) or (2) above is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, in each case without
the prior written consent of Advest, Inc.
(b) That the Stock to be sold by the Selling Shareholder
hereunder is subject to the interest of the Underwriters and that the
obligations of the Selling Shareholder hereunder shall not be
terminated by any act of the Selling Shareholder, by operation of law,
or, in the case of a trust, by the death or incapacity of any executor
or trustee or the termination of such trust, or the occurrence of any
other event.
(c) To deliver to the Representative prior to the First Delivery
Date a properly completed and executed United States Treasury
Department Form W-8 (if the Selling Shareholder is a non-United States
person) or Form W-9 (if the Selling Shareholder is a United States
person.)
7.B. Further Agreements of the Principal Shareholder. The Principal
Shareholder agrees to deliver to the Representative prior to the Second Delivery
Date a properly completed and executed United States Treasury Department Form W-
9.
8. Expenses. The Company will pay all costs and expenses incident to
the performance of the obligations of the Company under this Agreement,
including, without limitation, all costs and expenses incident to (i) the
preparation, printing and delivery expenses (including postage, air freight
charges and charges for counting and packaging) associated with the Registration
Statement, the Preliminary Prospectus and the Prospectus and any amendments or
supplements thereto, this Agreement, the Agreement among Underwriters, the
Underwriters' Questionnaire submitted to each of the underwriters by the
Representatives in connection herewith, the power of attorney executed by each
of the Underwriters in favor of Advest, Inc. in connection herewith, the Dealer
Agreement and related documents (collectively, the "Underwriting Documents") and
the preliminary Blue Sky memorandum relating to the offering prepared by Morgan,
Lewis & Bockius LLP, counsel to the Underwriters (collectively with any
supplement thereto, the "Preliminary Blue Sky Memorandum"); (ii) the fees,
disbursements and expenses of the Company's counsel (including local and special
counsel) and accountants in connection with the registration of the Stock under
the Securities Act and all other expenses in connection with the preparation and
filing of the Registration Statement (including all amendments thereto), any
Preliminary Prospectus, the Prospectus and any amendments and supplements
thereto, the Underwriting Documents and the Preliminary Blue Sky Memorandum;
(iii) the delivery of copies of the foregoing documents to the Underwriters;
(iv) the filing fees of the Commission and the NASD relating to the Stock; (v)
the preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Stock, including transfer agent's and registrar's fees; (vi) the
qualification of the Stock for offering and sale under state securities and
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blue sky laws, including filing fees and fees and disbursements of counsel for
the Underwriters relating thereto, and in connection with the review of the
transactions contemplated hereby by the NASD (such counsel's fees; including
fees in connection with the preparation of the Preliminary Blue Sky Memorandum
not to exceed $5,000); (vii) any listing of the Stock on the AMEX; (viii) any
expenses for travel, lodging and meals incurred by the Company and any of its
officers, directors and employees in connection with any meetings with
prospective investors in the Stock; and (ix) all other costs and expenses
incident to the performance of the obligations of the Company under this
Agreement; provided that, except as provided in this Section 8 and in Section 13
the Underwriters shall pay their own costs and expenses, including the costs and
expenses of their counsel, and the expenses of advertising any offering of the
Stock made by the Underwriters, and the Selling Shareholder shall pay the fees
and expenses of its counsel and any registration fees payable in connection with
its sale of Stock to the Underwriters.
9. Conditions of Underwriters' Obligations. The respective
obligations of the Underwriters hereunder are subject to the accuracy, when made
and on each Delivery Date, of the representations and warranties of the Company,
the Selling Shareholder and the Principal Shareholder contained herein, to the
performance by the Company, the Selling Shareholder and the Principal
Shareholder of their respective obligations hereunder, and to each of the
following additional terms and conditions:
(a) The Prospectus shall have been timely filed with the
Commission in accordance with Section 6(a); no stop order suspending
the effectiveness of the Registration Statement or any part thereof
shall have been issued and no proceeding for that purpose shall have
been initiated or threatened by the Commission; and any request of the
Commission for inclusion of additional information in the Registration
Statement or the Prospectus or otherwise shall have been complied
with.
(b) No Underwriter shall have discovered and disclosed to the
Company on or prior to such Delivery Date that the Registration
Statement or the Prospectus or any amendment or supplement thereto
contains an untrue statement of a fact which, in the opinion of
Morgan, Lewis & Bockius LLP, 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 is necessary to make
the statements therein not misleading.
(c) All corporate proceedings and other legal matters incident
to the authorization, form and validity of this Agreement, the Stock,
the Registration Statement and the Prospectus, and all other legal
matters relating to this Agreement and the transactions contemplated
hereby shall be reasonably satisfactory in all material respects to
counsel for the Underwriters, and the Company, the Principal
Shareholder and the Selling Shareholder shall have furnished to such
counsel all
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documents and information that they may reasonably request to enable
them to pass upon such matters.
(d) Hinckley, Allen & Snyder shall have furnished to the
Representative and the Selling Shareholder its written opinion, as
counsel to the Company and the Principal Shareholder, addressed to the
Underwriters and dated such Delivery Date, in form and substance
reasonably satisfactory to the Representative, to the effect that:
(i) The Company and its subsidiary have been duly
incorporated and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
incorporation, are duly licensed or qualified to do business and
are in good standing as foreign corporations in each jurisdiction
set forth on a schedule to such counsel's opinion and have all
power and authority necessary to own or hold their respective
properties and assets and to conduct their businesses as
described in the Registration Statement and Prospectus;
(ii) The Company has an authorized capitalization as set
forth in the Prospectus, and all of the issued shares of capital
stock of the Company (including the shares of Stock being
delivered on such Delivery Date) have been duly and validly
authorized and issued, are fully paid and non-assessable and
conform to the description thereof contained in the Prospectus,
and none of the shares of Stock being delivered on such Delivery
Date have been issued in violation of any preemptive rights; all
of the issued shares of capital stock of the subsidiary of the
Company have been duly and validly authorized and issued and are
fully paid, non-assessable and are owned directly by the Company,
free and clear of any perfected security interest or, to the
knowledge of such counsel, any other lien, encumbrance, equity or
claim;
(iii) The Warrant Shares have been duly authorized and
reserved by the Company; the Warrant Shares, when issued and sold
pursuant to the Warrants, will be duly and validly issued,
outstanding, fully-paid and nonassessable and none of them will
have been issued in violation of any preemptive or, to such
counsel's knowledge, other similar right binding on the Company;
(iv) There are no preemptive or other rights to subscribe
for or to purchase, or any restriction upon the voting or
transfer of, any shares of the Stock pursuant to the Company's
charter or by-laws or any agreement or other instrument known to
such counsel;
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(v) To the knowledge of such counsel, the Principal
Shareholder has, and immediately prior to the Delivery Date, the
Principal Shareholder will have full legal right, power and
authority to sell assign, transfer and deliver valid title to the
shares of Option Stock to be sold by the Principal Shareholder
hereunder on such date, and upon delivery of such shares and
payment therefor pursuant hereto, the Underwriters will acquire
good and valid title to such shares, free and clear of all liens,
encumbrances, equities or claims, assuming they purchase such
shares without knowledge of any "Adverse Claim" (as such term is
defined in Article 8-302 of the Uniform Commercial Code of the
State of New York); and there are no transfer or similar taxes
payable under the laws of the State of Rhode Island or the
Commonwealth of Massachusetts in connection with the sale and
delivery of shares of Stock by the Principal Shareholder to the
Underwriters;
(vi) To the best of such counsel's knowledge and other than
as set forth or contemplated in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or
its subsidiary is a party or of which any property or assets of
the Company or its subsidiary is the subject which, if determined
adversely to the Company or its subsidiary, would have a material
adverse effect on the consolidated financial position,
shareholders' equity, results of operations, business or
prospects of the Company and its subsidiary; and, to the best of
such counsel's knowledge, no such proceedings are threatened or
contemplated by governmental authorities or threatened by others;
(vii) The Registration Statement was declared effective under
the Securities Act as of the date and time specified in such
opinion, the Prospectus was filed with the Commission pursuant to
the subparagraph of Rule 424(b) of the Rules and Regulations
specified in such opinion on the date specified therein and, to
the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and
no proceeding for that purpose is pending or threatened by the
Commission;
(viii) The Registration Statement and the Prospectus and any
further amendments or supplements thereto made by the Company
prior to such Delivery Date (other than the financial statements
and related schedules therein, as to which such counsel need
express no opinion) comply as to form in all material respects
with the requirements of the Securities Act and the Rules and
Regulations; and, to the best of such counsel's knowledge, the
Company has filed all forms, reports and documents required to be
filed with the Commission under the Exchange Act;
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(ix) The statements in the Registration Statement and
Prospectus, insofar as they are descriptions of or references to
statutes, regulations, contracts, agreements or other legal
documents, are accurate in all material respects and present or
summarize fairly, in all material respects, the information
required to be disclosed under the Securities Act or the Rules
and Regulations, and there are no statutes, regulations,
contracts or other documents which are required to be described
in the Prospectus or filed as exhibits to the Registration
Statement by the Securities Act or the Rules and Regulations
which have not been described in the Prospectus or filed as
exhibits to the Registration Statement or incorporated therein by
reference as permitted by the Rules and Regulations;
(x) The statements (a) in the Prospectus under the captions
"Description of Capital Stock," "Business-Legal Proceedings," and
"Business - Governmental Regulation" and (b) in the Registration
Statement in Item 14, in each case insofar as such statements
constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the information
called for with respect to such legal matters, documents and
proceedings and fairly summarize the matters referred to therein;
(xi) The Company has full power and authority to enter into,
deliver and perform this Agreement and the Warrants and to issue
and sell the Stock, the Warrants and the Warrant Shares; this
Agreement and the Warrants have been duly authorized, executed
and delivered by the Company; the Principal Shareholder has full
right, power and authority to enter into this Agreement; and this
Agreement has been duly executed and delivered by the Principal
Shareholder;
(xii) The issue and sale of the shares of Stock and the
Warrants being delivered on such Delivery Date by the Company and
the compliance by the Company with all of the provisions of this
Agreement and the consummation of the transactions contemplated
hereby or thereby will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel
to which the Company or its subsidiary is a party or by which the
Company or its subsidiary is bound or to which any of the
property or assets of the Company or its subsidiary is subject,
nor will such actions result in any violation of the provisions
of the charter or by-laws of the Company or its subsidiary or any
statute or any order, rule or regulation known to such counsel of
any court or governmental agency or body
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having jurisdiction over the Company or its subsidiary or any of
their properties or assets; and, except for the registration of
the Stock, the Warrants and the Warrant Shares under the
Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act, applicable state securities laws, and the rules of
the AMEX and the NASD, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement and the Warrants by
the Company and the consummation of the transactions contemplated
hereby or thereby;
(xiii) The execution, delivery and performance of this
Agreement by the Principal Shareholder and the consummation by
the Principal Shareholder of the transactions contemplated hereby
will not conflict with or result in a breach or violation of any
of the terms or provisions of, or constitute a default under, any
statute, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which
the Principal Shareholder is a party or by which the Principal
Shareholder is bound or to which any of the property or assets of
the Principal Shareholder is subject, nor will such actions
result in any violation of any statute or any order, rule or
regulation known to such counsel of any court or governmental
agency or body having jurisdiction over the Principal Shareholder
or the property or assets of the Principal Shareholder; and,
except for the registration of the Stock under the Securities Act
and such consents, approvals, authorizations, registrations or
qualifications as may be required under the Exchange Act,
applicable state securities laws and the rules of the AMEX and
the NASD in connection with the purchase and distribution of the
Stock by the Underwriters, no consent, approval, authorization or
order of, or filing or registration with, any such court or
governmental agency or body is required for the execution,
delivery and performance of this Agreement by the Principal
Shareholder and the consummation by the Principal Shareholder of
the transactions contemplated hereby;
(xiv) To the best of such counsel's knowledge, there are no
contracts, agreements or understandings between the Company and
any person granting such person the right (other than rights
which have been waived or satisfied) to require the Company to
include such securities owned by such person in the securities
registered pursuant to the Registration Statement;
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(xv) The Company is not an investment company within the
meaning of the Investment Company Act of 1940, as amended, and
the rules and regulations of the Commission thereunder; and
(xvi) To the best of such counsel's knowledge, the Company
and its subsidiary have sufficient interest in their real and
personal property to permit the operation of a freight railroad
as described in the Prospectus.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United
States of America, the laws of the State of Rhode Island, the laws of
the Commonwealth of Massachusetts, the laws of the State of
Connecticut and the General Corporation Law of the State of Delaware;
and (ii) rely (to the extent such counsel deems proper and specifies
in its opinion), as to matters involving the application of railroad
regulatory matters and the laws of the State of Connecticut upon the
opinion of other counsel of good standing (which may include general
counsel for the Company), provided that such other counsel is
satisfactory to counsel for the Underwriters and furnishes a copy of
its opinion to the Representative and counsel shall state that it
believes that both the Underwriters and it are justified in relying
upon such opinions. Such counsel shall also have furnished to the
Representative a written statement, addressed to the Underwriters and
dated such Delivery Date, in form and substance satisfactory to the
Representative, to the effect that (x) such counsel has acted as
counsel to the Company in connection with the preparation of the
Registration Statement, and (y) based on the foregoing, no facts have
come to the attention of such counsel which lead it to believe that
the Registration Statement, as of the Effective Date, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus contains any
untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading (provided that such counsel need express no
belief regarding the financial statements, the notes and schedules
thereto and other financial, statistical or market data contained in
the Registration Statement, any amendment thereto, or the Prospectus,
or any amendment or supplement thereto). The opinion of counsel for
the Company shall include a statement to the effect that it may be
relied upon by counsel for the Underwriters in their opinion delivered
to the Underwriters. For purposes of rendering such opinion with
respect to the Principal Shareholder, Hinckley, Allen & Snyder (and
such other counsel as may be required to render an opinion pursuant
hereto) may rely as to factual matters on the representations and
warranties of the Principal Shareholder set forth herein as if said
representations and warranties set forth herein had been set forth in
a separate certificate directed to said counsel at and as of each
closing hereunder.
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(e) The counsel for the Selling Shareholder shall have furnished
to the Representative its written opinion, as counsel to the Selling
Shareholder addressed to the Underwriters and dated the such Delivery
Date, in form and substance reasonably satisfactory to the
Representative, to the effect that:
(i) The Selling Shareholder has full right, power and
authority to enter into this Agreement; the execution, delivery
and performance of this Agreement by the Selling Shareholder and
the consummation by the Selling Shareholder of the transactions
contemplated hereby will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute
a default under, any statute, any indenture, mortgage, deed of
trust, loan agreement or other agreement or instrument known to
such counsel to which the Selling Shareholder is a party or by
which the Selling Shareholder is bound or to which any of the
property or assets of the Selling Shareholder is subject, nor
will such actions result in any violation of the provisions of
the charter or by-laws of the Selling Shareholder or any statute
or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the
Selling Shareholder or the property or assets of the Selling
Shareholder; and, except for the registration of the Stock under
the Securities Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under the
Exchange Act, applicable state securities laws and the rules of
the AMEX and the NASD in connection with the purchase and
distribution of the Stock by the Underwriters, no consent,
approval, authorization or order of, or filing or registration
with, any such court or governmental agency or body is required
for the execution, delivery and performance of this Agreement by
the Selling Shareholder and the consummation by the Selling
Shareholder of the transactions contemplated hereby;
(ii) This Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Shareholder;
(iii) To the knowledge of such counsel, the Selling
Stockholder has, and immediately prior to the First Delivery
Date, the Selling Shareholder will have full legal right, power
and authority to sell, assign, transfer and deliver valid title
to the shares of the Stock to be sold by the Selling Shareholder
hereunder on such date; and
(iv) Upon delivery of the shares of Stock to be sold
by the Selling Shareholder under this Agreement and payment
therefor pursuant hereto,
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the Underwriters will acquire good and valid title to such
shares, free and clear of all liens, encumbrances, equities or
claims, assuming they purchase such shares without knowledge of
any "Adverse Claim" (as such term is defined in Article 8-302 of
the Uniform Commercial Code of the State of New York) and there
are no transfer or similar taxes payable in connection with the
sale and delivery of the shares of Stock by the Selling
Stockholder to the Underwriters, except as specified in such
opinion.
In rendering such opinion, such counsel may (i) state that its opinion
is limited to matters governed by the Federal laws of the United
States of America, the laws of the State of Rhode Island and the
General Corporation Law of the State of Delaware, (ii) rely (to the
extent such counsel deems proper and specifies in its opinion) upon
the opinion of the general counsel for the Selling Shareholder,
provided, that such other counsel is satisfactory to counsel for the
Underwriters and furnishes a copy of its opinion to the Representative
and counsel shall state that it believes that both the Underwriters
and it are justified in relying upon such opinion and (iii) in
rendering the opinion in Section 9(e)(iii) above, rely upon a
certificate of the Selling Shareholder (or the representations and
warranties of the Selling Shareholder set forth herein as if said
representations and warranties set forth herein had been set forth
in a separate certificate directed to said counsel at and as of the
closing hereunder) in respect of matters of fact as to ownership of
and liens, encumbrances, equities or claims on the shares of Stock
sold by the Selling Shareholder, provided that such counsel shall
furnish copies thereof to the Representative and state that it
believes that both the Underwriters and it are justified in relying
upon such certificate. The opinion of counsel for the Selling
Shareholder shall include a statement to the effect that it may be
relied upon by counsel for the Underwriters in their opinion delivered
to the Underwriters.
(f) The Representative shall have received from Morgan, Lewis &
Bockius LLP, counsel for the Underwriters, an opinion, dated such
Delivery Date, with respect to the issuance and sale of the Stock, the
Registration Statement, the Prospectus and other related matters as
the Representative may reasonably require, and the Company shall have
furnished to such counsel such documents as it may reasonably request
for the purpose of enabling it to pass upon such matters.
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(g) At the time of execution of this Agreement, the
Representative shall have received from Deloitte & Touche LLP, a
letter, in form and substance satisfactory to the Representative,
addressed to the Underwriters and dated the date hereof (i) confirming
that they are independent public accountants within the meaning of the
Securities Act and are in compliance with the applicable requirements
relating to the qualification of accountants under Rule 2-01 of
Regulation S-X of the Commission, (ii) stating, as of the date hereof
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior to
the date hereof), the conclusions and findings of such firm with
respect to the financial information and other matters ordinarily
covered by accountants' "comfort letters" to underwriters in
connection with registered public offerings.
(h) With respect to the letter of Deloitte & Touche LLP referred
to in the preceding paragraph and delivered to the Representative
concurrently with the execution of this Agreement (the "initial
letter"), the Company shall have furnished to the Representative a
letter (the "bring-down letter") of such accountants, addressed to the
Underwriters and dated such Delivery Date (i) confirming that they are
independent public accountants within the meaning of the Securities
Act and are in compliance with the applicable requirements relating to
the qualification of accountants under Rule 2-01 of Regulation S-X of
the Commission, (ii) stating, as of the date of the bring-down letter
(or, with respect to matters involving changes or developments since
the respective dates as of which specified financial information is
given in the Prospectus, as of a date not more than five days prior to
the date of the bring-down letter), the conclusions and findings of
such firm with respect to the financial information and other matters
covered by the initial letter and (iii) confirming in all material
respects the conclusions and findings set forth in the initial letter.
(i) The Company shall have furnished to the Representative a
certificate of the Company, dated such Delivery Date, signed by its
Chairman of the Board and its President stating that:
(i) The representations, warranties and agreements of the
Company in Section 1 are true and correct as of such Delivery
Date; the Company has complied with all its agreements contained
herein; and the conditions set forth in Section 9 have been
fulfilled; and
(ii) As of the Effective Date, the Registration Statement
and Prospectus did not include any untrue statement of a material
fact and did not omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and since the Effective
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Date, no event has occurred which should have been set forth in a
supplement or amendment to the Registration Statement or the
Prospectus.
(j) The Principal Shareholder shall have furnished to the
Representative a certificate dated such Delivery Date stating that the
representations, warranties and agreements of the Principal
Shareholder contained herein are true and correct as of such Delivery
Date and that the Principal Shareholder has complied with all
agreements contained herein to be performed by the Principal
Shareholder at or prior to such Delivery Date.
(k) The Selling Shareholder shall have furnished to the
Representative on the First Delivery Date a certificate, dated the
First Delivery Date, signed by, or on behalf of, the Selling
Shareholder stating that the representations, warranties and
agreements of the Selling Shareholder contained herein are true and
correct as of the First Delivery Date and that the Selling Shareholder
has complied with all agreements contained herein to be performed by
the Selling Shareholder at or prior to the First Delivery Date.
(l) (i) Neither the Company nor its subsidiary shall
have sustained since the date of the latest audited financial
statements included in the Prospectus any loss or interference with
its business from fire, explosion, flood or other calamity, whether or
not covered by insurance, or from any labor dispute or court or
governmental action, order or decree, otherwise than as set forth or
contemplated in the Prospectus and (ii) since such date, there shall
not have been any change in the capital stock or long-term debt of the
Company or its subsidiary or any change, or any development involving
a prospective change, in or affecting the consolidated financial
position, shareholders' equity, results of operations, business or
prospects of the Company and its subsidiary, otherwise than as set
forth or contemplated in the Prospectus, the effect of which, in any
such case described in clause (i) or (ii), is, in the judgment of the
Representative, so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Stock being delivered on such Delivery Date on the terms and in the
manner contemplated in the Prospectus.
(m) Subsequent to the execution and delivery of this Agreement
there shall not have occurred any of the following: (i) trading in
securities generally on the New York Stock Exchange or the AMEX or in
the over-the-counter market, or trading in any securities of the
Company on any exchange or in the over-the-counter market, shall have
been suspended or minimum prices shall have been established on any
such exchange or such market by the Commission, by such exchange or by
any other regulatory body or governmental authority having
jurisdiction, (ii) a banking moratorium shall have been declared by
Federal or state authorities, (iii) the United States shall have
become engaged in hostilities, there
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shall have been an escalation in hostilities involving the United
States or there shall have been a declaration of a national emergency
or war by the United States or (iv) there shall have occurred such a
material adverse change in general economic, political or financial
condition (or the effect of international conditions on the/ financial
markets in the United States shall be such) as to make it, in the
judgment of a majority in interest of the several Underwriters,
impracticable or inadvisable to proceed with the public offering or
delivery of the Stock being delivered on such Delivery Date on the
terms and in the manner contemplated in the Prospectus.
(n) The AMEX has approved the Stock for listing, subject only to
official notice of issuance.
All opinions, letters, evidence and certificates mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if they are in form and substance reasonably satisfactory
to counsel for the Underwriters.
10. Indemnification and Contribution.
(a) The Company, shall indemnify and hold harmless each Underwriter,
its officers, directors and employees and each person, if any, who controls any
Underwriter within the meaning of the Securities Act or the Exchange Act, from
and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any Preliminary
Prospectus, the Registration Statement or the Prospectus or in any amendment or
supplement thereto or (B) in any blue sky application or other document prepared
or executed by the Company (or based upon any written information furnished by
the Company) specifically for the purpose of qualifying any or all of the Stock
under the securities laws of any state or other jurisdiction (any such
application, document or information being hereinafter called a "Blue Sky
Application"), or (ii) the omission or alleged omission to state in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or in any
amendment or supplement thereto, or in any Blue Sky Application any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse each Underwriter and each such officer,
employee or controlling person promptly upon demand for any legal or other
expenses reasonably incurred by that Underwriter, officer, employee or
controlling person in connection with investigating, defending or preparing to
defend against, or appearing as a third-party witness in connection with, any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Company shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or in any such amendment or supplement, or in any
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Blue Sky Application, in reliance upon and in conformity with written
information concerning such Underwriter furnished to the Company through the
Representative by or on behalf of any Underwriter specifically for inclusion
therein or concerning the Selling Shareholder furnished to the Company by or on
behalf of the Selling Shareholder specifically for inclusion therein. The
Company will not, without the prior written consent of the Representative of the
Underwriters, settle or compromise or consent to the entry of any judgment in
any pending or threatened claim, action, suit or proceeding (or related cause of
action or portion thereof) in respect of which indemnification may be sought
hereunder (whether or not any Underwriter is a party to such claim, action, suit
or proceeding), unless such settlement, compromise or consent includes an
unconditional release of each Underwriter from all liability arising out of such
claim, action, suit or proceeding (or related cause of action or portion
thereof). The foregoing indemnity agreement is in addition to any liability
which the Company may otherwise have to any Underwriter or to any officer,
director, employee or controlling person of that Underwriter.
(b) The Selling Shareholder shall indemnify and hold harmless each
Underwriter, its officers, directors and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act or the
Exchange Act, from and against any loss, claim, damage or liability, joint or
several, or any action in respect thereof (including, but not limited to, any
loss, claim, damage, liability or action relating to purchases and sales of
Stock), to which that Underwriter, officer, employee or controlling person may
become subject, under the Securities Act or otherwise, insofar as such loss,
claim, damage, liability or action arises out of, or is based upon, (i) any
untrue statement or alleged untrue statement of a material fact relating to the
Selling Shareholder contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state in any Preliminary Prospectus,
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, any material fact relating to the Selling Shareholder required to be
stated therein or necessary to make the statements therein not misleading, but
in each case only to the extent that the untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information concerning the Selling Shareholder furnished
to the Company by or on behalf of the Selling Shareholder specifically for
inclusion therein, and shall reimburse each Underwriter, its officers and
employees and each such controlling person for any legal or other expenses
reasonably incurred by that Underwriter, its officers and employees or
controlling person in connection with investigating, defending or preparing to
defend against, or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action as such expenses are incurred;
provided, however, that the Selling Shareholder shall not be liable in any such
case to the extent that any such loss, claim, damage, liability or action arises
out of, or is based upon, any untrue statement or alleged untrue statement or
omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or in any such amendment or supplement
in reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representative by or on behalf
of any Underwriter specifically for inclusion therein; and provided, further,
however, that the indemnity of the Selling Shareholder under this Section 10(b)
shall only be effective to the extent of the value (based on the initial public
offering price per share) of any such Stock sold by it pursuant to this
Agreement. The foregoing indemnity agreement is in addition to any liability
which the Selling Shareholder may otherwise have to any Underwriter or any
officer, director, employee or controlling person of that Underwriter.
(c) The Principal Shareholder shall indemnify and hold harmless each
Underwriter, its officers, directors and employees, and each person, if any, who
controls any
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Underwriter within the meaning of the Securities Act or the Exchange Act, from
and against any loss, claim, damage or liability, joint or several, or any
action in respect thereof (including, but not limited to, any loss, claim,
damage, liability or action relating to purchases and sales of Stock), to which
that Underwriter, officer, employee or controlling person may become subject,
under the Securities Act or otherwise, insofar as such loss, claim, damage,
liability or action arises out of, or is based upon, (i) any untrue statement or
alleged untrue statement of a material fact of which the Principal Shareholder
has knowledge contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus or in any amendment or supplement thereto or (ii)
the omission or alleged omission to state in any Preliminary Prospectus,
Registration Statement or the Prospectus, or in any amendment or supplement
thereto, any material fact of which the Principal Shareholder has knowledge
required to be stated therein or necessary to make the statements therein not
misleading, and shall reimburse each Underwriter, its officers and employees and
each such controlling person for any legal or other expenses reasonably incurred
by that Underwriter, its officers and employees or controlling person in
connection with investigating, defending or preparing to defend against, or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action as such expenses are incurred; provided, however,
that the Principal Shareholder shall not be liable in any such case to the
extent that any such loss, claim, damage, liability or action arises out of, or
is based upon, any untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or in any such amendment or supplement in reliance upon and in
conformity with written information concerning such Underwriter furnished to the
Company through the Representative by or on behalf of any Underwriter
specifically for inclusion therein; and provided, further, however, that the
direct indemnity of the Principal Shareholder under this Section 10(c) shall
only be effective if he sells Stock pursuant to this Agreement and then only to
the extent of the value (based on the initial public offering price per share)
of any such Stock sold by him pursuant to this Agreement. The foregoing
indemnity agreement is in addition to any liability which the Principal
Shareholder may otherwise have to any Underwriter or any officer, director,
employee or controlling person of that Underwriter.
(d) Each Underwriter, severally and not jointly, shall indemnify and
hold harmless the Company, its officers and employees, each of its directors
(including any person who, with his or her consent, is named in the Registration
Statement as about to become a director of the Company), and each person, if
any, who controls the Company within the meaning of the Securities Act or the
Exchange Act, the Selling Shareholder and the Principal Shareholder from and
against any loss, claim, damage or liability, joint or several, or any action in
respect thereof, to which the Company or any such director, officer or
controlling person may become subject, under the Securities Act or otherwise,
insofar as such loss, claim, damage, liability or action arises out of, or is
based upon, (i) any untrue statement or alleged untrue statement of a material
fact contained (A) in any Preliminary Prospectus, the Registration Statement or
the Prospectus or in any amendment or supplement thereto, or (B) in any Blue Sky
Application or (ii) the omission or alleged omission to state in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or in any amendment or
supplement thereto, or in any Blue Sky Application any material fact required to
be stated therein or necessary to make the statements
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therein not misleading, but in each case only to the extent that the untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information concerning such
Underwriter furnished to the Company through the Representative by or on behalf
of that Underwriter specifically for inclusion therein, and shall reimburse the
Company, any such director, officer or controlling person, the Selling
Shareholder and the Principal Shareholder for any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, the Selling Shareholder or the Principal Shareholder in connection with
investigating or defending or preparing to defend against any such loss, claim,
damage, liability or action as such expenses are incurred. The foregoing
indemnity agreement is in addition to any liability which any Underwriter may
otherwise have to the Company or any such director, officer, employee or
controlling person.
(e) Promptly after receipt by an indemnified party under this Section
10 of notice of any claim or the commencement of any action, the indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under this Section 10, notify the indemnifying party in
writing of the claim or the commencement thereof; provided, however, that the
failure to notify the indemnifying party shall not relieve it from any liability
which it may have under this Section 10 except to the extent it has been
materially prejudiced by such failure and, provided further, that the failure to
notify the indemnifying party shall not relieve it from any liability which it
may have to an indemnified party otherwise than under this Section 10. If any
such claim or action shall be brought against an indemnified party, and it shall
notify the indemnifying party thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it wishes, jointly with any other
similarly notified indemnifying party, to assume the defense thereof with
counsel reasonably satisfactory to the indemnified party. After notice from the
indemnifying party to the indemnified party of its election to assume the
defense of such claim or action, the indemnifying party shall not be liable to
the indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by the indemnified party in connection with the defense
thereof other than reasonable costs of investigation; provided, however, that
the Representative shall have the right to employ counsel to represent jointly
the Representative and those other Underwriters and their respective officers,
employees and controlling persons who may be subject to liability arising out of
any claim in respect of which indemnity may be sought by the Underwriters
against the Company, the Principal Shareholder or the Selling Shareholder under
this Section 10 if, in the reasonable judgment of the Representative, it is
advisable for the Representative and those Underwriters, officers, employees and
controlling persons to be jointly represented by separate counsel, provided,
further, however that the fees and expenses of such separate counsel shall be
paid by the Company, the Principal Shareholder or the Selling Shareholder only
if the representative shall have been advised by its counsel that representation
of the underwriters and such indemnifying party by the same counsel would be
inappropriate under applicable standards of professional conduct due to actual
or potential differing interests between them (in which case the indemnifying
party shall not have the right to assume to defense of such action, suit or
proceeding on behalf of such underwriters, officers, employees and controlling
persons). Furthermore, it is understood that the indemnifying parties shall, in
connection with any one such action, suit or
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proceeding or separate but substantially similar or related actions, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such underwriters, officers, employees and controlling persons not having
actual or potential differing interests with the indemnifying party or among
themselves, which firm shall be designated in writing by Advest, Inc. No
indemnifying party shall (i) without the prior written consent of the
indemnified parties (which consent shall not be unreasonably withheld), settle
or compromise or consent to the entry of any judgment with respect to any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim or action)
unless such settlement, compromise or consent includes an unconditional release
of each indemnified party from all liability arising out of such claim, action,
suit or proceeding, or (ii) be liable for any settlement of any such action
effected without its written consent (which consent shall not be unreasonably
withheld), but if settled with the consent of the indemnifying party or if there
be a final judgment of the plaintiff in any such action, the indemnifying party
agrees to indemnify and hold harmless any indemnified party from and against any
loss or liability by reason of such settlement or judgment.
(f) If the indemnification provided for in this Section 10 shall for
any reason be unavailable to or insufficient to hold harmless an indemnified
party under Section 10(a), 10(b), 10(c) or 10(d) in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, (i) in
such proportion as shall be appropriate to reflect the relative benefits
received by the Company, the Principal Shareholder and the Selling Shareholder
on the one hand and the Underwriters on the other hand from the offering of the
Stock 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, the Principal Shareholder and the Selling Shareholder, on the one
hand, and the Underwriters, on the other hand, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action in
respect thereof, as well as any other relevant equitable considerations. The
relative benefits received by the Company, the Principal Shareholder and the
Selling Shareholder on the one hand, and the Underwriters, on the other hand,
with respect to such offering shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Stock purchased under this
Agreement (before deducting expenses) received by the Company, the Principal
Shareholder and the Selling Shareholder, on the one hand, and the total
underwriting discounts and commissions received by the Underwriters with respect
to the shares of the Stock purchased under this Agreement, on the other hand,
bear to the total gross proceeds from the offering of the shares of the Stock
under this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Principal Shareholder, the Selling Shareholder or the
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Underwriters, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Principal Shareholder, the Selling Shareholder and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section were to be determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, damage or liability, or action in respect
thereof, referred to above in this Section 10(f) shall be deemed to include, for
purposes of this Section 10(f), any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 10(f), (i) no
Underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Stock underwritten by it and distributed
to the public was offered to the public exceeds the amount of any damages which
such Underwriter has otherwise paid or become liable to pay by reason of any
untrue or alleged untrue statement or omission or alleged omission and (ii) the
Selling Shareholder shall not be required to contribute any amount in excess of
the value (based on the initial public offering price) of any Stock sold by it
pursuant to this Agreement. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute as provided in
this Section 10(f) are several in proportion to their respective underwriting
obligations and not joint.
(g) Any losses, claims, damages, liabilities or expenses (including
legal) for which an indemnified party is entitled to indemnification or
contribution under this Section 10 shall be paid by the indemnifying party to
the indemnified party as such losses, claims, damages, liabilities or expenses
are incurred.
(h) The Underwriters severally confirm and the Company acknowledges
that the statements with respect to the public offering of the Stock by the
Underwriters set forth in the last paragraph of the cover page of, the legend
concerning stabilization on the inside front cover page of and the third,
fourth, fifth, sixth, ninth and tenth paragraphs appearing under the caption
"Underwriting" in, the Prospectus are correct and constitute the only
information concerning such Underwriters furnished in writing to the Company by
or on behalf of the Underwriters specifically for inclusion in the Registration
Statement and the Prospectus.
11. Defaulting Underwriters.
(a) If any Underwriter defaults in its obligation to purchase Stock on
either Delivery Date, the Company may in its discretion arrange for the Company
or another party or other parties to purchase such Stock on the terms contained
herein within thirty-six (36) hours after such default by any Underwriter. In
the event that, within the respective prescribed period, the Company notifies
the Representative that it has so arranged for the purchase of such Stock, the
Company shall have the right to postpone a Delivery Date for a period of not
more than seven (7) days in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus, or in any other
documents or arrangements, and the Representative
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agrees to file promptly any amendments to the Registration Statement or the
Prospectus that in its opinion may thereby be made necessary. The cost of
preparing, printing and filing any such amendments shall be paid for by the
Underwriters. The term "Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Stock. Any action
taken under this Section 11 shall not relieve any defaulting Underwriter from
liability in respect of any such default of any such Underwriter under this
Agreement.
(b) If, after giving effect to any arrangements for the purchase of
the Stock of a defaulting Underwriter or Underwriters by you as provided in
Section 11(a), if any, the aggregate number of such Stock which remains
unpurchased does not exceed one-eleventh (1/11) of the aggregate number of Stock
to be purchased at such Delivery Date, then the Representative shall have the
right to require each non-defaulting Underwriter to purchase the number of
shares of Stock which such Underwriter agreed to purchase hereunder at such
Delivery Date and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of shares of Stock which such
Underwriter agreed to purchase hereunder) of the shares of Stock of such
defaulting Underwriter or Underwriters for which such arrangements have not been
made.
12. Termination. The obligations of the Underwriters hereunder may
be terminated by the Representative by notice given to and received by the
Company and the Selling Shareholder prior to delivery of and payment for the
Firm Stock if, prior to that time, any of the events described in Section 9(l)
or 9(m), shall have occurred or if the Underwriters shall decline to purchase
the Stock for any reason permitted under this Agreement.
13. Reimbursement of Underwriters' Expenses. If the Company, the
Selling Shareholder or the Principal Shareholder shall fail to tender the Firm
Stock or the Option Stock, as the case may be, for delivery to the Underwriters
by reason of any failure, refusal or inability on the part of the Company, the
Selling Shareholder, or the Principal Shareholder to perform any agreement on
its part to be performed, or because any other condition of the Underwriters'
obligations hereunder required to be fulfilled by the Company, the Selling
Shareholder, or the Principal Shareholder is not fulfilled (other than Section
9(m) hereof), the Company, or the Selling Shareholder, if the failure, refusal
or inability to perform is on the part of the Selling Shareholder, or the
Principal Shareholder if the failure, refusal or inability to perform is on the
part of the Principal Shareholder, will reimburse the Underwriters for all out-
of-pocket expenses (including fees and expenses of counsel) incurred by the
Underwriters in connection with this Agreement and the proposed purchase of the
Firm Stock or the Option Stock, as the case may be, and upon demand the Company,
the Selling Shareholder or the Principal Shareholder, as the case may be, shall
pay the full amount thereof to the Representative; provided, however, that if
the Underwriters elect to purchase the Stock from the Company despite the
failure, refusal or inability on the part of the Selling Shareholder or the
Principal Shareholder, as the case may be, to perform any agreement on its part
to be performed, the Selling Shareholder or the Principal Shareholder, as the
case may be, shall only reimburse the Underwriters and the Company for the
incremental costs incurred by reason of such failure, refusal or inability. If
this Agreement is terminated pursuant to Section 11 by reason of the default of
one or more Underwriters, the Company, the Selling Shareholder, and the
Principal Shareholder shall not be obligated to reimburse any Underwriter on
account of those expenses.
14. Notices, etc. All statements, requests, notices and agreements
hereunder shall be in writing, and:
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<PAGE>
(a) if to the Underwriters, shall be delivered or sent by mail,
telex or facsimile transmission to Advest, Inc., One Rockefeller
Plaza, 20th Floor, New York, New York 10020, Attention: Brett A.
Chamberlain (Fax: 212-584-4292) (with a copy to Morgan, Lewis &
Bockius LLP, 101 Park Avenue, New York, NY 10178, Attention:
Christopher T. Jensen, Esq., Fax: 212-309-6273);
(b) if to the Company or the Principal Shareholder, shall be
delivered or sent by mail, telex or facsimile transmission to the
address of the Company set forth in the Registration Statement,
Attention: Heidi J. Eddins (Fax: 508-795-0748) (with a copy to
Hinckley, Allen & Snyder, 1500 Fleet Center, Providence, RI 02903-
2393, Attention: Margaret D. Farrell, Esq., Fax: 401-277-9600);
(c) if to the Selling Shareholder, shall be delivered or sent by
mail, telex or facsimile transmission to the Selling Shareholder at
the address set forth on Schedule II hereto;
provided, however, that any notice to an Underwriter pursuant to Section 10(e)
shall be delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its acceptance telex to the
Representative, which address will be supplied to any other party hereto by the
Representative upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof. The Company, the
Selling Shareholder and the Principal Shareholder shall be entitled to act and
rely upon any request, consent, notice or agreement given or made on behalf of
the Underwriters by Advest, Inc., as Representative.
15. Persons Entitled to Benefit of Agreement. This Agreement shall
inure to the benefit of and be binding upon the Underwriters, the Company, the
Principal Shareholder, the Selling Shareholder and their respective personal
representatives and successors. This Agreement and the terms and provisions
hereof are for the sole benefit of only those persons, except that (A) the
representations, warranties, indemnities and agreements of the Company, the
Principal Shareholder and the Selling Shareholder contained in this Agreement
shall also be deemed to be for the benefit of the person or persons, if any, who
control any Underwriter within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act and any successor to any Underwriter and
(B) the indemnity agreement of the Underwriters contained in Section 10(d) of
this Agreement shall be deemed to be for the benefit of directors of the
Company, officers of the Company who have signed the Registration Statement and
any person controlling the Company within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act. Nothing in this Agreement
is intended or shall be construed to give any person, other than the persons
referred to in this Section 15, any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision contained herein.
37
<PAGE>
16. Survival; Effective Date. (a) The respective indemnities,
representations, warranties and agreements of the Company, the Principal
Shareholder, the Selling Shareholder and the Underwriters contained in this
Agreement or made by or on behalf on them, respectively, pursuant to this
Agreement, shall survive the delivery of and payment for the Stock and shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any of them or any person controlling any of them. In addition, the
respective agreements, covenants, indemnities and other statements set forth in
Sections 8, 10 and 13 hereof shall remain in full force and effect, regardless
of any termination or cancellation of this Agreement.
(b) This Agreement shall become effective: (i) upon the execution and
delivery hereof by the parties hereto; or (ii) if, at the time this Agreement is
executed and delivered, it is necessary for the Registration Statement or a
post-effective amendment thereto to be declared effective before the offering of
the Stock may commence, when notification of the effectiveness of the
Registration Statement or such post-effective amendment has been received by the
Company and the Underwriters. Until such time as this Agreement shall become
effective, it may be terminated by the Company, by notifying the Representative
or by the Representative, by notifying the Company.
17. Definition of the Terms "Business Day" and "Subsidiary." For
purposes of this Agreement, (a) "business day" means any day on which the New
York Stock Exchange, Inc. is open for trading and (b) "subsidiary" has the
meaning set forth in Rule 405 of the Rules and Regulations.
18. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of New York without giving effect to any provisions
regarding conflicts of laws.
19. Counterparts. This Agreement may be executed in one or more
counterparts and, if executed in more than one counterpart, the executed
counterparts shall each be deemed to be an original but all such counterparts
shall together constitute one and the same instrument.
20. Headings. The headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
38
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Principal Shareholder, the Selling Shareholder and the Underwriters, please
indicate your acceptance in the space provided for that purpose below.
Very truly yours,
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By
____________________________________________
Name:
Title:
____________________________________________
Robert H. Eder, the Principal Shareholder
The Selling Shareholder named in Schedule II to
this Agreement
By
____________________________________________
Name:
Title:
Accepted as of the date first written above:
Advest, Inc.
For itself and as Representative
of the several Underwriters named
in Schedule I hereto
By ADVEST, Inc.
By _______________________________
Name:
Title:
39
<PAGE>
SCHEDULE I
Number of Number of
Underwriters Shares
------------ ---------
Advest, Inc. . . . . . . . . . . . . . . .
Total
40
<PAGE>
SCHEDULE II
Number of Shares
Name and address of the Selling Shareholder of Firm Stock
- ------------------------------------------- -------------------
Total............................................. =========
41
<PAGE>
EXHIBIT 1.2
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT FILED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
VOID AFTER 5:00 P.M., NEW YORK TIME, ON MARCH ____, 2003, OR IF NOT A BUSINESS
DAY, AS DEFINED HEREIN, AT 5:00 P.M., NEW YORK TIME, ON THE NEXT FOLLOWING
BUSINESS DAY.
WARRANT TO PURCHASE
50,000 SHARES OF COMMON STOCK
NO. 1
WARRANT TO PURCHASE
COMMON STOCK
OF
PROVIDENCE AND WORCESTER RAILROAD COMPANY
TRANSFER RESTRICTED -- SEE SECTION 5.02
This certifies that, for good and valuable consideration, [Advest, Inc.]
[Schneider Securities, Inc.], and its registered, permitted assigns
(collectively, the "Warrant Holder"), is entitled to purchase from Providence
and Worcester Railroad Company, a Rhode Island corporation (the "Company"),
subject to the terms and conditions hereof, at any time on or after 9:00 A.M.,
New York time, on March ____, 1999 , and before 5:00 P.M., New York time, on
March ____, 2003 (or, if such day is not a Business Day, at or before 5:00 P.M.,
New York time, on the next following Business Day), the number of fully paid and
non-assessable shares of Common Stock stated above at the Exercise Price. The
Exercise Price and the number of shares purchasable hereunder are subject to
adjustment from time to time as provided in Article III hereof.
ARTICLE I
Definitions
-----------
As used in this Warrant, the following capitalized terms shall have the
following respective meanings:
(a) Additional Demand Registration: See Section 6.02(c).
------------------------------
<PAGE>
(b) Business Day: A day other than a Saturday, Sunday, or other day
------------
on which banks in the State of New York are authorized by law to remain closed.
(c) Common Stock: Common stock, $.50 par value per share, of the
------------
Company.
(d) Common Stock Equivalents: Securities that are convertible into or
------------------------
exercisable for shares of Common Stock.
(e) Demand Registration: See Section 6.02.
-------------------
(f) Exchange Act: Securities Exchange Act of 1934, as amended.
------------
(g) Exercise Price: $[insert exercise price: 155% of public offering
--------------
price of shares of Common Stock] per Warrant Share, as such price may be
adjusted from time to time pursuant to Article III hereof.
(h) Expiration Date: 5:00 P.M., New York time, on March ____, 2003,
---------------
or if such day is not a Business Day, the next succeeding day which is a
Business Day.
(i) Majority Holders: At any time as to which a Demand Registration
----------------
or an Additional Demand Registration is requested, the Holders who hold or have
the right to acquire or hold, as the case may be, not less than 50% of the
combined total of Warrant Shares issuable and Warrant Shares outstanding at the
time such Demand Registration is requested.
(j) Holders: Security Holders and Warrant Holders, collectively.
-------
(k) NASD: National Association of Securities Dealers, Inc.
----
(l) NASDAQ: NASD Automatic Quotation System.
------
(m) Person: An individual, partnership, joint venture, corporation,
------
trust, unincorporated organization, or government or any department or agency
thereof.
(n) Piggyback Registration: See Section 6.01.
----------------------
(o) Prospectus: Any prospectus included in any Registration Statement
----------
that registers Registrable Securities in connection with a public offering
covered by such Registration Statement and all other amendments and supplements
to the prospectus, including post-effective amendments and all material
incorporated by reference in such prospectus.
(p) Public Offerings: A public offering of any of the Company's
----------------
equity or debt securities pursuant to a registration statement under the
Securities Act.
2
<PAGE>
(q) Registration Expenses: Any and all expenses incurred in
---------------------
connection with any registration or action incident to performance of or
compliance by the Company with Article VI, including, without limitation, (i)
all SEC, national securities exchange, and NASD registration and filing fees;
(ii) all listing fees and all transfer agent fees; (iii) all fees and expenses
of complying with state securities or blue sky laws (including the fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities); (iv) all printing, mailing,
messenger, and delivery expenses; and (v) all fees and disbursements of counsel
for the Company and of its accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such performance
and compliance, but excluding underwriting discounts and commissions, brokerage
fees, and transfer taxes, if any, and fees of counsel or accountants retained by
the holders of Registrable Securities to advise them in their capacity as
holders of Registrable Securities.
(r) Registrable Securities: Any Warrant Shares issued to [Advest,
----------------------
Inc.] [Schneider Securities, Inc.] or its designees or transferees as permitted
under Section 5.02 and other securities that may be or are issued by the Company
upon exercise of this Warrant, including those which may thereafter be issued by
the Company in respect of any such securities by means of any stock splits,
stock dividends, recapitalizations, reclassifications, or the like, and as
adjusted pursuant to Article III hereof.
(s) Registration Statement: Any registration statement of the Company
----------------------
filed or to be filed with the SEC that covers any of the Registrable Securities
pursuant to the provisions of this Warrant, including all amendments (including
post-effective amendments) and supplements thereto, all exhibits thereto and all
material incorporated therein by reference.
(t) SEC: The Securities and Exchange Commission or any other federal
---
agency at the time administering the Securities Act or the Exchange Act.
(u) Securities Act: Securities Act of 1933, as amended.
--------------
(v) Security Holder: A holder of Registrable Securities.
---------------
(w) Transfer: See Section 5.02.
--------
(x) Warrants: This Warrant, all other warrants issued on the date
--------
hereof, and all other warrants that may be issued in its or their place
(together evidencing the right to purchase an aggregate of 100,000 shares of
Common Stock).
(y) Warrant Holder: The person(s) or entity(ies) to whom this Warrant
--------------
is originally issued, or any successor in interest thereto, or any assignee or
transferee thereof, in whose name this Warrant is registered upon the books to
be maintained by the Company for that purpose.
3
<PAGE>
(z) Warrant Shares: Common Stock, Common Stock Equivalents,
--------------
and other securities purchased or purchasable upon exercise of the Warrants.
ARTICLE II
Duration and Exercise of Warrant
--------------------------------
Section 2.01: Duration of Warrant. Subject to the limitations specified
------------ -------------------
in Section 2.02(a)(ii) regarding a Cashless Exercise, the Warrant Holder may
exercise this Warrant at any time and from time to time after 9:00 A.M., New
York time, on March ____, 1999, and before 5:00 P.M., New York time, on the
Expiration Date. If this Warrant is not exercised on or prior to the Expiration
Date, it shall become void, and all rights hereunder shall thereupon cease.
Section 2.02.: Exercise of Warrant.
------------- -------------------
(a) The Warrant Holder may exercise this Warrant, in whole or in part, as
follows:
(i) By presentation and surrender of this Warrant to the
Company at its principal executive offices or at the office of its
stock transfer agent, if any, with the Subscription Form annexed
hereto duly executed and accompanied by payment of the full Exercise
Price for each Warrant Share to be purchased; or
(ii) By presentation and surrender of this Warrant to the
Company at its principal executive offices with a Cashless Exercise
Form annexed hereto duly executed (a "Cashless Exercise"). In the
event of a Cashless Exercise, the Warrant Holder shall exchange its
warrant for that number of shares of Common Stock determined by
multiplying the number of Warrant Shares by a fraction, the numerator
of which shall be the amount by which the then current market price
per share of Common Stock exceeds the Exercise Price, and the
denominator of which shall be the then current market price per share
of Common Stock. For purposes of any computation under this Section
2.02(a)(ii), the then current market price per share of Common Stock
at any date shall be deemed to be the last sale price of the Common
Stock on the Business Day prior to the date of the Cashless Exercise
or, in case no such reported sale take place on such day, the average
of the last reported bid and asked prices of the Common Stock on such
day, in either case on the principal national securities exchange on
which the Common Stock is admitted to trading or listed, or if not
listed or admitted to trading on any such exchange, the representative
closing bid price of the Common Stock as reported by NASDAQ, or other
similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price of the
Common Stock as determined by the Board of Directors.
4
<PAGE>
(b) Upon receipt of this Warrant, in the case of Section
2.02(a)(i), with the Subscription Form duly executed and accompanied by payment
of the aggregate Exercise Price for the Warrant Shares for which this Warrant is
then being exercised, or, in the case of Section 2.02(a)(ii), with the Cashless
Exercise Form duly executed, the Company shall cause to be issued certificates
for the total number of whole shares of Common Stock for which this Warrant is
being exercised (adjusted to reflect the effect of the anti-dilution provisions
contained in Article III hereof, if any, and as provided in Section 2.04 hereof)
in such denominations as are requested for delivery to the Warrant Holder, and
the Company shall thereupon deliver such certificates to the Warrant Holder. The
Warrant Holder shall be deemed to be the holder of record of the shares of
Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually delivered to
the Warrant Holder. If at the time this Warrant is exercised, a Registration
Statement is not in effect to register under the Securities Act the Warrant
Shares issuable upon exercise of this Warrant, the Company may require the
Warrant Holder to make such representations, and may place such legends on
certificates representing the Warrant Shares, as may be reasonably required in
the opinion of counsel to the Company to permit the Warrant Shares to be issued
without such registration.
(c) In case the Warrant Holder shall exercise this Warrant with
respect to less than all of the Warrant Shares that may be purchased under this
Warrant, the Company shall execute a new warrant in the form of this Warrant for
the balance of such Warrant Shares and deliver such new warrant to the Warrant
Holder.
(d) The Company shall pay any and all stock transfer and similar
taxes which may be payable in respect of the issue of this Warrant or in respect
of the issue of any Warrant Shares.
Section 2.03: Reservation of Shares. The Company hereby agrees that at
------------- ---------------------
all times there shall be reserved for issuance and delivery upon exercise of
this Warrant such number of shares of Common Stock or other shares of capital
stock of the Company from time to time issuable upon exercise of this Warrant.
All such shares shall be duly authorized and, when issued upon such exercise,
shall be validly issued, fully paid, and nonassessable, free and clear of all
liens, security interests, charges, and other encumbrances or restrictions on
sale and free and clear of all preemptive rights (except the restrictions
imposed by the legend appearing at the top of Page 1 of this Warrant).
Section 2.04: Fractional Shares. The Company shall not be required to
------------- -----------------
issue any fraction of a share of its capital stock in connection with the
exercise of this Warrant, and in any case where the Warrant Holder would, except
for the provisions of this Section 2.04, be entitled under the terms of this
Warrant to receive a fraction of a share upon the exercise of this Warrant, the
Company shall, upon the exercise of this Warrant and tender of the Exercise
Price (as adjusted to cover the balance of the share), issue the larger number
of whole shares purchasable upon exercise of this Warrant. The Company shall not
be required to make any cash or other adjustment in respect of such fraction of
a share to which the Warrant Holder would otherwise be entitled.
5
<PAGE>
Section 2.05: Listing. Prior to the issuance of any shares of Common
------------- -------
Stock upon exercise of this Warrant, the Company shall secure the listing of
such shares of Common Stock upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance upon exercise of this Warrant) and shall
maintain, so long as any other shares of Common Stock shall so be listed, such
listing of all shares of Common Stock from time to time issuable upon the
exercise of this Warrant; and the Company shall so list on each national
securities exchange or automated quotation system, and shall maintain such
listing of, any other shares of capital stock of the Company issuable upon the
exercise of this Warrant if and so long as any shares of the same class shall be
listed on such national securities exchange or automated quotation system.
ARTICLE III
Adjustment of Shares of Common Stock
Purchasable and of Exercise Price
---------------------------------
The Exercise Price and the number and kind of Warrant Shares shall be
subject to adjustment from time to time upon the happening of certain events as
provided in this Article III.
Section 3.01: Mechanical Adjustments. (a) If at any time prior to the
------------- ----------------------
exercise of this Warrant in full, the Company shall (i) declare a dividend or
make a distribution on the Common Stock payable in shares of its capital stock
(whether shares of Common Stock or of capital stock of any other class); (ii)
subdivide, reclassify, or recapitalize outstanding Common Stock into a greater
number of shares; (iii) combine, reclassify, or recapitalize its outstanding
Common Stock into a smaller number of shares; or (iv) issue any shares of its
capital stock by reclassification of its Common Stock (including any such
reclassification in connection with a consolidation or a merger in which the
Company is the continuing corporation) the Exercise Price in effect at the time
of the record date of such dividend, distribution, subdivision, combination,
reclassification, or recapitalization shall be adjusted so that the Warrant
Holder shall be entitled to receive the aggregate number and kind of shares
which, if this Warrant had been exercised in full immediately prior to such
event, the Warrant Holder would have owned upon such exercise and been entitled
to receive by virtue of such dividend, distribution, subdivision, combination,
reclassification, or recapitalization. Any adjustment required by this Section
3.01(a) shall be made successively immediately after the record date, in the
case of a dividend or distribution, or the effective date, in the case of a
subdivision, combination, reclassification, or recapitalization to allow the
purchase of such aggregate number and kind of shares.
(b) In case the Company shall distribute to all holders of
Common Stock (including any such distribution to be made in connection with a
consolidation or merger in which the Company is to be the continuing
corporation) of evidences of its indebtedness, any other securities of the
Company, or any cash, property, or other assets (excluding a (i) combination,
reclassification, or recapitalization referred to in Section 3.01(a), (ii) cash
dividends or cash distributions paid out of
6
<PAGE>
net profits legally available therefor and in the ordinary course of business,
and (iii) subscription rights, options, or warrants for Common Stock or Common
Stock Equivalents (any such nonexcluded event being herein called a "Special
Dividend"), (A) the Exercise Price shall be decreased immediately after the
distribution of such Special Dividend to a price determined by multiplying the
Exercise Price then in effect by a fraction, the numerator of which shall be the
then current market price of the Common Stock (as defined in Section 3.01(e)) on
the date of such distribution less the fair market value (as determined by the
Company's Board of Directors) of the evidences of indebtedness, securities or
property, or other assets issued or distributed in such Special Dividend
applicable to one share of Common Stock or of such subscription rights, options,
or warrants applicable to one share of Common Stock and the denominator of which
shall be such then current market price per share of Common Stock (as so
determined) and (B) the number of shares of Common Stock subject to purchase
upon exercise of this Warrant shall be increased to a number determined by
multiplying the number of shares of Common Stock subject to purchase immediately
before such Special Dividend by a fraction, the numerator of which shall be the
Exercise Price in effect immediately before such Special Dividend and the
denominator of which shall be the Exercise Price in effect immediately after
such Special Dividend. Any adjustment required by this Section 3.01(b) shall be
made successively whenever any such distribution is made and shall become
effective on the date of the distribution retroactive to the record date for the
determination of shareholders entitled to receive such distribution.
(c) If at any time prior to the exercise of this Warrant in full, the
Company shall make a distribution to all holders of the Common Stock of stock of
a subsidiary or securities convertible into or exercisable for such stock, then
in lieu of an adjustment in the Exercise Price or the number of Warrant Shares
purchasable upon the exercise of this Warrant, each Warrant Holder, upon the
exercise hereof at any time after such distribution, shall be entitled to
receive from the Company, such subsidiary or both, as the Company shall
determine, the stock or other securities to which such Warrant Holder would have
been entitled if such Warrant Holder had exercised this Warrant immediately
prior thereto, all subject to further adjustment as provided in this Article
III, and the Company shall reserve, for the life of the Warrant, such securities
of such subsidiary or other corporation; provided, however, that no adjustment
in respect of dividends or interest on such stock or other securities shall be
made during the term of this Warrant or upon its exercise.
(d) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to one or more of paragraphs (a) and (b) of this Section
3.01, the Warrant Shares shall simultaneously be adjusted by multiplying the
number of Warrant Shares initially issuable upon exercise of each Warrant by the
Exercise Price in effect on the date of such adjustment and dividing the product
so obtained by the Exercise Price, as adjusted.
(e) For the purpose of any computation under this Section 3.01, the
current market price per share of Common Stock at any date shall be deemed to be
the average of the daily closing prices for 20 consecutive trading days
commencing 30 trading days before such date. The closing price for each day
shall be the last sale price regular way or, in case no such reported sales take
place on such day, the average of the last reported bid and asked prices regular
way, in either case on the
7
<PAGE>
principal national securities exchange on which the Common Stock is admitted to
trading or listed, or if not listed or admitted to trading on any such exchange,
the representative closing bid price as reported by NASDAQ, or other similar
organization if NASDAQ is no longer reporting such information, or if not so
available, the fair market price as determined by the Board of Directors of the
Company.
(f) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least
twenty-five cents ($.25) in such price; provided, however, that any
-------- -------
adjustments which by reason of this Section 3.01(f) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations under this Section 3.01 shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Notwithstanding
anything in this Section 3.01 to the contrary, the Exercise Price shall not be
reduced to less than the then existing par value of the Common Stock as a result
of any adjustment made hereunder.
(g) In the event that at any time, as a result of any adjustment
made pursuant to Section 3.01(a), the Warrant Holder thereafter shall become
entitled to receive any shares of the Company other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of any
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Section 3.01(a).
Section 3.02: Notice of Adjustment. Whenever the number of Warrant Shares
------------ --------------------
or the Exercise Price is adjusted as herein provided, the Company shall prepare
and deliver forthwith to the Warrant Holder a certificate signed by its
President, and by any Vice President, Treasurer, or Secretary, setting forth the
adjusted number of shares purchasable upon the exercise of this Warrant and the
Exercise Price of such shares after such adjustment, a brief statement of the
facts requiring such adjustment, and the computation by which adjustment was
made.
Section 3.03: No Adjustment for Dividends. Except as provided in Section
------------ ---------------------------
3.01 of this Warrant Agreement, no adjustment in respect of any cash dividends
paid by the Company shall be made during the term of this Warrant or upon the
exercise of this Warrant.
Section 3.04: Preservation of Purchase Rights in Certain Transactions. In
------------ -------------------------------------------------------
case of any reclassification, capital reorganization, or other change of
outstanding shares of Common Stock (other than a subdivision or a combination of
the outstanding Common Stock and other than a change in the par value of the
Common Stock or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which the
Company is the continuing corporation and said merger does not result in any
reclassification, capital reorganization, or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant)) or in case
of any sale, lease, transfer, or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, cause
such successor or purchasing
8
<PAGE>
corporation, as the case may be, to execute with the Warrant Holder an agreement
granting the Warrant Holder the right thereafter, upon payment of the Exercise
Price in effect immediately prior to such action, to receive upon exercise of
this Warrant the kind and amount of shares and other securities and property
which he would have owned or have been entitled to receive after the happening
of such reclassification, change, consolidation, merger, sale, or conveyance had
this Warrant been exercised immediately prior to such action. Such agreement
shall provide for adjustments in respect of such shares of stock and other
securities and property, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article III. In the event
that in connection with any such reclassification, capital reorganization,
change, consolidation, merger, sale, or conveyance, additional shares of Common
Stock shall be issued in exchange, conversion, substitution, or payment, in
whole or in part, for, or of, a security of the Company other than Common Stock,
any such issue shall be treated as an issue of Common Stock covered by the
provisions of Article III. The provisions of this Section 3.04 shall similarly
apply to successive reclassification, capital reorganizations, consolidations,
mergers, sales, or conveyances.
Section 3.05: Form of Warrant After Adjustments. The form of this Warrant
------------ ---------------------------------
need not be changed because of any adjustments in the Exercise Price or the
number or kind of the Warrant Shares, and Warrants theretofore or thereafter
issued may continue to express the same price and number and kind of shares as
are stated in this Warrant, as initially issued.
Section 3.06: Treatment of Warrant Holder. Prior to due presentment for
------------ ---------------------------
registration of transfer of this Warrant, the Company may deem and treat the
Warrant Holder as the absolute owner of this Warrant (notwithstanding any
notation of ownership or other writing hereon) for all purposes and shall not be
affected by any notice to the contrary.
ARTICLE IV
Other Provisions Relating
to Rights of Warrant Holder
---------------------------
Section 4.01: No Rights as Shareholders; Notice to Warrant Holders.
------------ ----------------------------------------------------
Nothing contained in this Warrant shall be construed as conferring upon the
Warrant Holder or his or its transferees the right to vote or to receive
dividends or to consent to or receive notice as a shareholder in respect of any
meeting of shareholders for the election of directors of the Company or any
other matter or any other rights whatsoever as shareholders of the Company. The
Company shall give notice to the Warrant Holder by registered mail if at any
time prior to the expiration or exercise in full of the Warrants any of the
following events shall occur:
(a) the Company shall authorize the payment of any dividend upon
shares of Common Stock payable in any securities or authorize the making of any
distribution (other than a cash dividend subject to the parenthetical set forth
in Section 3.01(b)) to all holders of Common Stock;
9
<PAGE>
(b) the Company shall authorize the issuance to all holders of
Common Stock of any additional shares of Common Stock or Common Stock
Equivalents or of rights, options, or warrants to subscribe for or purchase
Common Stock or Common Stock Equivalents or of any other subscription rights,
options, or warrants;
(c) a dissolution, liquidation, or winding up of the Company
(other than in connection with a consolidation, merger, or sale or conveyance of
the property of the Company as an entirety or substantially as an entirety); or
(d) a capital reorganization or reclassification of the Common
Stock (other than a subdivision or combination of the outstanding Common Stock
and other than a change in the par value of the Common Stock) or any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and that does not result in any reclassification or change of Common
Stock outstanding) or in the case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety.
Such giving of notice shall be initiated at least 10 Business Days prior to
the date fixed as a record date or effective date or the date of closing of the
Company's stock transfer books for the determination of the shareholders
entitled to such dividend, distribution, or subscription rights or for the
determination of the shareholders entitled to vote on such proposed merger,
consolidation, sale, conveyance, dissolution, liquidation, or winding up. Such
notice shall specify such record date or the date of closing the stock transfer
books, as the case may be. Failure to provide such notice shall not affect the
validity of any action taken in connection with such dividend, distribution, or
subscription rights, or proposed merger, consolidation, sale, conveyance,
dissolution, liquidation, or winding up.
Section 4.02: Lost, Stolen, Mutilated, or Destroyed Warrants. If this
------------ ----------------------------------------------
Warrant is lost, stolen, mutilated, or destroyed, the Company may, on such terms
as to indemnity or otherwise as it may in its discretion impose (which shall, in
the case of a mutilated Warrant, include the surrender thereof), issue a new
Warrant of like denomination and tenor as and in substitution for this Warrant.
ARTICLE V
Split-Up, Combination,
Exchange, and Transfer of Warrants
----------------------------------
Section 5.01: Split-Up, Combination, Exchange, and Transfer of Warrants.
------------ ---------------------------------------------------------
Subject to the provisions of Section 5.02 hereof, this Warrant may be split up,
combined, or exchanged for another Warrant or Warrants containing the same terms
to purchase a like aggregate number of Warrant Shares. If the Warrant Holder
desires to split up, combine, or exchange Warrants, he or it shall make such
request in writing delivered to the Company and shall surrender to the Company
any Warrants
10
<PAGE>
to be so split up, combined, or exchanged. Upon any such surrender for a split
up, combination, or exchange, the Company shall execute and deliver to the
person entitled thereto a Warrant or Warrants, as the case may be, as so
requested. The Company shall not be required to effect any split up,
combination, or exchange which will result in the issuance of a Warrant
entitling the Warrant Holder to purchase upon exercise a fraction of a share of
Common Stock or a fractional Warrant. The Company may require such Warrant
Holder to pay a sum sufficient to cover any tax or governmental charge that may
be imposed in connection with any split up, combination, or exchange of
Warrants.
Section 5.02: Restrictions on Transfer. Neither this Warrant nor the
------------ ------------------------
Warrant Shares may be disposed of or encumbered (any such action, a "Transfer"),
except (i) to Advest, Inc., any successor to the business of such company, or
any officer of such company, (ii) to Schneider Securities, Inc., any successor
to the business of such company, or any officer of such company, or (iii) to any
underwriter in connection with a Public Offering of the Common Stock, provided
(as to (iii)) that this Warrant is exercised upon such Transfer and the shares
of Common Stock issued upon such exercise are sold by such underwriter as part
of such Public Offering and, as to (i), (ii), and (iii), only in accordance with
and subject to the provisions of the Securities Act and the rules and
regulations promulgated thereunder; and provided, further, however, that this
-------- ------- -------
Warrant is restricted from sale, transfer, assignment or hypothecation until
March __, 1999, except to members of the selling group in the Company's public
offering commenced on March __, 1998 and their respective officers and partners.
If at the time of a Transfer, a Registration Statement is not in effect to
register this Warrant or the Warrant Shares, the Company may require the Warrant
Holder to make such representations and may place such legends on certificates
representing this Warrant, as may be reasonably required in the opinion of
counsel to the Company to permit a Transfer without such registration.
ARTICLE VI
Registration Under the Securities Act
-------------------------------------
Section 6.01: Piggyback Registration.
------------ ----------------------
(a) Right to Include Registrable Securities. If at any time or
---------------------------------------
from time to time after March ___, 1999 and prior to March ___, 2005, the
Company proposes to register any of its securities for public sale under the
Securities Act, whether or not for its own account (other than by a registration
statement on Form S-4, Form S-8, or other form which does not include
substantially the same information as would be required in a form for the
general registration of securities or would not be available for the Registrable
Securities) (a "Piggyback Registration"), it shall as expeditiously as possible
give written notice to all Holders of its intention to do so and of such
Holders' rights under this Section 6.01, unless, in the opinion of counsel to
the Company reasonably acceptable to any such Holder of Warrants or Warrant
Shares who wishes to have Warrant Shares included in such registration
statement, registration under the Securities Act is not required pursuant to
Rule 144(k) thereunder for the transfer of such Warrants and/or Warrant Shares
in the manner proposed by such Holders. Such rights are referred to hereinafter
as "Piggyback Registration Rights." Upon the written request of any such Holder
made within 20 days after receipt of any such
11
<PAGE>
notice (which request shall specify the Registrable Securities intended to be
disposed of by such Holder), the Company shall include in the Registration
Statement the Registrable Securities which the Company has been so requested to
register by the Holders thereof and the Company shall keep such registration
statement in effect and maintain compliance with each federal and state law or
regulation for the period necessary for such Holder to effect the proposed sale
or other disposition (but in no event for a period greater than 120 days),
provided that the Company shall not be obligated to honor any request to
register Warrant Shares that represent in the aggregate fewer than 25% of the
aggregate number of Warrant Shares.
(b) Withdrawal of Piggyback Registration by Company. If, at any time
-----------------------------------------------
after giving written notice of its intention to register any securities in a
Piggyback Registration but prior to the effective date of the related
Registration Statement, the Company shall determine for any reason not to
register such securities, the Company shall give written notice of such
determination to each Holder and, thereupon, shall be relieved of its obligation
to register any Registrable Securities in connection with such Piggyback
Registration. All best efforts obligations of the Company pursuant to Section
6.03 shall cease if the Company determines to terminate prior to such effective
date any registration where Registrable Securities are being registered pursuant
to this Section 6.01.
(c) Piggyback Registration of Underwritten Public Offerings. If a
-------------------------------------------------------
Piggyback Registration involves an offering by or through underwriters, then,
(i) all Holders requesting to have their Registrable Securities included in the
Company's Registration Statement must sell their Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as apply
to other selling shareholders and (ii) any Holder requesting to have his or its
Registrable Securities included in such Registration Statement may elect in
writing, not later than five Business Days prior to the filing of the
Registration Statement filed in connection with such registration, not to have
his or its Registrable Securities so included in connection with such
registration.
(d) Payment of Registration Expenses for Piggyback Registration. The
-----------------------------------------------------------
Company shall pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to a Piggyback Registration Right
contained in this Section 6.01.
(e) Priority in Piggyback Registration. If a Piggyback Registration
----------------------------------
involves an offering by or through underwriters, the Company shall not be
required to include Registrable Shares therein if and to the extent the
underwriter managing the offering reasonably believes in good faith and advises
each Holder requesting to have Registrable Securities included in the Company's
Registration Statement that such inclusion would materially adversely affect
such offering; provided that (i) if other selling shareholders who are
employees, officers or directors of the Company have requested registration of
securities in the proposed offering, the Company will reduce or eliminate such
other selling shareholders' securities before any reduction or elimination of
Registrable Securities; (ii) any such reduction or elimination (after taking
into account the effect of clause (i)) shall be pro rata to all other holders of
--------
the securities of the Company exercising "Piggyback Registration Rights" similar
to those set forth herein in proportion to the respective number of shares
12
<PAGE>
they have requested to be registered, and (iii) in such event, such Holders may
delay any offering by them of all Registrable Shares requested to be included
(or that portion of such Registrable Shares eliminated for such period, not to
exceed 60 days, as the managing underwriter shall request) and the Company shall
file such supplements and post-effective amendments and take such other action
necessary under federal and state law or regulation as may be necessary to
permit such Holders to make their proposed offering for a period of 90 days
following such period of delay.
(f) The Company shall be obligated pursuant to this Section 6.01
to include in the Piggyback Registration, Warrant Shares that have not yet been
purchased by a Holder of Warrants so long as such Holder of Warrants submits to
the Company an irrevocable undertaking reasonably satisfactory to the Company
that such Holder intends to exercise Warrants representing the number of Warrant
Shares to be included in such Piggyback Registration prior to the consummation
of the offering covered by such Piggyback Registration. In addition, such Holder
of Warrants is permitted to pay the Company the Exercise Price for such Warrant
Shares upon the consummation of the offering covered by such Piggyback
Registration.
Section 6.02: Demand Registration.
------------ --------------------
(a) Request for Registration. If, on no more than two
------------------------
occasions (such occasions the "Demand Registration" and "Additional Demand
Registration" defined in Sections 6.02(a) and 6.02(b), respectively) subsequent
to March ___, 1999 and prior to March ___, 2003, a Majority of Holders requests
that the Company file a registration statement on Form S-3 under the Securities
Act (or any successor provision), the Company as soon as practicable shall use
its best efforts to file a registration statement with respect to all Warrant
Shares that it has been so requested to include and obtain the effectiveness
thereof, and to take all other action necessary under any federal or state law
or regulation to permit the Warrant Shares that are then held and/or that may be
acquired upon the exercise of the Warrants specified in the notices of the
Holders thereof to be sold or otherwise disposed of, and the Company shall
maintain such compliance with each such federal and state law and regulation for
the period necessary for such Holders to effect the proposed sale or other
disposition (but in no event for more than 120 days); provided, however, the
-------- -------
Company shall be entitled to defer such registration for a period of up to 60
days if and to the extent that its Board of Directors shall determine that such
registration would interfere with a pending corporate transaction, provided,
--------
further, that the Company shall have no obligation to comply with the foregoing
- -------
provisions of this Section 6.02(a) if in the opinion of counsel to the Company
reasonably acceptable to the Holder or Holders from whom such written requests
has been received, registration under the Securities Act is not required
pursuant to Rule 144(k) thereunder for the transfer of the Warrant Shares
proposed to be offered in the manner proposed by such person or persons or that
a post-effective amendment to an existing registration statement would be
legally sufficient for such transfer (in which latter event the Company shall
promptly file such post-effective amendment and use its best efforts to cause
such amendment to become effective under the Securities Act). The Company shall
also promptly give written notice to the Holders of any other Warrants or
Warrant Shares who or that have not made a request to the Company pursuant to
the provisions of this Section 6.02(a) of its intention to effect any required
registration or qualification and shall use its
13
<PAGE>
best efforts to effect as expeditiously as possible such registration or
qualification of all other such Warrant Shares that are then held or that may be
acquired upon the exercise of the Warrants, the Holders of which have requested
such registration or qualification, within 15 days after such notice has been
given by the Company, as provided in the preceding sentence.
(b) Demand Registration; Payment of Registration Expenses for Demand
----------------------------------------------------------------
Registration. The Company shall pay all Registration Expenses (excluding fees
- ------------
and expenses of the Holders' counsel and any underwriting or selling
commissions), in connection with one Demand Registration pursuant to Section
6.02(a), provided such expenses do not exceed $25,000. Notwithstanding the
provisions of Section 6.02(a), the Company shall be required to effect a
registration or qualification in which it bears the Registration Expenses on one
occasion only.
(c) Additional Demand Registration; Payment of Registration Expenses
----------------------------------------------------------------
for Additional Demand Registration. If a Majority of Holders request the
- ----------------------------------
Company to effect an Additional Demand Registration pursuant to this Section
6.02(c), in addition to a Demand Registration pursuant to Section 6.02(b), the
Holders who or that have made the request shall pay all Registration Expenses in
connection with such Additional Demand Registration. Notwithstanding the
provisions of Section 6.02(b), the Company shall be required to effect such
registration or qualification, in which the Holders bear the Registration
Expenses, on one occasion only.
(d) Selection of Underwriters. If the Demand Registration or
-------------------------
Additional Demand Registration is requested to be in the form of an underwritten
offering, the managing underwriter shall be Advest, Inc. and the co-manager (if
any) and the independent pricer required under the rules of the NASD (if any)
shall be selected and obtained by the Holders of a majority of the Warrant
Shares to be registered. Such selection shall be subject to the Company's
consent, which consent shall not be unreasonably withheld. All fees and
expenses (other than Registration Expenses otherwise required to be paid) of any
managing underwriter, any co-manager or any independent underwriter or other
independent pricer required under the rules of the NASD shall be paid for by
such underwriters or by the Holders whose shares are being registered. If
Advest, Inc. should decline to serve as managing underwriter, the Holders of a
majority of the Warrant Shares to be registered may select and obtain one or
more managing underwriters. Such selection shall be subject to the Company's
consent, which consent shall not be unreasonably withheld.
(e) The Company shall be obligated pursuant to this Section 6.02 to
include in the registration statement Warrant Shares that have not yet been
purchased by a Holder of Warrants so long as such Holder of Warrants submits to
the Company an irrevocable undertaking reasonably satisfactory to the Company
that such Holder intends to exercise Warrants representing the number of Warrant
Shares to be included in such registration statement prior to the consummation
of the public offering with respect to such Warrant Shares. In addition, such
Holder of Warrants is permitted to pay the Company the Exercise Price for such
Warrant Shares upon the consummation of the public offering with respect to such
Warrant Shares.
14
<PAGE>
Section 6.03: Registration Procedures. If and whenever the Company is
------------ -----------------------
required to use its best efforts to take action pursuant to any federal or state
law or regulation to permit the sale or other disposition of any Warrant Shares
that are then held or that may be acquired upon exercise of the Warrants, in
order to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Article VI, the Company shall, as
expeditiously as practicable:
(a) furnish to each selling Holder and the underwriters, if any,
without charge, as many copies of the Registration Statement, the Prospectus or
the Prospectuses (including each preliminary prospectus), and any amendment or
supplement thereto as they may reasonably request;
(b) enter into such agreements (including an underwriting
agreement) and take all such other actions reasonably required in connection
therewith in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, if the registration is in connection with an
underwritten offering (i) make such representations and warranties to the
underwriters in such form, substance, and scope as are customarily made by
issuers to underwriters in underwritten offerings and confirm the same if and
when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions in form, scope, and substance shall be
reasonably satisfactory to the underwriters) addressed to the underwriters and
the Holders covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested by
such underwriters; (iii) obtain "cold comfort" letters and updates thereof from
the Company's accountants addressed to the underwriters, such letters to be in
customary form and to cover matters of the type customarily covered in "cold
comfort" letters to underwriters and the Holders in connection with underwritten
offerings; (iv) set forth in full, in any underwriting agreement entered into,
the indemnification provisions and procedures of Section 6.04 hereof with
respect to all parties to be indemnified pursuant to said Section; and (v)
deliver such documents and certificates as may be reasonably requested by the
underwriters to evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement or other agreement entered
into by the Company; the above shall be done at each closing under such
underwriting or similar agreement or as and to the extent required thereunder;
(c) make available for inspection by one or more representatives
of the selling Holders, any underwriter participating in any disposition
pursuant to such registration, and any attorney or accountant retained by such
Holders or underwriter all financial and other records, pertinent corporate
documents, and properties of the Company and cause the Company's officers,
directors, and employees to supply all information reasonably requested by any
such representatives in connection with such registration; and
(d) otherwise use its best efforts to comply with all applicable
federal and state regulations; and take such other action as may be reasonably
necessary or advisable to enable each such Holder and each such underwriter to
consummate the sale or disposition in such jurisdiction or jurisdiction, in
which any such Holder or underwriter shall have requested that the Registrable
Securities be sold.
15
<PAGE>
Except as otherwise provided in this Warrant Agreement, the Company
shall have sole control in connection with the preparation, filing, withdrawal,
amendment, or supplementing of each Registration Statement, the selection of
underwriters, and the distribution of any preliminary prospectus included in the
Registration Statement, and may include within the coverage thereof additional
shares of Common Stock or other securities for its own account or for the
account of one or more of its other security holders.
Each seller of Registrable Securities as to which any registration is
being effected shall furnish to the Company such information regarding the
distribution of such securities and such other information as may otherwise be
required by the Securities Act to be included in such Registration Statement.
Section 6.04: Indemnification.
------------ ---------------
(a) Indemnification by Company. In connection with each
--------------------------
Registration Statement relating to disposition of Registrable Securities, the
Company shall indemnify and hold harmless each Holder and each underwriter of
Registrable Securities and each Person, if any, who controls such Holder or
underwriter (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) against any and all losses, claims, damages, and
liabilities, joint or several (including any reasonable investigation, legal,
and other expenses incurred in connection with, and any amount paid in
settlement of any action, suit, or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act, or other Federal or state law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, or liabilities arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement, Prospectus or preliminary prospectus,
or any amendment thereof or supplement thereto, or arise out of or are based
upon any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that such indemnity shall not inure to the benefit of any
- -------- -------
Holder or underwriter (or any Person controlling such Holder or underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act) on account of any losses, claims, damages, or liabilities arising
from the sale of Registrable Securities if such untrue statement or omission or
alleged untrue statement or omission was made in such Registration Statement,
Prospectus or preliminary prospectus, or such amendment or supplement, in
reliance upon and in conformity with information furnished in writing to the
Company by the Holder or underwriter specifically for use therein. The Company
shall also indemnify selling brokers, dealer managers, and similar securities
industry professionals participating in the distribution, their officers and
directors and each Person who controls such Persons (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Holders of
Registrable Securities, if requested. This indemnity agreement shall be in
addition to any liability which the Company may otherwise have.
(b) Indemnification by Holder. In connection with each
-------------------------
Registration Statement, each Holder shall indemnify, to the same extent as the
indemnification provided by the Company
16
<PAGE>
in Section 6.04(a), the Company, its directors, and each officer who signs the
Registration Statement and each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act)
but only insofar as such losses, claims, damages, and liabilities arise out of
or are based upon any untrue statement or omission or alleged untrue statement
or omission which was made in the Registration Statement, the Prospectus or
preliminary prospectus, or any amendment thereof or supplement thereto, in
reliance upon and in conformity with information furnished in writing by such
Holder to the Company specifically for use therein. In no event shall the
liability of any selling Holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the net proceeds received by such Holder
upon the sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers, and similar securities industry
professionals participating in the distribution, to the same extent as provided
above, with respect to information so furnished in writing by such Persons
specifically for inclusion in any Prospectus, Registration Statement or
preliminary prospectus, or any amendment thereof or supplement thereto.
(c) Conduct of Indemnification Procedure. Any party that proposes to
------------------------------------
assert the right to be indemnified hereunder will, promptly after receipt of
notice of commencement of any action, suit, or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or parties
under this Section, notify each such indemnifying party of the commencement of
such action, suit, or proceeding, enclosing a copy of all papers served. No
indemnification provided for in Section 6.04(a) or 6.04(b) shall be available to
any party who shall fail to give notice as provided in this Section 6.04(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was prejudiced by the failure to give such
notice, but the omission so to notify such indemnifying party of any such
action, suit, or proceeding shall not relieve it from any liability that it may
have to any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit, or proceeding shall be brought against
any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
in, and, to the extent that it shall wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and the approval by the indemnifying party to such indemnified party of its
election so to assume the defense thereof and the approval by the indemnified
party of such counsel, the indemnifying party shall not be liable to such
indemnified party for any legal or other expenses, except as provided below and
except for the reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ its counsel in any such action, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the indemnified party
shall have been advised by its counsel that representation of the indemnified
party and such indemnifying party by the same counsel would be inappropriate
under applicable standards of professional conduct due to actual or potential
differing interests between them (in which case the indemnifying parties shall
not have the right to direct the
17
<PAGE>
defense of such action on behalf of the indemnified party), or (iii) the
indemnifying parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the commencement thereof,
in each of which cases the fees and expenses of counsel shall be at the expense
of the indemnifying parties. Furthermore, it is understood that the indemnifying
parties shall, in connection with any one such action, suit or proceeding or
separate but substantially similar or related actions, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of only one
separate firm of attorneys (in addition to any local counsel) at any time for
all such indemnified parties not having actual or potential differing interests
with the indemnifying party or among themselves. An indemnifying party shall not
be liable for any settlement of any action, suit, proceeding, or claim effected
without its written consent.
(d) Contribution. In connection with each Registration
------------
Statement relating to the disposition of Registrable Securities, if the
indemnification provided for in Section 6.04(a) is unavailable to an indemnified
party thereunder in respect of any losses, claims, damages, or liabilities
referred to therein, then the Company shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, or liabilities. The amount to
be contributed by the Company hereunder shall be an amount which is in the same
proportionate relationship to the total amount of such losses, claims, damages,
or liabilities as the total net proceeds from the offering (before deducting
expenses) of the Registrable Securities bears to the total price to the public
(including underwriters' discounts) for the offering of the Registrable
Securities covered by such registration.
(e) Specific Performance. The Company and the Holder
--------------------
acknowledge that remedies at law for the enforcement of this Section 6.04 may be
inadequate and intend that this Section 6.04 shall be specifically enforceable.
ARTICLE VII
Other Matters
-------------
Section 7.01: Amendments and Waivers. The provisions of this Warrant,
------------ ----------------------
including the provisions of this sentence, may not be amended, modified, or
supplemented, and waiver or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of at least
a Majority of Holders. Holders shall be bound by any consent authorized by this
Section 7.01 whether or not certificates representing Registrable Securities
held by such Holders have been marked to indicate such consent.
Section 7.02: Counterparts. This Warrant may be executed in any number of
------------ ------------
counterparts and by the parties hereto in separate counterparts, each of which
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same agreement.
18
<PAGE>
Section 7.03: Governing Law. This Warrant shall be governed by and
------------ -------------
construed in accordance with the laws of the State of New York.
Section 7.04: Severability. In the event that any one or more of the
------------ ------------
provisions contained herein, or the application thereof in any circumstances, is
held invalid, illegal, or unenforceable, the validity, legality, and
enforceability of any such provisions in every other respect and of the
remaining provisions contained herein shall not be affected or impaired thereby.
Section 7.05: Attorneys' Fees. In any action or proceeding brought to
------------ ---------------
enforce any provisions of this Warrant, or where any provisions hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees and disbursements in addition to its costs
and expenses and any other available remedy.
Section 7.06: Computations of Consent. Whenever the consent or approval
------------ -----------------------
of Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company or its affiliates (other
than the Warrant Holder or subsequent Holders if they are deemed to be such
affiliates solely by reason of their holdings of such Registrable Securities)
shall not be counted in determining whether such consent or approval was given
by the Holders of such required percentage.
Section 7.07: Notice. Any notices or certificates by the Company to the
------------ ------
Warrant Holder and by the Warrant Holder to the Company shall be deemed
delivered if in writing and delivered in person or by registered mail (return
receipt requested) to the Holder addressed to him in care of Advest, Inc., 90
State House Square, Hartford, Connecticut 06103 or, if the Warrant Holder has
designated, by notice in writing to the Company, any other address, to such
other address, and if to the Company, addressed to it at Providence and
Worcester Railroad Company, 75 Hammond Street, Worcester, Massachusetts 01610.
The Company may change its address by written notice to the Warrant Holder and
the Warrant Holder may change his or its address by written notice to the
Company.
19
<PAGE>
IN WITNESS WHEREOF, this Warrant has been duly executed by the
Company as of the ___ day of , 1998.
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By:____________________________
Name:
Title:
20
<PAGE>
ASSIGNMENT
(To be executed only upon assignment of Warrant Certificate)
For value received, _________________________ hereby sells, assigns,
and transfers unto _______________________ the within Warrant Certificate,
together with all right, title, and interest therein, and does hereby
irrevocably constitute and appoint ____________________________ attorney, to
transfer said Warrant Certificate on the books of the within-named Company with
respect to the number of Warrants set forth below, with full power of
substitution in the premises:
Name(s) of
Assignees (s) Address No. of Warrants
------------- ------- ---------------
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants represented by said
Warrant Certificate
Dated: ___________________, ______
--------------------------
Note: The above signature should
correspond exactly with the name on the
face of this Warrant Certificate.
21
<PAGE>
SUBSCRIPTION FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT
PURSUANT TO SECTION 2.02(A)(I))
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant Certificate for, and to purchase
thereunder shares of Common Stock, as provided for therein, and
tenders herewith payment of the purchase price in full in the form of cash or a
certified or official bank check in the amount of $ .
Please issue a certificate or certificates for such Common Stock in the
name of:
Name ______________________________________ (Please Print
Name, Address, and Social Security Number)
Signature_______________________________________
NOTE: The above signature should respond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
22
<PAGE>
CASHLESS EXERCISE FORM
(TO BE EXECUTED UPON EXERCISE OF WARRANT
PURSUANT TO SECTION 2.02(A)(II))
The undersigned hereby irrevocably elects to exchange its Warrant for
such shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 2.02 (a)(ii) of such
Warrant Certificate.
Please issue a certificate or certificates for such Common Stock in the
name of:
Name_________________________________________ (Please Print
Name, Address, and Social Security Number)
Signature________________________
NOTE: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares exchangeable or
purchasable under the within Warrant Certificate, a new Warrant Certificate is
to be issued in the name of the undersigned for the balance remaining of the
shares purchasable rounded up to the next higher number of shares.
23
<PAGE>
EXHIBIT 5
HINCKLEY, ALLEN & SNYDER
1500 Fleet Center
Providence, RI 02903
March 2, 1998
Providence and Worcester Railroad Company
75 Hammond Street
Worcester, MA 01610
Re: Registration Statement on Form S-1;
Registration No. 333-46433
Gentlemen:
In our capacity as counsel to Providence and Worcester Railroad Company, a
Rhode Island corporation (the "Company"), we have been asked to render this
opinion in connection with a Registration Statement on Form S-1, originally
filed by the Company on February 17, 1998 with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Registration
Statement"), covering (i) up to 1,000,000 shares of Common Stock, par value of
$.50 per share of the Company (the "Common Stock") being offered for the account
of the Company (the "Company's Shares"), (ii) up to 25,000 shares of Common
Stock being offered for the account of the selling shareholder (the
"Shareholder's Shares"), and (iii) up to 153,750 additional shares of Common
Stock being offered for the account of the principal shareholder (the "Principal
Shareholder") solely to cover over-allotments, if any (the "Over-Allotment
Shares"). Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Registration Statement.
In connection with this opinion, we have examined the Company's Charter, as
amended to date, the Amendment to the Company's Charter increasing the
authorized Common Stock to 15,000,000 shares (the "Amendment") and the Company's
Restated Charter (the "Restated Charter") incorporating the Amendment to be
filed prior to the effectiveness of the Registration Statement, the By-Laws of
the Company, as amended and restated, the Registration Statement, including
exhibits thereto, corporate proceedings of the Company relating to issuance of
the Shares, and such other instruments and documents as we have deemed relevant
under the circumstances. In addition, we have examined and relied upon such
other certificates, documents and materials and have made such other inquiries
of fact or law as we have deemed necessary or appropriate in connection with
this opinion.
In making the aforesaid examination, we have assumed the genuineness of all
signatures and the conformity to original documents of all copies furnished to
us as originals or
<PAGE>
photostatic copies. We have also assumed that the corporate records furnished
to us by the Company include all corporate proceedings regarding the issuance of
the Shares taken by the Company to date, and that the filing of the Amendment
and the Restated Charter, required to give effect to an increase in the
authorized Common Stock prior to the Offering and which will not take place
until immediately before the Offering, has occurred.
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company's Shares have been duly and validly authorized and, when
issued and delivered by the Company against payment therefor pursuant to the
terms and conditions of the Underwriting Agreement filed as exhibit to the
Registration Statement, will be duly and validly issued, fully paid and non-
assessable shares of Common Stock.
2. The Shareholder's Shares, and any Over-Allotment Shares which may be
sold by the Principal Shareholder, have been duly and validly authorized and
issued and are fully paid and non-assessable.
We hereby consent to the use of our opinion as herein set forth as an
exhibit to the Registration Statement and to the use of our name under the
caption "Legal Matters" in the Prospectus forming a part of the Registration
Statement. This opinion is rendered to you in connection with the Offering and,
except as consented to in the preceding sentence, may not be relied upon or
furnished to any other person in any context. In giving such consent, we do not
thereby admit that we are within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
Hinckley, Allen & Snyder
<PAGE>
EXHIBIT 10.1
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Secured Subordinated Note and Warrant Purchase Agreement
Dated as of December 19, 1995
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Secured Subordinated Note and Warrant Purchase Agreement
--------------------------------------------------------
Dated as of December 19, 1995
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I............................................................... 1
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS.......................... 1
1.01. The Notes................................................ 1
1.02. The Warrants............................................. 1
1.03. Purchase and Sale of Notes and Warrants.................. 1
(a) The Closing.................................... 1
(b) Allocation of Purchase Price................... 2
(c) Use of Proceeds................................ 2
1.04. Payments and Endorsements................................ 2
1.05. Redemptions.............................................. 2
(a) Required Redemptions........................... 2
(b) Optional Redemptions With Premium.............. 3
(c) Notice of Redemptions; Pro Rata Redemptions.... 4
1.06. Payment on Non-Business Days............................. 4
1.07. Registration, etc........................................ 4
1.08. Transfer and Exchange of Notes........................... 5
1.09. Replacement of Notes..................................... 5
1.10. Subordination............................................ 5
(a) Payment of Senior Debt......................... 5
(b) No Payment on Notes Under Certain Conditions... 6
(c) Payments Held in Trust......................... 6
(d) Subrogation.................................... 6
(e) Scope of Section............................... 7
(f) Survival of Rights............................. 7
(g) Amendment or Waiver............................ 7
(h) Senior Debt Defined............................ 7
1.11. Representations by the Purchaser......................... 8
1.12. Disclosure of Information by the Purchaser............... 8
ARTICLE II.............................................................. 8
CONDITIONS TO PURCHASER'S OBLIGATION.................................... 8
2.01. Representations and Warranties........................... 8
2.02. Documentation at Closing................................. 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE III........................................................................... 10
REPRESENTATIONS AND WARRANTIES........................................................ 10
3.01. Organization and Standing of the Company............................... 10
3.02. Corporate Action....................................................... 10
3.03. Governmental Approvals................................................. 10
3.04. Litigation............................................................. 10
3.05. Compliance with Other Instruments...................................... 11
3.06. Federal Reserve Regulations............................................ 11
3.07. Title to Assets, Patents............................................... 11
3.08. Financial Information.................................................. 12
3.09. Taxes.................................................................. 12
3.10. ERISA.................................................................. 12
3.11. Transactions with Affiliates........................................... 12
3.12. Assumptions or Guaranties of Indebtedness of Other Persons............. 13
3.13. Investments in Other Persons........................................... 13
3.14. Equal Employment Opportunity........................................... 13
3.15. Status of Notes and Warrants as Qualified Investments.................. 13
3.16. Securities Act......................................................... 14
3.17. Disclosure............................................................. 14
3.18. No Brokers or Finders.................................................. 14
3.19. Other Agreements of Officers........................................... 14
3.20. Capitalization; Status of Capital Stock................................ 14
3.21. Labor Relations........................................................ 15
3.22. Insurance.............................................................. 15
3.23. Books and Records...................................................... 15
3.24. Foreign Corrupt Practices Act.......................................... 15
3.25. Registration Rights.................................................... 16
ARTICLE IV............................................................................ 16
COVENANTS OF THE COMPANY.............................................................. 16
4.01. Affirmative Covenants of the Company Other Than Reporting Requirements. 16
(a) Punctual Payment............................................. 16
(b) Payment of Taxes and Trade Debt.............................. 16
(c) Maintenance of Insurance..................................... 16
(d) Preservation of Corporate Existence.......................... 16
(e) Compliance with Laws......................................... 17
(f) Visitation Rights............................................ 17
(g) Keeping of Records and Books of Account...................... 17
(h) Maintenance of Properties, etc............................... 17
(i) Compliance with ERISA........................................ 17
(j) Maintenance of Debt to Equity Ratio.......................... 17
(k) Maintenance of Interest Coverage............................. 17
(l) Foreign Corrupt Practices Act................................ 18
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
(m) Equal Employment Opportunity................................. 18
(n) Status of Notes and Warrants as Qualified Investments........ 18
(o) Attendance at Board Meetings................................. 18
(p) Compensation................................................. 18
(q) Compliance with Security Agreement........................... 18
4.02. Negative Covenants of the Company...................................... 18
(a) Liens........................................................ 19
(b) Indebtedness................................................. 20
(c) Lease Obligations............................................ 20
(d) Assumptions or Guaranties of Indebtedness of Other Persons... 20
(e) Mergers, Sale of Assets, etc................................. 20
(f) Investments in Other Persons................................. 21
(g) Distributions................................................ 22
(h) Dealings with Affiliates..................................... 22
(i) Maintenance of Ownership of Subsidiaries..................... 22
(j) Change in Nature of Business................................. 23
4.03. Reporting Requirements................................................. 23
4.04. Termination of Certain Covenants....................................... 24
ARTICLE V............................................................................. 24
REGISTRATION RIGHTS................................................................... 24
5.01. "Piggy Back" Registration.............................................. 24
5.02. Required Registration.................................................. 25
5.03. Registration on Form S-3............................................... 26
5.04. Effectiveness.......................................................... 26
5.05. Indemnification of Holder of Registrable Shares........................ 26
5.06. Indemnification of Company............................................. 27
5.07. Exchange Act Registration.............................................. 28
5.08. Damages................................................................ 28
5.09. Further Obligations of the Company..................................... 28
5.09. Expenses............................................................... 29
5.10. Certain Exceptions to Registration..................................... 30
ARTICLE VI............................................................................ 30
EVENTS OF DEFAULT..................................................................... 30
6.01. Events of Default...................................................... 30
6.02. Annulment of Defaults.................................................. 32
ARTICLE VII........................................................................... 32
DEFINITIONS AND ACCOUNTING TERMS...................................................... 32
7.01. Certain Defined Terms.................................................. 32
7.02. Accounting Terms....................................................... 35
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VIII............................................................ 35
MISCELLANEOUS........................................................... 35
8.01. No Waiver; Cumulative Remedies........................... 35
8.03. Addresses for Notices, etc............................... 36
8.04. Costs, Expenses and Taxes................................ 36
8.05. Binding Effect; Assignment............................... 37
8.06. Survival of Representations and Warranties............... 37
8.08. Severability............................................. 37
8.09. Governing Law............................................ 37
8.10. Headings................................................. 37
8.11. Sealed Instrument........................................ 37
8.12. Counterparts............................................. 37
</TABLE>
EXHIBIT
1.01 Form of Secured Subordinated Notes
1.02 Form of Common Stock Purchase Warrants
2.02(a) Form of Security Agreement
2.02(c) Matters to be Covered by Opinion Letter
3.04 Schedule of Material Litigation
3.05 Schedule of Certain Indebtedness
3.07 Schedule of Mortgages, Pledges, etc.
3.11 Schedule of Transactions with Affiliates
3.15 Certificate Regarding "Qualified Investments"
3.20 Schedule of Capital Stock, Options and Other Rights
(iv)
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
75 Hammond Street
Worcester, Massachusetts 01610
As of December 19, 1995
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Re: Secured Subordinated Notes due 2005 and
Common Stock Purchase Warrants
Gentlemen:
Providence and Worcester Railroad Company, a Rhode Island corporation (the
"Company"), hereby agrees with Massachusetts Capital Resource Company (the
"Purchaser") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01. The Notes. The Company has authorized the issuance and sale to the
---------
Purchaser of the Company's Secured Subordinated Notes, due December 31, 2005, in
the original principal amount of $5,000,000. The Secured Subordinated Notes
shall be substantially in the form set forth in Exhibit 1.01 hereto and are
------------
herein referred to individually as a "Note" and collectively as the "Notes",
which terms shall also include any notes delivered in exchange or replacement
therefor.
1.02. The Warrants. The Company has also authorized the issuance and sale
------------
to the Purchaser of the Company's Common Stock Purchase Warrants for the
purchase (subject to adjustment as provided therein) of 200,000 shares of the
Company's Common Stock. The Common Stock Purchase Warrants shall be
substantially in the form set forth in Exhibit 1.02 hereto and are herein
------------
referred to individually as a "Warrant" and collectively as the "Warrants",
which terms shall also include any warrants delivered in exchange or replacement
therefor.
1.03. Purchase and Sale of Notes and Warrants
---------------------------------------
(a) The Closing. The Company agrees to issue and sell to the
-----------
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, the Purchaser agrees to purchase, the
Notes and the Warrants for an aggregate purchase price of $5,000,000. Such
purchase and sale shall take place at a closing (the "Closing")
<PAGE>
to be held at the office of Messrs. Testa, Hurwitz & Thibeault, High Street
Tower, 125 High Street, Boston, Massachusetts, on December 19, 1995 at 2:00
P.M., or on such other date and at such time as may be mutually agreed upon. At
the Closing the Company will initially issue one Note, payable to the order of
the Purchaser, in the principal amount of $5,000,000 and one Warrant, registered
in the name of the Purchaser, to purchase (subject to adjustment as provided
therein) 200,000 shares of the Company's Common Stock, against receipt by the
Company of a wire transfer in the amount of $5,000,000, in payment of the full
purchase price for the Notes and Warrants.
(b) Allocation of Purchase Price. The Company and the
----------------------------
Purchaser, having adverse interests and as a result of arm's length bargaining,
agree that (i) neither the Purchaser nor any of its partners has rendered or has
agreed to render any services to the Company in connection with this Agreement
or the issuance of the Notes and Warrants; (ii) the Warrants are not being
issued as compensation; and (iii) for the purpose, and within the meaning, of
Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended, the issue
price of the Notes is $4,920,000. The Company and the Purchaser acknowledge
that this allocation is based on the relative fair market values of the Notes
and Warrants. The Company and the Purchaser recognize that this Agreement
determines the original issue discount to be taken into account by the Company
and the Purchaser for federal income tax purposes on the Notes and they agree to
adhere to this Agreement for such purposes.
(c) Use of Proceeds. The Company agrees to use the full
---------------
proceeds from the sale of the Notes and Warrants principally for the expansion
and renovation of the Company's track structure, payment of certain Indebtedness
to Fleet Bank of Massachusetts, N.A. and for working capital and capital
improvements and agrees that full proceeds from the sale of the Notes and
Warrants will be utilized for purposes which increase or maintain equal
opportunity employment in the Commonwealth of Massachusetts.
1.04. Payments and Endorsements. Payments of principal, interest and
-------------------------
premium, if any, on the Notes, shall be made directly by check duly mailed or
delivered to the Purchaser at its address referred to in Section 8.03 hereof,
without any presentment or notation of payment, except that prior to any
transfer of any Note, the holder of record shall endorse on such Note a record
of the date to which interest has been paid and all payments made on account of
principal of such Note.
1.05. Redemptions.
-----------
(a) Required Redemptions. On each date set forth below, the
-------- -----------
Company will redeem, without premium, the principal amount of the Notes set
forth opposite such date, or such lesser amount as may be then outstanding,
together with all accrued and unpaid interest then due on the amount so
redeemed. On the stated or accelerated maturity of the Notes, the Company will
pay the principal amount of the Notes then outstanding together with all accrued
and unpaid interest then due thereon. No optional redemption of less than all
of the Notes shall affect the obligation of the Company to make the redemptions
required by this subsection.
-2-
<PAGE>
<TABLE>
<CAPTION>
Principal Amount
Redemption Date to be Redeemed
- --------------------- ----------------
<S> <C>
December 31, 1998 $ 62,500
March 31, 1999 62,500
June 30, 1999 62,500
September 30, 1999 62,500
December 31, 1999 62,500
March 31, 2000 62,500
June 30, 2000 62,500
September 30, 2000 62,500
December 31, 2000 125,000
March 31, 2001 125,000
June 30, 2001 125,000
September 30, 2001 125,000
December 31, 2001 125,000
March 31, 2002 125,000
June 30, 2002 125,000
September 30, 2002 125,000
December 31, 2002 187,500
March 31, 2003 187,500
June 30, 2003 187,500
September 30, 2003 187,500
December 31, 2003 187,500
March 31, 2004 187,500
June 30, 2004 187,500
September 30, 2004 187,500
December 31, 2004 187,500
March 31, 2005 187,500
June 30, 2005 187,500
September 30, 2005 187,500
December 31, 2005 1,250,000
----------
TOTAL $5,000,000
----------
</TABLE>
(b) Optional Redemptions With Premium. In addition to the redemption of
---------------------------------
the Notes required under subsection 1.05(a), the Company may at any time on or
after January 1, 1996, (no optional redemption being permitted prior to said
date) redeem the Notes in whole or in part (in integral multiples of $10,000)
together with interest due on the amount so redeemed through the date of
redemption, and a premium equal to the percentage of the principal amount of
-3-
<PAGE>
the Notes redeemed under this subsection applicable to the twelve month period
in which such redemption is made, as follows:
12-month period
ending Premium
--------------- -------
December 31, 1996 10%
December 31, 1997 9%
December 31, 1998 8%
December 31, 1999 7%
December 31, 2000 6%
December 31, 2001 5%
December 31, 2002 4%
December 31, 2003 3%
December 31, 2004 2%
December 31, 2005 0%
(c) Notice of Redemptions; Pro Rata Redemptions. Notice of any
-------------------------------------------
optional redemptions pursuant to subsection 1.05(b) shall be given to all
registered holders of the Notes at least ten (10) business days prior to the
date of such redemption. Each redemption of Notes pursuant to subsections
1.05(a) or (b) shall be made so that the Notes then held by each holder shall be
redeemed in a principal amount which shall bear the same ratio to the total
principal amount of Notes being redeemed as the principal amount of Notes then
held by such holder bears to the aggregate principal amount of the Notes then
outstanding.
1.06. Payment on Non-Business Days. Whenever any payment to be made shall
----------------------------
be due on a Saturday, Sunday or a public holiday under the laws of the
Commonwealth of Massachusetts, such payment may be made on the next succeeding
business day, and such extension of time shall in such case be included in the
computation of payment of interest due.
1.07. Registration, etc. The Company shall maintain at its principal
-----------------
office a register of the Notes and shall record therein the names and addresses
of the registered holders of the Notes, the address to which notices are to be
sent and the address to which payments are to be made as designated by the
registered holder if other than the address of the holder, and the particulars
of all transfers, exchanges and replacements of Notes. No transfer of a Note
shall be valid unless made on such register for the registered holder or his
executors or administrators or his or their duly appointed attorney, upon
surrender therefor for exchange as hereinafter provided, accompanied by an
instrument in writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Note or Notes, shall be registered on the date of
execution thereof by the Company and shall be dated the date to which interest
has been paid on such Notes or Note. The registered holder of a Note shall be
that Person in whose name the Note has been so registered by the Company. A
registered holder shall be deemed the owner of a Note for all purposes of this
Agreement and, subject to the provisions hereof, shall be entitled to the
principal, premium, if any, and interest evidenced by such Note free from all
equities or rights of setoff or counterclaim
-4-
<PAGE>
between the Company and the transferor of such registered holder or any previous
registered holder of such Note.
1.08. Transfer and Exchange of Notes. Subject to compliance with federal
------------------------------
and applicable state securities laws, the registered holder of any Note or Notes
may, prior to maturity or prepayment thereof, surrender such Note or Notes at
the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
1.09. Replacement of Notes. Upon receipt of evidence satisfactory to the
--------------------
Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor and amount and
dated the date to which interest has been paid, in lieu of such lost, stolen,
destroyed or mutilated Note; provided, however, if any Note of which
-------- -------
Massachusetts Capital Resource Company or any of its partners is the registered
holder is lost, stolen or destroyed, the affidavit of the President, Treasurer
or any Assistant Treasurer of the registered holder setting forth the
circumstances with respect to such loss, theft or destruction shall be accepted
as satisfactory evidence thereof, and no indemnification bond or other security
shall be required as a condition to the execution and delivery by the Company of
a new Note in replacement of such lost, stolen or destroyed Note other than the
registered holder's written agreement to indemnify the Company.
1.10. Subordination. The Company, for itself, its successors and assigns,
-------------
covenants and agrees, and the Purchaser and each successor holder of the Notes
by his or its acceptance thereof, likewise covenants and agrees, that
notwithstanding any other provision of this Agreement or the Notes, the payment
of the principal of and interest and all other amounts on each and all of the
Notes shall be subordinated in right of payment, to the extent and in the manner
hereinafter set forth, to the prior indefeasible payment in full of all Senior
Debt (as hereinafter defined) at any time outstanding. The provisions of this
Section 1.10 shall constitute a continuing representation to all Persons who, in
reliance upon such provisions, become the holders of or continue to hold Senior
Debt, and such provisions are made for the benefit of the holders of Senior
Debt, and such holders are hereby made obligees hereunder the same as if their
names were written herein as such, and they or any of them may proceed to
enforce such provisions against the Company or against the holder of any Note
without the necessity of joining the Company as a party.
(a) Payment of Senior Debt. In the event of any insolvency or
----------------------
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in
-5-
<PAGE>
connection therewith, relative to the Company or to its property, or, in the
event of any proceedings for voluntary liquidation, dissolution or other winding
up of the Company or distribution or marshalling of its assets or any
composition with creditors of the Company, whether or not involving insolvency
or bankruptcy, then and in any such event all Senior Debt shall be indefeasibly
paid in full before any payment or distribution of any character, whether in
cash, securities or other property, shall be made on account of the Notes; and
any such payment or distribution, except securities which are subordinated and
junior in right of payment to the payment of all Senior Debt then outstanding in
terms of substantially the same tenor as this Section 1.10, which would, but for
the provisions hereof, be payable or deliverable in respect of the Notes shall
be paid or delivered directly to the holders of Senior Debt (or their duly
authorized representatives), in the proportions in which they hold the same,
until all Senior Debt shall have been indefeasibly paid in full, and every
holder of the Notes by becoming a holder thereof shall have designated and
appointed the holder or holders of Senior Debt (and their duly authorized
representatives) as his or its agents and attorney-in-fact to demand, sue for,
collect and receive such Senior Debt holder's ratable share of all such payments
and distributions and to file any necessary proof of claim therefor and to take
all such other action in the name of the holders of the Notes or otherwise, as
such Senior Debt holders (or their authorized representatives) may determine to
be necessary or appropriate for the enforcement of this Section 1.10. The
Purchaser and each successor holder of the Notes by its or his acceptance
thereof agrees to execute, at the request of the Company, a separate agreement
with any holder of Senior Debt on the terms set forth in this Section 1.10, and
to take all such other action as such holder or such holder's representative may
request in order to enable such holder to enforce all claims upon or in respect
of such holder's ratable share of the Notes.
(b) No Payment on Notes Under Certain Conditions. In the event that
--------------------------------------------
any default occurs in the payment of the principal of or interest on any Senior
Debt (whether as a result of the acceleration thereof by the holders of such
Senior Debt or otherwise) and during the continuance of such default for a
period up to ninety (90) days and thereafter if judicial proceedings shall have
been instituted with respect to such defaulted payment, or (if a shorter period)
until such payment has been made or such default has been cured or waived in
writing by such holder of Senior Debt then and during the continuance of such
event no payment of principal or interest or any other amount on the Notes shall
be made by the Company or accepted by any holder of the Notes who has received
notice from the Company or from a holder of Senior Debt of such events.
(c) Payments Held in Trust. In case any payment or distribution
----------------------
shall be paid or delivered to any holder of the Notes before all Senior Debt
shall have been indefeasibly paid in full, despite or in violation or
contravention of the terms of this subordination, such payment or distribution
shall be held in trust for and paid and delivered ratably to the holders of
Senior Debt (or their duly authorized representatives), until all Senior Debt
shall have been indefeasibly paid in full.
(d) Subrogation. Subject to the indefeasible payment in full of all
-----------
Senior Debt and until the Notes shall be paid in full, the holders of the Notes
shall be subrogated to the rights of the holders of Senior Debt (to the extent
of payments or distributions previously made to such holders of Senior Debt
pursuant to the provisions of subsections (a) and (c) of this Section 1.10) to
receive payments or distributions of assets of the Company applicable to the
Senior Debt. No
-6-
<PAGE>
such payments or distributions applicable to the Senior Debt shall, as between
the Company and its creditors, other than the holders of Senior Debt and the
holders of the Notes, be deemed to be a payment by the Company to or on account
of the Notes; and for the purposes of such subrogation, no payments or
distributions to the holders of Senior Debt to which the holders of the Notes
would be entitled except for the provisions of this Section 1.10 shall, as
between the Company and its creditors, other than the holders of Senior Debt and
the holders of the Notes, be deemed to be a payment by the Company to or on
account of the Senior Debt.
(e) Scope of Section. The provisions of this Section 1.10 are
----------------
intended solely for the purpose of defining the relative rights of the holders
of the Notes, on the one hand, and the holders of the Senior Debt, on the other
hand. Nothing contained in this Section 1.10 or elsewhere in this Agreement or
the Notes is intended to or shall impair, as between the Company, its creditors
other than the holders of Senior Debt, and the holders of the Notes, the
obligation of the Company, which is unconditional and absolute, to pay to the
holders of the Notes the principal of and interest on the Notes as and when the
same shall become due and payable in accordance with the terms thereof, or to
affect the relative rights of the holders of the Notes and creditors of the
Company other than the holders of the Senior Debt, nor shall anything herein or
therein prevent the holder of any Note from accepting any payment with respect
to such Note or exercising all remedies otherwise permitted by applicable law
upon default under such Note, subject to the rights, if any, under this Section
1.10 of the holders of Senior Debt in respect of cash, property or securities of
the Company received by the holders of the Notes.
(f) Survival of Rights. The right of any present or future holder of
------------------
Senior Debt to enforce subordination of the Notes pursuant to the provisions of
this Section 1.10 shall not at any time be prejudiced or impaired by any act or
failure to act on the part of the Company or any such holder of Senior Debt,
including, without limitation, any forbearance, waiver, consent, compromise,
amendment, extension, renewal, or taking or release of security of or in respect
of any Senior Debt or by noncompliance by the Company with the terms of such
subordination regardless of any knowledge thereof such holder may have or
otherwise be charged with.
(g) Amendment or Waiver. The provisions of this Section 1.10 may not
-------------------
be amended or waived in any manner which is detrimental to any Senior Debt
without the consent of the holders of all then existing Senior Debt.
(h) Senior Debt Defined. The term "Senior Debt" shall mean (i) all
-------------------
Indebtedness of the Company for money borrowed from banks or other institutional
lenders, including any extension or renewals thereof, whether outstanding on the
date hereof or thereafter created or incurred, which is not by its terms
subordinate and junior to or on a parity with the Notes and which is permitted
hereby at the time it is created or incurred, and (ii) all guaranties by the
Company which are not by their terms subordinate and junior to or on a parity
with the Notes and which are permitted hereby at the time they are made, of
Indebtedness of any Subsidiary if such Indebtedness would have been Senior Debt
pursuant to the provisions of clause (i) of this sentence had it been
Indebtedness of the Company. In making any loans which are (or the guaranties
of which are) intended to be Senior Debt, the lenders or purchasers shall be
entitled to rely as to the fact that such Indebtedness or guaranty is permitted
hereby upon a certificate by the Company's chief financial officer purporting to
show such Indebtedness or guaranty will not result
-7-
<PAGE>
in the Company's failure to comply with the provisions of Article IV hereof as
of the date of the loan or guarantee.
1.11. Representations by the Purchaser. The Purchaser represents
--------------------------------
that it is its present intention to acquire the Notes and Warrants for its own
account and that the Notes and Warrants are being and will be acquired for the
purpose of investment and not with a view to distribution or resale thereof;
subject, nevertheless, to the condition that the disposition of the property of
- ------- ------------
the Purchaser shall at all times be within its control. The acquisition by the
Purchaser of the Notes and Warrants shall constitute a confirmation of this
representation. Further, the Purchaser understands and agrees that: (i) the
Notes, Warrants and shares of Common Stock issued upon exercise of the Warrants
will bear a legend to insure compliance with the registration provisions of the
Securities Act and (ii) it will not use any non-public information which it
obtains pursuant to this Agreement, including as a result of its rights under
subsection 4.01(o), to trade in any public securities of the Company in
violation of the Securities Act or Exchange Act.
1.12. Disclosure of Information by the Purchaser. The Company
------------------------------------------
understands that the Purchaser is a special purpose limited partnership
organized under Chapter 109 of the General Laws of the Commonwealth of
Massachusetts and Chapter 816 of the Acts and Resolves of 1977 of the
Commonwealth of Massachusetts (the "Capital Resource Company Act"), and as such,
in accordance with such provisions, the Purchaser, in order to obtain certain
benefits for itself and its partners, is required to file certain reports and
otherwise disclose information relating to the business, financial affairs, and
future prospects of the Company and its affiliates (as defined in the aforesaid
legislation) with the Clerk of the Senate and the Clerk of the House of
Representatives of the General Court of the Commonwealth of Massachusetts, the
Secretary of Manpower Affairs, the Commissioner of Insurance and the Department
of Revenue of the Commonwealth of Massachusetts, and that such reports and other
information may constitute "public records" within the purview of Section 7 of
Chapter 4 of the General Laws of the Commonwealth of Massachusetts. In
addition, information relating to the business, financial affairs and future
prospects of the Company and its affiliates must be disclosed to others in order
to obtain independent confirmation that financing on substantially similar terms
to financing provided pursuant to this Agreement was not elsewhere available to
the Company. The Company hereby authorizes the Purchaser to disclose all such
information relating to the business, financial affairs and future prospects of
the Company and its affiliates as has been or may in the future be presented to
the Purchaser to all such persons as the Purchaser in good faith deems necessary
or appropriate in order to fulfill its obligations under the Capital Resource
Company Act.
ARTICLE II
CONDITIONS TO PURCHASER'S OBLIGATION
The obligation of the Purchaser to purchase and pay for the Notes and
Warrants at the Closing is subject to the following conditions:
2.01. Representations and Warranties. Each of the representations and
------------------------------
warranties of the Company set forth in Article III hereof shall be true on the
date of the Closing.
-8-
<PAGE>
2.02. Documentation at Closing. The Purchaser shall have received prior
------------------------
to or at the Closing all of the following, each in form and substance
satisfactory to the Purchaser and its special counsel:
(a) A Security Agreement, in the form attached as Exhibit 2.02(a),
---------------
(the "Security Agreement") granting the Purchaser a first lien on all of the
Company's track structure on its rail lines located in Massachusetts, excluding
its rail yards, and all related financing statements and other similar
instruments and documents, shall have been executed and delivered to the
Purchaser by a duly authorized officer of the Company.
(b) A certified copy of all charter documents of the Company; a
certified copy of the resolutions of the Board of Directors and, to the extent
required, the stockholders of the Company evidencing approval of this Agreement,
the Security Agreement, the Notes, the Warrants, and other matters contemplated
hereby; a certified copy of the By-laws of the Company; and certified copies of
all documents evidencing other necessary corporate or other action and
governmental approvals, if any, with respect to this Agreement, the Security
Agreement, the Notes and the Warrants.
(c) A favorable opinion of the general counsel for the Company as to
matters set forth in Exhibit 2.02(c), and as to such other matters as the
---------------
Purchaser, or its special counsel, may reasonably request.
(d) A certificate of the Secretary or an Assistant Secretary of the
Company which shall certify the names of the officers of the Company, authorized
to sign this Agreement, the Security Agreement, the Notes, the Warrants and the
other documents or certificates to be delivered pursuant to this Agreement and
the Security Agreement by the Company, or any of its officers, together with the
true signatures of such officers. The Purchaser may conclusively rely on such
certificates until it shall receive a further certificate of the Secretary or an
Assistant Secretary of the Company cancelling or amending the prior certificate
and submitting the signatures of the officers named in such further certificate.
(e) A certificate from a duly authorized officer of the Company
stating that the representations and warranties of the Company contained in
Article III hereof and otherwise made by the Company in writing in connection
with the transactions contemplated hereby are true and correct and that no
condition or event has occurred or is continuing or will result from execution
and delivery of this Agreement, the Security Agreement, the Notes or the
Warrants which constitute an Event of Default or would constitute an Event of
Default but for the requirement that notice be given or time elapse or both.
(f) A certificate, in the form attached as Exhibit 3.15 hereto, shall
------------
have been executed and delivered by a duly authorized officer of the Company.
(g) Payment for the costs, expenses, taxes and filing fees identified
in Section 8.04 as to which the Purchaser gives the Company notice prior to the
Closing.
-9-
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants as follows:
3.01. Organization and Standing of the Company. The Company is a duly
----------------------------------------
organized and validly existing corporation in good standing under the laws of
the jurisdiction in which it was organized and has all requisite corporate power
and authority for the ownership and operation of its properties and for the
carrying on of its business as now conducted and as now proposed to be
conducted. The Company is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions wherein the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary. The Company's
only Subsidiary is Clinton Properties, Inc. ("Clinton"). Clinton is duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its organization and is duly qualified to do business in good
standing in each jurisdiction in which the failure to qualify to do business
would have a material adverse effect upon the financial condition, business or
properties of the Company and Clinton taken as a whole. All of the outstanding
shares of stock of, or other interest in, Clinton have been validly issued, are
fully paid and nonassessable, were offered and sold in compliance with all
applicable federal and state securities laws and are owned by the Company. The
only business and property of Clinton is the ownership of rights to install
telecommunication facilities, utilities and pipelines on certain of the
Company's railroad lines.
3.02. Corporate Action. The Company has all necessary corporate power and
----------------
has taken all corporate action required to make all the provisions of this
Agreement, the Security Agreement, the Notes, the Warrants and any other
agreements and instruments executed in connection herewith and therewith the
valid and enforceable obligations they purport to be. Sufficient shares of
authorized but unissued Common Stock of the Company have been reserved by
appropriate corporate action in connection with the prospective exercise of the
Warrants. Neither the issuance of the Notes or Warrants, nor the issuance of
shares of Common Stock upon the exercise of the Warrants, is subject to
preemptive or other similar statutory or contractual rights and will not
conflict with any provisions of any agreement or instrument to which the Company
is a party or by which it is bound.
3.03. Governmental Approvals. No authorization, consent, approval,
----------------------
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the offer,
issuance, sale, execution or delivery by the Company of, or for the performance
by it of its obligations under, this Agreement, the Security Agreement, the
Notes or the Warrants, other than filings necessary to perfect the security
interest granted to the Purchaser pursuant to the Security Agreement.
3.04. Litigation. Except as is set forth in Exhibit 3.04, there is no
---------- ------------
litigation or governmental proceeding or investigation pending or, to the best
of the knowledge of the Company, threatened against the Company affecting any of
its properties or assets, or against any
-10-
<PAGE>
officer, key employee or principal stockholder of the Company where such
litigation, proceeding or investigation, either individually or in the
aggregate, if adversely determined, would have a material adverse effect on the
Company or in any of its properties or assets, or which might call into question
the validity of this Agreement, the Security Agreement, the Notes, the Warrants
or any action taken or to be taken pursuant hereto or thereto., nor, to the best
of the knowledge of the Company, has there occurred any event or does there
exist any condition on the basis of which any such litigation, proceeding or
investigation might properly be instituted. Neither the Company, nor, to the
best of the knowledge of the Company, any officer or key employee of the
Company, or principal stockholder of the Company, is in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency affecting the Company.
3.05. Compliance with Other Instruments. The Company is in
---------------------------------
compliance in all respects with the terms and provisions of this Agreement and
of its charter and by-laws and in all material respects with the terms and
provisions of the mortgages, indentures, leases, agreements and other
instruments and of all judgments, decrees, governmental orders, statutes, rules
and regulations by which it is bound or to which its properties or assets are
subject. There is no term or provision in any of the foregoing documents and
instruments which materially adversely affects the business, assets or financial
condition of the Company. Neither the execution and delivery of this Agreement,
the Security Agreement, the Notes or the Warrants, nor the consummation of any
transactions contemplated hereby or thereby has constituted or resulted in or
will constitute or result in a default or violation of any term or provision in
any of the foregoing documents or instruments. A schedule of Indebtedness of
the Company for money borrowed is attached as Exhibit 3.05.
------------
3.06. Federal Reserve Regulations. The Company is not engaged in the
---------------------------
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation G of the Board of Governors of the
Federal Reserve System), and no part of the proceeds of the Notes or Warrants
will be used to purchase or carry any margin security or to extend credit to
others for the purpose of purchasing or carrying any margin security or in any
other manner which would involve a violation of any of the regulations of the
Board of Governors of the Federal Reserve System.
3.07. Title to Assets, Patents. Except as is set forth in Exhibit 3.07,
------------------------ ------------
the Company has good and clear record and marketable title to such of its fixed
assets as are real property, and good and merchantable title to all of its other
assets, now carried on its books including those reflected in the most recent
balance sheet of the Company which forms a part of Exhibit 3.08 attached
------------
hereto, or acquired since the date of such balance sheet (except personal
property disposed of since said date in the ordinary course of business) free of
any mortgages, pledges, charges, liens, security interests or other monetary
claims, other than those permitted by subsection 4.02(a). The Company enjoys
peaceful and undisturbed possession under all leases under which it is
operating, and all said leases are valid and subsisting and in full force and
effect. The Company owns or has a valid right to use the patents, patent
rights, licenses, permits, trade secrets, trademarks, trademark rights, trade
names or trade name rights or franchises, copyrights, inventions and
intellectual property rights being used to conduct its business as now operated
and as now proposed to be operated; and the conduct of its business as now
operated and as now
-11-
<PAGE>
proposed to be operated does not and will not conflict with valid patents,
patent rights, licenses, permits, trade secrets, trademarks, trademark rights,
trade names or trade name rights or franchises, copyrights, inventions and
intellectual property rights of others. The Company has no obligation to
compensate any Person for the use of any such patents or such rights nor has the
Company granted to any Person any license or other rights to use in any manner
any of such patents or such rights of the Company.
3.08. Financial Information. The financial statements which are included
---------------------
in the Company's Annual Report and in its Form 10-Q present fairly the financial
position of the Company as at the dates thereof and its results of operations
for the periods covered thereby and have been prepared in accordance with
generally accepted accounting principles consistently applied. The financial
statements so included are: (i) for the two years ended December 31, 1993 and
December 31, 1994, certified by Deloitte & Touche LLP and (ii) for the nine-
month period ended September 30, 1995, being unaudited and subject to year-end
adjustments consisting of normal recurring items which will not be material in
the aggregate. The Company has no liability contingent or otherwise not
disclosed in the aforesaid financial statements or in the notes thereto that
could, together with all such other liabilities, materially affect the financial
condition of the Company, nor does the Company have any reasonable grounds to
know of any such liability. Since the date of said certified financial
statements, (i) there has been no adverse change in the business, assets or
condition, financial or otherwise, operations or prospects, of the Company; (ii)
neither the business, condition, operations or prospects of the Company nor any
of its properties or assets has been adversely affected as a result of any
legislative or regulatory change, any revocation or change in any franchise,
license or right to do business, or any other event or occurrence, whether or
not insured against; and (iii) except for the Settlement Agreement, dated
December 12, 1995, between the Company and CPC International, Inc., the Company
has not entered into any material transaction or made any distribution on its
capital stock.
3.09. Taxes. The Company has accurately prepared and timely filed all
-----
federal, state and other tax returns required by law to be filed by it, and all
taxes shown to be due and all additional assessments have been paid or provision
made therefor. The Company knows of no additional assessments or adjustments
pending or threatened against the Company for any period, nor of any basis for
any such assessment or adjustment.
3.10. ERISA. No employee benefit plan established or maintained, or to
-----
which contributions have been made, by the Company, which is subject to part 3
of Subtitle B of Title I of The Employee Retirement Income Security Act of 1974,
as amended ("ERISA") had an accumulated funding deficiency (as such term is
defined in Section 302 of ERISA) as of the last day of the most recent fiscal
year of such plan ended prior to the date hereof, and no material liability to
the Pension Benefit Guaranty Corporation has been incurred with respect to any
such plan by the Company.
3.11. Transactions with Affiliates. Except as is set forth in Exhibit
---------------------------- -------
3.11, there are no loans, leases, royalty agreements or other continuing
- ----
transactions between the Company and any Person owning five percent (5%) or more
of any class of capital stock of the Company or other entity controlled by such
stockholder or a member of such stockholder's family.
-12-
<PAGE>
3.12. Assumptions or Guaranties of Indebtedness of Other Persons. The
----------------------------------------------------------
Company has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on (including, without limitation, liability by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss) any Indebtedness of any other Person, except for
guaranties by endorsement of negotiable instruments for deposit or collection in
the ordinary course of business.
3.13. Investments in Other Persons. The Company has not made any loan or
----------------------------
advance to any Person which is outstanding on the date of this Agreement, nor is
the Company obligated or committed to make any such loan or advance, nor does
the Company own any capital stock or assets comprising the business of,
obligations of, or any interest in, any Person.
3.14. Equal Employment Opportunity. The Company has reviewed its
----------------------------
employment practices and policies and, to the best of its knowledge, the Company
is in full compliance with (a) all applicable laws of the United States, of the
Commonwealth of Massachusetts and of each other applicable jurisdiction,
relating to equal employment opportunity (including, without limitation, Title
VII of the Civil Rights Act of 1964, as amended (42 U.S.C. (S)2000e-17), the Age
Discrimination in Employment Act of 1967, as amended (29 U.S.C. (S)(S)621-634),
the Equal Pay Act of 1963 (29 U.S.C. (S)206(d)), and any rules, regulations and
administrative orders and Executive Orders relating thereto; Mass. Gen. Laws. c.
151B, Mass. Gen. Laws c. 149 (S)24A et seq. and (S)105A et seq., and any rules
or regulations relating thereto; and (b) the applicable terms, relating to equal
employment opportunity, of any contract, agreement or grant the Company has
with, from, or relating (by way of subcontract or otherwise) to any other
contract, agreement or grant of, any federal or state governmental unit
("Government Contract"), including, without limitation, any terms required
pursuant to Federal Executive Order No. 11246 and Massachusetts Executive Order
No. 74 (both as amended). To the best of the Company's knowledge, it has kept
all records required to be kept, and has filed all reports, affirmative action
plans and forms (including, without limitation and where applicable, Form EEO-1)
required to be filed pursuant to any such applicable law or the terms of any
such Government Contract. The Company has not been subject to any adverse final
determination or order, with respect to any charge of employment discrimination
made against it, by the United States Equal Employment Opportunity Commission,
the Massachusetts Commission Against Discrimination or any other governmental
unit (including, without limitation, any such governmental unit with which it
has a Government Contract), and the Company is not presently, to the best of its
knowledge, subject to any formal proceedings before, or investigations by, such
commissions or governmental units.
3.15. Status of Notes and Warrants as Qualified Investments. The Company
-----------------------------------------------------
has duly authorized the execution and delivery to the Purchaser on behalf of the
Company of the certificate attached as Exhibit 3.15 hereto, setting forth such
------------
statements, information and related data as are necessary to permit the
Purchaser to determine and demonstrate that the Notes and Warrants issued
pursuant to this Agreement will constitute "qualified investments" within the
meaning of that term as set forth in the Capital Resource Company Act and that
the full proceeds of the Notes and Warrants will be used for purposes which will
materially increase or maintain equal opportunity employment in the Commonwealth
of Massachusetts. All such statements, information and related data presented
in such certificate as are not based on estimates and projections of future
events are true and correct as of the date of such certificate and all such
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<PAGE>
statements, information and related data based upon estimates or projections of
future events have been carefully considered and prepared on behalf of the
Company.
3.16. Securities Act. Neither the Company nor anyone acting on its
--------------
behalf has offered any of the Notes, Warrants or similar securities, or
solicited any offers to purchase or made any attempt by preliminary conversation
or negotiations to dispose of the Notes, Warrants or similar securities, to any
Person other than the Purchaser or the institutions described in Exhibit 3.15.
------------
Neither the Company nor anyone acting on its behalf has offered or will offer to
sell the Notes, Warrants or similar securities to, or solicit offers with
respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Notes and Warrants under the registration provisions of the
Securities Act.
3.17. Disclosure. Neither this Agreement, the Form 10-K, the Form
----------
10-Q, the Annual Report, the Proxy Statement, the Certificate set forth as
Exhibit 3.15 hereof, nor any other agreement, document, certificate or written
- ------------
statement furnished to the Purchaser or its special counsel by or on behalf of
the Company in connection with the transactions contemplated hereby contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein not misleading.
There is no fact within the special knowledge of the Company or any of its
executive officers which has not been disclosed herein or in writing by them to
the Purchaser and which materially adversely affects, or in the future in their
opinion may, insofar as they can now foresee, materially adversely affect the
business, properties, assets or condition, financial or otherwise, of the
Company. Without limiting the foregoing, the Company has no knowledge or belief
that there exists, or there is pending or planned, any patent, invention,
device, application or principle or any statute, rule, law, regulation, standard
or code which would materially adversely affect the condition, financial or
otherwise, or the operations of the Company.
3.18. No Brokers or Finders. No Person has or will have, as a result
---------------------
of the transactions contemplated by this Agreement, any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker because of any act or omission by the Company or any agent
of the Company.
3.19. Other Agreements of Officers. To the best of the knowledge of
----------------------------
the Company, no officer or key employee of the Company is a party to or bound by
any agreement, contract or commitment, or subject to any restrictions,
particularly but without limitation in connection with any previous employment
of any such person, which materially and adversely affects, or in the future may
(so far as the Company can reasonably foresee) materially and adversely affect,
the business or operations of the Company or the right of any such person to
participate in the affairs of the Company. To the best of the knowledge of the
Company, no officer or key employee has any present intention of terminating his
employment with the Company and the Company has no present intention of
terminating any such employment.
3.20. Capitalization; Status of Capital Stock. The Company has a
---------------------------------------
total authorized capitalization consisting of: (i) 3,023,436 shares of Common
Stock, of which 2,110,021 shares are issued and outstanding, and (ii) 653 shares
of Preferred Stock, $50 par value, all of which
-14-
<PAGE>
shares are issued and outstanding. The Proxy Statement sets forth a complete
list of those persons who, as of March 1, 1995, were the record and, to the best
of the Company's knowledge, beneficial owners of more than five percent (5%) of
the Company's outstanding Common Stock or Preferred Stock. All the outstanding
shares of capital stock of the Company have been duly authorized, are validly
issued and are fully paid and nonassessable. The shares of Common Stock issuable
upon exercise of the Warrants, when so issued, will be duly authorized, validly
issued and fully paid and nonassessable. Except as otherwise indicated on
Exhibit 3.20, there are no options, warrants or rights to purchase shares of
- ------------
capital stock or other securities of the Company authorized, issued or
outstanding, nor is the Company obligated in any other manner to issue shares of
its capital stock or other securities. There are no restrictions on the
transfer of shares of capital stock of the Company other than those imposed by
relevant state and federal securities laws. No holder of any security of the
Company is entitled to preemptive or similar statutory or contractual rights,
either arising pursuant to any agreement or instrument to which the Company is a
party, or which are otherwise binding upon the Company. Neither the issuance of
the Notes or the Warrants nor the shares of Common Stock issued upon exercise of
the Warrants will result in an adjustment under the antidilution or exercise
rights of any holders of any outstanding shares of capital stock options,
warrants or other rights to acquire any securities of the Company. The offer
and sale of all shares of capital stock and other securities of the Company
issued before the Closing complied with or were exempt from all federal and
state securities laws.
3.21. Labor Relations. To the best of the knowledge of the Company,
---------------
except for its present unions, no labor union or any representative thereof is
presently making any attempt to organize or represent employees of the Company.
There are no unfair labor practice charges, pending trials with respect to
unfair labor practice charges, pending material grievance proceedings or adverse
decisions of a Trial Examiner of the National Labor Relations Board against the
Company. Furthermore, to the best of the knowledge of the Company, relations
with employees of the Company are good and there is no reason to believe that
any labor difficulties will arise in the foreseeable future.
3.22. Insurance. The Company carries insurance covering its
---------
properties and business adequate and customary for the type and scope of the
properties and business, but in any event in amounts sufficient, in the case of
real property, to prevent the Company from becoming a co-insurer.
3.23. Books and Records. The books of account, ledgers, order books,
-----------------
records and documents of the Company accurately and completely reflect all
material information relating to the business of the Company, the nature,
acquisition, maintenance, location and collection of the assets of the Company,
and the nature of all transactions giving rise to the obligations or accounts
receivable of the Company.
3.24. Foreign Corrupt Practices Act. The Company has reviewed its
-----------------------------
practices and policies and to the best of its knowledge and belief it is not
engaged, nor has any officer, director, employee or agent of the Company
engaged, in any act or practice which would constitute a violation of the
Foreign Corrupt Practices Act of 1977, or any rules or regulations promulgated
thereunder.
-15-
<PAGE>
3.25. Registration Rights. Other than the Purchaser pursuant to the
-------------------
terms of Article V hereof and CPC International, Inc. pursuant to that certain
Settlement Agreement, dated December 12, 1995, no Person has demand or other
rights to cause the Company to file any registration statement under the
Securities Act relating to any securities of the Company or any right to
participate in any such registration statement.
ARTICLE IV
COVENANTS OF THE COMPANY
4.01. Affirmative Covenants of the Company Other Than Reporting
---------------------------------------------------------
Requirements. Without limiting any other covenants and provisions hereof, the
- ------------
Company covenants and agrees that, as long as any of the Notes or Warrants are
outstanding, it will perform and observe the following covenants and provisions
and will cause each Subsidiary to perform and observe such of the following
covenants and provisions as are applicable to such Subsidiary:
(a) Punctual Payment. Pay the principal of, premium, if any, and
----------------
interest on each of the Notes at the times and place and in the manner provided
in the Notes and herein.
(b) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor the Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto. Pay and cause each Subsidiary to
pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company or its Subsidiaries, except such as are being
contested in good faith and by appropriate proceedings if the Company or
Subsidiary concerned shall have set aside on its books adequate reserves with
respect thereto.
(c) Maintenance of Insurance. Maintain, and cause each Subsidiary to
------------------------
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies of similar size engaged in similar businesses and owning similar
properties in the same general areas in which the Company or such Subsidiary
operates, but in any event in amounts sufficient, in the case of real property,
to prevent the Company or such Subsidiary from becoming a co-insurer.
(d) Preservation of Corporate Existence. Preserve and maintain, and
-----------------------------------
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties; provided, however, that nothing herein contained shall
-------- -------
prevent any merger,
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<PAGE>
consolidation or transfer of assets permitted by subsection 4.02(e). Preserve
and maintain, and cause each Subsidiary to preserve and maintain, all licenses
and other rights to use patents, processes, licenses, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or possessed by it
and necessary to the conduct of its business.
(e) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with all applicable laws, rules, regulations and orders of any
governmental authority, noncompliance with which would materially adversely
affect its business or condition, financial or other.
(f) Visitation Rights. At any reasonable time and from time to time,
-----------------
permit the Purchaser or any agents or representatives thereof, to examine and
make copies of and extracts from the records and books of account of, and visit
and inspect the properties of, the Company and any Subsidiary, and to discuss
the affairs, finances and accounts of the Company and any Subsidiary with any of
their officers or directors and independent accountants.
(g) Keeping of Records and Books of Account. Keep, and cause each
---------------------------------------
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
such Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection with its business shall be made.
(h) Maintenance of Properties, etc. Maintain and preserve, and cause
------------------------------
each Subsidiary to maintain and preserve, all of its properties, necessary in
the proper conduct of its business, in good repair, working order and condition,
ordinary wear and tear excepted.
(i) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension or other
employee benefit or employee contribution plans which are subject to ERISA or to
the Internal Revenue Code of 1986, as amended (the "Code"), and comply, and
cause each Subsidiary to comply, in all other material respects with the
provisions of ERISA and the Code, and the rules and regulations thereunder,
which are applicable to any such plan. Neither the Company nor any Subsidiary
will permit any event or condition to exist which could permit any such plan to
be terminated under circumstances which would cause the lien provided for in
Section 4068 of ERISA to attach to the assets of the Company or any Subsidiary.
(j) Maintenance of Debt to Equity Ratio. Maintain a ratio of
-----------------------------------
Consolidated Indebtedness (other than Indebtedness represented by the Notes and
deferred grant income reflected on the balance sheet of the Company at the end
of the fiscal quarter being measured) to Consolidated Net Worth (plus
Indebtedness represented by the Notes) of not more than 1 to 1, such ratio to be
measured at the end of each fiscal quarter of the Company.
(k) Maintenance of Interest Coverage. Maintain a ratio of
--------------------------------
Consolidated Net Earnings Available for Interest Charges to Interest Charges of
not less than 2 to 1, such ratio to be measured at the end of each fiscal
quarter of the Company as an average of the four most recent fiscal quarters of
the Company.
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<PAGE>
(l) Foreign Corrupt Practices Act. Comply, and cause each Subsidiary
-----------------------------
to comply, and cause each officer, director, employee and agent of the Company
and each Subsidiary to comply, at all times with the prohibitions on certain
acts and practices set forth in the Foreign Corrupt Practices Act of 1977, and
any rules or regulations promulgated thereunder.
(m) Equal Employment Opportunity. Comply, and cause each Subsidiary
----------------------------
to comply, with all applicable laws of the United States, the Commonwealth of
Massachusetts, and of each other applicable jurisdiction relating to equal
employment opportunity, any rules, regulations, administrative orders and
Executive Orders relating thereto and the applicable terms, relating to equal
employment opportunity, of any Government Contract; and keep, and cause each
Subsidiary to file, all reports, affirmative action plans and forms required to
be filed, pursuant to any such applicable law or the terms of any such
Government Contract; provided, however, the Company or any Subsidiary shall not
-------- -------
be considered to have failed to comply with the foregoing during any period that
any matter relating to the Company's or such Subsidiary's employment practices
is being contested by the Company or such Subsidiary in appropriate proceedings,
or thereafter, if the Company or such Subsidiary complies with any final
determination issued in such proceedings.
(n) Status of Notes and Warrants as Qualified Investments. In the
-----------------------------------------------------
event that any of the statements, information and related data provided by or on
behalf of the Company or any Subsidiary and relied upon by the Purchaser in
determining that the Notes and Warrants constitute "qualified investments"
within the meaning of that term in the Capital Resource Company Act shall be put
in issue in any formal or informal proceedings initiated or conducted by or on
behalf of the Commonwealth of Massachusetts, the Company shall, upon reasonable
notice and at its expense, provide, and, cause each Subsidiary to provide, such
additional information, witnesses and related data as may be reasonably
necessary or appropriate to support the representations and warranties set forth
in Article III.
(o) Attendance at Board Meetings. The Company shall permit the
----------------------------
Purchaser or its designee to have one observer attend each meeting of its Board
of Directors. The Company shall send to the Purchaser and such designee the
notice of the time and place of such meeting in the same manner and at the same
time as it shall send such notice to its directors. The Company shall also
provide to the Purchaser copies of all notices, reports, minutes and consents at
the time and in the manner as they are provided to the Board of Directors.
(p) Compensation. Compensation of all officers of the Company and
------------
any Subsidiary shall be determined by a committee of the Company's Board of
Directors, which committee shall consist of not less than three (3) directors
who are not employees of the Company or any Subsidiary.
(q) Compliance with Security Agreement. Comply at all times with all
----------------------------------
of the terms and conditions of the Security Agreement.
4.02. Negative Covenants of the Company. Without limiting any other
---------------------------------
covenants and provisions hereof, the Company covenants and agrees that, as long
as any of the Notes or Warrants are outstanding, it will comply with and observe
the following covenants and provisions,
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<PAGE>
and will cause each Subsidiary to comply with and observe such of the following
covenants and provisions as are applicable to such Subsidiary, and will not:
(a) Liens. Create, incur, assume or suffer to exist, or permit any
-----
Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed of
trust, pledge, lien, security interest or other charge or monetary
claims(including the lien or retained security title of a conditional vendor) of
any nature, upon or with respect to any of its properties, now owned or
hereinafter acquired, or assign or otherwise convey any right to receive income,
except that the foregoing restrictions shall not apply to mortgages, deeds of
trust, pledges, liens, security interests or other charges or monetary claims:
(i) for taxes, assessments or governmental charges or levies on
property of the Company or any Subsidiary if the same shall not at the time
be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) securing the performance of bids, tenders, contracts (other
than for the repayment of borrowed money), statutory obligations and surety
bonds;
(v) in the nature of zoning restrictions, easements and rights
or restrictions of record on the use of real property which do not
materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented;
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate proceedings, provided, however, that
no execution or levy has been made;
(viii) described in Exhibit 3.07 which secure the Indebtedness
------------
set forth in Exhibit 3.05, provided that no such lien is extended to cover
------------
other or different property of the Company or any Subsidiary, except as is
otherwise set forth in Exhibit 3.07;
------------
(ix) now or hereafter granted to the Purchaser pursuant to the
Security Agreement;
(x) arising out of a purchase money mortgage or security
interest on personal property to secure the purchase price of such property
(or to secure Indebtedness incurred solely for the purpose of financing the
acquisition of any such property), provided
-19-
<PAGE>
that such purchase money mortgage or security interest does not extend to
any other or different property of the Company or any Subsidiary; and
(xi) now or hereafter granted to secure Senior Debt.
(b) Indebtedness. Create, incur, assume or suffer to exist, or
------------
permit any Subsidiary to create, incur, assume or suffer to exist, any liability
with respect to Indebtedness except for:
(i) the Notes;
(ii) Indebtedness for money borrowed, provided that at the time
such Indebtedness for money borrowed is incurred there does not exist, and
such Indebtedness does not create, an Event of Default or an event which,
but for the requirement that notice be given or time lapse or both, would
constitute an Event of Default;
(iii) Current Liabilities, other than for borrowed money, which
are incurred in the ordinary course of business; and
(iv) Indebtedness with respect to lease obligations, provided
that such lease obligations do not violate subsection 4.02(c).
(c) Lease Obligations. Create, incur, assume or suffer to exist, or
-----------------
permit any Subsidiary to create, incur, assume or suffer to exist, any
obligations as lessee for the rental or hire of real or personal property in
connection with any sale and leaseback transaction; or become obligated to pay
any rent for real property or personal property under any lease with an original
term, including any lessor options to renew or extend, of more than three years
if the aggregate of consolidated fixed annual rent which would be payable in any
fiscal year by the Company and its Subsidiaries under all such leases would
exceed $800,000.
(d) Assumptions or Guaranties of Indebtedness of Other Persons.
----------------------------------------------------------
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person, except
for guaranties by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business.
(e) Mergers, Sale of Assets, etc. Merge or consolidate with, or sell,
----------------------------
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) a material portion
of its assets (whether now owned or hereinafter acquired) or sell, assign or
otherwise dispose of (whether in one transaction or in a series of transactions)
any of its accounts receivable (whether now in existence or hereinafter created)
at a discount or with recourse, to, any Person, or permit any Subsidiary to do
any of the foregoing, except for sales or other dispositions of assets in the
ordinary course of business and except that (1) any Subsidiary may merge into or
consolidate with or transfer assets to any other Subsidiary, (2) any Subsidiary
may merge into or transfer assets to the Company, (3) the Company may
-20-
<PAGE>
merge any Person into it or otherwise acquire such Person as long as the Company
is the surviving entity, such merger or acquisition does not result in the
violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition, and, provided that such merger
or acquisition does not result in the issuance (in one or more transactions) of
shares of the voting stock of the Company representing in the aggregate more
than twenty percent (20%) of the total outstanding voting stock of the Company,
on a fully diluted basis, immediately following the issuance thereof, (4) the
Company may sell fixed assets up to two percent (2%) (based upon its then net
book value) of its consolidated net fixed assets in any period of twelve (12)
consecutive months and (5) the Company may sell, lease, transfer all or a
portion of, control of, enter into a joint venture pertaining to, or otherwise
dispose of its so-called "South Quay" project, as described in its Annual
Report, provided that any disposition is for not less than its fair market value
as reasonably determined by the Board of Directors of the Company and further
provided that, if any distribution is made to the holders of Common Stock of the
Company in connection with, or as a result of, such disposition, a similar
distribution shall be made to the holders of the Warrants, calculated as if such
Warrants had been exercised in their entirety as of the record or payment date
for such distribution.
(f) Investments in Other Persons. Make or permit any Subsidiary to
----------------------------
make, any loan or advance to any person, or purchase, otherwise acquire, or
permit any Subsidiary to purchase or otherwise acquire, the capital stock,
assets comprising the business of, obligations of, or any interest in, any
Person, except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates
of deposit, notes, acceptances and repurchase agreements having a maturity
of not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided
profits of at least $100,000,000 and whose parent holding company has long-
term debt rated Aa1 or higher, and whose commercial paper (if rated) is
rated Prime 1, by Moody's Investors Service, Inc.;
(iii) loans or advances from a Subsidiary to the Company;
(iv) investments by the Company or a Subsidiary in the highest-
rated commercial paper having a maturity of not more than one year from the
date of acquisition;
(v) other loans, advances and investments; provided that the
aggregate amount of all such other loans, advances and investments does not
exceed, at any one time outstanding, two percent (2%) of the Consolidated
Net Worth of the Company as of the end of its then most recent fiscal
quarter; and
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<PAGE>
(vi) loans, advances or investments for the "South Quay"
project, including loans, advances or investments to joint venture
partners, subsidiaries or other entities, if any, which may become involved
in said project.
(g) Distributions. Declare or pay any dividends, purchase, redeem,
-------------
retire, or otherwise acquire for value any of its capital stock (or rights,
options or warrants to purchase such shares) now or hereafter outstanding,
return any capital to its stockholders as such, or make any distribution of
assets to its stockholders as such, or permit any Subsidiary to do any of the
foregoing (such transactions being hereinafter referred to as "Distributions"),
except that the Subsidiaries may declare and make payment of cash and stock
- ------
dividends, return capital and make distributions of assets to the Company;
provided, however, that nothing herein contained shall prevent the Company from:
- -------- -------
(i) effecting a stock split or declaring or paying any dividend
consisting of shares of any class of capital stock to the holders of shares
of such class of capital stock, or
(ii) redeeming any stock of a deceased stockholder out of
insurance held by the Company on that stockholder's life, or
(iii) making cash distributions to its stockholders, provided
such cash distributions in any fiscal year do not exceed twenty-five
percent (25%) of the Company's Consolidated Net Income for its immediately
prior fiscal year, or
(iv) making distributions permitted by subsection 4.02(e)(5), or
(v) repurchasing shares of the Company's Common Stock in the
open market provided that the shares of Common Stock so repurchased are
used solely to satisfy the Company's commitment to deliver shares of Common
Stock to CPC International Inc. pursuant to that certain Settlement
Agreement, dated December 12 1995,
if in the case of any such transaction there does not exist at the time of such
Distribution an Event of Default or an event which, but for the requirement that
notice be given or time elapse or both, would constitute an Event of Default and
provided that such Distribution can be made in compliance with the other terms
of this Agreement.
(h) Dealings with Affiliates. Enter or permit any Subsidiary to
------------------------
enter into any transaction with any holder of 5% or more of any class of capital
stock of the Company, or any member of their families or any corporation or
other entity in which any one or more of such stockholders or members of their
immediate families directly or indirectly holds five percent (5%) or more of any
class of capital stock except in the ordinary course of business and on terms
not less favorable to the Company or the Subsidiary than it would obtain in a
transaction between unrelated parties.
(i) Maintenance of Ownership of Subsidiaries. Sell or otherwise
----------------------------------------
dispose of any shares of capital stock of any Subsidiary, except to the Company
or another Subsidiary, or permit
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<PAGE>
any Subsidiary to issue, sell or otherwise or the capital stock of any
Subsidiary, except to the Company or another Subsidiary, provided, however, that
-------- -------
nothing herein contained shall prevent any merger, consolidation or transfer of
assets permitted by subsection 4.02(e).
(j) Change in Nature of Business. Make, or permit any Subsidiary to
----------------------------
make, any material change in the nature of its business as carried on at the
date hereof.
4.03. Reporting Requirements. The Company will furnish to each
----------------------
registered holder of any Note, any Warrant or any Common Stock issued upon
exercise of any Warrant:
(a) as soon as possible and in any event within five (5) days
after the occurrence of each Event of Default or each event which, with the
giving of notice or lapse of time or both, would constitute an Event of Default,
the statement of the chief financial officer of the Company setting forth
details of such Event of Default or event and the action which the Company
proposes to take with respect thereto;
(b) as soon as available and in any event within forty-five
(45) days after the end of each of the first three quarters of each fiscal year
of the Company, consolidated balance sheets of the Company and its Subsidiaries,
if any, as of the end of such quarter and consolidated statements of income and
cash flows of the Company and its Subsidiaries, if any, for the period
commencing at the end of the previous fiscal year and ending with the end of
such quarter, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year, all in
reasonable detail and duly certified (subject to year-end audit adjustments) by
the chief financial officer of the Company as having been prepared in accordance
with generally accepted accounting principles consistently applied;
(c) as soon as available and in any event within ninety (90)
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and its Subsidiaries, if any,
including therein consolidated balance sheets of the Company and its
Subsidiaries, if any, as of the end of such fiscal year and consolidated
statements of income, shareholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all duly certified
by independent public accountants of recognized standing acceptable to the
Purchaser;
(d) at the time of delivery of each quarterly and annual
statement, a certificate, executed by the chief financial officer in the case of
quarterly statements and the Company's independent public accountants in the
case of annual statements, stating that such officer or accountants, as the case
may be, has caused this Agreement, the Security Agreement, the Notes, and the
Warrants to be reviewed and has no knowledge of any default by the Company or
any Subsidiary in the performance or observance of any of the provisions of this
Agreement, the Security Agreement, the Notes or the Warrants or, if such officer
or accountant has such knowledge, specifying such default and the nature
thereof. Each such certificate shall set forth computations in reasonable detail
demonstrating compliance with the provisions of subsections 4.01(j) and (k) and
subsection 4.02(c);
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<PAGE>
(e) promptly upon receipt thereof, any written report submitted to
the Company by independent public accountants in connection with an annual or
interim audit of the books of the Company and its Subsidiaries made by such
accountants;
(f) prior to the start of each fiscal year, consolidated capital and
operating expense budgets, cash flow projections and income and loss projections
for the Company and its Subsidiaries in respect of such fiscal year, in such
form as is customarily prepared by the Company for its own internal use, and,
promptly after preparation, any revisions to any of the foregoing;
(g) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company or any Subsidiary of the type described in Section 3.04; and
(h) promptly after sending, making available, or filing the same,
such reports and financial statements as the Company or any Subsidiary shall
send or make available to the stockholders of the Company or the Securities and
Exchange Commission.
4.04. Termination of Certain Covenants. The covenants set forth in
--------------------------------
subsections 4.01(a), (b), (c), (h), (i), (j), (k), (l) and (q) and in
subsections 4.02(a), (b), (c), (d), (e), (f), (h) and (i) shall terminate and be
of no further force or effect when the Notes have been redeemed in their
entirety. Further, all of the covenants set forth in Sections 4.01, 4.02 and
4.03 shall terminate and be of no further force and effect when the Notes have
been redeemed in their entirety and the Warrants have been exercised in their
entirety provided that the Company shall then be subject to the reporting
requirements of the Exchange Act.
ARTICLE V
REGISTRATION RIGHTS
5.01. "Piggy Back" Registration. If at any time the Company shall
-------------------------
determine to register under the Securities Act (including pursuant to a demand
of any stockholder of the Company exercising registration rights) any of its
Common Stock of the type which has been or may be issued upon the exercise of
the Warrants, other than on Form S-8 or its then equivalent or in connection
with a merger or acquisition or consolidation with another corporation, it shall
send to each holder of Registrable Shares, including each holder who has the
right to acquire Registrable Shares, written notice of such determination and,
if within thirty (30) days after receipt of such notice, such holder shall so
request in writing, the Company shall use its best efforts to include in such
registration statement all or any part of the Registrable Shares such holder
requests to be registered, except that if, in connection with any offering
involving an underwriting of Common Stock to be issued by the Company, the
managing underwriter shall impose a limitation on the number of shares of such
Common Stock which may be included in any such registration statement because,
in its judgment, such limitation is necessary to effect an orderly public
distribution, and such limitation is imposed pro rata among the holders of such
--- ----
Common Stock having an incidental ("piggy back") right to include such Common
Stock in the registration statement according to the amount of such Common Stock
which each holder had requested to be
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<PAGE>
included pursuant to such right, then the Company shall be obligated to include
in such registration statement only such limited portion of the Registrable
Shares with respect to which such holder has requested inclusion hereunder. No
incidental right under this Section 5.01 shall be construed to limit any
registration required under Section 5.02.
5.02. Required Registration. If on any one occasion, one or more
---------------------
holders of at least forty percent (40%) of the Registrable Shares shall notify
the Company in writing that it or they intend to offer or cause to be offered
for public sale at least twenty percent (20%) of the Registrable Shares, the
Company will so notify all holders of Registrable Shares, including all holders
who have a right to acquire Registrable Shares. Upon written request of any
holder given within thirty (30) days after the receipt by such holder from the
Company of such notification, the Company will use its best efforts to cause
such of the Registrable Shares as may be requested by any holder thereof
(including the holder or holders giving the initial notice of intent to offer)
to be registered under the Securities Act as expeditiously as possible;
provided, however, if the Company's managing underwriter, if any, for a required
- -------- -------
registration under this Section 5.02 shall impose a limitation on the number of
shares of such Common Stock which may be included in any such registration
statement because, in its judgment, such limitation is necessary to effect an
orderly public distribution, and such limitation is imposed pro rata among any
--- ----
participating holders, then the Company shall be obligated to include in such
registration statement only such limited portion of the Registration Shares with
respect to which such holder has requested inclusion hereunder. If the Company:
(i) determined to include shares to be sold by it in any registration requests
pursuant to this Section 5.02 or (ii) is engaged in or has fixed plans to engage
within sixty (60) days of the date of such request in a registered public
offering, in which the holders of Registrable Shares may exercise their "piggy
back" rights under Section 5.01, then, in either of such events, such
registration shall be deemed to have been a registration under Section 5.01 of
this Article V.
The Company may postpone the filing of any registration statement
required under this Section 5.02 for a reasonable period of time, not to exceed
ninety (90) days during any twelve (12) month period, if the Company has been
advised by legal counsel, which counsel shall be reasonably acceptable to the
holders of Registrable Shares, that such filing would require the disclosure of
a material transaction or other matter and the Company determines in good faith
that such disclosure would have a material adverse effect on the Company. The
Company shall not be required to cause a registration statement requested
pursuant to this Section 5.02 to become effective prior to ninety (90) days
following the effective date of a registration statement initiated by the
Company, if the request for registration has been received by the Company
subsequent to the giving of written notice by the Company, made in good faith,
to the holders of Registrable Shares to the effect that the Company is
commencing to prepare a Company-initiated registration statement (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 or any other similar rule of the Securities and
Exchange Commission under the Securities Act is applicable); provided, however,
-------- -------
that the Company shall use its best efforts to achieve such effectiveness
promptly following such ninety (90) day period if the request pursuant to this
Section 5.02 has been made prior to the expiration of such ninety (90) day
period. In the event the Company exercises its right to delay a required
registration, the Holders initiating the request hereunder may withdraw such
request by giving written notice to the Company within thirty (30) days after
receipt of the notice of delay.
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<PAGE>
5.03. Registration on Form S-3. In addition to the rights provided
------------------------
the holder of Registrable Shares in Sections 5.01 and 5.02 above, if the
registration of Registrable Shares under the Securities Act can be effected on
Form S-3 (or any similar form promulgated by the Securities and Exchange
Commission), the Company will promptly so notify each holder of Registrable
Shares, including each holder who has a right to acquire Registrable Shares, and
then will at any time, and from time to time, thereafter, as expeditiously as
possible, use its best efforts to effect qualification and registration under
the Securities Act on said Form S-3 of all or such portion of the Registrable
Shares as the holder or holders shall specify; provided, however, that the
-------- -------
number of Registrable Shares requested to be included in such registration
statement shall have an estimated aggregate price to the public of at least
$500,000 and further provided that the Company shall not be required to effect
------- --------
more than one registration on Form S-3 pursuant to this Section 5.03 in any
period of twelve (12) consecutive months.
5.04. Effectiveness. The Company will use its best efforts to
-------------
maintain the effectiveness for up to nine (9) months of any registration
statement pursuant to which any of the Registrable Shares are being offered, and
from time to time will amend or supplement such registration statement and the
prospectus contained therein as and to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation. The
Company will also provide each holder of Registrable Shares with as many copies
of the prospectus contained in any such registration statement as it may
reasonably request.
5.05. Indemnification of Holder of Registrable Shares. In the event
-----------------------------------------------
that the Company registers any of the Registrable Shares under the Securities
Act, the Company will indemnify and hold harmless each holder and each
underwriter of the Registrable Shares so registered (including any broker or
dealer through whom such shares may be sold) and each person, if any, who
controls such holder or any such underwriter within the meaning of Section 15 of
the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them become
subject under the Securities Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse each such holder,
each such underwriter and each such controlling person, if any, for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented by the Company) 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 in order to make the statements therein not misleading or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company and relating to action or inaction
required of the Company in connection with such registration, unless such untrue
statement or omission was made in such registration statement, preliminary or
amended, preliminary prospectus or prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) in reliance upon and in
conformity with information furnished in writing to the Company in connection
therewith by such holder of Registrable Shares, any such underwriter or any such
controlling person expressly for use therein, or unless such indemnity would
inure to the benefit of any underwriter or any person controlling
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<PAGE>
such underwriter, if such underwriter failed to send or give a copy of the final
prospectus to the person asserting the claim at or prior to the written
confirmation of the sale of Registrable Shares to such person and if the untrue
statement or omission concerned had been corrected in such final prospectus.
Promptly after receipt by any holder of Registrable Shares, any underwriter or
any controlling person, of notice of the commencement of any action in respect
of which indemnity may be sought against the Company, such holder of Registrable
Shares, or such underwriter or such controlling person, as the case may be, will
notify the Company in writing of the commencement thereof, and, subject to the
provisions hereinafter stated, the Company shall assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to such holder of Registrable Shares, such underwriter or such
controlling person, as the case may be), and the payment of expenses insofar as
such action shall relate to any alleged liability in respect of which indemnity
may be sought against the Company. Such holder of Registrable Shares, any such
underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and to participate in the defense thereof
but the fees and expenses of such counsel shall not be at the expense of the
Company unless the employment of such counsel has been specifically authorized
by the Company. The Company shall not be liable to indemnify any person for any
settlement of any such action effected without the Company's consent. The
Company shall not, except with the approval of each party being indemnified
under this Section 5.05, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the parties being so indemnified of a release from
all liability in respect to such claim or litigation.
5.06. Indemnification of Company. In the event that the Company
--------------------------
registers any of the Registrable Shares under the Securities Act, each holder of
the Registrable Shares so registered will indemnify and hold harmless the
Company, each of its directors, each of its officers who have signed the
registration statement, each underwriter of the Registrable Shares so registered
(including any broker or dealer through whom such of the shares may be sold) and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act from and against any and all losses, claims, damages,
expenses or liabilities, joint or several, to which they or any of them may
become subject under the Securities Act or under any other statute or at common
law or otherwise, and, except as hereinafter provided, will reimburse the
Company and each such director, officer, underwriter or controlling person for
any legal or other expenses reasonably incurred by them or any of them in
connection with investigating or defending any actions whether or not resulting
in any liability, insofar as such losses, claims, damages, expenses, liabilities
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) 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 in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection therewith by such
holder of Registrable Shares expressly for use therein; provided, however, that
-------- -------
such holder's obligations hereunder shall be limited to an amount equal to the
proceeds to such holder of the Registrable Shares sold in such registration.
Promptly after receipt of notice of the commencement of any action in respect of
which indemnity may be sought against
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such holder of Registrable Shares, the Company will notify such holder of
Registrable Shares in writing of the commencement thereof, and such holder of
Registrable Shares shall, subject to the provisions hereinafter stated, assume
the defense of such action (including the employment of counsel, who shall be
counsel reasonably satisfactory to the Company) and the payment of expenses
insofar as such action shall relate to the alleged liability in respect of which
indemnity may be sought against such holder of Registrable Shares. The Company
and each such director, officer, underwriter or controlling person shall have
the right to employ separate counsel in any such action and to participate in
the defense thereof but the fees and expenses of such counsel shall not be at
the expense of such holder of Registrable Shares unless employment of such
counsel has been specifically authorized by such holder of Registrable Shares.
Such holder of Registrable Shares shall not be liable to indemnify any person
for any settlement of any such action effected without such holder's consent. No
holder of Registrable Shares shall, except with the approval of each party being
indemnified under this Section 5.06, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to the parties being so indemnified of a
release from all liability in respect to such claim or litigation.
5.07. Exchange Act Registration. If the Company at any time shall
-------------------------
list any of its Common Stock of the type which may be issued upon the exercise
of the Warrants on any national securities exchange and shall register such
Common Stock under the Exchange Act, the Company will, at its expense,
simultaneously list on such exchange and maintain such listing of, all of the
Common Stock from time to time issuable upon exercise of the Warrants. The
Company will use its best efforts to timely file with the Securities and
Exchange Commission such information as the Securities and Exchange Commission
may require under Sections 13 or 15(d) of the Exchange Act; and the Company
shall use its best efforts to take all action as may be required as a condition
to the availability of Rule 144 under the Securities Act (or any successor
exemptive rule hereinafter in effect) with respect to the Common Stock issuable
upon exercise of the Warrants. The Company shall furnish to any holder of
Registrable Shares forthwith upon request (i) a written statement by the Company
as to its compliance with the reporting requirements of Rule 144, (ii) a copy of
the most recent annual or quarterly report of the Company as filed with the
Securities and Exchange Commission, and (iii) such other reports and documents
as a holder may reasonably request in availing itself of any rule or regulation
of the Securities and Exchange Commission allowing a holder to sell any such
Registrable Securities without registration.
5.08. Damages. The Company recognizes and agrees that the holder of
-------
Registrable Shares will not have an adequate remedy if the Company fails to
comply with this Article V and that damages will not be readily ascertainable,
and the Company expressly agrees that, in the event of such failure, it shall
not oppose an application by the holder of Registrable Shares or any other
person entitled to the benefits of this Article V requiring specific performance
of any and all provisions hereof or enjoining the Company from continuing to
commit any such breach of this Article V.
5.09. Further Obligations of the Company. Whenever under the
----------------------------------
preceding Sections of this Article V, the Company is required hereunder to
register Registrable Shares, it agrees that it shall also do the following:
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(a) Furnish to each selling holder such copies of each preliminary
and final prospectus and such other documents as said holder may reasonably
request to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable
Shares covered by said registration statement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling holder may reasonably
request; provided, however, that the Company shall not be obligated to qualify
-------- -------
to do business in any jurisdiction where it is not then so qualified or to take
any action which would subject it to the service of process in suits other than
those arising out of the offer or sale of the securities covered by the
registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a signed counterpart of
(i) an opinion of counsel for the Company, dated the effective
date of the registration statement, and
(ii) "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the extent
permitted by the standards of the American Institute of Certified Public
Accountants,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
accountants' "comfort" letters) with respect to events subsequent to the date of
the financial statements, as are customarily covered in opinions of issuer's
counsel and in accountants' "comfort" letters delivered to the underwriters in
underwritten public offerings of securities, to the extent that the Company is
required to deliver or cause the delivery of such opinion or "comfort" letters
to the underwriters in an underwritten public offering of securities;
(d) Permit each selling holder or his counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them;
(e) Furnish to each selling holder a copy of all documents filed and
all correspondence from or to the Securities and Exchange Commission in
connection with any such offering; and
(f) Use its best efforts to insure the obtaining of all necessary
approvals from the National Association of Securities Dealers, Inc.
5.09. Expenses. In the case of a registration under Section 5.01,
--------
5.02 or 5.03, the Company shall bear all costs and expenses of each such
registration, including, but not limited to, printing, legal and accounting
expenses, Securities and Exchange Commission filing fees and "blue sky" fees and
expenses; provided, however, that the Company shall have no obligation to pay or
-------- -------
otherwise bear (i) any portion of the actual and reasonable fees or
disbursements of more than one counsel for the selling holders of Registrable
Shares in connection with the registration of their
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<PAGE>
Registrable Shares, or (ii) any portion of the underwriters' commissions or
discounts attributable to the Registrable Shares being offered and sold by the
holders of Registrable Shares.
5.10. Certain Exceptions to Registration. The foregoing
----------------------------------
notwithstanding, the Company shall not be required to file a registration
statement requested pursuant to Section 5.02 or Section 5.03 hereof, if: (i)
within ten (10) days from the receipt of any request for such registration it
shall deliver to each holder of Registrable Shares making such request an
opinion of counsel to the Company, which opinion shall be addressed to each such
holder, shall be in form and substance reasonably acceptable to such holder and
which shall be to the effect that such holder may publicly sell all of such
holder's Registrable Shares without restriction, including, without limitation,
restrictions relating to the volume of shares which may be sold, the manner of
any such sales, and (ii) the Company shall immediately upon receipt of the
certificate or certificates for such Registrable Shares issue to the registered
holder thereof a new certificate or certificates without the inscription thereon
of any restrictive legend or legends and shall remove any "stop transfer" orders
which may have been placed against such shares in order to insure compliance
with federal and applicable state securities laws.
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of any
of the Notes when due and such failure shall continue for five (5) business
days; or
(b) The Company shall fail to pay any interest or premium on any of
the Notes when due and such failure shall continue for five (5) business days;
or
(c) The Company shall default in the performance of any covenant
contained in subsections 4.01(j) or (k) and any registered holder of the Notes
shall have given the Company at least five (5) days written notice thereof; or
(d) Any representation or warranty made by the Company or any
Subsidiary in this Agreement or by the Company or any Subsidiary (or any
officers of the Company or any Subsidiary) in any certificate, instrument or
written statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, shall prove to have been incorrect when made in
any material respect; or
(e) The Company or any Subsidiary shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement, the Security
Agreement, the Notes or the Warrants on its part to be performed or observed and
any such failure has not been remedied within thirty (30) days after written
notice thereof shall have been given to the Company by any registered holder of
the Notes; or
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<PAGE>
(f) The Company or any Subsidiary shall fail to pay any Indebtedness
for borrowed money (other than as evidenced by the Notes) owing by the Company
or such Subsidiary (as the case may be), or any interest or premium thereon,
when due (or, if permitted by the terms of the relevant document, within any
applicable grace period), whether such Indebtedness shall become due by
scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise, or shall fail to perform any term, covenant or agreement on its part
to be performed under any agreement or instrument (other than this Agreement or
the Notes) evidencing or securing or relating to any Indebtedness owing by the
Company or any Subsidiary, as the case may be, when required to be performed
(or, if permitted by the terms of the relevant document, within any applicable
grace period), if the effect of such failure to pay or perform is to accelerate,
or to permit the holder or holders of such Indebtedness, or the trustee or
trustees under any such agreement or instrument to accelerate, the maturity of
such Indebtedness, unless such failure to pay or perform shall be waived by the
holder or holders of such Indebtedness or such trustee or trustees; or
(g) The Company or any Subsidiary shall be involved in financial
difficulties as evidenced (i) by its admitting in writing its inability to pay
its debts generally as they become due; (ii) by its commencement of a voluntary
case under Title 11 of the United States Code as from time to time in effect, or
by its authorizing, by appropriate proceedings of its Board of Directors or
other governing body, the commencement of such a voluntary case; (iii) by its
filing an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11, which order is not dismissed or stayed within
sixty (60) days; (v) by its seeking relief as a debtor under any applicable law,
other than said Title 11, of any jurisdiction relating to the liquidation or
reorganization of debtors or to the modification or alteration of the rights of
creditors, or by its consenting to or acquiescing in such relief; (vi) by the
entry of an order by a court of competent jurisdiction (a) finding it to be
bankrupt or insolvent, (b) ordering or approving its liquidation, reorganization
or any modification or alteration of the rights of its creditors, or (c)
assuming custody of, or appointing a receiver or other custodian for, all or a
substantial part of its property; or (vii) by its making an assignment for the
benefit of, or entering into a composition with, its creditors, or appointing or
consenting to the appointment of a receiver or other custodian for all or a
substantial part of its property; or
(h) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company or any Subsidiary and, unless another method of payment has been
agreed to by the adverse party, such judgment, writ, or similar process shall
not be released, vacated or fully bonded within sixty (60) days after its issue
or levy;
then, and in any such event, the Purchaser or any other holder of the Notes may,
by notice to the Company, declare the entire unpaid principal amount of the
Notes, all interest accrued and unpaid thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under subsection
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<PAGE>
6.01(g) in which case all such amounts shall automatically become due and
payable), without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company.
6.02. Annulment of Defaults. Section 6.01 is subject to the
---------------------
condition that, if at any time after the principal of any of the Notes shall
have become due and payable, and before any judgment or decree for the payment
of the moneys so due, or any portion thereof, shall have been entered, all
arrears of interest upon all the Notes and all other sums payable under the
Notes and under this Agreement (except the principal of the Notes which by such
declaration shall have become payable) shall have been duly paid, and every
other default and Event of Default shall have been made good or cured, then and
in every such case the holders of fifty one percent (51%) or more in principal
amount of all Notes then outstanding shall, by written instrument filed with the
Company, rescind and annul such declaration and its consequences; but no such
rescission or annulment shall extend to or affect any subsequent default or
Event of Default or impair any right consequent thereon.
ARTICLE VII
DEFINITIONS AND ACCOUNTING TERMS
7.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Agreement" means this Secured Subordinated Note and Warrant Purchase
Agreement as from time to time amended and in effect between the parties.
"Annual Report" means the 1994 Annual Report of the Company.
"Capital Resource Company Act" shall have the meaning assigned to that
term in Section 1.12.
"Clinton" shall have the meaning assigned to that term in Section
3.01.
"Code" shall have the meaning assigned to that term in Section
4.01(i).
"Company" means and shall include Providence and Worcester Railroad
Company and its successors and assigns.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" includes the Company's Common Stock, $.50 par value per
share, as authorized on the date of this Agreement and any other securities into
which or for which any of such Common Stock may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
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<PAGE>
"Consolidated" and "consolidating" when used with reference to any
term defined herein mean that term as applied to the accounts of the Company and
its Subsidiaries consolidated in accordance with generally accepted accounting
principles.
"Consolidated Net Earnings Available for Interest Charges" means, for
any period, Consolidated Net Income for such period plus the sum of: (a)
interest paid or accrued by the Company and its Subsidiaries with respect to all
Indebtedness for such period, (b) income and excess profit taxes for such period
and all other taxes for such period which are imposed on or measured by income
after deduction of interest charges and (c) amortization deducted in the
determination of Consolidated Net Income for such period.
"Consolidated Net Income" means, for any period, the net income (or
net deficit) of the Company and its Subsidiaries for such period, after all
expenses, taxes and other proper charges, determined in accordance with
generally accepted accounting principles eliminating (i) all intercompany items,
(ii) all earnings attributable to equity interests in Persons that are not
Subsidiaries unless actually received by the Company or its Subsidiaries, (iii)
all income arising from the forgiveness, adjustment or negotiated settlement of
any Indebtedness, and (iv) any increase or decrease of income arising from any
change in the method of accounting for any item from that employed in the
preparation of the financial statements attached hereto as Exhibit 3.08.
------------
"Consolidated Net Worth" means, at any dates, the sum of (a) the par
value of all of the stock of the Company issued and outstanding, (b) the amount
of any additional paid-in-capital and (c)
(i) the positive retained earnings, if any, of the Company and
its Subsidiaries, or
(ii) less, the amount of any deficit in the retained earnings of
the Company and its Subsidiaries
as the same appears on a consolidated balance sheet of the Company and its
Subsidiaries prepared in accordance with generally accepted accounting
principles consistently applied as of such date, after eliminating all
intercompany items and all amounts properly attributable to (1) any write-up in
the book value of any asset resulting from a revaluation thereof after the date
of this Agreement; (2) the amount of any intangible assets including patents,
trademarks, unamortized debt discount and expense, goodwill, covenants and
agreements and the excess of the purchase price paid for assets or stock
acquired over the value assigned thereto on the books of the Company or of the
Subsidiary which shall have acquired the same; (3) earnings attributable to any
other Person unless actually received by the Company or its Subsidiaries; and
(4) changes in the method of accounting.
"Current Liabilities" means all liabilities of any corporation which
would, in accordance with generally accepted accounting principles consistently
applied, be classified as current liabilities of a corporation conducting a
business the same as or similar to that of such corporation, including, without
limitation, all rental payments due under leases required to be capitalized in
accordance with applicable Statements of Financial Accounting Standards and
fixed
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<PAGE>
prepayments of, and sinking fund payments with respect to, Indebtedness
(including Indebtedness evidenced by the Notes), which payments are required to
be made within one year from the date of determination.
"Distribution" shall have the meaning assigned to that term in Section
4.02(g).
"ERISA" shall have the meaning assigned to that term in Section 3.10.
"Events of Default" shall have the meaning assigned to that term in
Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934 or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal Agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Form 10-K" means the Company's Form 10-K for the fiscal year ended
December 31, 1994 as filed with the Commission pursuant to the Exchange Act.
"Form 10-Q" means the Company's Form 10-Q for the quarter ended
September 30, 1995 as filed with the Commission pursuant to the Exchange Act.
"Government Contract" shall have the meaning assigned to that in
Section 3.14.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities, but in
any event including, without limitation, liabilities secured by any mortgage on
property owned or acquired subject to such mortgage, whether or not the
liability secured thereby shall have been assumed, and also including, without
limitation, (i) all guaranties, endorsements and other contingent obligations,
in respect of Indebtedness of others, whether or not the same are or should be
so reflected in said balance sheet, except guaranties by endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business and (ii) the present value of any lease payments due
under leases required to be capitalized in accordance with applicable Statements
of Financial Accounting Standards, determined in accordance with applicable
Statements of Financial Accounting Standards.
"Interest Charges" means the interest expense of the Company and its
Subsidiaries on Indebtedness (including the current portion thereof).
"Notes" shall have the meaning assigned to that term in Section 1.01.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Proxy Statement" means the Proxy Statement of the Company, dated
March 31, 1995, used in connection with its April 26, 1995 annual meeting of
stockholder.
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"Purchaser" means and shall include not only the Massachusetts Capital
Resource Company but also any other holder or holders of any of the Notes or
Warrants.
"Registrable Shares" means and include the shares of Common Stock
issued and issuable upon exercise of the Warrants.
"Securities Act" means the Securities Act of 1933 or any similar
Federal statute, and the rules and regulations of the Securities and Exchange
Commission (or of any other Federal agency then administering the Securities
Act) thereunder, all as the same shall be in effect at the time.
"Security Agreement" shall have the meaning assigned to that term in
Section 2.02(a).
"Senior Debt" shall have the meaning assigned to that term in Section
1.10(h).
"Subsidiary" or "Subsidiaries" means any corporation or trust of which
the Company and/or any of its other Subsidiaries (as herein defined) directly or
indirectly owns at the time all of the outstanding shares of every class of such
corporation or trust other than directors' qualifying shares.
"Warrants" shall have the meaning assigned to that term in Section
1.02.
7.02. Accounting Terms. All accounting terms not specifically
----------------
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of the
financial statements attached hereto as Exhibit 3.08, and all financial data
------------
submitted pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with such principles.
ARTICLE VIII
MISCELLANEOUS
8.01. No Waiver; Cumulative Remedies. No failure or delay on the
------------------------------
part of the Purchaser, or any other holder of the Notes or Warrants in
exercising any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise of any such right, power or
remedy preclude any other or further exercise thereof or the exercise of any
other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
8.02. Amendments, Waivers and Consents. Any provision in this
--------------------------------
Agreement, the Security Agreement, the Notes or the Warrants to the contrary
notwithstanding, changes in or additions to this Agreement may be made, and
compliance with any covenant or provision herein or therein set forth may be
omitted or waived, if the Company (i) shall, in the case of the Notes, obtain
consent thereto in writing from the holder or holders of at least seventy-five
percent (75%) in principal amount of all Notes then outstanding, and (ii) shall,
in the case of the Warrants, obtain the consent thereto in writing from the
holder or holders of at least seventy-five percent (75%) of the Common Stock
issuable upon exercise of the Warrants, provided that no such consent shall be
--------
effective to reduce or to postpone the date fixed for the payment of the
principal (including any
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required redemption) or interest payable on any Note, without the consent of the
holder thereof, or to reduce the percentage of the Notes and Warrants the
consent of the holders of which is required under this Section. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Written notice of any waiver or consent
effected under this subsection shall promptly be delivered by the Company to any
holders who did not execute the same.
8.03. Addresses for Notices, etc. All notices, requests, demands and
--------------------------
other communications provided for hereunder shall be in writing (including
telegraphic communication) and mailed by certified mail, return receipt
requested, or telegraphed or delivered to the applicable party at the addresses
indicated below:
If to the Company:
Providence and Worcester Railroad Company
75 Hammond Street
Worcester, Massachusetts 01610
Attention: President
If to the Purchaser:
Payments should be mailed to:
Massachusetts Capital Resource Company
P. O. Box 3707
Boston, Massachusetts 02241
and all other deliveries and other communications made at or sent to:
Massachusetts Capital Resource Company
420 Boylston Street
Boston, Massachusetts 02116
Attention: President
If to any other holder of the Notes or Warrants: at such holder's
address for notice as set forth in the register maintained by the Company, or,
as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall be deemed to have been duly given on (i) the date of
receipt if delivered by hand or if sent by express carrier service or (ii) the
earlier of the date of receipt and the date of first attempted delivery by the
United States Postal Service if transmitted by mail which shall be by certified
mail, postage prepaid, return receipt requested.
8.04. Costs, Expenses and Taxes. The Company agrees to pay on demand
-------------------------
all costs and expenses of the Purchaser in connection with the preparation,
execution and delivery of this Agreement, the Security Agreement, the Notes, the
Warrants and other instruments and
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documents to be delivered hereunder, including the reasonable fees and out-of-
pocket expenses of Messrs. Testa, Hurwitz & Thibeault, special counsel for the
Purchaser, with respect thereto, as well as the reasonable fees and out-of-
pocket expenses of legal counsel, independent public accountants and other
outside experts reasonably retained by the Purchaser in connection with the
enforcement of this Agreement, the Security Agreement, the Notes, the Warrants
and other instruments and documents to be delivered hereunder or thereunder. In
addition, the Company shall pay any and all stamp and other taxes payable or
determined to be payable in connection with the execution and delivery of this
Agreement, the Security Agreement, the Notes, the Warrants and the other
instruments and documents to be delivered hereunder or thereunder and agrees to
save the Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and filing fees.
8.05. Binding Effect; Assignment. This Agreement shall be binding
--------------------------
upon and inure to the benefit of the Company and the Purchaser and their
respective successors and assigns, except that the Company shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Purchaser.
8.06. Survival of Representations and Warranties. All
------------------------------------------
representations and warranties made in this Agreement, the Security Agreement,
the Notes, the Warrants or any other instrument or document delivered in
connection herewith or therewith, shall survive the execution and delivery
hereof or thereof and the making of the loans.
8.07. Prior Agreements. This Agreement constitutes the entire
----------------
agreement between the parties and supersedes any prior understandings or
agreements concerning the subject matter hereof.
8.08. Severability. The invalidity or unenforceability of any
------------
provision hereof shall in no way affect the validity or enforceability of any
other provision.
8.09. Governing Law. This Agreement shall be governed by, and
-------------
construed in accordance with, the laws of the Commonwealth of Massachusetts.
8.10. Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
8.11. Sealed Instrument. This Agreement is executed as an instrument
-----------------
under seal.
8.12. Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
8.13. Further Assurances. From and after the date of this Agreement,
------------------
upon the request of the Purchaser, the Company and each Subsidiary shall execute
and deliver such instruments, documents and other writings as may be necessary
or desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement, the Security Agreement, the Notes and the Warrants.
-37-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
By /S/ Orville R. Harrold
---------------------------------------------
Orville R. Harrold, President
MASSACHUSETTS CAPITAL RESOURCE COMPANY
By /S/ Richard W. Anderson
---------------------------------------------
Richard W. Anderson, Senior Vice President
-38-
<PAGE>
Exhibit 1.01
------------
The Note represented by this certificate has not been registered under the
Securities Act of 1933, as amended. This Note cannot be offered or sold except
pursuant to a registration statement under the Act, or an exemption from
registration under such Act.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
SECURED SUBORDINATED NOTE DUE 2005
$5,000,000 December 19, 1995
For value received, Providence and Worcester Railroad Company, a Rhode
Island corporation (the "Company"), hereby promises to pay to Massachusetts
Capital Resource Company or registered assigns (hereinafter referred to as the
"Payee"), on or before December 31, 2005, the principal sum of Five Million
Dollars ($5,000,000) or such part thereof as then remains unpaid, to pay
interest from the date hereof on the whole amount of said principal sum
remaining from time to time unpaid at the rate of ten percent (10%) per annum,
such interest to be payable quarterly on the last day of March, June, September
and December in each year, the first such payment to be due and payable on
December 31, 1995, until the whole amount of the principal hereof remaining
unpaid shall become due and payable, and to pay interest at the rate of fourteen
percent (14%) (so far as the same may be legally enforceable) on all overdue
principal (including any overdue required redemption), premium and interest.
Principal, premium, if any, and interest shall be payable in lawful money of the
United States of America, in immediately available funds, at the principal
office of the Payee or at such other place as the legal holder may designate
from time to time in writing to the Company. Interest shall be computed on the
basis of a 360-day year and a 30-day month.
This Note is issued pursuant to and is entitled to the benefits of a
certain Secured Subordinated Note and Warrant Purchase Agreement, dated as of
December 19, 1995, between the Company and Massachusetts Capital Resource
Company (as the same may be amended from time to time, hereinafter referred to
as the "Agreement"), and each holder of this Note, by his acceptance hereof,
agrees to be bound by the provisions of the Agreement, including, without
limitation, that (i) this Note is subject to prepayment, in whole or in part, as
specified in said Agreement, (ii) the principal of and interest on this Note is
subordinated to Senior Debt, as defined in the Agreement and (iii) in case of an
Event of Default, as defined in the Agreement, the principal of this Note may
become or may be declared due and payable in the manner and with the effect
provided in the Agreement.
As further provided in the Agreement, upon surrender of this Note for
transfer or exchange, a new Note or new Notes of the same tenor dated the date
to which interest has been paid on the surrender Note and in an aggregate
principal amount equal to the unpaid principal amount of the Note so surrendered
will be issued to, and registered in the name of, the transferee or transferees.
The Company may treat the person in whose name this Note is registered as the
owner hereof for the purpose of receiving payment and for all other purposes.
-39-
<PAGE>
This Note is secured by and entitled to the benefits of a certain
Security Agreement (as that term is defined in the Agreement), dated December
19, 1995, from the Company to Massachusetts Capital Resource Company.
In case any payment herein provided for shall not be paid when due,
the Company promises to pay all cost of collection, including all reasonable
attorney's fees.
This Note shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts and shall have the effect of a sealed
instrument.
The Company and all endorsers and guarantors of this Note hereby waive
presentment, demand, notice of nonpayment, protest and all other demands and
notices in connection with the delivery, acceptance, performance or enforcement
of this Note.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
By:_____________________________________________
Orville R. Harrold, President
[Corporate Seal]
Attest:
By:_________________________
Its
4GWT140358-1
-40-
<PAGE>
Exhibit 1.02
------------
The Warrant represented by this certificate and the securities issuable upon
exercise hereof have not been registered under the Securities Act of 1933, as
amended. Neither the Warrant nor such securities can be offered or sold except
pursuant to a registration statement under the Act, or an exemption from
registration under such Act.
No. W-1 Right to Purchase 200,000 Shares of
Common Stock of Providence and
Worcester Railroad Company
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Common Stock Purchase Warrant
PROVIDENCE AND WORCESTER RAILROAD COMPANY, a Rhode Island corporation
(the "Company"), hereby certifies that, for value received Massachusetts Capital
Resource Company, or assigns, is entitled, subject to the terms set forth below,
to purchase from the Company at any time or from time to time before 5:00 P.M.,
Boston time, on December 31, 2005, or such later time as may be specified in
Section 17 hereof, 200,000 fully paid and nonassessable shares of Common Stock,
$.50 par value, of the Company, at a purchase price per share of $7.10 (such
purchase price per share as adjusted from time to time as herein provided is
referred to herein as the "Purchase Price"). The number and character of such
shares of Common Stock and the Purchase Price are subject to adjustment as
provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants") evidencing the right to purchase shares of Common Stock of the
Company, issued pursuant to a certain Secured Subordinated Note and Warrant
Purchase Agreement (the "Agreement"), dated as of December 19, 1995, between the
Company and Massachusetts Capital Resource Company, a copy of which is on file
at the principal office of the Company and the holder of this Warrant shall be
entitled to all of the benefits of the Agreement, as provided therein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Providence and Worcester
Railroad Company and any corporation which shall succeed or assume the
obligations of the Company hereunder.
(b) The term "Common Stock" includes the Company's Common Stock,
$.50 par value per share, as authorized on the date of the Agreement and
any other securities into which or for which any of such Common Stock may
be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
<PAGE>
(c) The term "Other Securities" refers to any stock (other than
Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holders of the Warrants at any time
shall be entitled to receive, or shall have received, on the exercise of
the Warrants, in lieu of or in addition to Common Stock, or which at any
time shall be issuable or shall have been issued in exchange for or in
replacement of Common Stock or Other Securities pursuant to section 5 or
otherwise.
1. Exercise of Warrant.
-------------------
1.1. Full Exercise. This Warrant may be exercised in full by the
-------------
holder hereof by surrender of this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect.
1.2. Partial Exercise. This Warrant may be exercised in part by
----------------
surrender of this Warrant in the manner and at the place provided in subsection
1.1 except that the amount payable by the holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Purchase Price then in effect. On any such partial exercise the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
1.3. Payment by Notes Surrender. Notwithstanding the payment
--------------------------
provisions of subsections 1.1 and 1.2, all or part of the payment due upon
exercise of this Warrant in full or in part may be made by the surrender by such
holder to the Company of any of the Company's Notes issued pursuant to the
Agreement and such Notes so surrendered shall be credited against such payment
in an amount equal to the principal amount thereof plus premium (if any) and
accrued interest to the date of surrender.
1.4 Net Issue Election. The holder hereof may elect to receive,
------------------
without the payment by such holder of any additional consideration, shares equal
to the value of this Warrant or any portion hereof by the surrender of this
Warrant or such portion to the Company, with the form of subscription at the end
hereof duly executed by such holder, at the office of the Company. Thereupon,
the Company shall issue to such holder such number of fully paid and
nonassessable shares of Common Stock as is computed using the following formula:
X = Y (A-B)
-------
A
where X = the number of shares to be issued to such holder pursuant to this
subsection 1.4.
<PAGE>
Y = the number of shares covered by this Warrant in respect of which
the net issue election is made pursuant to this subsection 1.4.
A = the fair market value (as hereinafter defined) of one share of
Common Stock, as determined in good faith by the Board of Directors of the
Company, as at the time the net issue election is made pursuant to this
subsection 1.4.
B = the Purchase Price in effect under this Warrant at the time the
net issue election is made pursuant to this subsection 1.4.
For the purposes of this section 1.4, "fair market value" shall mean (i) the
average (on the date the net issue election is made) of the high and low prices
of the Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sales price (on that date) of the
Common Stock on the Nasdaq National Market, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common stock is not reported on
the Nasdaq National Market. If the Common Stock is not publicly traded at such
date, "fair market value" shall mean the fair value of the Common Stock as
determined in good faith by the Board of Directors of the Company after taking
into consideration all factors which they deem appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length. The Board of Directors of the Company
shall promptly respond in writing to an inquiry by the holder hereof as to the
fair market value of one share of Common Stock.
1.5. Required Exercise in Certain Events. In the event that the
-----------------------------------
Company shall, on or after that date of the Agreement, effect a firm commitment
underwritten public offering of shares of its Common Stock in which (i) the
aggregate gross proceeds to the Company shall be at least $10,000,000 and (ii)
the price per share to the public shall be at least $14.20 , then, in such
event, to the extent that the holder of this Warrant is also the holder of one
or more of the Notes, the outstanding principal amount and all accrued, but
unpaid, interest on such Notes shall be used to the maximum extent available to
exercise this Warrant, such exercise to be effective as of the closing of such
public offering; provided, however, that such required exercise shall occur
only: (i) to the extent that the shares of Common Stock issued upon such
exercise are included in the registration statement for such underwritten public
offering, or (ii) the shares of Common Stock issued upon such exercise may be
freely sold by the holder hereof pursuant to subsection (k) of Rule 144 under
the Securities Act of 1933, as amended.
1.6. Company Acknowledgment. The Company will, at the time of the
----------------------
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
<PAGE>
1.7. Trustee for Warrant Holders. In the event that a bank or trust
---------------------------
company shall have been appointed as trustee for the holders of the Warrants
pursuant to subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to section 12 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
section 1.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
-------------------------------------------------
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
--------------------------------------------------------
Reclassification, etc. In case at any time or from time to time, the holders of
- ---------------------
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in subsection 5.4), then and in each such case the holder of this Warrant,
on the exercise hereof as provided in section 1, shall be entitled to receive
the amount of stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this section 3) which such
holder would hold on the date of such exercise if on the date hereof he had been
the holder of record of the number of shares of Common Stock called for on the
face of this Warrant and had thereafter, during the period from the date hereof
to and including the date of such exercise, retained such shares and all such
other or additional stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this section 3) receivable
by him as aforesaid during such period, giving effect to all adjustments called
for during such period by sections 4 and 5.
<PAGE>
4. Adjustment for Reorganization, Consolidation, Merger, etc.
---------------------------------------------------------
4.1. In case at any time or from time to time, the Company shall (a)
effect a reorganization, (b) consolidate with or merge into any other person, or
(c) transfer all or substantially all of its properties or assets to any other
person under any plan or arrangement contemplating the dissolution of the
Company, then, in each such case, the holder of this Warrant, on the exercise
hereof as provided in section 1 at any time after the consummation of such
reorganization, consolidation or merger or the effective date of such
dissolution, as the case may be, shall receive, in lieu of the Common Stock (or
Other Securities) issuable on such exercise prior to such consummation or such
effective date, the stock and other securities and property (including cash) to
which such holder would have been entitled upon such consummation or in
connection with such dissolution, as the case may be, if such holder had so
exercised this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in sections 3 and 5.
4.2. Dissolution. In the event of any dissolution of the Company
-----------
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this section 4 to a bank or trust company having
its principal office in Boston, Massachusetts, as trustee for the holder or
holders of the Warrants.
4.3. Continuation of Terms. Upon any reorganization, consolidation,
---------------------
merger or transfer (and any dissolution following any transfer) referred to in
this section 4, this Warrant shall continue in full force and effect and the
terms hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in section 6.
5. Adjustment for Issue or Sale of Common Stock at Less Than the
-------------------------------------------------------------
Purchase Price in Effect.
- ------------------------
5.1. General. If the Company shall at any time or from time to time,
-------
issue any additional shares of Common Stock (other than shares of Common Stock
excepted from the provisions of this section 5 by subsections 5.4 and 5.5)
without consideration or for a net consideration per share less than the
Purchase Price in effect immediately prior to such issuance, then, and in each
such case: (a) the Purchase Price shall be lowered to an amount determined by
multiplying such Purchase Price then in effect by a fraction:
(1) the numerator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, plus (b) the number of shares of Common
Stock which the net aggregate consideration, if any, received by the
Company for the total number of such additional
<PAGE>
shares of Common Stock so issued would purchase at the Purchase Price in
effect immediately prior to such issuance, and
(2) the denominator of which shall be (a) the number of shares
of Common stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (b) the number of such additional
shares of Common Stock so issued;
and (b) the holder of this Warrant shall thereafter, on the exercise hereof as
provided in section 1, be entitled to receive the number of shares of Common
stock determined by multiplying the number of shares of Common Stock which would
otherwise (but for the provisions of this subsection 5.1) be issuable on such
exercise by the fraction of which (i) the numerator is the Purchase Price which
would otherwise (but for the provisions of this subsection 5.1) be in effect,
and (ii) the denominator is the Purchase Price in effect on the date of such
exercise.
5.2. Definitions, etc. For purposes of this section 5 and of
----------------
section 7:
The issuance of any warrants, options or other subscription or
purchase rights with respect to shares of Common Stock and the issuance of
any securities convertible into or exchangeable for shares of Common Stock
(or the issuance of any warrants, options or any rights with respect to
such convertible or exchangeable securities) shall be deemed an issuance at
such time of such Common Stock if the Net Consideration Per Share which may
be received by the Company for such Common Stock (as hereinafter
determined) shall be less than the Purchase Price at the time of such
issuance and, except as hereinafter provided, an adjustment in the Purchase
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made upon each such issuance in the manner provided
in subsection 5.1. Any obligation, agreement or undertaking to issue
warrants, options, or other subscription or purchase rights at any time in
the future shall be deemed to be an issuance at the time such obligation,
agreement or undertaking is made or arises. No adjustment of the Purchase
Price and the number of shares of Common Stock issuable upon exercise of
this Warrant shall be made under subsection 5.1 upon the issuance of any
shares of Common Stock which are issued pursuant to the exercise of any
warrants, options or other subscription or purchase rights or pursuant to
the exercise of any conversion or exchange rights in any convertible
securities if any adjustment shall previously have been made upon the
issuance of any such warrants, options or other rights or upon the issuance
of any convertible securities (or upon the issuance of any warrants,
options or any rights therefor) as above provided. Any adjustment of the
Purchase Price and the number of shares of Common Stock issuable upon
exercise of this Warrant with respect to this subsection 5.2 which relates
to warrants, options or other subscription or purchase rights with respect
to shares of Common Stock shall be disregarded if, as, and when all of such
warrants, options or other subscription or purchase rights expire or are
cancelled without being exercised, so that the Purchase Price effective
immediately upon such cancellation or expiration shall be equal to the
Purchase Price in effect at the time of the issuance of the expired or
cancelled warrants, options or other subscriptions or purchase rights, with
such additional adjustments as would have been made to that Purchase Price
had the expired or cancelled warrants, options or other subscriptions or
purchase rights not been issued. For purposes
<PAGE>
of this subsection 5.2, the "Net Consideration Per Share" which may be
received by the Company shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the amount
equal to the total amount of consideration, if any, received by the
Company for the issuance of such warrants, options, subscriptions, or
other purchase rights or convertible or exchangeable securities, plus
the minimum amount of consideration, if any, payable to the Company
upon exercise or conversion thereof, divided by the aggregate number
of shares of Common Stock that would be issued if all such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities were exercised, exchanged or converted.
(B) The "Net Consideration Per Share" which may be received
by the Company shall be determined in each instance as of the date of
issuance of warrants, options, subscriptions or other purchase rights,
or convertible or exchangeable securities without giving effect to any
possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or
other purchase rights or convertible securities.
For purposes of this section 5, if a part or all of the consideration
received by the Company in connection with the issuance of shares of the
Common Stock or the issuance of any of the securities described in this
section 5, consists of property other than cash, such consideration shall
be deemed to have the same value as shall be determined in good faith by
the Board of Directors of the Company.
This subsection 5.2 shall not apply under any of the circumstances
described in subsections 5.4 and 5.5.
5.3. Dilution in Case of Other Securities. In case any Other
------------------------------------
Securities shall be issued or sold, or shall become subject to issue upon the
conversion or exchange of any stock (or Other Securities) of the Company (or any
other issuer of Other Securities or any other person referred to in section 4)
or to subscription, purchase or other acquisition pursuant to any rights or
options granted by the Company (or such other issuer or person), for a
consideration per share such as to dilute the purchase rights evidenced by this
Warrant, the computations, adjustments and readjustments provided for this
section 5 with respect to the Purchase Price and the number of shares of Common
Stock issuable upon exercise of this Warrant shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable on the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
5.4. Extraordinary Events. In the event that the Company shall (i)
--------------------
issue additional shares of the Common Stock as a dividend or other distribution
on outstanding Common Stock, (ii) subdivide its outstanding shares of Common
Stock, or (iii) combine its outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock, then, in each such event, the
Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of
-47-
<PAGE>
shares of Common Stock outstanding immediately prior to such event and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately after such event, and the product so obtained shall thereafter be
the Purchase Price then in effect. The Purchase Price, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive event or
events described herein in this subsection 5.4. The holder of this Warrant shall
thereafter, on the exercise hereof as provided in section 1, be entitled to
receive that number of shares of Common Stock determined by multiplying the
number of shares of Common Stock which would otherwise (but for the provisions
of this subsection 5.4) be issuable on such exercise by a fraction of which (i)
the numerator is the Purchase Price which would otherwise (but for the
provisions of this subsection 5.4) be in effect, and (ii) the denominator is the
Purchase Price in effect on the date of such exercise.
5.5 Excluded Shares. Subsection 5.1 shall not apply to: (i) the
---------------
issuance of shares of Common Stock, or options therefor, to directors, officers
and employees of the Company pursuant to the Company's Stock Option Plan, Profit
Sharing Plan and Supervisors Incentive Plan, as long as the aggregate number of
shares, and options therefor (including options outstanding on the date of the
Agreement) so issued does not exceed the number of shares authorized, or which
could be issued, under such plans on the date of the Agreement or (ii) the
issuance of shares of Common Stock pursuant to that certain Settlement
Agreement, dated December 12, 1995, between the Company and CPC International,
Inc.
6. No Dilution or Impairment. The Company will not, by amendment of
-------------------------
its Articles of Organization or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Warrants, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of all Warrants from time to
time outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets,
and (d) will not transfer all or substantially all of its properties and assets
to any other person (corporate or otherwise), or consolidate with or merge into
any other person or permit any such person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other person
shall expressly assume in writing and will be bound by all the terms of the
Warrants.
7. Accountants' Certificate as to Adjustments. In each case of any
------------------------------------------
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of the Warrants, the Company at its expense will
promptly cause independent certified public accountants of recognized standing
selected by the Company to compute such adjustment or readjustment in accordance
with the terms of the Warrants and prepare a certificate setting forth
-48-
<PAGE>
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
as provided in this Warrant. The Company will forthwith mail a copy of each such
certificate to each holder of a Warrant, and will, on the written request at any
time of any holder of a Warrant, furnish to such holder a like certificate
setting forth the Purchase Price at the time in effect and showing how it was
calculated.
8. Notices of Record Date, etc. In the event of
---------------------------
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution (other than
dividends payable solely out of earnings or earned surplus of the Company),
or any right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive any
other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities (other than the issue of Common Stock on the
exercise of the Warrants and the issuance of securities referred to in
subsection 5.5 of the Warrants),
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant and the persons or class of persons to whom such proposed issue or grant
is to be offered or made. Such
-49-
<PAGE>
notice shall be mailed at least 20 days prior to the date specified in such
notice on which any such action is to be taken.
9. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
------------------------------------------------------------
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrants.
10. Exchange of Warrants. Subject to compliance with federal and
--------------------
applicable state securities laws, on surrender for exchange of any Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant or Warrants of
like tenor, in the name of such holder or as such holder (on payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate on
the face or faces thereof for the number of shares of Common Stock called for on
the face or faces of the Warrant or Warrants so surrendered.
11. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
12. Warrant Agent. The Company may, by written notice to each holder
-------------
of a Warrant, appoint an agent having an office in either Boston, Massachusetts,
Providence, Rhode Island or New York, New York for the purpose of issuing Common
Stock (or Other Securities) on the exercise of the Warrants pursuant to section
1, exchanging Warrants pursuant to section 10, and replacing Warrants pursuant
to section 11, or any of the foregoing, and thereafter any such issuance,
exchange or replacement, as the case may be, shall be made at such office by
such agent.
13. Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
14. Negotiability, etc. This Warrant is issued upon the following
------------------
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) subject to compliance with federal and applicable state
securities laws, title to this Warrant may be transferred by endorsement
(by the holder hereof executing the form of assignment at the end hereof)
and delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed
is authorized to represent himself as absolute owner hereof and is
empowered to transfer
-50-
<PAGE>
absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces
all of his equities or rights in this Warrant in favor of each such bona
fide purchaser, and each such bona fide purchaser shall acquire absolute
title hereto and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder hereof as the absolute
owner hereof for all purposes, notwithstanding any notice to the contrary.
15. Notices, etc. All notices and other communications from the
------------
Company to the holder of this Warrant shall be mailed by first class registered
or certified mail, postage prepaid, at such address as may have been furnished
to the Company in writing by such holder or, until any such holder furnishes to
the Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
16. Miscellaneous. This Warrant and any term hereof may be changed,
-------------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of the Commonwealth of Massachusetts. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. This Warrant is being executed as an instrument
under seal. The invalidity or unenforceability of any provision hereof shall in
no way affect the validity or enforceability of any other provision.
17. Expiration; Automatic Exercise. The right to exercise this
------------------------------
Warrant shall expire at 5:00 P.M., Boston time, on the later of (i) December 31,
2005 or (ii) at such time as all principal and interest on the Notes (as defined
in the Agreement) is paid in full. Notwithstanding the foregoing, this Warrant
shall automatically be deemed to be exercised in full pursuant to the provisions
of subsection 1.4 hereof, without any further action on behalf of the holder
hereof, immediately prior to the time this Warrant would otherwise expire
pursuant to the preceding sentence.
Dated: December 19, 1995 PROVIDENCE AND WORCESTER RAILROAD COMPANY
By_______________________________________
Orville R. Harrold, President
[Corporate Seal]
Attest:
By ________________________________
Its
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<PAGE>
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO PROVIDENCE AND WORCESTER RAILROAD COMPANY
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, ........ shares
of Common Stock of PROVIDENCE AND WORCESTER RAILROAD COMPANY and herewith makes
payment of $........ therefor, and requests that the certificates for such
shares be issued in the name of, and delivered to .............., whose address
is ...................
Dated:
..................................................
(Signature must conform to name of holder as
specified on the face of the Warrant)
..................................................
(Address)
____________________
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and
transfers unto .................. the right represented by the within Warrant to
purchase ............. shares of Common Stock of PROVIDENCE AND WORCESTER
RAILROAD COMPANY to which the within Warrant relates, and appoints
.......................... Attorney to transfer such right on the books of
PROVIDENCE AND WORCESTER RAILROAD COMPANY with full power of substitution in the
premises.
Dated:
..................................................
(Signature must conform to name of holder as
specified on the face of the Warrant)
..................................................
(Address)
Signed in the presence of:
...........................
-52-
<PAGE>
EXHIBIT 10.2
SETTLEMENT AGREEMENT AND RELEASE
This Settlement Agreement and Release (the "Agreement") is entered into this
12th day of December 1995, by CPC International Inc., a Delaware Corporation
(hereinafter "CPC"), and the Providence and Worcester Railroad Company, a Rhode
Island Corporation (hereinafter "P&W").
W I T N E S S E T H
-------------------
WHEREAS, CPC has alleged certain claims against P&W arising out of the
release of a hazardous substance as defined under the Comprehensive
Environmental Response, Compensation, and Liability Act 42 U.S.C.A. 9601 et seq.
("CERCLA") on property formerly owned by CPC's subsidiary company Peterson
Puritan Inc. located in Cumberland, Rhode Island ("the Property") which the U.S.
Environmental Protection Agency (the "EPA") has designated as a portion of a
Superfund site and which includes the Property on the National Priority List
known as the Peterson/Puritan Superfund Site (hereinafter "the Site") and has
further designated the area affected by this release as Operable Unit 1 ("OU-
1"); and
WHEREAS, the EPA has identified the solid and hazardous wastes,
substances, pollutants and contaminants within the CCL Remediation Area of OU-1
in that Record of Decision executed September 30, 1993 for OU-1 by Paul Keough,
Acting Regional Administrator (hereinafter the "Contamination"); and,
WHEREAS, as a result of the action by the EPA, CPC as an indemnitor of
the present owner of the Property which is the successor to Peterson Puritan
Inc., has expended and will continue to expend considerable sums of money for
the remediation of the Property as directed by the EPA under certain
Administrative Orders and Consent Decree as from time to time modified by the
EPA (the"Work"); and
WHEREAS, P&W denies responsibility and liability for any of the claims
for which CPC seeks recovery; and
WHEREAS, CPC and P&W wish to settle the claims without any admissions
of liability and in order to avoid the expense and uncertainty of litigation:
NOW, THEREFORE, CPC and P&W, intending to be legally bound hereby and
in consideration of the foregoing and the mutual exchange of promises as recited
herein, as well as other good and valuable consideration, receipt of which is
hereby acknowledged, agree as follows:
1 . (a) In accordance with the terms and conditions of this Agreement
P&W shall issue and deliver to CPC an aggregate number of shares of P&W voting
common stock, $0.50 par value per share, (the "Initial CPC Shares") which, after
giving effect to the issuance and delivery thereof, represents five (5) percent
of
<PAGE>
the issued and outstanding shares of such class (within the meaning of Section
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act') and the rules
and regulations thereunder) (but in no event will the value attributed to the
Initial CPC Shares, as determined in accordance with Section 1(c) hereof, exceed
$990,000). The Initial CPC Shares shall be delivered in two installments, one
for approximately 50% of the Initial CPC Shares in December, 1995 (but no later
than December 31, 1995) and the second for approximately 50% of the Initial CPC
Shares in January, 1996 (but no later than January 6, 1996).
(b) On the earlier of (i) June 30, 1999 or (ii) the closing date of
any registered public offering by P&W of its own shares for its own account
(other than a registration relating to stock option plans or employee benefit
plans and similar plans) which, after giving pro forma effect to the closing
--- ------
thereof and CPC's acquisition of Additional CPC Shares (as defined below), would
not result in CPC being subjected to a reporting obligation under Section 13(d)
of the Exchange Act or any successor provision (the earlier of such dates is
hereinafter referred to as the "Deferred Payment Date"), P&W will pay to CPC
additional consideration (the "Additional Consideration") having a value,
expressed in dollar terms, equal to the difference (the "Difference") between
(A) $990,000 and (B) the value of the Initial CPC Shares (as determined in
accordance with Section 1 (c) hereof). The Additional Consideration shall be
paid, at the option of P&W, in the form of either (aa) cash in the amount of the
Difference, plus interest thereon at the rate of 8.75% per annum from the date
for delivery of the second installment of the Initial CPC Shares through the
date of such cash payment or (bb) the issuance and delivery to CPC of additional
shares of P&W voting common stock, $0.50 par value per share, (the "Additional
CPC Shares") having a value (as determined in accordance with Section. 1 (c)
hereof) equal to the Difference. Notwithstanding anything to the contrary
contained in this paragraph (b) of this Section 1: (A) if P&W elects to pay the
Additional Consideration in the form of Additional CPC Shares, and if by so
doing CPC would thereby be subjected to a reporting obligation under Section
13(d) of the Exchange Act or any successor provision, the issuance and delivery
of such portion of the Additional CPC Shares which would otherwise subject CPC
to such reporting obligation shall automatically, and without any action on the
part of CPC or P&W, be deferred until the first anniversary of the Deferred
Payment Date and (B) if P&W elects to pay the Additional Consideration in the
form of additional CPC Shares, and if between the date for delivery of the
second installment of the Initial CPC Shares and the date for delivery of the
Additional CPC Shares, P&W shall undergo or suffer a stock split, stock
dividend, combination of shares, recapitalization, merger, consolidation or
other reorganization, then the term "Additional CPC Shares" shall mean and refer
to, and CPC shall be entitled to receive, such securities or other consideration
as would have been received by CPC as a result of such stock split, stock
dividend, combination of shares, recapitalization, merger, consolidation or
other reorganization had it owned the Additional CPC Shares at the time thereof.
(c) For the purposes of this Section 1, the CPC Shares shall be deemed
to have a market value equal to the average of the last reported sale price per
share of
2
<PAGE>
P&W's common stock on the NASD National Market System over the thirty (30)
trading days next preceding: (i) in the case of any of the Initial CPC Shares,
the date of Delivery (as hereinafter defined) thereof and (ii) in the case of
any of the Additional CPC Shares, the date for Delivery of the second
installment of the Initial CPC Shares. The parties recognize [(i)] that the
share values so determined do not reflect the fact that the shares are
restricted and are otherwise not readily salable; and (ii) that delivery of a
portion of the Initial CPC Shares has been deferred as an accommodation to P&W.
The term "Delivery", with respect to any CPC Shares, shall mean the date on
which P&W issues direction to its transfer agent to issue such CPC Shares.
(d) As used in this Agreement, the term "CPC Shares" shall mean and
refer to both the Initial CPC Shares and the Additional CPC Shares.
(e) In connection with the issuance and sale of the CPC Shares, P&W
shall deliver to CPC stock certificates registered in the name of CPC, free of
any restrictive legend except the following:
"The shares represented hereby have not been registered under the
Securities Act of 1933, as amended, or under state securities laws. The
holder hereof has represented to the issuer that it has acquired the
securities for investment and not with a view to resale or distribution,
and they have been issued in reliance on that representation. Such shares
may, therefore, not be sold, transferred, pledged or hypothecated unless
they have been registered under said Act and state securities laws or
unless counsel satisfactory to the Company has given an opinion that
registration is not required."
Concurrently with the delivery of the Initial CPC Shares, CPC shall
execute and deliver to P&W an "investment letter" in form satisfactory to P&W
and CPC and their respective counsel.
P&W covenants that, with respect to the Initial CPC Shares, until the
third (3rd) anniversary of the date upon which all of the Initial CPC Shares
have been delivered to CPC, and, with respect to any Additional CPC Shares,
until the third (3rd) anniversary of the date upon which all of such Additional
CPC Shares have been delivered to CPC, and for so long thereafter as P&W has
outstanding securities registered under the Securities Exchange Act of 1934 (the
"Exchange Act"), P&W will take such action and timely file all reports required
to be filed by it under the Exchange Act and the rules and regulations adopted
by the Securities and Exchange Commission (the "Commission") thereunder, to the
extent necessary to meet the public information requirements of Rule 144 under
the Securities Act of 1933.
2. P&W will negotiate and execute Access Agreements and
Institutional Controls required by EPA in connection with Work to be performed
pursuant to the OU-1 Consent Decree. Such agreements shall provide that P&W
will waive all Railway Protective Insurance required to undertake the EPA
mandated remediation at the OU-1
3
<PAGE>
Site and P&W will provide flagmen and other required safety personnel at its own
costs for the protection of railroad traffic. Further P&W will be responsible
for all other costs, if any, associated with access to and use of P&W property
which are required for safety restrictions because of the proximity of the Work
to the track, or otherwise in order to implement and monitor the Work (not to
include capital costs associated with implementation and monitoring of the
Work).
3. In the event of a recovery by way of litigation or settlement
(hereinafter "the Recovery") by CPC against the NORTHBROOK EXCESS & SURPLUS
INSURANCE COMPANY (hereinafter "Northbrook") in that litigation entitled CPC
---
International Inc. v. Northbrook Excess & Surplus Insurance Company, C. A. No.
- ---------------------------------------------------------------------
89-0211 L, presently pending in the U.S Court of Appeals or any further
insurance claim (including actions against Northbrook, its successors or
assigns) brought by CPC relating to the Contamination (hereinafter "the
Litigation") P&W shall be entitled to ten percent (10%) of the Recovery. The
Recovery shall be calculated after all unreimbursed out of pocket Litigation
related expenses (to include outside attorneys fees, consultants and expert
witness fees, and other expenses directly related to the Litigation) are
subtracted.
4. In sole consideration of P&W's performance (as and when the same
are to be performed hereunder) and non-breach of its obligations and agreements
under this Agreement, CPC for itself and its successors and assigns hereby:
(A) Agrees to defend, indemnify and hold harmless P&W, its past,
present and future officers, directors, shareholders, affiliates, attorneys,
agents, servants, representatives, subsidiaries, affiliates, partners,
predecessors, successors, assigns, for any and all past, present or future
claims (including without limitation, personal injury, property damage or any
other type of claim), demands, obligations, actions, causes of action, damages,
penalties, fines, costs, expenses, including attorneys fees and consultants'
costs, or compensation of any nature whatever (including those which may be
subrogated) whether known or unknown both in law and in equity which arise from
the Contamination (collectively "Claims") including but not limited to, those
arising from the failure of CPC to comply with the proposed Consent Decree and
Statement of Work attached thereto as lodged in the U.S. District Court for the
District of Rhode Island in that matter entitled United States of America v.
Lonza et al Civil Action Number 95-397 and signed by the EPA Region 1
Administrator John DeVillars on July 25 1995, or otherwise in any administrative
agency, or in any state, federal or other court or tribunal brought by any
person or entity, private or governmental, whether asserted directly, by way of
defense or set-off or recoupment, or otherwise, including, but not limited to,
Claims of the EPA, CCL Custom Manufacturing, Inc., its successors and assigns,
the State of Rhode Island and any agency or department thereof, any insurer of
CPC, or its affiliates, any abutting property owner, or any other third party;
4
<PAGE>
(B) Completely releases and forever discharges P&W, its past, present
and future officers, directors, shareholders, affiliates, attorneys, agents,
servants, representatives, subsidiaries, affiliates, partners, predecessors,
successors and assigns (all of the foregoing being collectively referred to
below as the P&W Releasees") of and from any and all past, present or future
claims, demands, obligations, actions, causes of action, damages, costs,
expenses or compensation of any nature whatsoever (including those which may be
subrogated), whether known or unknown, both in law and equity, for P&W's actions
or the actions of any P&W Releasees undertaken prior to execution of this
Agreement which CPC, and its present affiliates, subsidiaries, successors and
assigns ever had, now has or may hereafter have as a result of any of the facts
or circumstances alleged and arising out of the Contamination; and
(C) Covenants never to assert any complaint, charge or claim, file
suit in a court of law, or commence any other proceeding against any of the P&W
Releasees for actions undertaken by any P&W Releasees prior to execution of this
Agreement which CPC or its successors and assigns ever had, now has or may
hereafter have as a result of any of the facts or circumstances alleged or
arising out of the Contamination.
5. P&W, for itself and its successors and assigns:
(A) Completely releases and forever discharges CPC, its past, present
and future officers, directors, shareholders, affiliates, attomeys, agents,
servants, representatives, subsidiaries, affiliates, partners, predecessors,
successors and assigns (all of the foregoing being collectively referred to
below as the CPC Releasees") of and from any and all past, present or future
claims, demands, obligations, actions, causes of action, damages, costs,
expenses or compensation of any nature whatsoever (including those which may be
subrogated), whether known or unknown, both in law and equity, for CPC's actions
or the actions of any CPC Releasees undertaken prior to execution of this
Agreement which P&W, its present and former affiliates and subsidiaries, and
their successors and assigns, ever had, now has or may hereafter have as a
result of any of the facts or circumstances alleged and arising out of the
Contamination; and
(B) Covenants never to assert any complaint, charge or claim, file
suit in a court of law, or commence any other proceeding against any of the CPC
Releasees for actions undertaken by any CPC Releasee prior to execution of this
Agreement which any of the P&W Releasees ever had, now has or may hereafter have
as a result of any of the facts or circumstances alleged and arising out of the
contamination.
6. Nothing herein shall be deemed to release any representations,
warranties or obligations of the parties made, undertaken or required pursuant
to this Agreement.
5
<PAGE>
7. P&W hereby represents and warrants to CPC as follows: (a) as of
November 10, 1995, the authorized capital stock of P&W consists of 2,273,436
shares of P&W common stock, par value $.50 per share, of which at November 10,
1995, 2,054,620 shares were issued and outstanding; (b) P&W has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby; (c) the execution, delivery and performance of
this Agreement by P&W have been duly authorized by P&W's Board of Directors, and
no other corporate proceedings on the part of P&W are necessary to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby; (d) each of the CPC Shares will be validly
issued when delivered, fully paid and non-assessable and, when delivered, will
be free and clear of any claims, liens, pledges, charges, encumbrances,
mortgages, security interests, options, restrictions on transfer (except those
imposed by the federal and state securities laws and this Agreement), rights of
first refusal, preemptive or other rights or any other imperfections of title
whatsoever; (e) all of P&W's filings with the Commission are current and conform
to the disclosure requirements of the federal securities laws in all material
respects; (f) P&W has delivered to CPC true and complete copies of all of P&W's
filings with the Commission made within the last three (3) years, and none of
such filings contains an untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements, in the light of the
circumstances under which they were made, not misleading; and (g) to the best of
P&W's actual knowledge, there does not exist as of the execution of this
Agreement any statutory or regulatory obligation that may be imposed upon an
owner of shares of common stock of P&W by reason of its becoming an owner and
owning such shares other than those imposed under the federal and state
securities laws.
8.1 P&W Registrations. If at any time or times after the date hereof
------------------
and before January 6, 1999, P&W shall determine to register any of its
securities (for itself or for any other securities holder of P&W) under the
Securities Act of 1933, as amended (the "Act"), or any successor legislation
(other than registration relating to stock option plans, employee benefit plans
or a Rule 145 transaction), and in connection therewith P&W may lawfully
register the common stock of P&W, P&W will promptly give written notice thereof
to CPC and will use its best efforts to include in such registration and to
effect the registration under the Act of all CPC Shares which CPC may request in
writing delivered to P&W within 30 days after the date of the notice, given by
P&W; provided, however, that in connection with an underwritten offering by P&W
of any of its securities, if the managing underwriter shall impose a limitation
on the number of shares of common stock which may be included in such
registration by a group consisting of CPC and other holders of common stock
having similar registration rights to CPC because, in its reasonable and good
faith judgment, such limitation is necessary to effect an orderly public
distribution, such limitation shall be imposed upon CPC and such other holders
(and not on P&W) in proportion to the number of shares respectively requested by
them to be included in such registration, except that if such registration is
undertaken by P&W pursuant to the demand of any
6
<PAGE>
such holder(s) of P&W common stock possessing so-called "demand" registration
rights, the shares of other holders (including, without limitation, CPC) will
not be included in such registration unless all shares to be issued and sold by
P&W and all shares requested to be included by the demanding holder(s) are
included. In the event of such a limitation, shares of persons not having
similar registration rights will not be included in such registration. If P&W
includes in such registration any securities to be offered by it, all expenses
of the registration and offering shall be borne by P&W, except that CPC shall
bear underwriting commissions and discounts and registration fees attributable
solely to the CPC Shares being registered and the expense of its own legal
counsel. If the registration is of exclusively a secondary offering, CPC shall
bear its proportionate share of the expenses of the registration and offering
(provided all stockholders registering shares thereunder bear their
proportionate share of expenses), except expenses which P&W would have incurred
whether or not registration was attempted, including without limitation the
expense of preparing normal audited or unaudited financial statements or
summaries consistent with this Agreement or applicable Securities and Exchange
Commission reports. VVithout in any way limiting the types of registrations to
which this paragraph shall apply, in the event that P&W shall effect any "shelf
registrations," then for each shelf registration effected by P&W, P&W shall take
all necessary action, including, without limitation, the filing of post-
effective amendments, to permit CPC to include the CPC Shares in such
registrations in accordance with the terms of this paragraph, provided that P&W
shall not be required to include any CPC Shares in such registration by post-
effective amendment to the extent that the amount of such CPC Shares, when added
to the number of shares of common stock theretofore or contemporaneously to be
sold by P&W under such registration statement, would exceed the total number of
shares of common stock registered thereunder.
8.2 Short Form Registrations. In addition to the registrations
--------------------------
provided in paragraph 8.1 above, CPC shall be entitled to request by written
notice to P&W from time to time that P&W register the offering and sale of all
or a portion of the CPC Shares (not less than $500,000 in aggregate market
value) on Form S-3 (or any similar short form registration), provided that P&W
is eligible for such registration. Upon the written request of CPC, P&W will use
its best efforts to cause such of the CPC Shares as may be requested by CPC to
be registered under the Act in accordance with the terms of this paragraph 8.2,
provided that P&W will not be obligated to effect such a registration so that it
shall become effective on a date prior to six months after the effective date of
a prior registration pursuant to paragraph 8.1 or 8.2 hereof. All expenses of
any such registrations in which P&W shall register any shares for sale by it
shall be bome by P&W, except that CPC shall bear underwriting commissions and
discounts and registration fees attributable solely to the CPC Shares being
registered and the expense of its own legal counsel. If the registration is of
exclusively a secondary offering, CPC shall bear its proportionate share of the
expenses of the registration and offering (provided all other stockholders
registering shares thereunder, who are required to do so, bear their
proportionate share of expenses), except
7
<PAGE>
expenses which P&W would have incurred whether or not registration was
attempted. Notwithstanding the foregoing, if the short form registration is of
exclusively a secondary offering for the account of CPC alone, CPC shall bear
all expenses of the registration and offering. P&W will use its best efforts to
qualify for registration on Form S-3 or any similar short form registration
within the time as required by the Securities Exchange Act of 1934, as amended.
8.3 For the purposes of this Section 8, the term "CPC Shares" shall
also include any common stock issued or issuable with respect to the CPC Shares
by way of a stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization.
8.4 Further Obligations of P&W. Whenever under the preceding
----------------------------
paragraphs of this Section 8, P&W is required hereunder to register the CPC
Shares, it agrees that it shall also do the following:
(a) Prepare and file with the Securities and Exchange Commission such
amendments and supplements to said registration statement and the prospectus
used in connection therewith as may be necessary to keep said registration
statement effective and to comply with the provisions of the Act with respect to
the sale of securities covered by said registration statement for the period
necessary to complete the proposed public offering; provided, however, that in
any case in which the required information may not be incorporated by reference
to subsequent filings, P&W shall not be required to keep such registration
statement effective beyond nine months after its effective date;
(b) Furnish to CPC such copies of each preliminary and final
prospectus and such other documents as CPC may reasonably request to facilitate
the public offering of the CPC Shares;
(c) Enter into an underwriting agreement with customary provisions
reasonably required by the underwriter, if any, of the offering;
(d) Use its best efforts to register or quality the CPC Shares covered
by said registration statement under the securities or "blue-sky" laws of such
jurisdictions as CPC may reasonably request, provided that in the case of a
registration under Section 8.1, P&W shall not be required so to register or
qualify CPC Shares in any state where shares to be sold by P&W are not to be
registered or qualified; and
(e) Furnish to CPC, a signed counter-part, addressed to CPC, of
(i) an opinion of counsel for P&W, and
(ii) "comfort" letter(s) signed by the independent public accountants
who have certified P&W's financial statements included in the registration
8
<PAGE>
statement, covering substantially the same matters with respect to P&W and the
registration statement (and the prospectus included therein) and (in the case of
the accountant's letter) with respect to events subsequent to the date of the
financial statements, as are customarily covered in opinions of issuer's counsel
and in accountants letters delivered to the underwriters in underwritten public
offerings of securities.
8.5 Underwritten Registrations.
---------------------------
(a) P&W shall have the right to select the managing underwriter or
underwriters for any underwritten offering made pursuant to a registration under
paragraphs 8.1 or 8.2 hereof.
(b) In connection with P&W's first underwritten offering under Section
8.1, CPC shall, if requested by the managing underwriter or underwriters
thereof, agree not to sell any of the CPC Shares in any transaction other than
pursuant to such underwritten offering for a period of up to 90 days beginning
on the effective date of the registration statement, provided that P&W's
officers and directors, and its shareholders owning more than 5% of its issued
and outstanding common stock, also agree to such limitations.
8.6 Indemnification. Incident to any registration statement referred
-----------------
to in the preceding paragraphs of this Section, P&W will indemnify each
underwriter, CPC, and each person controlling any of them against all claims,
losses, damages and liabilities including legal and other expenses incurred in
investigating or defending against the same, arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained
therein or any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or arising out of any violation by P&W of the Act, any state
securities or "blue-sky" laws or any rule or regulation thereunder in connection
with such registration, except insofar as the same may have been caused by an
untrue statement or omission based upon information furnished in writing
(including the omission from a written statement of information necessary to
make such written statement not misleading) to P&W by the person seeking
indemnification hereunder expressly for use therein, and with respect to any
such untrue statement or omission in the information furnished in writing to P&W
by CPC, CPC will indemnify the underwriters, P&W, its directors and officers,
and each person controlling any of them against any losses, claims, damages,
expenses or liabilities to which any of them may become subject, provided that
CPC shall not be required to pay indemnification with respect to any
registration hereunder exceeding in the aggregate the net proceeds received by
CPC from its sale of CPC Shares under such registration.
8.7 Furnish Information. It shall be a condition precedent to the
----------------------
obligations of P&W to take any action pursuant to this Section 8 that CPC shall
furnish to P&W such information regarding it, the CPC Shares held and the
intended method of disposition
9
<PAGE>
thereof as P&W shall reasonably request and as shall be required in connection
with the action to be taken by P&W, and shall otherwise cooperate with P&W.
8.8 CPC Compliance with Securities Laws. CPC agrees to comply with
-------------------------------------
all applicable Federal and state securities laws in connection with the sale or
transfer of the CPC Shares, including applicable prospectus delivery
requirements.
8.9 Notwithstanding anything to the contrary herein, P&W shall not be
required to register any CPC Shares (i) which are no longer owned by CPC; (ii)
on any Form S-8, Form S-4, or similar or successor form or (iii) pursuant to any
registration which is undertaken by P&W pursuant to the demand of any holder of
P&W common stock possessing so-called "demand" registration rights and which is
of exclusively a secondary offering for the account of such holder(s).
9. CPC hereby represents and warrants to P&W as follows: (a) CPC has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby, and (b) the execution, delivery
and performance of this Agreement has been duly authorized by CPC, and no other
corporate proceedings on the part of CPC are necessary to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
10. This Agreement shall be binding upon CPC and P&W and their
respective officers, directors, shareholders, affiliates, attorneys, agents,
servants, representatives, subsidiaries, affiliates, partners, predecessors,
successors, assigns and subrogees.
11. This Agreement is made without any admission of liability by any
party with respect to any of the facts or circumstances alleged and arising from
the Contamination.
12. This Agreement evidences the entire agreement by and among CPC
and P&W and supersedes all prior oral or written agreements or understandings of
the parties related thereto. This document may not be changed orally. Amendments
and modifications hereto shall be in writing and signed by all the parties.
13. Except as otherwise expressly provided herein, this Agreement
shall not be deemed or construed in any way to result in the creation of any
rights in any person or entity not a party to this Agreement. Each party
represents to the other party that it has not assigned to any third person any
claim released hereby, or any interest therein.
14. CPC and P&W acknowledge that they each have participated in the
drafting of this Agreement, and they each agree that the Agreement shall be
interpreted without reference to any principle which can operate in favor of or
against a party that drafts a written agreement.
10
<PAGE>
IN WITNESS WHEREOF, CPC and P&W cause this Agreement to be duly
executed and delivered on the day and year first above written.
CPC INTERNATIONAL INC
By:/s/ John W. Scott Dated: December 12, 1995
----------------------------- -----------------
Title: Vice President
--------------------------
PROVIDENCE AND WORCESTER RAILROAD COMPANY
By:/s/ Orville R. Harrold Dated: December 12, 1995
----------------------------- -----------------
Title: President
--------------------------
11
<PAGE>
EXHIBIT 10.3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
-----------------------------------------
NON-QUALIFIED STOCK OPTION PLAN
-------------------------------
1. Purpose:
-------
This Non-Qualified Stock Option Plan (herein called the "Plan") of
Providence and Worcester Railroad Company, a Rhode Island corporation with its
principal place of business in Worcester, Massachusetts (herein called the
"Company"), is designed to provide, through the medium of options for the
purchase of shares of Common Stock, $.50 par value (the "Common Stock"), of the
Company, additional incentives for directors of the Company and certain
employees of the Company and its subsidiaries to exert additional efforts on
behalf of the Company and, by encouraging their stock ownership, to increase
their proprietary interest in the progress of the Company.
2. Administration:
--------------
(a) The Plan shall be administered by a committee appointed by the
Board of Directors (the "Option Committee") and consisting of not
less than two directors, each of whom shall be either an outside
director (as defined in paragraph 3) or a director ineligible to
participate in the Plan, pursuant to the provisions of paragraph 3.
The interpretation of the provisions of the Plan by the Option
Committee shall be final and conclusive.
(b) The Option Committee shall adopt as the option to be granted
hereunder such form of option agreement with such provisions
consistent with the Plan as the Option Committee shall deem
appropriate.
(c) No member of the Option Committee shall be liable for any action or
determination made in good faith under the Plan.
3. Eligibility:
-----------
During any calendar year, all employees (including officers and
employee-directors) of the Company or of any subsidiary of the Company (as
hereinafter defined) who
-1-
<PAGE>
(i) are not the subject of any labor agreement between the Company and a union,
and (ii) shall have been employees of the Company for more than one (1) full
year as of December 31 of the next prior year, shall be eligible to participate
in the Plan. In addition, all directors of the Company or of any subsidiary who
are not full-time employees of the Company or such subsidiary ("outside
directors") shall be eligible to participate in the Plan, but only to the extent
and in the manner provided in paragraph 6, below. Notwithstanding, no person
who is the beneficial owner (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934) of more than fifty percent (50%) of the outstanding Common
Stock or more than fifty percent (50%) of the outstanding Preferred Stock, $.50
par value, of the Company shall be eligible to participate in the Plan. For
purposes of the Plan, a company shall be deemed to be a "subsidiary" of the
Company if a majority of its outstanding shares of voting stock are owned or
controlled by the Company.
4. Stock Subject to Options; Basis for Grants
------------------------------------------
The maximum number of shares of Common Stock that may at any time be
made the subject of options under the Plan is the greater of (i) fifty thousand
(50,000) shares, less any shares which may have been the subject of options
previously granted and either exercises or remaining outstanding, or (ii) five
percent (5%) of the number of shares of Common Stock outstanding at the time,
less any shares which may have been the subject of options previously granted
and either exercised or remaining outstanding.
5. Option Grants to Employee Participants:
--------------------------------------
(a) Within the limits specified in paragraph 4, the Option Committee
shall, during the month of January of each year, beginning with the
month of January, 1994, designate for such year the number of
shares of Common Stock of the Company which shall be made the
subject of options during such year to eligible participants in the
Plan other than outside directors (the "employee participants").
-2-
<PAGE>
(b) As soon as practicable following the designation provided for in
subparagraph (a), an option shall be granted to each employee
participant for that number of shares of Common Stock of the
Company as results from multiplying the total number of shares of
Common Stock designated by the Option Committee as being the
subject of options in favor of all employee participants by a
fraction, the numerator of which shall be such employee
participant's compensation from the Company or any subsidiary for
the next prior calendar year, as reported by the Company to the
Internal Revenue Service, multiplied by such employee participant's
"longevity factor" (determined as provided below), and the
denominator of which is the aggregate of all products similarly
computed for all employee participants. For the purposes of the
foregoing, an employee participant's longevity factor shall be
determined by the number of such participant's full years of
service to the Company and/or any subsidiary as of December 31 of
the next prior year, as follows:
Length of Service (Years) Longevity Factor
------------------------- ----------------
More than one, but less than 5 1.0
More than 5, but less than 10 1.5
More than 10, but less than 15 2.0
More than 15, but less than 20 2.5
More than 20, but less than 25 3.0
More than 25 3.5
(c) No fractional shares shall be the subject of options under the
Plan, and any fractional share resulting from the computation set
forth above shall be ignored.
6. Option Grants to Outside Directors:
-------------------------------------
During the month of January of each year, beginning with the month of
January, 1994, the Option Committee shall, subject to the provisions of
paragraph 4, cause options for the purchase of one hundred (100) shares of
Common Stock to be issued to each person
-3-
<PAGE>
who was serving as an outside director of the Company on the next preceding
December 31, together with options for the purchase of an additional ten (10)
shares of Common Stock for each full year of service by such person as a
director of the Company for the period ending on such December 31. The terms
and conditions of such options shall be as set forth in the following paragraphs
of the Plan.
7. Purchase Price; Source of Shares:
--------------------------------
(a) The purchase price per share with respect to an option granted
hereunder shall be the fair market value of such share on the last
business day of the December next preceding the date of grant. Such
fair market value shall be equal to the last sale price, regular
way, with respect to shares of Common Stock on such business day
or, in case no such sale takes place on such day, the average of
the closing bid and asked prices, regular way, with respect to such
shares, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed on
the principal national securities exchange on which such shares are
listed or admitted to trading; or, if such share are not so listed
or admitted to trading, the last quoted price with respect to
shares of Common Stock or, if not so quoted, the average of the
high bid and low asked prices in the over-the-counter market with
respect to shares of Common Stock, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System
or such other similar system then in use; or, if for such day
shares of Common Stock are not quoted by any such system, the
average of the closing bid and asked prices with respect to shares
of Common Stock as furnished by a professional market maker making
a market in Common Stock and selected by the Board of Directors of
the Company in good faith; or, if no such market maker is
available, the fair
-4-
<PAGE>
market value as of such day as determined by the Board of Directors
of the Company.
(b) The shares of Common Stock which may be the subject of option
grants hereunder may be either authorized and unissued shares or
issued shares reacquired by the Company and held in the Company's
treasury. Any shares which are made the subject of an option which
is for any reason unexercised prior to its expiration may again be
subject to an option or options under the Plan.
8. Term and Exercise of Options:
----------------------------
(a) The term of each option shall be ten (10) years, or such shorter
period as may be determined by the Option Committee, from the date
of grant of the option, unless sooner terminated under the
provisions of paragraph 11. All or any part of the shares covered
by an option may be purchased, subject to the provisions of
paragraph 11, at any time or from time to time during the term of
the option, but not earlier than six (6) months following the date
of grant of the option. No option shall be granted after the
termination of the Plan, but options theretofore granted may be
exercised thereafter in accordance with the terms and provisions of
the Plan.
(b) When any shares are purchased pursuant to the exercise of options
granted under the plan, the purchase price for the number of shares
purchased shall be paid in full. The purchase price may be paid in
cash (including personal check) or by the delivery to the Company
of other shares of Common Stock already owned by the individual
exercising the option, or by any combination of cash and such
shares. Shares so delivered will be credited against the purchase
price in an amount equal to their fair market value on the date of
delivery, such fair market value to be determined as provided in
paragraph 7(a), above.
-5-
<PAGE>
(c) Until payment in full for shares purchased pursuant to the exercise
of an option under the Plan and the issuance of a certificate for
such shares, the holder of such option shall have no right to vote
or receive dividends or any other rights as a stockholder with
respect to the shares covered by such option. No adjustment will be
made for dividends or other rights for which the record date is
prior to the date the share certificate is issued.
9. Issuance of Stock:
-----------------
Shares of Common Stock will be issued and certificates therefor will be
delivered to a director or an employee upon his making payment for shares for
which he has exercised his option to purchase, but less than twenty (20) shares
will not be issued.
10. Transferability of Options:
--------------------------
Options under the Plan shall not be transferable other than by will or
the laws of descent and distribution, or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended, or
Title I of the Employee Retirement Income Security Act, or the rules thereunder,
and shall be exercisable during the lifetime of the grantee only by such
grantee.
11. Termination of Employment and Death:
-----------------------------------
If the employment of an employee holding options under the Plan shall
terminate, or if the office of an outside director shall terminate, in either
case for any reason whatsoever (including retirement, resignation, dismissal, or
death), the options of such employee or director under the Plan shall end
automatically six (6) months after the date of such termination, unless sooner
ended by their respective terms. Prior to the expiration of such six (6) month
period, during the terms of such options, such director or employee (or his
executor or administrator in the even of his death during such period) shall
have the right to exercise such options to purchase the shares of stock which
are subject thereto.
-6-
<PAGE>
12. Readjustment of Stock or Recapitalization:
-----------------------------------------
Upon any recapitalization or readjustment of the Company's capital
stock whereby the character of the present Common Stock shall be changed,
appropriate adjustments shall be made so that the stock to be purchased under
the Plan shall be the equivalent of the present Common Stock of the Company,
after such readjustment or recapitalization. In the event of a subdivision or
combination of the shares of Common Stock of the Company, the number of shares
that may be optioned and sold to directors and employees under the Plan as
provided in paragraph 4, and the number of shares to be optioned to outside
directors as provided in paragraph 6, shall in each case be proportionately
increased or decreased. In the case of outstanding options, the purchase prices
thereunder and the number of shares covered thereby shall be proportionately
adjusted by the Board of Directors and, in case of a reclassification or other
change in the shares of Common Stock of the Company, such action shall be taken
as in the opinion of the Board of Directors will be appropriate under the
circumstances. Accordingly, in such cases the maximum number of authorized but
unissued shares, or shares purchased by the Company and held as treasury stock,
to be covered by the Plan may be increased by the Board of Directors without
stockholder or any other action.
13. Term of the Plan:
----------------
The Plan shall become effective on the date of its adoption by the
Board of Directors, subject to approval by the stockholders, and shall continue
in effect through April 29, 2002, unless earlier terminated under paragraph 14.
The powers of the Board of Directors and of the Option Committee (except with
respect to the granting of additional options) shall continue in effect after
the termination of the Plan, until exercise or expiration of all options then
outstanding.
14. Amendment and Termination:
-------------------------
The Board of Directors at any time may amend, suspend or terminate the
Plan. No action of the Board of Directors, however, may without the consent of
the holder alter or impair any option previously granted under the Plan (except
pursuant to paragraph 12). In
-7-
<PAGE>
addition, no action of the Board of Directors may, unless duly approved by the
holders of a majority of the outstanding Common Stock and Preferred Stock of the
Company, voting as separate classes: (i) increase the maximum number of shares
which may be optioned and sold under the Plan (except pursuant to paragraphs 4
and 12); (ii) change the option price (except pursuant to paragraph 12); or
(iii) permit granting options for a period longer than herein provided.
15. Obligation of the Company to Issue Shares:
-----------------------------------------
Notwithstanding any other provision of the Plan, the Company shall not
be obligated to issue any shares pursuant to any stock option unless or until:
(a) the shares with respect to which the option is being exercised have
been registered under the Securities Act of 1933, as amended, or
are exempt from such registration in the opinion of the Company's
counsel;
(b) the prior approval of such sale or issuance has been obtained from
any state regulatory body having jurisdiction;
(c) in the event shares of Common Stock have been listed on any stock
exchange, the shares with respect to which the option is being
exercised have been duly listed on such exchange in accordance with
the procedures specified therefor;
(d) the Company has in its possession such amount as may be required to
be withheld by it under the provisions of the Internal Revenue Code
of 1986, as amended, on account of the exercise of such option.
-8-
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-46433 of Providence and Worcester Railroad Company of our report dated
January 30, 1998, appearing in the Prospectus, which is part of such
Registration Statement, and of our report dated January 30, 1998 relating to
the financial statement schedule appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings "Selected
Financial Data" and "Experts" in such Prospectus.
Deloitte & Touche LLP
Worcester, Massachusetts
March 2, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 519
<SECURITIES> 0
<RECEIVABLES> 2,470
<ALLOWANCES> 125
<INVENTORY> 2,086
<CURRENT-ASSETS> 5,321
<PP&E> 91,347
<DEPRECIATION> 25,456
<TOTAL-ASSETS> 71,212
<CURRENT-LIABILITIES> 5,295
<BONDS> 11,916
0
33
<COMMON> 1,111
<OTHER-SE> 36,894
<TOTAL-LIABILITY-AND-EQUITY> 71,217
<SALES> 0
<TOTAL-REVENUES> 22,721
<CGS> 0
<TOTAL-COSTS> 18,333
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,358
<INCOME-PRETAX> 3,030
<INCOME-TAX> 1,100
<INCOME-CONTINUING> 1,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,930
<EPS-PRIMARY> .87
<EPS-DILUTED> .81
</TABLE>
