<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1998
REGISTRATION STATEMENT NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
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. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
TITLE OF EACH CLASS OF AMOUNT MAXIMUM MAXIMUM AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE AGGREGATE REGISTRATION
REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE FEE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$.50 ................. 1,150,000(1) $15.375 $17,681,250 $5,215.97
- --------------------------------------------------------------------------------
Underwriters'
Warrants ............. 100,000 $.00 $100 (3)
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Shares of Common Stock
underlying the
Underwriters'
Warrants.............. 100,000 $23.83125 $2,383,125 $ 703.02
- --------------------------------------------------------------------------------
Total fee
$5,918.99
</TABLE>
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----------------
(1) Includes 150,000 shares of Common Stock subject to the Underwriters' over-
allotment option. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c).
(3) None, pursuant to Rule 457(g).
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>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, AUGUST 26, 1998
1,000,000 SHARES
[LOGO OF PROVIDENCE AND WORCESTER APPEARS HERE]
PROVIDENCE AND WORCESTER RAILROAD COMPANY
COMMON STOCK
-----------
All of the 1,000,000 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 are being sold by the Company.
The Common Stock is currently traded on the American Stock Exchange (the
"AMEX") under the symbol "PWX." On August 24, 1998, the last reported sale
price of the Common Stock on the AMEX was $15.375 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.
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- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
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Total(3)................................... $ $ $
</TABLE>
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(1) Does not include additional compensation in the form of (a) a $100,000 non-
accountable expense allowance, 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 $310,000, 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 150,000
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, and the total "Proceeds to Company" will remain unchanged.
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
<PAGE>
Picture of P&W serving Tilcon
Connecticut, Inc.'s trap rock
quarry at Wallingford, CT.
Picture of Doublestack container train Picture of P&W traversing Hell Gate
destined for P&W's Worcester intermodal Bridge in New York City, with
facility. 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 COMPANY'S OPERATING SYSTEM]
<PAGE>
[MAP OF COMPANY'S OPERATING 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 545 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, Stone Container Corporation 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. Carload and container volumes have increased 5.5% and 19.1%,
respectively, in the first six months of 1998, compared to the same period in
1997. 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:
. Acquire Connecting Rail Lines and Trackage Rights. Historically, P&W has
grown through strategic acquisitions of other railroads and trackage rights
which connect to the Company's system, coupled with upgrades of acquired
rail infrastructure. For example, in April 1998, the Company acquired the
Connecticut Central Railroad Company ("Conn Central"), a short-line railroad
with operating rights over approximately 28 miles of track in central
Connecticut, including an unused 11 mile line that P&W has begun to rebuild
to gain access to the Hartford, Connecticut market. The Company believes
that industry and regional developments have created and will continue to
create opportunities for P&W to acquire additional rail properties and
trackage rights on connecting lines. Such acquisitions should enable the
Company to expand its customer base, spread fixed administrative costs over
a larger revenue base and realize other operating efficiencies. The Company
intends to aggressively pursue these acquisition opportunities.
. Expand Service in New York City/Long Island Market. Pursuant to a 1997
agreement with CSX Corporation ("CSX") concerning the line between New
Haven, Connecticut and Fresh Pond Junction (Queens), New York, the Company
has the ability to market rail service for all general merchandise and
intermodal traffic between parts of New York City and Long Island and the
rest of North America via P&W's system. The New York City and Long Island
metropolitan area is one of the country's largest markets for the
consumption of products and freight transportation services. According to
filings by public officials with the United States Surface Transportation
Board ("STB"), the region generates 142 million tons of freight per year, 98
million tons of which is reported to be appropriate for rail transport. The
Company also anticipates that increasing restrictions on landfill and other
local disposal options, as evidenced by the imminent closing of the Fresh
Kill landfill on Staten Island, will create additional opportunities for
rail transport of municipal solid waste generated in this heavily populated
area. Pursuant to a directive from the STB, CSX and the Company have begun
discussions regarding the possible expansion of P&W's service in this area
through haulage or trackage rights.
. 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 (which runs parallel to the Company's Groton,
Connecticut to Worcester main line) and is planning an intermodal facility
at its South Quay property in East Providence, Rhode Island.
4
<PAGE>
. 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 increases existing
business by maintaining close working relationships with both customers and
connecting carriers and assisting with development projects such as
increasing track capacity, locating appropriate facilities and providing new
shipment capabilities. 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. The Company has
experienced a significant increase in the need for gondola rail cars. The
Company expects delivery of 40 100-ton gondolas in the fourth quarter of
1998, which should enable P&W to meet this demand and increase its operating
revenues.
. Expand Locomotive and Rail Car Maintenance and Repair Capabilities. The
Company has entered into an engineering contract for the preliminary design
of an approximate $1.6 million expansion of its Worcester maintenance
center. P&W's management believes this expansion will allow the Company to
increase efficiency and enable it to provide expanded contract maintenance
and repair services.
MARCH OFFERING
In March 1998, the Company completed an underwritten public offering of
1,000,000 shares of Common Stock (the "March Offering") and received net
proceeds of approximately $12.5 million. The Company used $10.8 million of the
net proceeds of the March Offering and $2.0 million from other sources to repay
$12.8 million of debt, accrued liabilities and prepayment penalties. As of the
date hereof, the Company has approximately $0.5 million of long-term debt and
no short-term debt. The Company has ordered 40 100-ton gondolas with an
aggregate purchase price of $2.0 million which are scheduled for delivery in
the fourth quarter of 1998. In addition, the Company has entered into an
engineering contract for the preliminary design of an approximate $1.6 million
expansion of its Worcester maintenance center. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation--Liquidity and Capital
Resources."
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered............... 1,000,000 shares
Shares of Common Stock outstanding
before this Offering.............. 3,473,044 shares
Shares of Common Stock to be
outstanding after this Offering... 4,473,044 shares
Use of proceeds.................... Repay debt and general corporate purposes,
including acquisition and rebuilding of
connecting rail lines, equipment and
locomotives as well as infrastructure
improvements. 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 warrants and
stock options to purchase 139,781 shares of Common Stock; and (iii) give no
effect to the up to 7,500 shares issuable to the former shareholders of Conn
Central. See "Business--Business Strategy," "Management--Stock Plans" and
"Underwriting."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table sets forth summary financial data of the Company as of
and for the three years ended December 31, 1997 and the six months ended June
30, 1997 and 1998. Such data as of and for the three years ended December 31,
1997 are derived from the Company's audited financial statements. The financial
data as of and for the six months ended June 30, 1997 and 1998 are derived from
the Company's unaudited financial statements. It is management's opinion that
the financial data as of and for the six months ended June 30, 1997 and 1998
contain all adjustments, consisting solely of normal recurring adjustments,
which management considers necessary to fairly present the financial data set
forth herein. The results for the six months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the full year. 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>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------- ----------------
1995 1996 1997 1997 1998
-------- -------- -------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues........... $ 19,778 $ 19,456 $ 22,083 $10,278 $10,892
Operating expenses........... 17,677 17,714 18,333 9,180 9,727
-------- -------- -------- ------- -------
Income from operations....... 2,101 1,742 3,750 1,098 1,165
Other income................. 581 1,660 638 415 2,596
Interest expense............. (1,175) (1,371) (1,358) (681) (463)
-------- -------- -------- ------- -------
Income before income taxes
and extraordinary item...... 1,507 2,031 3,030 832 3,298
Provision for income taxes... 590 780 1,100 310 1,174
-------- -------- -------- ------- -------
Income before extraordinary
item........................ 917 1,251 1,930 522 2,124
Extraordinary loss from early
extinguishment of debt (a).. -- -- -- -- 170
-------- -------- -------- ------- -------
Net income................... $ 917 $ 1,251 $ 1,930 $ 522 $ 1,954
======== ======== ======== ======= =======
Diluted income per share(b).. $ 0.43 $ 0.54 $ 0.81 $ 0.23 $ 0.66
======== ======== ======== ======= =======
Weighted average shares-
diluted..................... 2,136 2,461 2,489 2,474 2,975
======== ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1998
-----------------------
ACTUAL AS ADJUSTED (C)
------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.......................................... $74,719 $88,316
Current portion, long-term debt....................... 188 --
Long-term debt, less current portion.................. 799 --
Shareholders' equity.................................. 54,543 68,634
</TABLE>
- --------
(a) Net of income tax benefit of $94,000.
(b) 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."
(c) Adjusted to give pro forma effect of the Company's repayment on July 23,
1998 of $493,000 of its long-term debt and 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 $15.375 per share) and the application of the net
proceeds therefrom. See "Use of Proceeds." As adjusted, shareholders'
equity reflects an extraordinary charge, due to early extinguishment of
debt, of $52,000 (net of tax) which the Company expects to record in the
third quarter of 1998.
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.
Increasingly, the Company's business is impacted by global economic events. 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."
AVAILABILITY OF ACQUISITION AND GROWTH OPPORTUNITIES AND ASSOCIATED RISKS
The Company believes that its ability to grow depends, in part, upon its
ability to acquire additional connecting rail lines. There are a limited
number of acquisition targets in the Company's market. In addition, 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. 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,
although the STB has issued an order which requires CSX to discuss with P&W
the possibility of the Company's acquiring additional trackage or haulage
rights in the New York area, there can be no assurance that the Company will
be able to acquire such additional rights or that, if acquired, the Company
would be able to successfully operate or market such lines.
Acquisitions of additional rail lines may be subject to regulatory review
and approval by the STB. 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.
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
7
<PAGE>
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. Recent objections of
environmentalists to the scope of planned development could cause delays or
substantial modifications to the Quonset/Davisville project. Failure of the
State of Rhode Island to complete the Quonset/Davisville development
(including the freight rail improvement project), significant modifications to
the development plan 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 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. While the
Company believes the acquisition of Consolidated Rail Corporation ("Conrail")
and its division between CSX and Norfolk Southern Corporation ("Norfolk
Southern") may present expansion opportunities for the Company, 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."
CUSTOMER CONCENTRATION
The Company's 10 largest customers accounted for approximately 51.6% and
50.0% of the Company's operating revenues for 1997 and the six months ended
June 30, 1998, respectively. 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 accounted for 4.2% of
the Company's operating revenues in 1997 announced plans to discontinue
manufacturing at its chemical plant over the next four years and to focus on
pharmaceutical research and development, which action is expected to greatly
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."
SOUTH QUAY LITIGATION AND DEVELOPMENT
The Company has invested approximately $11.6 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.
8
<PAGE>
Furthermore, certain types of commercial development of the South Quay would
be subject to extensive permitting requirements by regulatory agencies,
including the Coastal Council. The Company's permits which authorize
construction of a port facility were issued by the United States Army Corps of
Engineers and the Coastal Council and expire on December 31, 1998 and February
22, 1999, respectively. The Company has requested extensions of time to
complete construction from both agencies; to date, no action has been taken on
these requests. If the Company is unable to attract adequate investment or
user commitments or is unable to obtain the financing, permits or permit
extensions 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 are
subject to amendment 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 is currently
negotiating with the United Transportation Union, which represents the
Company's train and engine service employees (approximately 26% of the
Company's workforce), concerning proposed amendments to the collective
bargaining agreement. The Company's inability to satisfactorily conclude
negotiations with its 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 acquirers, CSX and Norfolk
Southern, to discontinue serving certain routes or transporting certain
commodities 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. The Union Pacific railroad
system has been plagued with service disruptions for some time; these
disruptions have been attributed to locomotive and crew shortages, lack of
track capacity and other inadequate infrastructure. To date, these service
disruptions have been confined to the western United States. Similar service
failures by the acquirers of Conrail on rail lines in the East could
materially adversely affect the Company's business.
RAIL INFRASTRUCTURE AND AVAILABILITY OF GOVERNMENT PROGRAMS
Certain of the Company's growth opportunities are contingent upon
anticipated improvements to P&W's existing rail infrastructure. No assurance
can be given that the Company will be able to complete such projects as
planned. Unforeseen delays or other problems which prevent completion of such
improvements could materially adversely affect the Company's business and
results of operations. In addition, 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
9
<PAGE>
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
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 an 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 $50,000 per
locomotive. The order requires Amtrak to arrange interim financing for the
Company and certain commuter operators on the Northeast Corridor but does not
address responsibility for funding 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, and the Company is advocating
for such federal funding in the federal transportation appropriations process,
there can be no assurance that funding for such mandate 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, who is the Company's
Chairman and Chief Executive Officer and the Principal Shareholder, together
with his wife, will own of record 18.8% of the outstanding Common Stock (15.5%
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 Shareholders" and
"Description of Capital Stock."
10
<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 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 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 4,473,044 shares of Common Stock. An aggregate of 4,449,430 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 principal shareholders, who
after this Offering will beneficially own in the aggregate approximately
1,141,539 shares of Common Stock, have agreed that for a period of 180 days
after the date of this Prospectus, they will not, subject to certain
exceptions, directly or indirectly offer, sell, pledge or otherwise dispose of
or encumber 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 545
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
(Queens) New York. In April 1998, the Company acquired Conn Central, with
operating rights over 28 miles of track in central Connecticut.
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 Company's 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 "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 $15.375 per share),
after deducting underwriting discounts and estimated expenses, are expected to
be approximately $14.1 million.
The Company intends to use a portion of the net proceeds to repay the $0.5
million due to Massachusetts Capital Resource Company ("MCRC") on its
subordinated note (the "MCRC Note"), which bears interest at the rate of 10%
per annum and matures on December 31, 2005. At August 24, 1998, the estimated
prepayment penalty would be $40,000, assuming repayment of the MCRC Note in
full.
The Company intends to use the balance of the net proceeds for general
corporate purposes, including possible acquisitions of other railroads, rail
lines and trackage rights which connect to the Company's system and rebuilding
a line over which the Company has operating rights to gain access to the
Hartford, Connecticut market. Although from time to time the Company engages
in discussions regarding one or more potential acquisitions, the Company has
no specific agreements or commitments for any acquisition, and there can be no
assurance that the Company will be able to consummate any such acquisition in
the future.
In addition, the Company intends to use a portion of the net proceeds for
equipment and infrastructure improvements, including increases in overhead
clearances and in the load-bearing capacity of undergrade bridges. In the
event the Company obtains unrestricted trackage rights to operate between New
Haven, Connecticut and Fresh Pond Junction (Queens), New York, the Company
intends to use a portion of the proceeds to acquire additional locomotives for
such service. Additional purchases of equipment, locomotives and track
maintenance equipment may be required as a result of the Company's acquisition
of additional properties or a significant increase in business.
Pending application thereof, 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 Principal Shareholder
pursuant to the over-allotment option.
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
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......................... 18 7/8 14 1/2 5.00 .03
Second Quarter........................ 17 14 1/4 -0- .03
Third Quarter (through August 24,
1998)................................ 17 14 1/2 -0- -0-
</TABLE>
On August 24, 1998, the last reported sale price of the Common Stock on the
AMEX was $15 3/8 per share. As of August 24, 1998, there were approximately
720 holders of record of the Common Stock.
The Company has paid dividends on the Common Stock (semi-annually through
1997 and then quarterly) 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. In January 1998, the Board of Directors 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 any credit
facilities entered into by the Company from time to time.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1998 and as adjusted to give effect to this Offering (at an assumed offering
price of $15.375 per share) and the application of the net proceeds therefrom.
See "Use of Proceeds," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and the
financial statements of the Company and notes thereto included elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
AT JUNE 30,
----------------------
ACTUAL AS ADJUSTED(a)
------- --------------
(IN THOUSANDS)
<S> <C> <C>
Current portion, long-term
debt..................... $ 188 $ --
------- -------
Long-term debt, less
current portion(a)....... 799 --
------- -------
Shareholders' equity:
Preferred Stock, $50 par
value, 647 shares
authorized; 647 shares
issued and outstanding at
June 30, 1998............ 32 32
Common Stock, $.50 par
value, 15,000,000 shares
authorized; 3,473,044
shares issued (actual);
4,473,044 shares issued
(as adjusted)............... 1,737 2,237
Additional paid-in capi-
tal...................... 20,765 34,408
Retained earnings......... 32,009 31,957
------- -------
Total shareholders' equi-
ty....................... 54,543 68,634
------- -------
Total capitalization...... $55,530 $68,634
======= =======
</TABLE>
- --------
(a) On July 23, 1998, the Company repaid approximately $493 of its long-term
debt. The "As Adjusted" column gives pro forma effect to this repayment as
if it had occurred on June 30, 1998. Giving pro forma effect to this
repayment as if it occurred on June 30, 1998, the actual value of the
long-term debt, less current portion, would have been $306.
15
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as of
and for the five years ended December 31, 1997 and the six months ended June
30, 1997 and 1998. The financial data as of December 31, 1996 and 1997 and for
the three years ended December 31, 1997 are derived from the Company's
financial statements, which have been audited by Deloitte & Touche LLP,
independent auditors, and which are included elsewhere in this Prospectus. The
financial data as of December 31, 1993, 1994 and 1995 and for the two years
ended December 31, 1994 were derived from the Company's audited financial
statements not included herein. The financial data as of and for the six
months ended June 30, 1997 and 1998 are derived from the Company's unaudited
financial statements. It is management's opinion that the financial data as of
and for the six months ended June 30, 1997 and 1998 contain all adjustments,
consisting solely of normal recurring adjustments, which management considers
necessary to fairly present the financial data set forth herein. The results
for the six months ended June 30, 1998 are not necessarily indicative of the
results to be expected for the full year. 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" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------- ------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues..... $18,657 $20,292 $19,778 $19,456 $22,083 $ 10,278 $ 10,892
Operating expenses..... 16,336 17,202 17,677 17,714 18,333 9,180 9,727
------- ------- ------- ------- ------- -------- --------
Income from
operations............ 2,321 3,090 2,101 1,742 3,750 1,098 1,165
Other income........... 707 1,206 581 1,660 638 415 2,596
Interest expense....... (1,353) (1,285) (1,175) (1,371) (1,358) (681) (463)
------- ------- ------- ------- ------- -------- --------
Income before income
taxes and
extraordinary item.... 1,675 3,011 1,507 2,031 3,030 832 3,298
Provision for income
taxes................. 570 1,200 590 780 1,100 310 1,174
------- ------- ------- ------- ------- -------- --------
Income before
extraordinary item.... 1,105 1,811 917 1,251 1,930 522 2,124
Extraordinary loss from
early extinguishment
of debt(a)............ -- -- -- -- -- -- 170
------- ------- ------- ------- ------- -------- --------
Net income............. 1,105 1,811 917 1,251 1,930 522 1,954
Preferred Stock
dividend.............. 32 31 3 3 3 3 3
------- ------- ------- ------- ------- -------- --------
Net income available to
common shareholders... $ 1,073 $ 1,780 $ 914 $ 1,248 $ 1,927 $ 519 $ 1,951
======= ======= ======= ======= ======= ======== ========
Basic income per share
before extraordinary
item(b)............... $ 0.76 $ 0.99 $ 0.45 $ 0.57 $ 0.87 $ 0.24 $ 0.73
======= ======= ======= ======= ======= ======== ========
Basic income per share
after extraordinary
item(b)............... $ 0.76 $ 0.99 $ 0.45 $ 0.57 $ 0.87 $ 0.24 $ 0.67
======= ======= ======= ======= ======= ======== ========
Diluted income per
share before
extraordinary
item(b)............... $ 0.54 $ 0.87 $ 0.43 $ 0.54 $ 0.81 $ 0.23 $ 0.71
======= ======= ======= ======= ======= ======== ========
Diluted income per
share after
extraordinary
item(b)............... $ 0.54 $ 0.87 $ 0.43 $ 0.54 $ 0.81 $ 0.23 $ 0.66
======= ======= ======= ======= ======= ======== ========
Weighted average
shares--basic......... 1,406 1,796 2,043 2,178 2,209 2,199 2,895
======= ======= ======= ======= ======= ======== ========
Weighted average
shares--diluted....... 2,042 2,077 2,136 2,461 2,489 2,474 2,975
======= ======= ======= ======= ======= ======== ========
Cash dividends declared
on common stock....... $ 141 $ 173 $ 205 $ 218 $ 267 $ 133 $ 171
======= ======= ======= ======= ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, AT
--------------------------------------- JUNE 30,
1993 1994 1995 1996 1997 1998
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................ $60,706 $61,496 $68,012 $68,491 $71,212 $74,719
Notes payable, bank......... 1,000 120 -- 1,440 1,350 --
Current portion, long-term
debt....................... 590 638 612 677 931 188
Long-term debt, less current
portion.................... 11,378 10,485 12,977 12,131 11,916 799
Shareholders' equity........ 31,113 32,914 34,455 36,061 38,038 54,543
</TABLE>
- --------
(a) Net of income tax benefit of $94,000.
(b) 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."
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 global, 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 10 fiscal 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. For the six months ended June 30, 1998, such income was $2.6 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, SIX MONTHS ENDED JUNE 30,
------------------------------------------- ----------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Freight Revenues:
Conventional carloads.. $17,352 87.7% $17,050 87.6% $19,001 86.0% $ 8,748 85.1% $ 9,222 84.7%
Containers............. 1,524 7.7 1,508 7.8 1,675 7.6 750 7.3 931 8.5
Non-Freight Operating
Revenues:
Transportation
services.............. 528 2.7 455 2.3 632 2.9 322 3.1 348 3.2
Other.................. 374 1.9 443 2.3 775 3.5 458 4.5 391 3.6
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Total.................. $19,778 100.0% $19,456 100.0% $22,083 100.0% $10,278 100.0% $10,892 100.0%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</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, SIX MONTHS ENDED JUNE 30,
------------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------- ------------ ------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Chemicals and plastics.. $ 7,548 43.5% $ 7,366 43.2% $ 8,000 42.1% $4,029 46.1% $3,905 42.3%
Construction aggregate.. 3,054 17.6 3,086 18.1 3,762 19.8 1,297 14.8 1,391 15.1
Food and agricultural
products............... 3,019 17.4 2,864 16.8 2,831 14.9 1,299 14.8 1,455 15.8
Forest and paper
products............... 2,308 13.3 2,319 13.6 2,546 13.4 1,187 13.6 1,350 14.6
Scrap metal and waste... 538 3.1 477 2.8 969 5.1 479 5.5 633 6.9
Other................... 885 5.1 938 5.5 893 4.7 457 5.2 488 5.3
------- ----- ------- ----- ------- ----- ------ ----- ------ -----
Total.................. $17,352 100.0% $17,050 100.0% $19,001 100.0% $8,748 100.0% $9,222 100.0%
======= ===== ======= ===== ======= ===== ====== ===== ====== =====
</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>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ---------------------------
1995 1996 1997 1997 1998
------------- ------------- ------------ ------------ -------------
(IN THOUSANDS, EXCEPT PERCENTAGES)
<S> <C> <C> <C> <C> <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% $5,309 51.6% $ 5,911 54.3%
Casualties and
insurance.............. 1,373 6.9 800 4.1 572 2.6 284 2.8 396 3.6
Depreciation............ 1,790 9.1 1,940 10.0 2,054 9.3 999 9.7 1,070 9.8
Diesel fuel............. 522 2.6 656 3.4 708 3.2 324 3.2 307 2.8
Car hire, net........... 708 3.6 605 3.1 598 2.7 318 3.1 285 2.6
Purchased services,
including legal and
professional fees...... 1,749 8.8 1,213 6.2 1,762 8.0 788 7.7 931 8.5
Repairs and maintenance
of equipment........... 714 3.6 687 3.5 943 4.3 506 4.9 496 4.6
Track and signal
materials.............. 1,877 9.5 1,257 6.4 1,866 8.4 801 7.8 477 4.4
Other materials and
supplies............... 796 4.0 848 4.4 1,012 4.6 454 4.4 553 5.1
Other................... 1,302 6.6 1,318 6.8 1,325 6.0 710 6.9 759 7.0
------- ----- ------- ----- ------- ---- ------ ----- ------- -----
Total.................. 20,828 105.3 20,010 102.8 21,863 99.0 10,493 102.1 11,185 102.7
Less capitalized and
recovered costs....... 3,151 15.9 2,296 11.8 3,530 16.0 1,313 12.8 1,458 13.4
------- ----- ------- ----- ------- ---- ------ ----- ------- -----
Total.................. $17,677 89.4% $17,714 91.0% $18,333 83.0% $9,180 89.3% $ 9,727 89.3%
======= ===== ======= ===== ======= ==== ====== ===== ======= =====
</TABLE>
18
<PAGE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Operating Revenues
Operating revenues increased $614,000, or 6.0%, to $10.9 million in the six
months ended June 30, 1998 from $10.3 million in the six months ended June 30,
1997. This increase was comprised of a $474,000 (5.4%) increase in
conventional freight revenues and a $181,000 (24.1%) increase in net container
freight revenues, partially offset by a $41,000 (5.3%) decrease in non-freight
operating revenues.
The increases in conventional and container freight revenues were primarily
the result of increases in traffic volume. The Company's conventional freight
carloadings increased by 745, or 5.5%, to 14,406 carloadings in the six months
ended June 30, 1998 from 13,661 carloadings in the prior year period. Total
intermodal containers handled increased by 3,784, or 19.1%, to 23,596
containers in the six months ended June 30, 1998 from 19,812 containers in the
prior year period. The average revenue per conventional carloading was
virtually unchanged between the six month periods. The average net revenues
received per intermodal container increased by 4.2% between the six month
periods due primarily to rate increases tied to certain railroad industry cost
indices.
The Company experienced increases in carload shipments by many of its
customers attributable primarily to improved national and regional economic
conditions as well as the Company's marketing efforts. In addition,
approximately 200 conventional carloadings (representing approximately
$140,000 of revenues) were attributable to customers of Conn Central, which
was acquired by the Company in April 1998. The increase in container volumes
was attributable to an increase in Asian imports, a shift in vessel routings
due to operational difficulties at the Panama Canal and the Company's success
in marketing its intermodal services.
The $41,000 decrease in non-freight operating revenues was attributable to
decreases in maintenance department billings, partially offset by increases in
demurrage and other transportation revenues. Such revenues can vary from
period to period depending upon customer needs.
Operating Expenses
Operating expenses increased $547,000, or 6.0%, to $9.7 million in the six
months ended June 30, 1998 from $9.2 million in the six months ended June 30,
1997. Operating expenses as a percentage of operating revenues ("operating
ratio") were 89.3% in both six month periods. Profit sharing expense, included
in General and Administrative Expense, for the six months ended June 30, 1998
was $337,000, an increase of $244,000 from the prior year period when profit
sharing expense was $93,000. The increase in profit sharing expense resulted
primarily from the substantial increase in Other Income realized in 1998. If
the increase in profit sharing expense were excluded, the operating ratio for
1998 would be 87.1%. This decrease from 1997 is indicative of the relatively
fixed nature of many of the Company's operating expenses.
Other Income
Other income increased $2.2 million to $2.6 million in the six months ended
June 30, 1998 from $415,000 in the six months ended June 30, 1997. This
increase was due to an increase in the gain from sales of properties and
easements, principally $2.0 million derived from the sale of fiber optic cable
licenses.
Interest Expense
Interest expense decreased $218,000, or 32.0%, to $463,000 in the six months
ended June 30, 1998 from $681,000 in the six months ended June 30, 1997. This
decrease was the result of the Company's repayment of all of its short-term
borrowings and a substantial portion of its long-term debt, primarily during
the second quarter of 1998, with the proceeds of the March Offering and the
fiber optic cable licenses.
19
<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.
20
<PAGE>
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,
$3.5 million and $1.2 million of cash from operations in 1995, 1996, 1997 and
the six months ended June 30, 1998, respectively.
21
<PAGE>
The Company's total cash and cash equivalents increased by $1.4 million in
1995, decreased by $1.3 million and $167,000 in 1996 and 1997, respectively,
and increased by $1.2 million in the six months ended June 30, 1998. The
principal utilization of cash during the three and one-half year period was
for expenditures for property and equipment acquisitions, principal payments
on debt obligations, reduction of current liabilities and payment of
dividends.
During 1995, 1996, 1997 and the six months ended June 30, 1998, the Company
generated approximately $108,000, $1.3 million, $230,000 and $2.7 million,
respectively, from sales and disposals of properties not considered essential
for railroad operations and from licenses or grants of easements. 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, $2.5 million and $1.4 million for track
structure and bridge improvements in 1995, 1996, 1997 and the six months ended
June 30, 1998, 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 and June
30, 1998. Management estimates that approximately $1.0 million of additional
improvements to the Company's track structure and bridges will be made in the
balance of 1998. 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. In the second quarter of 1998, the
Company purchased two used locomotives at a total cost of $720,000. These
expenditures are included in "purchase of property and equipment" in the
accompanying statements of cash flows. The Company has ordered 40 new 100-ton
gondolas at a cost of $50,000 each. The Company expects delivery of the
gondolas in the fourth quarter of 1998. The Company expects to finance the
purchase with available cash and borrowings under the Company's line of
credit.
The Company has entered into an engineering contract for the preliminary
design of an approximate $1.6 million expansion of its Worcester maintenance
center. The Company expects to complete the expansion by the end of 1999.
In June 1998, the Company's principal bank renewed the Company's line of
credit and increased the maximum borrowings allowed by $250,000 to $2.0
million. Borrowings under the line are unsecured and bear interest at either
the prime rate or 1.5% over either the one or three month London Interbank
Offered Rates. The Company had no advances against the line of credit during
the second quarter of 1998.
The Company received net proceeds of approximately $12.5 million from the
March Offering. Approximately $10.8 million of the net proceeds from the March
Offering were used to retire long and short-term debt, including $152,000 of
prepayment penalties. In addition, approximately $1.5 million of the funds
received in the first six months of 1998 in connection with the fiber optic
cable licenses were used to retire long-term debt, including $112,000 of
prepayment penalties.
In July 1998, the Company received $1.0 million from Bestfoods as an interim
payment of Bestfoods' obligation to pay 10% of Bestfoods' net recovery from
its insurance carrier. The Company utilized $540,000 of these funds to retire
additional long-term debt, including a prepayment penalty of $40,000. This
payment reduced the Company's total outstanding long-term debt to
approximately $0.5 million. As a result of its debt retirement, the Company's
future cash requirements for debt principal and interest payments have been
substantially
22
<PAGE>
reduced. As a further result of debt retirement, the Company's assets,
including receivables, real estate, track, locomotives and rolling stock and
maintenance equipment are no longer encumbered by any liens, mortgages or
security interests. As of the date hereof, the Company has no short-term
borrowings.
The Company paid dividends in the amount of $5.00 per share on its
outstanding Preferred Stock in February of 1997 and 1998, and $0.12 per share
and $0.06 per share on its outstanding Common Stock in 1997 and in the six
months ended June 30, 1998, respectively. Continued payment of such dividends
is contingent upon the Company's continuing to have the necessary financial
resources available.
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 (including this
Offering), 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 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.
The Company has completed an analysis of its information technology and
other operating systems to determine which may be impacted by "Year 2000"
issues. Based on this analysis, preparations for the Year 2000 have been
underway for six years and changes to the Company's information technology are
substantially complete. The Company's other non-information technology systems
have also been evaluated and no Year 2000 issues have been identified.
Modifications to the Company's information technology programs have been
performed by internal staff with the associated costs incorporated into the
Company's annual operating budgets and, therefore, such costs are not
separately identifiable. No material additional costs are anticipated at this
time.
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 ability to operate. The Company
relies 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. However, Railinc,
with whom the majority of these railroads interface electronically, has
informed the Company that it is currently addressing the Year 2000 issue and
expects to be Year 2000 compliant by early 1999. The Company believes that any
modifications to its programs resulting from Railinc changes will be minimal
and that such changes can be readily made.
The Company's contingency plan in the event other parties should be unable
to provide Year 2000 compliant electronic data is to revert to paper
documentation from these parties. However, to the extent that customers,
connecting carriers or other entities with which the Company has material
relationships do not
23
<PAGE>
adequately address Year 2000 issues, the Company could experience payment
delays and service disruptions which could materially adversely affect its
operations.
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 were adopted by the Company during the first quarter
of 1998 and have not had material effects on its financial position, results
of operations or footnote disclosures.
24
<PAGE>
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 545 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, Stone Container Corporation 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. Carload and container volumes have increased 5.5% and 19.1%,
respectively in the first six months of 1998, compared to the same period in
1997. 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
25
<PAGE>
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
On July 23, 1998, the STB issued its written decision approving the
acquisition, control and division of Conrail by CSX and Norfolk Southern (the
"STB Decision"). The acquirers have assumed financial control of Conrail but
have not announced the date on which the assets are to be divided. Upon the
division of Conrail, CSX will assume all of Conrail's operations in New
England.
While the impact of the division of Conrail 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
breakup, and believes that the breakup 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. CSX
is expected to focus on the growth of north-south traffic between its existing
rail lines in the south and its acquired Conrail lines in the north. The
Company is working with CSX to expand intermodal traffic volume between the
southeastern United States and the Company's intermodal terminals.
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 and
exit 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.
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<PAGE>
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 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 2001, will provide the Company with increased
access to customers at the Port of New Haven.
BUSINESS STRATEGY
The Company intends to become the dominant rail freight carrier in New
England by acquiring connecting rail lines and trackage rights, expanding
service in the New York City/Long Island market, upgrading and expanding its
rail infrastructure, acquiring and developing strategically located terminal
properties, expanding relationships with existing customers, and expanding its
contract maintenance and repair capabilities. In particular, the Company's
business strategy involves the following:
. Acquire Connecting Rail Lines and Trackage Rights. Historically, P&W has
grown through strategic acquisitions of other railroads and trackage
rights which connect to the Company's system, coupled with upgrades of
acquired rail infrastructure. For example, in April 1998, the Company
acquired Conn Central, a short-line railroad with operating rights over
approximately 28 miles of track in central Connecticut, including an
unused 11 mile line that P&W has begun to rebuild to gain access to the
Hartford, Connecticut market. The Company believes that industry and
regional developments have created and will continue to create
opportunities for P&W to acquire additional rail properties and trackage
rights on connecting lines. Such acquisitions should enable the Company
to expand its customer base, spread fixed administrative costs over a
larger revenue base and realize other operating efficiencies. The Company
intends to aggressively pursue these acquisition opportunities.
. Expand Service in New York City/Long Island Market. Pursuant to a 1997
agreement with CSX concerning the line between New Haven, Connecticut and
Fresh Pond Junction (Queens), New York, the Company has the ability to
market rail service for all general merchandise and intermodal traffic
between parts of New York City and Long Island and the rest of North
America via P&W's system. This agreement marked the first opportunity for
P&W to service Long Island and New York City with general merchandise and
intermodal traffic. The New York City and Long Island metropolitan area
is one of the country's largest markets for the consumption of products
and freight transportation services. According to filings by public
officials with the STB, the region generates 142 million tons of freight
per year, 98 million tons of which is reported to be appropriate for rail
transport. The Company anticipates that increasing restrictions on
landfill and other local disposal options, as evidenced by the imminent
closing of the Fresh Kill landfill on Staten Island, will create
additional opportunities for transport of municipal solid waste generated
in this heavily populated area. Pursuant to a directive in the STB
Decision, CSX and the Company have begun discussions regarding the
possible expansion of P&W's service in this area through haulage or
trackage rights.
. 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 project 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,
27
<PAGE>
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
Groton to Worcester main line) and is planning an intermodal facility at
the South Quay.
. 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 increases existing business by maintaining close working
relationships with both customers and connecting carriers and assisting
with development projects such as increasing track capacity, locating
appropriate facilities and providing new shipment capabilities. 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. Completion of the Port of New Haven
project should also provide the Company with increased opportunities for
business with the Port's tenants. The Company expects delivery of 40 100-
ton gondola rail cars in the fourth quarter of 1998 which should enable
the Company to derive greater freight revenues on the shipment of scrap
metals, hazardous bulk waste and coiled wire as well as car hire income
(i.e., payments made to the Company by other carriers for time the
Company's cars are on such carrier's line).
. 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 has entered into an
engineering contract for the preliminary design of an approximate $1.6
million expansion of its Worcester maintenance center. The planned
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 545 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 (Queens), New
York on Long Island. Through its connections, P&W links 86 communities on its
lines. It operates four classification yards (i.e., 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.
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<PAGE>
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 51.6% and 50.0% of operating revenues in 1997 and the six months
ended June 30, 1998, respectively. 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.
In recent years, P&W has benefited from the expansion of existing customers'
facilities as well as from 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, in
May 1998, a major office supply retailer opened 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. Chemical and plastics
was the largest commodity group transported by the Company in the first six
months of 1998, constituting 42% of the Company's conventional carload freight
revenues. Due to the seasonality of shipments of construction aggregate, which
are historically lower in the first quarter, construction aggregate, food and
agricultural products, and forest and paper products each represented
approximately 15% of such revenues for such six month period. The following
table summarizes the Company's conventional carload freight revenues by
commodity group as a percentage of such revenues:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30
---------------
COMMODITY 1993 1994 1995 1996 1997 1997 1998
--------- ---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Chemicals and Plastics......... 46% 46% 44% 43% 42% 46% 42%
Construction Aggregate......... 11 15 18 18 20 15 15
Food and Agricultural
Products...................... 16 16 17 17 15 15 16
Forest and Paper Products...... 15 14 13 14 13 14 15
Scrap Metal and Waste.......... 4 3 3 3 5 5 7
Other.......................... 8 6 5 5 5 5 5
--- --- --- --- --- ------ ------
Total........................ 100% 100% 100% 100% 100% 100% 100%
=== === === === === ====== ======
</TABLE>
Sales and Marketing
P&W's sales and marketing staff of four people has over 55 years of combined
experience in pricing and marketing railroad services. The sales and marketing
staff focuses on understanding and addressing the raw
29
<PAGE>
material requirements and transportation needs of its existing customers and
businesses on its lines. The staff increases 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, (iii) identifying and targeting the non-rail
transportation of goods into and out of the region in which the Company
operates and (iv) providing new shipment capabilities such as liquid bulk
transloading. 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. As a result, the
Company 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 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 rail traffic to and from Fresh Pond Junction (Queens), New York.
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 June 30, 1998, the Company had 152 full-time employees, 118 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.
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<PAGE>
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 on or after
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 is currently
negotiating with the United Transportation Union regarding possible amendments
to its collective bargaining agreement with the Company. 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. As a result of
its 1997 agreement with CSX, the Company will be able to compete for general
merchandise traffic destined for parts of New York City and Long Island.
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 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 545 miles of track, of which it
owns approximately 170 miles. The Company has the right to use the remaining
375 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 545 miles of track on which the Company operates, 341
miles, or 63%, are in FRA Class 3 condition or better, which permits speeds of
40 miles per hour for freight trains. An additional 66 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 138 miles, or 25%, are in FRA Class 1
or FRA Excepted condition, which permits maximum speeds of 10 miles per hour.
Of the 138 miles of FRA Class 1 or FRA Excepted track, 35 miles are owned and
maintained by other railroads; of the remaining 103 miles, the Company
operates on only 51 miles and the balance of 52 miles is not currently in use.
The following chart shows the percentage value of the Company's trackage by
FRA classification.
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[PIE CHART OF TRACK CONDITION OF COMPANY'S SYSTEM]
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 237 of the 545 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.
Of the approximately 545 miles of the Company's system, 312 miles, or 57%,
are located in Connecticut, 103 miles, or 19%, are located in Massachusetts,
102 miles, or 19%, are located in Rhode Island and 28 miles, or 5%, are
located in New York.
[PIE CHART OF COMPANY'S SYSTEM BY STATE]
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.
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<PAGE>
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 has entered into an engineering contract for the preliminary
design of an approximate $1.6 million expansion of the Worcester maintenance
facility. The planned expansion should increase the efficiency of routine
maintenance and repairs and 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 "--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 $11.6 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."
Rolling Stock
The following schedule sets forth the rolling stock owned by the Company as
of June 30, 1998:
<TABLE>
<CAPTION>
DESCRIPTION NUMBER
----------- ------
<S> <C>
Locomotive............................................................ 28
Gondola............................................................... 37
Flat Car.............................................................. 5
Hopper Car............................................................ 15
Passenger Equipment................................................... 8
Caboose............................................................... 3
Other Maintenance Cars................................................ 40
---
Total............................................................... 136
===
</TABLE>
Of the 28 diesel-electric locomotives, 27 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, five flat cars
and 15 hopper cars are considered modern rail cars and can be used by P&W
customers and interchanged with other railroads. Other rail freight customers
use their own freight cars or obtain such equipment from other sources. The
Company expects delivery of 40 100-ton capacity gondolas in the fourth quarter
of 1998 which will enable P&W to respond to customer demand. From time to
time, the Company has leased hopper cars to 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.
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<PAGE>
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 ("ACSES"), 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 ACSES, the cost of which is anticipated to be at least
$50,000 per locomotive. The order does not address whether the federally
funded high speed project or the Company will bear the costs of required
locomotive retrofits but Amtrak has been ordered to provide interim financing.
In the Senate Transportation Appropriations Bill for fiscal year 1999, $1.0
million is appropriated for the installation of ACSES on locomotives of small
operators on the Northeast Corridor that do not have funding from other
federal sources. If enacted, this appropriation may result in federal funds
paid to Amtrak for the cost of equipping P&W's trains with ACSES.
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 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. In February
1998, Allstate Insurance Company ("Allstate") filed suit in the Rhode Island
Superior Court against the Company and
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<PAGE>
Bestfoods alleging rights of subrogation and setoff. The Company believes that
since Bestfoods has released the Company from all liability, Allstate has no
right of subrogation and its claim against the Company 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. In accordance with
the Settlement Agreement, Bestfoods has assumed the Company's defense against
Allstate's lawsuit.
The Company has invested approximately $11.6 million in the development of
the South Quay, which is comprised of approximately 33 acres of reclaimed
formerly tide flowed land 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. The New England Legal Foundation and East Providence
Chamber of Commerce have each indicated its intention to file an amicus curiae
brief in favor of the Company's position. 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. 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. In the STB
Decision, the STB preempted the application of the 1982 Order by finding CSX's
operation of New Haven Station to be a necessary and integral part of the
acquisition and division of Conrail. The Company intends to refile its claim
in the District Court based on that court's exclusive jurisdiction over the
interpretation and application of the 1982 Order. The Company also intends to
appeal the STB Decision to the United States Court of Appeals and seek
injunctive relief to protect the Company's interests.
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<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. 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)....... 66 Chairman of the Board and Chief Executive Officer
Orville R. Harrold(b)... 66 President, Chief Operating Officer and Director
Robert J. Easton(b)..... 55 Treasurer and Director
Heidi J. Eddins......... 42 Vice President, Secretary and General Counsel
Frank W. Barrett(b)..... 58 Director
Phillip D. Brown(b)..... 54 Director
John P. Burnham(c)...... 58 Director
John H. Cronin(b)....... 64 Director
J. Joseph Garrahy(b).... 67 Director
John J. Healy(b)........ 62 Director
William J. LeDoux(a).... 67 Director
Charles M. McCollam,
Jr.(a)................. 65 Director
</TABLE>
--------
(a) Elected by holders of Common Stock.
(b) Elected by holders of Preferred Stock.
(c) Elected by Board of Directors to fill vacancy.
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.
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<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.
John P. Burnham, Director. Mr. Burnham has been a Director since April 1998
when he was elected by the Board to fill a vacancy created by an increase in
the size of the Board in connection with the acquisition of Conn Central. From
1987 to April 1998, he was a shareholder of Conn Central and served as its
Chairman. He is a numismatic and financial consultant. From 1967 to 1996, Mr.
Burnham was the curator of the numismatic (rare coin) collection at Yale
University.
Phillip D. Brown, Director. Mr. Brown has been a Director of the Company
since 1995. Since August 1993, he has been President and Chief Executive
Officer of Unibank for Savings, a regional bank in central Massachusetts. 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. From January 1992 to
January 1997, 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. Since 1970, he has owned and operated 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, 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,
37
<PAGE>
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.
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.
38
<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 173,641 shares at June 30, 1998). 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, 4,860 shares have been purchased under the
Employee Stock Purchase Plan.
39
<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, 147,148 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, 1,450 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 13% $7.875 01/02/07 $2,702
Ronald P. Chrzanowski... 451 6 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.
40
<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. In March 1998, the Company used a portion of the proceeds of the
March Offering to repay the Capital Properties note in full.
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.
41
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Common Stock as of July 31, 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) each of the
Company's directors and Named Executive Officers; and (iii) all directors and
executive officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES OWNED OWNERSHIP AFTER
BEFORE OFFERING OFFERING
------------------ ---------------------
NUMBER PERCENTAGE NUMBER PERCENTAGE
NAME ------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Robert H. Eder(a).................... 892,742 25.3% 892,742(n) 19.7%(n)
Orville R. Harrold(b)................ 24,387 * 24,387 *
Robert J. Easton(c).................. 2,460 * 2,460 *
Heidi J. Eddins(d)................... 4,340 * 4,340 *
Frank W. Barrett(e).................. 730 * 730 *
Phillip D. Brown(f).................. 330 * 330 *
John P. Burham....................... 10,500 * 10,500 *
John H. Cronin(g).................... 1,640 * 1,640 *
J. Joseph Garrahy(h)................. 1,150 * 1,150 *
John J. Healy(i)..................... 1,000 * 1,000 *
William J. LeDoux(j)................. 1,650 * 1,650 *
Charles M. McCollam, Jr.(k).......... 610 * 610 *
Massachusetts Capital Resource
Company(l).......................... 200,000 5.8 200,000 4.5
All executive officers and directors
as a group (12 people)(m)........... 941,539 26.7% 941,539 20.8%(o)
</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) 1,858 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 1,140 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 1,139 shares of Common Stock
issuable under stock options exercisable within 60 days.
(e) Includes 230 shares of Common Stock issuable under stock options
exercisable within 60 days.
(f) Includes 230 shares of Common Stock issuable under stock options
exercisable within 60 days.
(g) Includes 210 shares of Common Stock issuable under stock options
exercisable within 60 days.
(h) Includes 150 shares of Common Stock issuable under stock options
exercisable within 60 days.
(i) Includes 700 shares of Common Stock issuable under stock options
exercisable within 60 days.
(j) Includes 1,050 shares of Common Stock issuable under stock options
exercisable within 60 days.
(k) Includes 110 shares of Common Stock issuable under stock options
exercisable within 60 days.
(l) MCRC's address is 420 Boylston Street, Boston, Massachusetts 02116.
(m) Includes 50,000 shares of Common Stock issuable upon conversion of
Preferred Stock and 6,817 shares of Common Stock issuable under stock
options exercisable within 60 days.
(n) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, Ownership After Offering will
be 742,742 shares and 16.4%.
(o) Assumes no exercise of the Underwriters' over-allotment option. If the
over-allotment option is exercised in full, Ownership After Offering will
be 791,539 shares and 17.5%.
42
<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 15,000,000 shares of Common Stock,
$.50 par value per share. As of the date hereof, 3,473,044 shares of Common
Stock are issued and outstanding and held by approximately 720 shareholders of
record. Upon the completion of this Offering, there will be 4,473,044 shares
of Common Stock issued and outstanding.
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 Company is authorized to issue up to 647 shares of Preferred Stock, $50
par value per share. As of the date of this Prospectus, 647 shares of
Preferred Stock are issued and outstanding and held by seven 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 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.
Additional Common Stock
The Company is 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.
43
<PAGE>
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 4,473,044 shares
of Common Stock outstanding. Of these shares, 4,449,430 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 23,614 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 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
44
<PAGE>
exceed the greater of (i) 1% of the then outstanding shares of Common Stock of
the Company (44,730 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 August 24, 1998,
options to purchase a total of 39,781 shares of Common Stock were outstanding.
An additional 304,944 shares of Common Stock (354,944 shares upon consummation
of this Offering) will be available for future stock option grants and other
awards under the Company's Stock Plans. The Company has filed Registration
Statements covering a portion of the shares of Common Stock reserved for
issuance under the Stock Option Plan and the Employee Stock Purchase Plan. As
of August 24, 1998, 254,903 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. The Company intends to register an
additional 100,000 shares of Common Stock which became or will become issuable
under the Company's Stock Plan as a result of the March Offering and this
Offering. See "Management--Stock Plans." In addition, the former shareholders
of Conn Central are entitled to receive 7,500 additional unregistered shares
of Common Stock in April 1999 if certain financial targets are met.
In connection with the March Offering, the Company sold Advest, Inc. and
Schneider Securities, Inc. warrants to purchase up to 100,000 shares of Common
Stock at an exercise price of $22.09 per share. These warrants become
exercisable on March 17, 1999, expire on March 17, 2003 and grant to the
holders thereof certain demand and "piggyback" rights of registration of the
securities issuable upon the exercise thereof. In connection with this
Offering, the Company agreed to sell Advest, Inc. additional warrants to
purchase up to 100,000 shares of Common Stock. See "Underwriting."
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 MCRC's 200,000 shares of Common
Stock (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 Bestfoods dated December
12, 1995, Bestfoods has the right to require the Company to register all or a
portion of the 83,155 shares of Common Stock held by Bestfoods (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 Bestfoods' counsel and Bestfoods' pro rata share of any
registration fees, underwriting discounts and commissions, except if the
registration is exclusively a secondary offering, in which case Bestfoods will
bear its proportionate share of the expenses of the registration and offering.
The Company will indemnify Bestfoods against certain liabilities, including
liabilities under the federal securities law, in connection with any such
registrations.
The Company, its executive officers and directors and principal shareholders
have agreed that from March 19, 1998, and for a period of 180 days after the
date of this Prospectus, subject to certain exceptions, they will not, without
the prior written consent of Advest, Inc., 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. See "Underwriting."
45
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions set forth in the underwriting
agreement (the "Underwriting Agreement") among the Company, 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 has 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. ...................................................
---------
Total......................................................... 1,000,000
=========
</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 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, a non-
accountable expense allowance of $100,000.
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 150,000 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 principal
shareholders have agreed that for a period of 180 days 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.
Subject to certain limitations, the Company 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.
46
<PAGE>
In connection with this Offering, the Company has agreed to sell to Advest,
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 as of December 31, 1996 and 1997 and for the years
ended December 31, 1995, 1996 and 1997 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.
47
<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.
48
<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, and June 30, 1998 (unau-
dited).................................................................. F-3
Statements of Income for the Years Ended December 31, 1995, 1996 and 1997
and the Six Months Ended June 30, 1997 and 1998 (unaudited)............. F-4
Statements of Shareholders' Equity for the Years Ended December 31, 1995,
1996 and 1997 and the Six Months Ended June 30, 1998 (unaudited)........ F-5
Statements of Cash Flows for the Years Ended December 31, 1995, 1996 and
1997 and the Six Months Ended June 30, 1997 and 1998 (unaudited)........ 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)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30
1996 1997 1998
------- ------- ---------
UNAUDITED
<S> <C> <C> <C>
Current Assets:
Cash and equivalents................................ $ 686 $ 519 $ 1,748
Accounts receivable, net of allowance for doubtful
accounts of $125 in 1996, 1997 and 1998 (Notes 3, 4
and 11)............................................ 2,537 2,345 2,302
Materials and supplies.............................. 1,021 2,086 2,042
Prepaid expenses and other.......................... 121 167 124
Deferred income taxes (Note 7)...................... 400 204 123
------- ------- -------
Total Current Assets............................... 4,765 5,321 6,339
Property and Equipment, net (Notes 2 and 4).......... 63,726 65,891 68,173
Goodwill (Note 11)................................... -- -- 207
------- ------- -------
Total Assets......................................... $68,491 $71,212 $74,719
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable, bank (Notes 3 and 11)................ $ 1,440 $ 1,350 $ --
Current portion of long-term debt (Notes 4 and 11).. 677 931 188
Accounts payable.................................... 2,861 2,083 2,110
Accrued expenses (Note 5)........................... 907 901 600
Income taxes........................................ -- 30 635
------- ------- -------
Total Current Liabilities.......................... 5,885 5,295 3,533
------- ------- -------
Long-Term Debt, Less Current Portion (Notes 4 and
11)................................................. 12,131 11,916 799
------- ------- -------
Profit-Sharing Plan Contribution (Note 9)............ 226 337 337
------- ------- -------
Deferred Grant Income (Note 1)....................... 5,571 6,945 6,867
------- ------- -------
Deferred Income Taxes (Note 7)....................... 8,617 8,681 8,640
------- ------- -------
Commitments and Contingent Liabilities (Note 8)......
Shareholders' Equity (Notes 8, 9, 10 and 11):
Preferred stock, 10% noncumulative, $50 par value;
authorized 6,817 shares in 1996 and 1997 and 647
shares in 1998; issued and outstanding 653 shares
in 1996 and 1997 and 647 in 1998................... 33 33 32
Common stock, $.50 par value; authorized 3,023,436
shares in 1996 and 1997 and 15,000,000 in 1998;
issued and outstanding 2,188,244 shares in 1996,
2,221,933 shares in 1997 and 3,472,829 shares in
1998............................................... 1,094 1,111 1,737
Additional paid-in capital.......................... 6,365 6,665 20,765
Retained earnings................................... 28,569 30,229 32,009
------- ------- -------
Total Shareholders' Equity......................... 36,061 38,038 54,543
------- ------- -------
Total Liabilities and Shareholders' Equity........... $68,491 $71,212 $74,719
======= ======= =======
</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 SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------- -----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- --------
UNAUDITED
<S> <C> <C> <C> <C> <C>
Operating Revenues -- Freight and
Non-Freight..................... $19,778 $19,456 $22,083 $10,278 $ 10,892
------- ------- ------- ------- --------
Operating Expenses:
Maintenance of way and struc-
tures.......................... 2,469 2,815 3,035 1,629 1,541
Maintenance of equipment........ 1,538 1,555 1,874 940 1,023
Transportation.................. 5,106 4,917 4,987 2,377 2,604
General and administrative...... 4,095 3,859 3,764 1,798 2,064
Depreciation.................... 1,790 1,940 2,054 999 1,070
Taxes, other than income taxes.. 1,971 2,023 2,021 1,119 1,140
Car hire, net................... 708 605 598 318 285
------- ------- ------- ------- --------
Total Operating Expenses....... 17,677 17,714 18,333 9,180 9,727
------- ------- ------- ------- --------
Income from Operations........... 2,101 1,742 3,750 1,098 1,165
------- ------- ------- ------- --------
Other Income (Note 6)............ 581 1,660 638 415 2,596
------- ------- ------- ------- --------
Interest Expense (Notes 3 and 4):
Capital Properties, Inc......... (668) (437) (410) (208) (99)
Other........................... (507) (934) (948) (473) (364)
------- ------- ------- ------- --------
Total Interest Expense......... (1,175) (1,371) (1,358) (681) (463)
------- ------- ------- ------- --------
Income before Income Taxes and
Extraordinary Item.............. 1,507 2,031 3,030 832 3,298
Provision for Income Taxes (Note
7).............................. 590 780 1,100 310 1,174
------- ------- ------- ------- --------
Income before Extraordinary
Item............................ 917 1,251 1,930 522 2,124
Extraordinary Loss from Early Ex-
tinguishment of Debt, Net of In-
come Tax Benefit of $94 (Note
11)............................. -- -- -- -- 170
Net Income....................... $ 917 $ 1,251 $ 1,930 522 1,954
Preferred Stock Dividends........ 3 3 3 3 3
------- ------- ------- ------- --------
Net Income Available to Common
Shareholders.................... $ 914 $ 1,248 $ 1,927 $ 519 $ 1,951
======= ======= ======= ======= ========
Basic Income Per Common Share:
Income before extraordinary
item........................... $ .45 $ .57 $ .87 $ .24 $ .73
Extraordinary item.............. -- -- -- -- (.06)
Net income...................... $ .45 $ .57 $ .87 $ .24 $ .67
======= ======= ======= ======= ========
Diluted Income Per Common Share:
Income before extraordinary
item........................... $ .43 $ .54 $ .81 $ .23 $ .71
Extraordinary item.............. -- -- -- -- (.05)
Net income...................... $ .43 $ .54 $ .81 $ .23 $ .66
======= ======= ======= ======= ========
</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
AND SIX MONTHS ENDED JUNE 30, 1998
----------------------------------------------------
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
Issuance of 4,526 common
shares for stock options
exercised, employee stock
purchases and other
(unaudited)............... 2 45 47
Issuance of 1,000,000
common shares for an
underwritten public stock
offering (net of expenses)
(unaudited)............... 500 12,038 12,538
Issuance of 200,000 common
shares for stock purchase
warrants exercised
(unaudited)............... 100 1,320 1,420
Issuance of 22,156 common
shares to fund the
Company's 1997 profit
sharing plan contribution
(unaudited)............... 11 326 337
Issuance of 23,614 common
shares for the acquisition
of Conn Central
(unaudited)............... 12 371 383
Conversion of 6 preferred
shares into 600 common
shares (unaudited)........ (1) 1
Dividends (unaudited):
Preferred stock, $5.00 per
share..................... (3) (3)
Common stock, $.06 per
share..................... (171) (171)
Net income for the period
(unaudited)................ 1,954 1,954
---- ------- ------- -------- --------
Balance June 30, 1998
(unaudited)................ $ 32 $ 1,737 $20,765 $ 32,009 $ 54,543
==== ======= ======= ======== ========
</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>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
UNAUDITED
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income................... $ 917 $ 1,251 $ 1,930 $ 522 $ 1,954
Adjustments to reconcile net
income to net cash flows
from operating activities:
Depreciation................ 1,790 1,940 2,054 999 1,070
Amortization of deferred
grant income............... (121) (136) (149) (72) (78)
Gains from sale,
condemnation and disposal
of property and equipment.. (64) (1,103) (157) (150) (2,330)
Deferred income taxes....... 220 600 260 135 40
Other, net.................. 19 26 65 -- --
Increase (decrease) in cash
from:
Accounts receivable........ (636) 68 217 159 (148)
Materials and supplies..... (68) (290) (1,065) (377) 44
Prepaid expenses and
other..................... (12) 18 (46) 31 43
Accounts payable and
accrued expenses.......... 1,132 (914) 422 631 641
-------- -------- -------- ------- --------
Net cash flows from operating
activities.................. 3,177 1,460 3,531 1,878 1,236
-------- -------- -------- ------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment................... (4,490) (5,465) (5,160) (2,573) (3,614)
Proceeds from sale and
condemnation of property and
equipment................... 108 1,319 230 184 2,729
Proceeds from deferred grant
income...................... 378 901 1,475 329 192
-------- -------- -------- ------- --------
Net cash flows used by
investing activities........ (4,004) (3,245) (3,455) (2,060) (693)
-------- -------- -------- ------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net borrowings (payments)
under line of credit........ (120) 1,440 (90) (85) (1,350)
Payments of long-term debt... (4,254) (789) (699) (353) (10,491)
Dividends paid............... (208) (221) (270) (136) (174)
Proceeds from long-term
debt........................ 6,800 -- 730 654 --
Net proceeds from public
offering of 1,000,000 shares
of common stock............. -- -- -- -- 12,538
Issuance of common shares for
stock options exercised,
employee stock purchases and
acquisition of subsidiary... 26 29 86 32 163
-------- -------- -------- ------- --------
Net cash flows from (used by)
financing activities........ 2,244 459 (243) 112 686
-------- -------- -------- ------- --------
Increase (Decrease) in Cash
and Equivalents............. 1,417 (1,326) (167) (70) 1,229
Cash and Equivalents,
Beginning of Period......... 595 2,012 686 686 519
-------- -------- -------- ------- --------
Cash and Equivalents, End of
Period...................... $ 2,012 $ 686 $ 519 $ 616 $ 1,748
======== ======== ======== ======= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid during period for:
Interest.................... $ 1,269 $ 1,333 $ 1,328 $ 672 $ 449
======== ======== ======== ======= ========
Income taxes................ $ 543 $ 60 $ 873 $ 78 $ 442
======== ======== ======== ======= ========
</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.
INTERIM RESULTS (UNAUDITED)
The unaudited financial statements for the six months ended June 30, 1997
and 1998 reflect all adjustments, all of which are of a normal recurring
nature, necessary in the opinion of management for a fair presentation of the
results for such interim periods and are not necessarily indicative of full-
year results.
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
F-7
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
for capital improvements. In order to receive reimbursement, the Company must
submit requests for the projects, 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 $1,927
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 were adopted by the Company during the first quarter
of 1998 and did not have material effects on its financial position, results
of operations or footnote disclosures.
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.
See Note 11--Events Subsequent to Date of Independent Auditors' Report
(Unaudited).
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>
See Note 11--Events Subsequent to Date of Independent Auditors' Report
(Unaudited).
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>
See Note 11--Events Subsequent to Date of Independent Auditors' Report
(Unaudited)
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.
See Note 11--Events Subsequent to Date of Independent Auditors' Report
(Unaudited).
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.
11. EVENTS SUBSEQUENT TO DATE OF INDEPENDENT AUDITORS' REPORT (UNAUDITED)
In March 1998, MCRC exercised its warrants to acquire 200,000 newly issued
shares of the Company's Common Stock for $7.10 per share. Proceeds to the
Company consisted of a $1,420 reduction in the outstanding principal balance
of its 10% subordinated long-term note payable to MCRC.
In March 1998, the Company completed an underwritten public offering for
1,000,000 shares of Common Stock at $14.25 per share (the "March Offering").
Net proceeds of the March Offering were approximately $12,538.
In connection with the March Offering, the Company sold to the underwriters
warrants to purchase up to 100,000 shares of Common Stock at an exercise price
of $22.09 per share. These warrants become exercisable on March 17, 1999,
expire on March 17, 2003 and grant to the holders thereof certain demand and
"piggyback" rights of registration of the securities issuable upon exercise.
The Company utilized a substantial portion of the proceeds from the March
Offering and from other income generated in 1998 from the sale of fiber optics
licenses ($2,043) to retire all of its short term borrowings ($1,575) and to
prepay $10,228 of its outstanding long-term debt. Prepayment penalties of $264
were incurred on early extinguishment of a portion of the debt, which
penalties (net of tax benefit) have been reported as an extraordinary item on
the accompanying statement of income. As of June 30, 1998, the Company's
remaining long-term debt consists of a 10% subordinated note payable to MCRC
in the total amount of $987. The Company intends to utilize the balance of the
March Offering proceeds to acquire rail cars and expand its Worcester
maintenance facility.
On April 21, 1998 the Company acquired all of the outstanding common stock
of Conn Central for 20,000 shares of newly issued Common Stock of the Company.
The Company issued an additional 3,614 shares of its Common Stock to retire
$50 of debt owed by Conn Central to two of its former shareholders. The total
fair market value of the shares issued was $383, which exceeded the fair
market value of the net assets acquired by $207, which amount is reported as
goodwill on the accompanying balance sheet. The Company intends to amortize
this goodwill over a period of three years, beginning in the third quarter of
1998. Conn Central's former shareholders will receive an additional 7,500
shares of the Company's Common Stock in April 1999 if certain financial and
other conditions are met. Issuance of such shares will give rise to additional
goodwill. Conn Central was a shortline railroad which had operating rights
over approximately 28 miles of track in central Connecticut connecting to the
Company's Middletown Secondary line. Conn Central's operations were merged
into those of the Company at the time of acquisition.
In June 1998 the Company's principal bank renewed the Company's revolving
line of credit and increased the maximum borrowings under the line from $1,750
to $2,000. Loans outstanding under the renewed line are unsecured and bear
interest at either the prime rate or 1.5% over either the one or three month
London Interbank Offered Rates. There were no loans outstanding under the line
at June 30, 1998.
F-17
<PAGE>
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
In April 1998, the Company paid its remaining liability to Bestfoods under
the 1995 settlement agreement relating to Bestfoods' environmental claim. (See
Note 8). In July 1998, Bestfoods paid $1,000 to the Company as an interim
payment of Bestfoods' obligation to pay the Company 10% of Bestfoods' net
recovery from its insurance carrier, pending final resolution of amounts to be
paid to Bestfoods by the insurance carrier. The Company utilized a portion of
these funds to prepay an additional $500 of its subordinated long-term note
payable to MCRC thereby reducing the unpaid principal balance of this note to
approximately $500. The Company incurred a prepayment penalty of $40 on this
prepayment.
On January 28, 1998 the Company declared a dividend of $5.00 per share on
its preferred stock and $.03 per share on its outstanding Common Stock payable
February 25, 1998 to shareholders of record on February 11, 1998. On April 29,
1998, the Company declared a dividend of $.03 per share on its outstanding
common stock payable May 28, 1998 to shareholders of record on May 14, 1998.
On July 29, 1998, the Company declared a dividend of $.03 per share on its
outstanding Common Stock payable August 27, 1998 to shareholders of record on
August 13, 1998.
F-18
<PAGE>
[PHOTOGRAPH OF 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................................................................. 25
Management............................................................... 36
Certain Transactions..................................................... 41
Principal Shareholders................................................... 42
Description of Capital Stock............................................. 43
Shares Eligible for Future Sale.......................................... 44
Underwriting............................................................. 46
Legal Matters............................................................ 47
Experts.................................................................. 47
Available Information.................................................... 48
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,000,000 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............... $ 5,919
NASD Filing Fee................................................... 2,506
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...................................... 55,000
Legal Fees and Expenses........................................... 75,000
Non-accountable Expense Allowance................................. 100,000
Printing, Engraving and Delivery Expenses......................... 35,000
Miscellaneous..................................................... 8,575
--------
Total........................................................... $310,000
========
</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
1998 23,614 shares of Former shareholders of Consideration for
Common Stock Connecticut Central purchase of stock and
Railroad Company payment of notes of
Connecticut Central
Railroad Company, valued
at $383,000
1998 22,156 shares of Employees $337,000 pursuant to the
Common Stock terms of the Company's
Profit-Sharing Plan
1998 450 shares of Employees $6,694 pursuant to the
Common Stock terms of the Company's
Safety Incentive Plan
April 1998 200,000 shares of Massachusetts Conversion of
Common Stock Capital Resources $1,420,000
Company Secured Subordinated
Note
1998 600 shares Preferred Shareholder Conversion of
of Common Stock 6 shares of Preferred
Stock
</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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 Restated Charter (filed as Exhibit 3.1 to Form S-1 Registration
Statement No. 333-46433 and by this reference incorporated here-
in).
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 here-
in).
5 Opinion of Hinckley, Allen & Snyder.
10.1(a) 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 (filed as Ex-
hibit 10.1 to Form S-1 Registration Statement No. 333-46433 and
by this reference incorporated herein).
10.1(b) Amendment to Secured Subordinated Note and Warrant Purchase Agree-
ment dated as of May 26, 1998.
10.2 Settlement Agreement and Release dated as of December 12, 1995, by
and between the Company and CPC International, Inc. (now
"Bestfoods") (filed as Exhibit 10.2 for Form S-1 Registration
Statement No. 333-46433 and by this reference incorporated here-
in).
10.3 Providence and Worcester Railroad Company Non-Qualified Stock Op-
tion Plan (filed as Exhibit 10.3 to Form S-1 Registration State-
ment No. 333-46433 and by this reference incorporated herein).
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>
--------
b. Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
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 REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF WORCESTER,
COMMONWEALTH OF MASSACHUSETTS, ON AUGUST 25, 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
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 August 25, 1998
- ------------------------------------- Officer and
ROBERT H. EDER Chairman (Principal
Executive Officer)
/s/ Orville R. Harrold President, Chief August 25, 1998
- ------------------------------------- Operating Officer
ORVILLE R. HARROLD and Director
/s/ Robert J. Easton Treasurer, August 25, 1998
- ------------------------------------- Controller and
ROBERT J. EASTON Director (Principal
Financial and
Accounting Officer)
* Director August 25, 1998
- -------------------------------------
FRANK W. BARRETT
* Director August 25, 1998
- -------------------------------------
PHILIP D. BROWN
* Director August 25, 1998
- -------------------------------------
JOHN P. BURNHAM
* Director August 25, 1998
- -------------------------------------
JOHN H. CRONIN
* Director August 25, 1998
- -------------------------------------
J. JOSEPH GARRAHY
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
SIGNATURE TITLE DATE
* Director August 25, 1998
- -------------------------------------
JOHN J. HEALY
* Director August 25, 1998
- -------------------------------------
WILLIAM J. LEDOUX
* Director August 25, 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) (2)
BALANCE CHARGED 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 --Restated Charter (filed as Exhibit 3.1 to Form S-1 Registration
Statement No. 333-46433 and by this reference incorporated herein)
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(a) --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 (filed as Exhibit
10.1 to Form S-1 Registration Statement No. 333-46433 and by this
reference incorporated herein)
10.1(b) --Amendment to Secured Subordinated Note and Warrant Purchase
Agreement dated as of May 26, 1998
10.2 --Settlement Agreement and Release dated as of December 12, 1995, by
and between the Company and CPC International, Inc. (now
"Bestfoods") (filed as Exhibit 10.2 to Form S-1 Registration
Statement No. 333-46433 and by this reference incorporated herein)
10.3 --Providence and Worcester Railroad Company Non-Qualified Stock
Option Plan (filed as Exhibit 10.3 to Form S-1 Registration
Statement No. 333-46433 and by this reference incorporated herein)
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>
b. Financial Statement Schedules.
Schedule II--Valuation and Qualifying Accounts
<PAGE>
EXHIBIT 1.1
1,000,000 SHARES
PROVIDENCE AND WORCESTER RAILROAD COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
September __, 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"), proposes to sell to the several Underwriters named in Schedule
I hereto (the "Underwriters") an aggregate of 1,000,000 shares (the "Firm
Stock") of the Company's Common Stock, par value $.50 per share (the "Common
Stock").
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 150,000 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 Agreement is to confirm the agreement concerning the purchase of
the Stock from the Company 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 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") and the rules and regulations (the
"Rule and Regulations") of the United States Securities and Exchange
Commission (the "Commission") thereunder, (ii) been
<PAGE>
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 relating to the Principal Shareholder specifically for
use therein.
2
<PAGE>
(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 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.
3
<PAGE>
(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 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
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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 option 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 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'
5
<PAGE>
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(f) 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 respective properties and as is
customary for companies engaged in similar businesses in similar
industries.
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(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' equity, results of operations,
business or prospects of the Company and its subsidiary, taken as a
whole.
7
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(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).
(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 authorization and (D) the reported accountability for its
assets is compared with existing assets at reasonable intervals.
8
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(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 under the caption "Underwriting" in the prospectus
which constitutes part of the registration statement on Form S-1(File No.
333-46433) previously filed by the Company.
2. 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
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<PAGE>
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 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
10
<PAGE>
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.
(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.
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 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 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 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 150,000 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.
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(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), 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.
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
[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 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 of the purchase price
by wire transfer of immediately available funds to such accounts as the Company
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 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
12
<PAGE>
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 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
13
<PAGE>
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;
(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;
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<PAGE>
(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 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
15
<PAGE>
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, Linda Eder, 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 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 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,
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<PAGE>
purchase or pay anyone any compensation for soliciting purchases of,
the Stock; and
(n) To pay Advest, Inc. a non-accountable expense allowance of
$100,000 payable on the First Delivery Date.
7. 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 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.
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<PAGE>
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
and the Principal Shareholder contained herein, to the performance by the
Company 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 and the Principal
Shareholder shall have furnished to such counsel all 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 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
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<PAGE>
respective properties and assets and to conduct their businesses
as described in the Registration Statement and Prospectus;
(ii) The Company has an authorized capitalization asset
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;
(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;
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<PAGE>
(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;
(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;
20
<PAGE>
(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 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
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<PAGE>
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;
(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
22
<PAGE>
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.
(e) 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.
(f) 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
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<PAGE>
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.
(g) 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.
(h) 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 Date, no event has occurred
which should have been set forth in a supplement or amendment to
the Registration Statement or the Prospectus.
(i) 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
24
<PAGE>
agreements contained herein to be performed by the Principal
Shareholder at or prior to such Delivery Date.
(j) (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.
(k) 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 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.
(l) 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.
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<PAGE>
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 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. 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 Principal 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
26
<PAGE>
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(b) 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.
(c) 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 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 and the
Principal Shareholder 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 therein not misleading,
but in each case only to the extent that the untrue statement or
27
<PAGE>
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 and the Principal Shareholder
for any legal or other expenses reasonably incurred by the Company or any such
director, officer, controlling person 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.
(d) 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 or the Principal 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 or the Principal 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 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
28
<PAGE>
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.
(e) 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) or 10(c) 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 and the Principal 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 and
the Principal 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 and the Principal 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 and the
Principal 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 or the Underwriters, the intent of the parties and their relative
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Principal Shareholder and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section
29
<PAGE>
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(e) shall be deemed to include, for purposes of this
Section 10(e), 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(e), 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. 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(e) are several in proportion to their
respective underwriting obligations and not joint.
(f) 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.
(g) 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, eighth and ninth 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 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
30
<PAGE>
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 prior to delivery of and payment for the Firm Stock if, prior to that
time, any of the events described in Section 9(j) or 9(k), 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 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 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 or the Principal Shareholder is not fulfilled (other than Section
9(k) hereof), the Company, 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 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 despite
the failure, refusal or inability on the part of the Principal Shareholder to
perform any agreement on its part to be performed, the Principal Shareholder
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 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:
31
<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);
provided, however, that any notice to an Underwriter pursuant to Section 10(d)
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 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 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 representa tions,
warranties, indemnities and agreements of the Company and the Principal
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(c) 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.
16. Survival; Effective Date. (a) The respective indemnities,
representations, warranties and agreements of the Company, the Principal
Shareholder and the Underwriters contained in this Agreement or made by or on
behalf of 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
32
<PAGE>
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.
33
<PAGE>
If the foregoing correctly sets forth the agreement among the Company,
the Principal 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: Robert H. Eder
Title: Chief Executive Officer
------------------------------------------------
Robert H. Eder, the Principal Shareholder
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: Brett A. Chamberlain
Title: Director
34
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Name of Number of
Underwriter Shares
----------- -------------
<S> <C>
Advest, Inc....................................
Total..................................... 1,000,000
===========
</TABLE>
35
<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 SEPTEMBER __, 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
100,000 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. 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 September ____, 1999, and
before 5:00 P.M., New York time, on September ____, 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 September ____,
---------------
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 September ____, 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, or (ii) to any underwriter in connection with a
Public Offering of the Common Stock, provided (as to (ii)) 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) and (ii), 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 September __, 1999, except to members of the
selling group in the Company's public offering commenced on September __, 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 September ___, 1999 and prior to September ___, 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 September ___, 1999 and prior to September ___, 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 September, 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
August 26, 1998
Providence and Worcester Railroad Company
75 Hammond Street
Worcester, MA 01610
Re: Registration Statement on Form S-1;
Registration No. 333-
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, filed by the
Company on August 26, 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"), and (ii) up to 150,000 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 Restated
Charter, 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.
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. 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(b)
AMENDMENT, made as of the 26th day of May 1998, by and between PROVIDENCE
AND WORCESTER RAILROAD COMPANY, a Massachusetts corporation, (the "Company") and
MASSACHUSETTS CAPITAL RESOURCES COMPANY ("MCRC").
WHEREAS, the Company and MCRC have entered into a certain Secured
Subordinated Note and Warrant Purchase Agreement, dated as of December 19, 1995,
(the "Purchase Agreement") pursuant to which the Company issued and sold to MCRC
its Secured Subordinated Notes, due December 31, 2005, in the original aggregate
principal amount of $5,000,000 and Common Stock Purchase Warrants exercisable
for 200,000 shares of the Company's Common Stock; and
WHEREAS, the Company has requested that MCRC amend certain portions of the
Purchase Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto do hereby agree with each other as follows:
1. Clause (v) of Section 4.02(f) of the Purchase Agreement is hereby
amended in its entirely to read as follows:
"(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, ten percent (10%) of the Consolidated Net
Worth of the Company as of the end of its then most recent fiscal quarter;
and
2. Clause (iii) of Section 4.02(g) of the Purchase Agreement is hereby
amended in its entirety to read as follows:
(iii) making cash distributions to its stockholders, or"
3. MCRC hereby releases any and all security interest which it may have
had under that certain Security Agreement, dated December 19, 1995 from the
Company and MCRC and the Company hereby agree that said Security Agreement is
hereby terminated and of no further force or effect.
4. The Company represents and warrants to MCRC that, as of the date
hereof, there exists no Event of Default (as that term is defined in the
Purchase Agreement) nor any event which, but for the requirement that notice be
given or time elapse or both, would constitute an Event of Default under the
Purchase Agreement.
5. This Amendment 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.
6. The Purchase Agreement, as herein amended, is hereby ratified and
confirmed.
7. The Company agrees to promptly pay the reasonable fees and out-of-
pocket expenses of Testa, Hurwitz & Thibeault, LLP, counsel for MCRC, in
connection with this Amendment.
8. This Amendment may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument and either of
the parties hereby may execute this Amendment by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment 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
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Providence and
Worcester Railroad Company on Form S-1 of our report dated January 30, 1998,
appearing in the Prospectus, which is part of this 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
August 24, 1998
<PAGE>
EXHIBIT 24
PROVIDENCE AND WORCESTER RAILROAD COMPANY
POWER OF ATTORNEY TO SIGN REGISTRATION STATEMENT ON FORM S-1
KNOW ALL MEN BY THESE PRESENTS, that the undersigned do hereby constitute
and appoint Robert H. Eder, Orville R. Harrold and Heidi J. Eddins, and each of
them, with full power of substitution and full power to act without the other,
as his true and lawful attorney-in-fact and agent to act in his name, place and
stead and to execute in the name and on behalf of the undersigned, individually
and in each capacity stated below, a Registration Statement on Form S-1 of
Providence and Worcester Railroad Company (the "Company") relating to a sale by
the Company of 1,000,000 shares of the Company's common stock, and any and all
amendments (including post-effective amendments) thereto, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorneys-in-fact, or their substitute or substitutes, may do or cause to
be done by virtue hereof.
This Power of Attorney has been signed by the following persons in the
capacities and on the date or dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert H. Eder Chief Executive Officer August 24, 1998
- ----------------------------- and Chairman
Robert H. Eder
/s/ Orville R. Harrold President, Chief Operating August 24, 1998
- ----------------------------- Officer and Director
Orville R. Harrold
/s/ Robert J. Easton Treasurer, Controller and August 24, 1998
- ----------------------------- Director
Robert J. Easton
/s/ Frank W. Barrett Director August 24, 1998
- -----------------------------
Frank W. Barrett
/s/ Philip D. Brown Director August 24, 1998
- -----------------------------
Philip D. Brown
/s/ John P. Burnham Director August 24, 1998
- -----------------------------
John P. Burnham
/s/ John H. Cronin Director August 24, 1998
- -----------------------------
John H. Cronin
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
/s/ J. Joseph Garrahy Director August 24, 1998
- -----------------------------
J. Joseph Garrahy
/s/ John J. Healy Director August 24, 1998
- -----------------------------
John J. Healy
/s/ William J. LeDoux Director August 24, 1998
- -----------------------------
William J. LeDoux
/s/ Charles M. McCollam, Jr. Director August 24, 1998
- -----------------------------
Charles M. McCollam, Jr.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,748
<SECURITIES> 0
<RECEIVABLES> 2,427
<ALLOWANCES> 125
<INVENTORY> 2,042
<CURRENT-ASSETS> 6,339
<PP&E> 94,699
<DEPRECIATION> 26,526
<TOTAL-ASSETS> 74,719
<CURRENT-LIABILITIES> 3,533
<BONDS> 799
0
32
<COMMON> 1,737
<OTHER-SE> 52,774
<TOTAL-LIABILITY-AND-EQUITY> 74,719
<SALES> 0
<TOTAL-REVENUES> 13,488
<CGS> 0
<TOTAL-COSTS> 9,727
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 463
<INCOME-PRETAX> 3,298
<INCOME-TAX> 1,174
<INCOME-CONTINUING> 2,124
<DISCONTINUED> 0
<EXTRAORDINARY> 170
<CHANGES> 0
<NET-INCOME> 1,954
<EPS-PRIMARY> .67
<EPS-DILUTED> .66
</TABLE>
