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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NUMBER 0-21523
VIRGINIA GAS COMPANY
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
DELAWARE 87-0443823
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 EAST MAIN STREET, ABINGDON, VIRGINIA 24210, (540)
676-2380 (Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the
Exchange Act: None Securities registered pursuant to
Section 12(g) of the Exchange Act:
COMMON STOCK, PAR VALUE $.001 PER SHARE
WARRANTS TO PURCHASE COMMON STOCK
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Revenues for the fiscal year ended December 31, 1999 were $ 11,030,088.
The aggregate market value of the voting Common Stock, par value $.001 per
share, held by nonaffiliates of the Registrant as of March 15, 2000 was
approximately $ 15,011,000.
As of March 15, 2000, the Registrant had outstanding 5,504,906 shares of Common
Stock, par value $.001.
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This Form 10KSB/A is filed in order to include information required by Part III
which was previously omitted pursuant to General Instruction E (3) to the Form.
This Form 10KSB/A also includes certain exhibits not previously filed. In all
other respects, the report is unchanged from the Form 10KSB filed on April 13,
2000.
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VIRGINIA GAS COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
TABLE OF CONTENTS
ITEM PAGE
NUMBER CAPTION NUMBER
PART I
<S> <C> <C>
1 Business 3
2 Properties 9
3 Legal Proceedings 9
4 Submission of Matters to a Vote of Security Holders 9
PART II
5 Market for Common Equity and Related Stockholder Matters 9
6 Management's Discussion and Analysis 10
7 Financial Statements 17
8 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 33
PART III
9 Directors and Executive Officers of the Company 33
10 Executive Compensation 34
11 Security Ownership of Certain Beneficial Owners and Management 36
12 Certain Relationships and Related Transactions 39
13 Exhibits and Reports on Form 8-K 40
Signatures 44
</TABLE>
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ITEM 1. BUSINESS
GENERAL
Virginia Gas Company (the "Company") was organized in 1987 under the laws
of the state of Delaware. The Company, directly or through its subsidiaries and
affiliated companies, is primarily engaged in the storage, marketing,
distribution, gathering, exploration and production of natural gas, and the
distribution of propane gas. The Company's principal assets are located in the
southwestern counties of the Commonwealth of Virginia.
The Company's business has developed in response to the growing need for
natural gas storage, pipelines and distribution in its market area, resulting
principally from economic growth and the impact of deregulation. Deregulation
has given natural gas customers more flexibility in negotiating their natural
gas purchases and transportation contracts. The Company's pipeline connections
to the East Tennessee Natural Gas ("ETNG"), CNG Transmission Company ("CNG") and
Columbia Gas Transmission Company ("TCO") interstate pipeline systems, and to
the Company's adjacent storage facilities, are being combined to create a hub
which provides opportunities for more efficient gas distribution, including to
local, growing markets. At present, the Company's business primarily consists
of: (i) producing, gathering and marketing natural gas from wells in which the
Company has an ownership interest to municipal distributors, local distribution
companies and major oil and gas companies; (ii) storing natural gas for
municipal distributors and local distribution companies which have supplied
their own gas, or purchased it from third parties or the Company; (iii)
distributing propane and natural gas purchased from third parties or the Company
to local industrial, commercial and residential customers; and (iv) transporting
gas through its pipeline to a local distribution company.
The Company's principal sources of revenue have varied depending on its
level of activity in any given segment of natural gas operations. From 1987 to
1992, substantially all of the Company's income was derived from exploration,
development and production of natural gas and from fees derived from managing
wells. From 1993 to 1996, the Company's income reflected the growth of its
storage operations. In 1996 and 1997, the Company initiated its propane
distribution and gas marketing operations, respectively. The Company's propane
distribution operations have grown steadily since then. In 1998, the Company
completed construction of 35 miles of pipeline and began serving a local
distribution company with transmission services at two delivery points.
Management believes that current upward trends in the economy, a favorable
regulatory environment, the deregulation of the industry which has resulted in
end-users' ability to purchase gas on a competitive basis from a greater variety
of sources, and the increasing availability of natural gas as a form of energy
for residential, commercial and industrial markets present an opportunity for
the Company to expand into new markets and to better develop its current
markets.
SUBSIDIARIES AND AFFILIATES
The Company has four consolidated wholly owned subsidiaries: Virginia Gas
Exploration Company (the "Exploration Company"), Virginia Gas Pipeline Company
(the "Pipeline Company"), Virginia Gas Propane Company (the "Propane Company")
and Virginia Gas Marketing Company (the "Marketing Company"). Affiliates of the
Company, Virginia Gas Distribution Company (the "Distribution Company") and
Virginia Gas Storage Company (the "Storage Company"), are each owned 50% by the
Company and 50% by one individual investor,
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who has no material affiliation with either the Company, or any executive
officer, director or controlling shareholder of the Company.
The Pipeline Company, the Distribution Company and the Storage Company are
the holders of Certificates of Public Convenience and Necessity ("CPCN") issued
by the Virginia State Corporation Commission ("VSCC") that are required for such
companies to conduct their business. The storage operations of the Pipeline
Company's and the Storage Company's operations are regulated by both the VSCC
and the Federal Energy Regulatory Commission ("FERC"). In connection with the
financing of the Distribution Company's distribution business, and the Storage
Company and Pipeline Company's storage and related pipeline businesses, the
Company participated in four tax-exempt bond issues in 1994, 1995 and 1997 that
provided financing for these various projects. Funds from such financings were
allocated, as needed, to the various subsidiaries and affiliates and each such
entity provided the Company with interest-bearing promissory notes evidencing
its obligation to repay the funds advanced by the Company. During 1998, the
company refinanced the tax-exempt bonds through a private debt placement and the
aforementioned promissory notes were replaced by ones reflecting the lower
interest rates.
STORAGE OPERATIONS
The Company has the only two underground natural gas storage facilities in
the Commonwealth of Virginia. One of these facilities is located in Smyth and
Washington counties (the "Saltville Facility"), while the other facility is
located in Scott and Washington counties (the "Early Grove Field"). The Pipeline
Company owns and operates the Saltville Facility while the Storage Company owns
and operates the Early Grove Field.
The Pipeline Company developed the Saltville Facility for use as a high
rate, peak usage storage facility. The Saltville Facility uses caverns created
in underground salt beds to store natural gas. The Company's engineering staff
believes the ultimate working gas capacity of the Saltville Facility could be up
to 10 Bcf. In June 1996 the Pipeline Company filed an application with the VSCC
for a CPCN for the operation of the Saltville Facility. In July 1996 the VSCC
issued an order authorizing the Pipeline Company to begin service on an interim
basis using the rates set forth in the application. The CPCN was issued to the
Pipeline Company in December 1997. In November 1996, the Pipeline Company
received a limited jurisdiction certificate from the FERC authorizing the
Pipeline Company to engage in the sale, transportation (including storage), or
assignment of natural gas that is subject to FERC's jurisdiction under the
Natural Gas Act, and to charge rates for its interstate service equal to the
intrastate rates approved by the VSCC. The Saltville Facility provides 10-day,
60-day and 90-day service and 20-day refill capacity. In August 1996 the
Pipeline Company injected the first working gas into the field. Peak daily
withdrawal rates of 49,000 MMBtu were achieved during 1999. In 1999, the Company
completed construction of an evaporation facility adjacent to its Saltville
Storage Facility. The facility will be used by the Company to create additional
storage space by eliminating brine from the salt caverns.
The Early Grove Field is an underground natural gas storage facility owned
and operated by the Storage Company. The Storage Company has received a CPCN
from the VSCC, authorizing it to engage in the sale, transportation (including
storage), or assignment of natural gas and to charge rates approved by the VSCC.
The Early Grove Field includes 29 storage wells and a certificated area of 2,900
acres. Contracted storage volume for 60-day, 90-day and 150-day service has
increased from 520,000 MMBtu for the 1994/1995 heating season to 1,835,000 MMBtu
for the 1999/2000 heating season. The deliverability of the Early Grove Field
has been increased by reworking existing wells, drilling new wells, injecting
additional base gas, installing
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larger diameter pipe, new compression equipment, and increasing the maximum
operating pressure of the field to 2,000 PSI from 1,400 PSI. Peak field
deliverability has been increased from 1,000 MMBtu to over 20,000 MMBtu per day
from 1992 to 1999.
PIPELINE OPERATIONS
In 1998, the Company completed construction and began servicing 35 miles of
intrastate pipeline under authority granted in an application for a CPCN with
the VSCC filed in January 1997. The Company received the CPCN in December 1997.
The Company has purchased rights-of-way and obtained all necessary permits for
the construction of the remaining 37 miles of pipeline that will make up the
Company's P-25 pipeline. The pipeline will connect the Company's Saltville
Facility and transport natural gas to growing markets in Smyth, Wythe and
Pulaski Counties in southwestern Virginia. These areas currently are served only
by ETNG's #3300 interstate pipeline, which currently has insufficient capacity
to meet the area's needs.
The P-25 pipeline has been and will be constructed and maintained
consistent with applicable federal, state and local laws and regulations and
accepted industry practice. The first phase of construction, completed in
October 1998, consisted of twinning the ETNG line to the town of Wytheville and
opening service to that town and Marion. The remaining phases will extend the
P-25 pipeline from Wytheville to Radford, Virginia. The Company has entered into
a 15-year contract with United Cities Gas Company ("UCG"), the local
distribution company which serves Smyth, Wythe and Pulaski Counties, to provide
pipeline capacity to supply 20,000 MMBtu per day. Completion of the P-25
pipeline is expected by late 2000. In early 1999, the Company filed an
application with the VSCC to extend its P-25 pipeline to Roanoke, VA, where it
will service a new contract with Roanoke Gas Company. The Company will provide
17,500 MMBtu per day to Roanoke through an additional 58 miles of pipeline. The
Company received a CPCN to extend its pipeline to Roanoke in December 1999.
Substantially all of the operations conducted through the P-25 pipeline
will constitute common carrier pipeline activities. Such common carrier
activities are those under which transportation in the pipeline is available at
tariffs published with the VSCC to any shipper of natural gas who requests such
services, provided that each product for which transportation is requested
satisfies the conditions and specifications for transportation.
NATURAL GAS AND PROPANE DISTRIBUTION OPERATIONS
The Company, through the Distribution Company, owns and operates 33 miles
of distribution pipelines and provides natural gas service to approximately 300
customers in Russell and Buchanan Counties in Virginia. Construction of a
10-mile pipeline providing service to the town of Lebanon in Russell County was
completed in June 1997. The Distribution Company has a CPCN authorizing it to
provide natural gas service in these counties. In January 1997, the Distribution
Company filed an application with the VSCC to extend its service territory to
include all of Dickenson and Tazewell Counties in Virginia, with the exception
of the service territory in Tazewell County currently certificated to
Commonwealth Public Service Corporation. This application was subsequently
amended to include the town of Saltville, Virginia as part of the proposed
service territory. In December 1997, the VSCC issued CPCNs to the Distribution
Company authorizing it to provide natural gas service to the western portion of
Tazewell County, excluding the service territory allotted to Commonwealth Public
Service Corporation, all of Dickenson County, and the town of Saltville. The
Distribution Company's tariff rates are approved by the VSCC.
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The Distribution Company has a firm transportation service contract for a
ten-year term with East Tennessee Natural Gas for the winter months of November
through March, and an interruptible transportation contract with ETNG for the
remainder of the year.
In 1996, the Company commenced distribution of propane gas in southwestern
Virginia. Because of shared costs and similarities such as easily converted
appliances, many natural gas utilities provide both products to their customers.
Customers often do not distinguish between the two forms of gas when used in the
home. The Company intends, in part, to develop its propane distribution business
through selective acquisitions. In that regard, the Company acquired a portion
of Blue Grass Oils, Inc.'s existing propane distribution business in Buchanan,
Dickenson and Russell Counties and in the western part of Tazewell County,
Virginia in April 1997. At the end of 1999, the Company was providing propane
gas service to over 4,400 customers in southwestern Virginia.
EXPLORATION, PRODUCTION, GATHERING, AND MARKETING OPERATIONS
DRILLING ACTIVITY. The Company did not drill or complete any natural gas
wells during 1998 or 1999.
SERVICE OPERATIONS. The Company engages in the business of supervising
drilling operations and operating producing wells. As of December 31, 1999, the
Company operated 72 wells located in Virginia and West Virginia. As operator of
producing wells, the Company is responsible for the maintenance and verification
of all production records, distribution of production proceeds and information,
and compliance with various state and federal regulations. Generally, the
Company provides the routine day-to-day production operations for producing
wells and is paid for such services on a per well, monthly fee basis.
GAS GATHERING OPERATIONS. The Company operates various unregulated natural
gas gathering systems located mainly in Dickenson and Buchanan Counties in
Virginia which connect the Company's operated wells to interstate pipelines. The
gathering systems consist of approximately 67 miles of pipeline. The gathering
systems connect the Company's natural gas production to the ETNG, CNG and TCO
interstate pipeline systems and gathering systems as well as to the Distribution
Company's distribution system.
For such natural gas gathering services, the Company collects certain
transportation allowances from producers (owners of natural gas). Transportation
allowances vary depending upon contractual arrangements and currently range from
$.05 to $.50 per MMBtu.
MARKETING. In 1997 the Company began marketing natural gas. The Company
currently markets and sells natural gas provided from Company-operated wells and
facilities. The Company anticipates that future expansion of its marketing
operations will include purchases of natural gas supplies from third party
sources, storing these supplies in its Saltville Facility and marketing these
supplies to its customers.
COMPETITION AND CUSTOMER BASE
The Company competes with major utility companies and pipeline companies in
the areas of utility services and pipeline operations. The deregulation of the
natural gas industry has provided the Company with marketing and transportation
opportunities; however, other pipeline companies, marketers and brokers with
resources far greater than the Company likewise are the
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beneficiaries of such deregulation. While the Company and the Storage Company
currently own and operate the only underground natural gas storage facilities in
Virginia, it is possible that other companies could develop other underground
natural gas storage facilities, and companies could rely on other methods of
storage such as above-ground stored liquefied natural gas. The Company competes
in the areas of exploration, production, transportation and marketing of natural
gas and distribution of propane with major oil companies, other independent oil
and gas concerns and individual producers and operators. Many of the Company's
competitors have substantially greater financial and other resources than the
Company.
The Company has a limited number of customers for its wholesale pipeline
and storage services as the Company's facilities are limited by their pipeline
interconnects. Consequently, access to customers is restricted to those with
interconnects on the pipelines with which the Company's facilities are
connected. As a result, a majority of the Company's revenues are earned from a
small group of customers.
REGULATION
VSCC REGULATION. The Company's and the Storage Company's natural gas
storage operations are regulated primarily by the VSCC and the FERC, which has
jurisdiction over interstate sales of storage services. Storage rates are
subject to VSCC approval and are based on the cost of service of the facility,
which provide for an approved rate of return. A facility can apply for revised
rates based on actual costs if they are higher than previously anticipated and
conversely the VSCC may require a reduction in rates if returns are higher than
anticipated.
The Company's transmission pipeline operations are regulated by the VSCC.
Substantially all of the operations conducted through these pipelines constitute
common carrier pipeline activities. Such common carrier activities are those
under which transportation in the pipeline is available at tariff rates
published with the VSCC to any shipper of natural gas who requests such
services, provided that each product for which transportation is requested
satisfies the conditions and specifications for transportation.
The natural gas distribution operations of the Distribution Company are
also regulated by the VSCC, which regulates the rates which may be charged to
end-users, setting them at levels sufficient to recover the cost of service to
its customers including an approved rate of return. The Distribution Company
filed for a rate increase late in 1999. The increase was put in place subject to
refund during January 2000. During March 2000, the VSCC approved the Company's
new rate structure.
The Company's gathering facilities, propane distribution operations and
natural gas marketing operations are not subject to service or rate regulation
from the VSCC.
FERC REGULATION. The Company's operations either are not governed by, or by
virtue of limited jurisdiction certificates having been issued by FERC, are
exempt from, further regulation by FERC under the Natural Gas Act.
ENVIRONMENTAL AND SAFETY REGULATION. The operations of the Company are
subject to various federal, state and local environmental laws. In particular,
operations in Virginia are subject to the Virginia Clean Air Act as administered
by the Virginia Department of Environmental Quality ("VDEQ"). The Virginia Clean
Air Act restricts emissions from wells, pipelines and processing plants, and the
VDEQ may curtail operations not meeting minimum standards. The design,
construction, operation and maintenance of the Company's VSCC
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jurisdictional facilities are subject to the safety regulations established by
the United States Department of Transportation pursuant to the Natural Gas
Pipeline Safety Act of 1968, as amended, or by state agency regulations meeting
the requirements thereunder. The Company is also subject to other federal, state
and local laws covering the handling or discharge into the environment of
materials used by the Company, or otherwise relating to protection of the
environment, safety and health.
Expenditures for environmental control facilities and for remediation have
not been material in relation to the results of operations of the Company. The
Company believes, however, that it is reasonably likely that the trend in
environmental legislation and regulations will continue to be toward stricter
standards. The Company is unaware of future environmental standards that are
reasonably likely to be adopted that will have a material effect on the
Company's results of operations, but there can be no assurance such standards
will not be adopted in the future.
TITLE TO PROPERTIES
Substantially all of the properties comprising the Saltville Facility and
the Early Grove Field are situated on land not owned by the Company or the
Storage Company.
The Company's rights to develop and operate the Saltville Facility are
derived from a deed from the Industrial Development Authority of the town of
Saltville. The deed provides the Company with rights to store gas, rights to use
any facilities and surface area for natural gas storage use and rights to remove
salts to create cavities for natural gas storage. The deed encompasses
approximately 11,000 acres of storage rights in Washington and Smyth Counties,
Virginia.
The Storage Company's rights to develop and operate the Early Grove Field
are derived from its ownership of mineral leasehold rights and from surface
easements.
The Company's existing pipelines, gathering systems and distribution
systems are situated on land not owned by the Company but as to which the
Company and its affiliates have easements from the landowners permitting the use
of such land for the construction and operation of pipeline facilities. The
Company has received or intends to receive franchises, easements, licenses,
permits and other authorizations to construct and operate proposed or future
pipelines, gathering systems and distribution systems within the jurisdiction of
various cities, counties and other government agencies and jurisdictions, as
well as along and across waterways and rights-of-way for federal, state, county
and city highways, streets and roads.
Substantially all of the Company's producing property interests are held
pursuant to leases from third parties. The Company has obtained title opinions
on substantially all of its producing properties and believes that it has
satisfactory title to such properties in accordance with standards generally
accepted in the natural gas industry. The Company's producing properties are
subject to customary royalty interests, liens for current taxes and other
burdens which the Company believes do not materially interfere with the use of
or affect the value of such producing properties.
EMPLOYEES
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As of December 31, 1999, the Company, its subsidiaries and affiliated
companies employed 55 persons on a full time basis, none of whom is covered by a
collective bargaining agreement.
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ITEM 2. PROPERTIES
See Item 1 for a discussion of properties and locations and Note 8 of Notes
to the Consolidated Financial Statements contained in Part II, Item 7 for a
discussion of any liens or encumbrances.
ITEM 3. LEGAL PROCEEDINGS
There is no pending nor, to the knowledge of the Company, any threatened
litigation against the Company or its Subsidiaries or Affiliates which could
have a material adverse effect on their financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
APPROXIMATE NUMBER OF STOCKHOLDERS
Number of
Stockholders of Record
Title of Class as of December 31,
1999
Common stock, par value $.001 1,727
Warrants to purchase common stock 56
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol "VGCO." The following table sets forth, for the periods
indicated, the high and low sales prices of the common stock, compiled from
quotations supplied by the Nasdaq Monthly Statistical Report, in addition to
dividends per share declared for the periods indicated:
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PRICE RANGE OF
COMMON STOCK
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW PER SHARE
<S> <C> <C> <C> <C>
1998
First Quarter 9 7 5/16 0.0175
Second Quarter 7 3/4 6 0.0175
Third Quarter 6 7/32 4 0.0175
Fourth Quarter 4 1/2 3 0.0175
1999
First Quarter 3 5/8 2 5/32 0.0175
Second Quarter 4 3/4 2 1/2 0.0175
Third Quarter 4 3/8 3 3/8 -
Fourth Quarter 4 2 7/8 -
2000
First Quarter (through March 15) 3 3/4 2 17/32 -
</TABLE>
The Company paid cash dividends on its Common Stock for each of the years
1992 through 1998. During 1999, the Company's Board of Directors reexamined the
Company's dividend policy and determined that the funds would be better used in
support of capital expansion. Accordingly, at this time, the Company does not
pay cash dividends on its Common Stock. There is no assurance that the Company
will resume dividend payments in the future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion of the financial condition, changes in financial
condition, and results of operations of the Company for 1998 and 1999 should be
read in conjunction with the consolidated financial statements and related notes
contained in Part II, Item 7.
GENERAL
The Company derives revenues from its storage, exploration, production,
gathering, marketing and propane distribution operations. From its 50%
investments in the Storage Company and the Distribution Company, the Company
derives earnings from the storage, and distribution operations of these
companies. The Company accounts for its investments in these companies using the
equity method.
In its storage business, the Company receives fees for use of its storage
space in addition to injection and withdrawal fees for the use of compression
facilities, collectively referred to as storage revenues. Storage charges to
customers are in accordance with storage rates included in tariffs approved by
the VSCC.
In its pipeline business, the Company receives fees for use of its pipeline
space, referred to as pipeline revenues. Pipeline charges to customers are in
accordance with pipeline rates included in tariffs approved by the VSCC.
In its exploration and production business, the Company receives revenues
from the sale of its natural gas production. The Company also receives revenues
from managing the construction, drilling, development and operation of natural
gas facilities, including management
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and operations fees. In its natural gas gathering business, revenues are
generated from its ownership interest in gathering pipelines for natural gas
traveling through its gathering systems. In its gas marketing operations, the
Company generates revenues from the sale of natural gas. In its propane
distribution business, the Company generates revenues from the sale of propane
to industrial, commercial and residential customers. The Storage Company also
provides unregulated winter gas supply services.
In its distribution operations, the Distribution Company's gross profits
are realized by the difference between the prices at which it purchases and the
prices at which it sells natural gas to its industrial, commercial and
residential customers. The prices at which the Distribution Company sells
natural gas to its customers are in accordance with the rate schedules in its
tariff filed with the VSCC. The Distribution Company purchases natural gas under
short-term contracts, which reflect the market price of natural gas.
RESULTS OF OPERATIONS
Virginia Gas Company recorded revenues of $11.0 million in 1999 compared to
$9.8 in 1998 representing a 13% increase. Revenue growth was primarily derived
from the Company's P-25 pipeline that began service late in 1998, and growth in
the Company's propane distribution operations. Lower gas sales negatively
impacted revenues as sales volumes declined 5% due to lower production from
Company wells and lower amounts of third party gas sales. The trend of lower
production will continue due to the maturity of the wells.
<TABLE>
<CAPTION>
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PERCENTAGE
REVENUE 1999 1998 CHANGE
---------------------------- ------------- -------------- ----------------
---------------------------- ------------- -------------- ----------------
<S> <C> <C> <C>
Natural Gas Sales $2,865,000 $3,256,000 (12)%
---------------------------- ------------- -------------- ----------------
Storage Revenues 2,898,000 2,600,000 11
---------------------------- ------------- -------------- ----------------
Pipeline Revenues 1,140,000 447,000 155
---------------------------- ------------- -------------- ----------------
Propane Gas Sales 1,845,000 1,261,000 46
---------------------------- ------------- -------------- ----------------
Explor. & Prod. Revenues 351,000 342,000 3
---------------------------- ------------- -------------- ----------------
Management Revenues 304,000 260,000 17
---------------------------- ------------- -------------- ----------------
Interest and Other Income 1,627,000 1,634,000 0
---------------------------- ------------- -------------- ----------------
Total Revenue $11,030,000 $ 9,800,000 13%
---------------------------- ------------- -------------- ----------------
</TABLE>
The Company operated 35 miles of its newly constructed pipeline for all of
1999 compared to limited operation in 1998. The pipeline generated $1.1 million
in demand charges in 1999 compared to $447,000 in 1998. The pipeline extends
from the Company's Saltville storage facility to Wytheville, Virginia. The
Company has a 15-year contract with Atmos Energy's subsidiary, United Cities Gas
Company, that provides 6,000 MMBtu/day to Marion, Virginia and 4,000 MMBtu/day
to Wytheville, Virginia.
The Company's propane operation continued to experience significant growth
during 1999, as its customer base increased to 4,470 from 3,060 in December
1998. Propane gas revenues increased to $1.8 million from $1.3 million as
gallons sold increased to 2.0 million from 1.4 million. During 1999, the Company
opened a new customer service center in a county adjacent to its existing
territory and doubled its storage capacity to 186,000 gallons from 90,000
gallons in response to customer growth.
Cost of natural gas sold declined from $3.0 million in 1998 to $2.5 million
in 1999 due to the aforementioned reduction in gas sale volumes. The Company
sold 1,345,000 MMBtu of gas
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in 1999 compared to 1,418,000 MMBtu in 1998. Gross margins during 1999 improved
to 12% from 7% in 1998. The 12% is comparable to the pre-1998 margins. Propane
gas expense increased to $848,000 from $574,000 due to higher volumes, as
margins remained steady.
The Company's general and administrative expense increased to $2.3 million
in 1999 from $1.6 million in 1998. There are two main reasons for the increase:
more resources were devoted toward administrative efforts and the Company's
ongoing strategic evaluation. The Company constructed 35 miles of pipeline in
1998. The project required that the Company devote much of its resources to the
capital project. During 1999, the Company's capital projects did not require the
same level of administrative resources. Consequently, with the same level of
infrastructure, the Company capitalized less of its employee time, which
resulted in an additional $560,000 in net overhead. In addition to less
capitalization, the Company's ongoing strategic evaluation required
approximately $200,000 in additional legal costs and investment banking fees.
These increases in costs mitigated the impact of the Company's early 1999
restructuring (see Note 13).
The Company was successful in curbing growth in operations and maintenance
(O&M) expense during 1999. Despite customer growth in its propane subsidiary of
46%, the Company's O&M expense decreased to $887,000 from $899,000. A
contributing factor to the lower O&M was the purchase of compressors at the
Company's Saltville Storage Facility in February 1999. The compressors, before
the purchase, had been leased for an annual rental of $252,000.
Depreciation, depletion, and amortization increased to $1.5 million from
$1.0 million due in large part to the Company's addition of the P-25 pipeline
that was placed in service late in 1998. Additional depreciation on propane
assets was also a factor as the Company's propane operations continued to
expand. Production expenses decreased to $88,000 from $106,000 reflecting the
continued maturity and decline of the Company's exploration and production
operations.
Interest expense was $1.6 million in 1999 compared to $1.5 million in 1998.
The Company increased its outstanding balance on its line of credit from $2.5
million at the beginning of 1999 to $6.0 million at the end of the year to fund
construction of its evaporation facility. Other taxes increased during the
current year to $444,000 from $175,000 in 1998. The main contributor to this
increase was the additional franchise taxes paid by the Company in 1999. Due to
increase in authorized equity that was approved during 1998, the Company's
Delaware franchise taxes increased $130,000 annually. In addition to franchise
taxes, the Company's property taxes increased demonstrating the effect of 1998's
pipeline construction. Revenue earned from the pipeline also contributed to
higher gross receipts taxes paid to the Commonwealth of Virginia.
The Company's earnings from affiliated companies were $413,000 in 1999.
That amount includes the $403,000 (portion attributable to VGC) gain recorded by
Virginia Gas Storage Company related to the sale of its interest in the Haysi
Gathering System during the first quarter of 1999. Factoring out that gain,
earnings from affiliates was $10,000 compared to a loss of $58,000 in 1998.
Improvements occurred at the affiliate level in the form of both lower general
and administrative expenses and lower operations and maintenance expenses.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS
14
<PAGE>
AND HEDGING ACTIVITIES (SFAS 133). The Statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting. In February 2000, the FASB issued
a proposed statement that would amend SFAS 133 such that contracts to purchase
or sell commodities in volumes deemed to be in a Company's normal course of
business would not be considered derivatives as defined by SFAS 133. Therefore,
management does not believe SFAS 133 will have a material impact on the
consolidated financial statements when adopted. Statement No. 133 is effective
for fiscal years beginning after June 15, 2000 and may not be applied
retroactively.
FINANCIAL CONDITION
Capital expenditures during 1999 were $ 7.5 million compared to $16.7
million in 1998 and were funded by the Company's line of credit with Wachovia
Bank and cash flow from operations. Cash flow from operations improved
dramatically to $3.8 million in 1999 from approximately $19,000 in 1998 as the
Company's affiliates repaid working capital loans.
The Company has classified $24 million of long-term debt as current due to
a technical non-compliance with the Company's debt covenants. The Company's
covenants require it to maintain certain financial ratios (see Note 8). As of
December 31, 1999, one covenant requires the Company to maintain historical
EBITDA of one and one-half times current debt service. The Company's Line of
Credit (the "Line") with Wachovia Bank N.A. (the "Bank") is currently due on
July 1, 2000, and as of December 31, 1999, had a balance outstanding of $6.0
million. The $6.0 million, in its entirety by definition, must be included in
the Company's current debt service and, as a consequence, causes the technical
non-compliance. The Company's senior lenders, John Hancock and Wachovia, have
both provided the Company with a waiver through March 31, 2000. Furthermore, as
of the quarter ending March 31, 2000, the covenant becomes more stringent,
requiring the Company then to maintain EBITDA of one and three-quarters times
current debt service. Due to construction delays, the Company's revenue has not
grown at the expected pace. Consequently, the Company, with its current debt
structure, will have difficulty in meeting this covenant.
The Company is exploring options to refinance its Line in a manner that
will avoid non-compliance with the covenant. One of those options is a partial
liquidation of assets and a complete repayment of the Line. There can be no
assurance that the Company will be successful in refinancing the Line. If it is
unsuccessful, the Company plans to seek additional waivers or renegotiate the
debt covenants, which will be at the discretion of the Company's lenders.
The Company projects its capital budget for 2000 to be $20.0 million if the
pipeline and storage assets are expanded in the manner the Company believes is
appropriate and for which it has been securing the necessary regulatory
approvals and future contractual commitments. The Company does not have internal
resources currently to support this budget and has, as explained below, been
seeking financing from outside sources and considering other strategic
alternatives, such as potential asset liquidations, to obtain it. If resources
do not become available in the context of the transactions described below
currently under consideration by the Board of Directors, the Company will
postpone construction.
15
<PAGE>
OUTLOOK
The Company believes the best prospects for its future require the
continued expansion of the pipeline and storage assets. However, the Company's
internal resources are insufficient to support this expansion and, to date, the
Company's external efforts to attract the necessary capital have been
unsuccessful. The Company believes that resources could ultimately be found but
they are likely to be on less favorable terms than those historically available
and than those needed to best realize the benefits of expansion. The Company
could continue to operate in a status quo mode, which would not require
additional financing. However, the Company projects that flat to declining
results would be associated with the adoption of a status quo approach.
In consideration of the above factors, and as previously disclosed, the
Company has for some time been exploring both sources of additional external
capital and strategic alternatives, which would promote the expansion strategies
that the Board and management believe are in the long term interest of those
invested in the Company's businesses. The efforts relating to strategic
alternatives have intensified in recent months as it has become clearer that the
level of additional financing and/or investment required is unlikely to be
available directly. Given the projected outcome of a status quo approach, it
appears that completion of an appropriate strategic transaction, if available,
would be in the Company's and its stockholders' best long term interests.
As disclosed, in December 1999, a group of management employees made an
offer to acquire the Company, which was subject to a number of conditions,
including financing. The offer is no longer under active consideration. Through
its financial advisor, CIBC Oppenheimer, the Board has recently received other
indications of interest in a purchase of the Company's stock or significant
portions of its consolidated assets from several third parties who appear to
have the financial resources to complete the transactions in which they have
indicated an interest. These indications of interest, which have been
communicated subject to due diligence, negotiation of definitive agreements,
regulatory approvals, shareholder approval and other conditions, generally
appear to represent premiums to market value from the standpoint of the
Company's recent share price and are being actively considered by the Board.
However, at the present time, there can be no assurance that any of these
transactions will take place or that if they do take place, they will do so at
the prices initially proposed. It is the intention of the Board in pursuing
these matters to seek the transaction or transactions which will maximize
available value for the Company's shareholders. When and if sufficient progress
can be made with regard to a transaction that appears appropriate for the Board
to recommend to stockholders, further disclosure will be made.
FORWARD LOOKING STATEMENTS
Certain of the statements contained in this section of the report,
including those under "Outlook" and "Financial Condition" are forward-looking.
While Virginia Gas Company believes that these statements are accurate, the
Company's business is dependent upon general economic conditions and various
conditions specific to its industry, and future trends and these factors could
cause actual results to differ materially from the forward looking statements
that have been made. In particular:
o The Company's growth plans are contingent on its ability to affordably
finance future capital expenditures. If the Company is unable to finance
capital expenditures, revenue growth will be impacted.
16
<PAGE>
o Virginia Gas Company's revenue growth depends on future demand for pipeline
and storage services. Many factors impact that demand. A continued trend of
warmer than normal winters in the Company's service area could
substantially curb the demand for natural gas storage and/or pipeline
service. "Unbundling" or deregulation in the natural gas industry could
introduce additional competitors and make the viability of long-term
contracts suspect.
o Virginia Gas Company derives 52% of its revenues from 4 customers.
Accordingly, the future of the Company is inexorably linked to these
significant customers. If any of these customers experience liquidity
problems or undergo consolidations, it could negatively impact the Company.
YEAR 2000 ISSUE
Over the past several years, the Company has developed and implemented a
plan to address the impacts of the Year 2000 ("Y2K") problem on our information
and operations systems. We also surveyed third parties to determine the status
of their Y2K compliance programs. In addition, we developed contingency plans
specifying what the Company would do if we or important third parties
experienced disruptions critical to business activities as a result of the Y2K
problem.
The Company's Y2K plan was completed in all material respects prior to
December 31, 1999. As of March 15, 2000, the Company has not experienced any
material business disruptions or system failures as a result of Y2K issues, nor
is it aware of any Y2K issues that have impacted our customers, suppliers, or
other important third parties to an extent that would be significant to the
Company.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
VIRGINIA GAS COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Report of Independent Public Accountants 17
Consolidated Balance Sheets as of December 31, 1999 and 1998 18
Consolidated Statements of Operations for the years ended December 31, 1999 and 1998 19
Consolidated Statements of Changes in Stockholders' Equity for the years ended
December 31, 1999 and 1998 20
Consolidated Statements of Cash Flows for the years ended December 31, 1999 and 1998 21
Notes to Consolidated Financial Statements 22
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Virginia Gas Company:
We have audited the accompanying consolidated balance sheets of Virginia Gas
Company (a Delaware Corporation) and Subsidiaries as of December 31, 1999 and
1998, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform an audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Virginia Gas Company
and Subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 2 and 8 to the
financial statements, the Company was not in compliance with certain debt
covenants related to $30,000,000 of its debt obligations as of December 31,
1999, which raises substantial doubt about its ability to continue as a going
concern. Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ARTHUR ANDERSEN LLP
Richmond, Virginia
March 3, 2000
19
<PAGE>
<TABLE>
<CAPTION>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,444,731 $ 1,763,753
Accounts receivable 1,212,685 3,469,757
Notes receivable 40,100 38,800
Other current assets 899,168 498,707
------------ ------------
Total current assets 3,596,684 5,771,017
PROPERTY AND EQUIPMENT, net 43,145,750 37,139,538
INVESTMENT IN AFFILIATED COMPANIES 4,343,460 3,930,554
NOTES RECEIVABLE - AFFILIATED COMPANIES 13,000,912 13,000,912
OTHER ASSETS 639,714 619,533
------------ ------------
Total assets $64,726,520 $60,461,554
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $24,045,144 $ 46,734
Line of credit 6,000,000 2,500,000
Accounts payable 316,666 542,626
Funds held for future distribution 248,136 266,806
Other current liabilities 242,011 261,624
------------ ------------
Total current liabilities 30,851,957 3,617,790
LONG-TERM DEBT 209,709 24,254,444
DEFERRED INCOME TAXES 907,821 645,674
------------ ------------
Total liabilities 31,969,487 28,517,908
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - par value $.001, 100,000,000 shares
authorized, 5,504,906 shares issued and outstanding 5,505 5,505
Additional paid-in capital 31,375,267 31,375,267
Retained earnings 1,376,261 562,874
----------- -----------
Total stockholders' equity 32,757,033 31,943,646
----------- -----------
Total liabilities and stockholders' equity $64,726,520 $60,461,554
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated balance sheets.
20
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ---------
OPERATING REVENUES:
<S> <C> <C>
Operating revenues $ 9,402,851 $ 8,165,771
Interest and other income 1,627,237 1,634,206
------------ ---------
11,030,088 9,799,977
------------ ---------
EXPENSES:
Cost of natural gas sold 2,510,885 3,042,541
Propane gas expense 848,217 574,002
General and administrative 2,300,777 1,646,448
Depreciation, depletion, and amortization 1,483,001 972,891
Operation and maintenance expense 887,412 899,030
Production expenses 87,933 106,146
Restructuring and impairment charges - 1,262,110
------------ ---------
8,118,225 8,503,168
============ =========
OTHER EXPENSES:
Interest expense 1,645,589 1,452,677
Other taxes 444,342 174,978
------------ ---------
2,089,931 1,627,655
============ =========
INCOME (LOSS) BEFORE EARNINGS OF AFFILIATED COMPANIES, INCOME TAXES, AND
EXTRAORDINARY LOSS 821,932 (330,846)
Provision for (benefit from) income taxes 228,793 (101,763)
------------ ---------
INCOME (LOSS) BEFORE EARNINGS OF AFFILIATED COMPANIES AND
EXTRAORDINARY LOSS 593,139 (229,083)
Equity in earnings (losses) of affiliated companies before
extraordinary items 412,920 (58,102)
------------ ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM 1,006,059 (287,185)
Extraordinary loss on extinguishment of debt net of taxes of
$444,000 - (832,493)
------------ ---------
NET INCOME (LOSS) $ 1,006,059 $ (1,119,678)
============ =========
WEIGHTED AVERAGE, SHARES ISSUED AND OUTSTANDING 5,504,906 5,504,906
============ =========
NET INCOME (LOSS) PER COMMON SHARE, BASIC AND DILUTED:
Net income (loss) before extraordinary item $ 0.18 $ (0.05)
Extraordinary loss on extinguishment of debt (net of tax) - (0.15)
------------ ---------
Net income (loss) per common share $ 0.18 $ (0.20)
============ =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
21
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON ADDITIONAL RETAINED
STOCK PAID-IN CAPITAL EARNINGS
------------ --------------- ------------
<S> <C> <C> <C>
BALANCE, December 31, 1997 $ 5,505 $ 31,241,082 $ 2,067,916
Repurchase of employee warrants -- (5,015) --
Payment of employee notes receivable for
Stock -- 139,200 --
Common stock dividends -- -- (385,364)
Net loss -- -- (1,119,678)
------------ --------------- ------------
BALANCE, December 31, 1998 5,505 31,375,267 562,874
Common stock dividends -- -- (192,672)
Net income -- -- 1,006,059
------------ --------------- ------------
BALANCE, December 31, 1999 $ 5,505 $ 31,375,267 $ 1,376,261
============ =============== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
22
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,006,059 $ (1,119,678)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, depletion, and amortization 1,483,001 972,891
Gain on sale of fixed assets (15,607) --
Undistributed losses (earnings) of affiliated companies (412,920) 58,102
Extraordinary loss on extinguishment of debt -- 1,013,394
Deferred income taxes 262,147 (280,234)
Impairment charge -- 1,021,498
Decrease (increase) in accounts receivable 2,249,460 (826,739)
Increase in other current assets (400,461) (193,484)
Decrease in other assets (140,480) (47,334)
Decrease in accounts payable (225,960) (550,220)
Decrease in other current liabilities (38,283) (28,780)
------------ ------------
Net cash provided by operating activities 3,766,956 19,416
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,489,907) (16,748,264)
Proceeds from sale of assets 142,126 89,105
Payments received on notes receivable 800 159,350
------------ ------------
Net cash used in investing activities (7,346,981) (16,499,809)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of loan principal (2,856,325) (19,645,855)
Proceeds from new loans 6,310,000 26,500,000
Purchase of warrants and options -- (5,015)
Payment of debt issuance costs -- (659,311)
Refund of financing reserve funds -- 688,792
Dividends paid (192,672) (385,364)
------------ ------------
Net cash provided by financing activities 3,261,003 6,493,247
------------ ------------
NET DECREASE IN CASH (319,022) (9,987,146)
CASH, beginning of year 1,763,753 11,750,899
------------ ------------
CASH, end of year $ 1,444,731 $ 1,763,753
------------ ------------
------------ ------------
SUPPLEMENTAL DISCLOSURE:
Interest paid $ 2,202,825 $ 2,028,874
------------ ------------
------------ ------------
Income taxes paid $ 300,000 $ 12,075
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE>
VIRGINIA GAS COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999 AND 1998
1. DESCRIPTION OF OPERATIONS:
Virginia Gas Company (the "Company") was organized in 1987 under the laws of the
state of Delaware. The Company, directly or through its subsidiaries and
affiliated companies, is primarily engaged in the storage, marketing,
distribution, gathering, exploration, and production of natural gas, and the
distribution of propane gas, principally in the southwestern counties of the
Commonwealth of Virginia.
2. MANAGEMENT'S PLANS:
The Company has classified $24 million of long-term debt as current due to a
technical non-compliance with the Company's debt covenants. The Company's
covenants require it to maintain certain financial ratios (see Note 8). As of
December 31, 1999, one covenant requires the Company to maintain historical
EBITDA of one and one-half times current debt service. The Company's Line of
Credit (the "Line") with Wachovia Bank N.A. (the "Bank") is currently due on
July 1, 2000, and as of December 31, 1999, had a balance outstanding of $6.0
million. The $6.0 million, in its entirety by definition, must be included in
the Company's current debt service and, as a consequence, causes the technical
non-compliance. The Company's senior lenders, John Hancock and Wachovia, have
both provided the Company with a waiver through March 31, 2000. Furthermore, as
of the quarter ending March 31, 2000, the covenant becomes more stringent,
requiring the Company then to maintain EBITDA of one and three-quarters times
current debt service. Due to construction delays, the Company's revenue has not
grown at the expected pace. Consequently, the Company, with its current debt
structure, will have difficulty in meeting this covenant.
The Company is exploring options to refinance its Line in a manner that will
avoid non-compliance with the covenant. One of those options is a partial
liquidation of assets and a complete repayment of the Line. There can be no
assurance that the Company will be successful in refinancing the Line. If it is
unsuccessful, the Company plans to seek additional waivers or renegotiate the
debt covenants, which will be at the discretion of the Company's lenders.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for 1999 and 1998 include the accounts of
four wholly owned subsidiaries. These subsidiaries are Virginia Gas Exploration
Company, Virginia Gas Marketing Company, Virginia Gas Pipeline Company, and
Virginia Gas Propane Company. All significant intercompany balances and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
24
<PAGE>
Cash and cash equivalents consist of all cash balances and highly liquid
investments which have an original maturity at purchase of three months or less.
INVESTMENT IN AFFILIATED COMPANIES
The Company's investments in affiliated companies are accounted for using the
equity method. Investments carried at equity consist of Virginia Gas Storage
Company ("VGSC") and Virginia Gas Distribution Company ("VGDC") (the
"Affiliates"). The Company has a 50 percent interest in each of these
Affiliates.
Combined financial information as of December 31, 1999 and 1998, and for the
years then ended, for investments in affiliated companies accounted for by the
equity method is as follows.
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets $ 1,462,597 $ 1,313,989
Property and equipment, net 20,444,918 22,206,543
Other assets 1,967,623 3,637,419
----------- -----------
$23,875,138 $27,157,951
----------- -----------
----------- -----------
Current liabilities $ 576,769 $ 2,754,017
Long-term debt 13,916,719 15,916,719
Other liabilities 694,731 626,136
Stockholders' equity 8,686,919 7,861,079
----------- -----------
$23,875,138 $27,157,951
----------- -----------
----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31
1999 1998
----------- -----------
<S> <C> <C>
Revenues $ 5,814,707 $ 4,851,762
Income (loss) before income taxes and
extraordinary loss 1,251,273 (176,084)
Net income (loss) 825,840 (1,058,795)
</TABLE>
The Company provides certain general and administrative services for the
Affiliates. These services include professional services, insurance coverage and
administrative services. Other transactions include purchases and sales of
natural gas, natural gas storage, and technical services provided to the
Affiliates.
VGSC, a 50% owned affiliate of VGC, sold its 60% interest in the Haysi gathering
System in February 1999 for $2.7 million resulting n a $1.2 million before-tax
gain. The Company recorded 50% of that gain through earnings of affiliates.
USE OF ESTIMATES
25
<PAGE>
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities (if any) at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes natural gas sales and gathering revenues upon delivery of
natural gas to the common pipeline carrier. Storage revenues are recognized
evenly throughout the contract terms with injection and withdrawal revenues
recognized as natural gas is injected or withdrawn from the storage facility.
Propane gas sales are recognized upon delivery of gas to the customer.
INCOME PER COMMON SHARE
Income per common share is computed using the weighted-average shares of common
stock and dilutive common stock equivalents (options and warrants) outstanding
during the respective periods. The number of weighted-average shares used in
calculating income per common share was 5,504,906 for the years ended December
31, 1999 and 1998.
PROPERTY AND EQUIPMENT
The Company follows the successful efforts method of accounting for its natural
gas exploration activities. Under this method, geological and geophysical costs
and costs of carrying and retaining undeveloped properties are expensed when
incurred. All direct and certain indirect costs relating to property
acquisition, successful exploratory wells, development costs, and support
equipment and facilities are capitalized as the properties are obtained or the
facilities are placed into service. Costs of exploratory wells are charged to
expense if it is determined that proven reserves are not found.
Unproved gas properties that are individually significant are periodically
assessed for impairment of value, with losses recognized at the time of
impairment. The Company recognized an impairment loss of approximately
$1,020,000 in 1998 related to its oil and gas properties. Property and equipment
is depreciated using the straight-line method over estimated useful lives,
ranging from 5 to 40 years. Maintenance and repairs are charged to expense as
incurred. Improvements and betterments are capitalized.
LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangible assets (including
goodwill) are reviewed for impairment when circumstances indicate that the
carrying amount of an asset may not be recoverable. VGC periodically evaluates
whether events and circumstances have occurred that indicate whether the
remaining estimated useful lives of long-lived assets should be revised or
whether the remaining balance may not be recoverable. When factors indicate that
a long-lived asset should be evaluated for possible impairment, VGC uses an
estimate of its undiscounted net cash flow over the remaining life of the
long-lived assets in measuring whether the long-lived asset is recoverable.
26
<PAGE>
CAPITALIZED INTEREST
The Company capitalizes interest on expenditures for significant projects while
activities are in progress to bring the assets to their intended use. Interest
capitalized totaled $583,632 and $578,662 for the years ended December 31, 1999
and 1998, respectively.
OTHER ASSETS
Costs incurred in conjunction with financing transactions are amortized on a
straight-line basis, which is not materially different than the effective
interest method, over the terms of the financing transactions.
FUNDS HELD FOR FUTURE DISTRIBUTION
Revenues are collected by the Company as operator and marketer of the gas sold
on behalf of the working interest parties and held for final distribution to
them and to landowners. Until these funds are distributed, they are recorded as
funds held for future distribution.
INCOME TAXES
Income taxes are accounted for using the asset-and-liability method. Under the
asset-and-liability method, deferred income taxes reflect the temporary
differences between assets and liabilities recognized for financial reporting
purposes and amounts recognized for tax purposes.
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 balances to conform to the
1999 presentation.
4. ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Trade receivables $ 864,199 $ 841,256
Due from affiliated companies 209,382 2,490,642
Lease operating expenses receivable 129,199 120,704
Joint-interest receivables 9,905 17,155
------------ ------------
$ 1,212,685 $ 3,469,757
------------ ------------
------------ ------------
</TABLE>
The majority of the Company's accounts receivable are due from companies
predominately involved in the marketing and distribution of oil and gas
products.
5. NOTES RECEIVABLE - AFFILIATED COMPANIES:
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Note receivable from Virginia Gas Distribution Company; interest receivable at
8.5%; principal payable in maturities of
$845,000 to $1,056,000 from 2003 to 2012 $ 8,661,172 $ 8,661,172
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C>
Note receivable from Virginia Gas Storage Company;
interest receivable at 8.5%; principal payable in maturities of
$423,000 to $529,000 from 2003 to 2012 4,339,740 4,339,740
----------- -----------
$13,000,912 $13,000,912
----------- -----------
----------- -----------
</TABLE>
6. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Storage properties $15,628,751 $15,025,229
Pipelines 12,114,571 11,540,536
Work in progress 11,984,847 7,332,997
Propane facilities 3,877,907 2,635,165
Wells 1,455,086 1,525,247
Building and improvements 1,077,037 860,861
Vehicles 498,926 430,079
Office equipment 490,437 405,692
Equipment 74,269 96,229
----------- -----------
47,201,831 39,852,035
Less- Accumulated depreciation, depletion, and amortization (4,056,081) (2,712,497)
----------- -----------
$43,145,750 $37,139,538
----------- -----------
----------- -----------
</TABLE>
7. OTHER ASSETS:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred financing costs $ 243,678 $ 572,313
Interest receivable 222,433 -
Insurance proceeds receivable 119,516 -
Other 48,575 47,220
Note receivable - trade 5,512 -
----------- -----------
$ 639,714 $ 619,533
----------- -----------
----------- -----------
</TABLE>
8. DEBT:
<TABLE>
<CAPTION>
1999 1998
----------- ------------
<S> <C> <C>
Notes payable to John Hancock Mutual Life Insurance Company; interest payable
quarterly at 8.5%, principal payable in maturities of $1,659,000 to
$2,073,000 from 2003 to 2012 $ 17,000,000 $ 17,000,000
Notepayable to Mellon Bank, NA; interest payable quarterly at 8.5%, principal
payable in maturities of $390,000 to $488,000 from 2003 to 2012 4,000,000 4,000,000
Notepayable to John Hancock Variable Life Insurance Company; interest payable
quarterly at 8.5%, principal payable in maturities of $293,000 to
$366,000 from 2003 to 2012 3,000,000 3,000,000
</TABLE>
28
<PAGE>
<TABLE>
<S> <C> <C>
Notepayable with interest at 8%; payable in monthly installments of principal
and interest of $1,802 through November 2007; secured by an asset with a
book value of $172,335 as of December 31, 1999 125,539 136,630
Notepayable with interest at 7.5%; payable in monthly installments of principal
and interest of $1,119; maturing in February 2009, secured by an asset with
a book value of $237,400 as of December 31, 1999
88,802 95,324
Notes payable through 2001 with interest from 8% to 9.3%; secured by assets
with a book value of $47,648 as of December 31, 1999 40,512 69,224
-------------- -----------
24,254,853 24,301,178
Less- Current portion (45,144) (46,734)
Amounts classified as current (24,000,000) -
-------------- -----------
Long-term debt $ 209,709 $24,254,444
-------------- -----------
-------------- -----------
</TABLE>
In March 1998, the Company sold $24 million in senior notes to John Hancock
Mutual Life Insurance Company ("John Hancock") in the form of four promissory
notes. Subsequently, John Hancock assigned $4.0 million of these notes to Mellon
Bank. With $19.5 million of the proceeds, the Company called and retired the
Series 1997 Russell County, Virginia Subordinated Natural Gas Facilities Revenue
Bonds, the Series 1995 Buchanan County, Virginia Senior Subordinated Natural Gas
Facilities Revenue Bonds, and the Series A 1994 Buchanan County, Virginia
Natural Gas Revenue Bonds. The Company also defeased the Series A and B 1994
Russell County, Virginia Subordinated Natural Gas Facilities Revenue Bonds. The
remaining proceeds were used to develop the Company's pipeline projects. As a
result of the refinancing, the Company recognized an extraordinary loss on
extinguishment of debt for approximately $832,000. This amount is net of taxes
and includes the Company's 50% share of the extraordinary loss recorded by its
affiliates. The note agreement requires the Company to maintain certain debt
service coverage ratios, a prescribed consolidated tangible net worth, and it
limits the Company's total liabilities. As of December 31, 1999, the Company was
not in compliance with these covenants. The Company has obtained waivers of
these covenant violations through March 31, 2000. The notes are guaranteed by
the Company's wholly-owned subsidiaries and the company has pledged the stock of
50 percent owned affiliates as collateral for the notes.
As of December 31, 1999, scheduled principal payments on long-term debt for the
next five years and thereafter are as follows:
<TABLE>
<S> <C>
2000 $ 45,144
2001 33,178
2002 23,763
2003 2,365,925
2004 2,367,863
Thereafter 19,418,980
</TABLE>
Based upon the borrowing rates currently available to the Company for loans with
similar terms and remaining maturities, the approximate fair value of long-term
debt at December 31, 1999 and 1998, was approximately $23,661,000 and
$27,259,000 respectively.
29
<PAGE>
The Company entered into an $8 million line of credit agreement (the "Line")
with Wachovia Bank, N.A. in July 1998. The Line carries an interest rate based
on the monthly LIBOR rate plus a factor, which is contingent on the company's
debt service coverage ratio. At December 31, 1999 the interest rate was 8.98%.
The Line's financial covenant requirements are similar to the covenants in the
John Hancock Note Agreement discussed above. As of December 31, 1999, the
Company was not in compliance with these financial covenants. The Company has
received waivers of these covenant violations through March 31, 2000. The
Company had $6.0 million and $2.5 million outstanding as of December 31, 1999
and 1998. The total amount is due on July 1, 2000.
9. STOCK OPTIONS:
The Company has granted certain management and directors stock options that
allow the individuals to purchase previously unissued common shares at a set
price. The exercise prices of options granted approximate the estimated fair
market value, as determined by the Board of Directors of the Company's common
stock as of the grant date.
On October 1, 1998, the Company granted to certain of its officers and directors
options to purchase 290,000 shares of the Company's common stock at an exercise
price of $4.125 in accordance with the 1998 Stock Option Plan. The options are
subject to a three-year vesting period from October 1, 1998 until October 1,
2001. The options expire on October 1, 2008.
On July 1, 1997, the Company granted options to purchase 120,000 shares of the
Company's common stock at an exercise price of $10 per share. The options are
subject to a three-year vesting period from July 1, 1997 until June 30, 2000.
These options expire on June 30, 2002.
Changes in the options outstanding during the years ended December 31, 1999 and
1998, were as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
EXERCISE PRICE
SHARES PER SHARE
-------- ----------------
<S> <C> <C>
Outstanding, December 31, 1997 110,000 $10.00
Granted 290,000 $4.125
Canceled (100,000) $10.00
Outstanding, December 31, 1998 300,000 $4.32
Canceled (30,000) $4.125
Outstanding, December 31, 1999 270,000 $4.34
</TABLE>
At December 31, 1999, options for 103,333 shares are currently exercisable.
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company has elected to account for its stock options under APB Opinion No. 25,
under which no compensation cost has been recognized. Had compensation cost for
these stock options been determined in accordance with
30
<PAGE>
SFAS No. 123, the Company's net income and income per share would have decreased
by approximately $230,000 ($.04 per share) in 1999. Net loss and loss per share
would have been increased by $75,000 ($.02 per share) in 1998. The weighted
average fair value of options granted during 1998 was approximately $2.52.
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model. The following weighted average
assumptions were used for grants in 1998: risk-free rate of return of 4.16%;
expected dividend yield of .71%; expected life of ten years; expected volatility
of 50%.
10. COMMITMENTS AND CONTINGENT LIABILITIES:
The Company leases vehicles, equipment, land, and office space. Certain of these
leases require the Company to pay minimum royalties or rentals. The aggregate
minimum royalty and rental payments on leases for the next five years and
thereafter are as follows.
<TABLE>
<S> <C>
2000 $ 198,619
2001 177,270
2002 117,700
2003 68,777
2004 51,857
Thereafter 509,328
</TABLE>
The Company is subject to various Federal, state, and local laws and regulations
relating to the protection of the environment. The Company believes that it is
in compliance with these laws and regulations and does not expect to incur
significant capital expenditures in future years to maintain compliance.
11. SALES TO MAJOR CUSTOMERS:
The Company has four significant customers that accounted for 31%, 9%, 8%, and
4% of 1999 operating revenues and 27%, 18%, 11%, and 11% in 1998 operating
revenues respectively.
12. INCOME TAXES:
The components of the provision (benefit) for income taxes before extraordinary
items are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current:
Federal $ (30,317) $ 173,834
State (3,037) 4,637
----------- -----------
(33,354) 178,471
Deferred:
Federal 238,279 (272,953)
State 23,868 (7,281)
----------- -----------
262,147 (280,234)
----------- -----------
$ 228,793 $(101,763)
----------- -----------
----------- -----------
</TABLE>
31
<PAGE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Deferred tax assets:
Minimum tax credit carryforwards $ 111,615 $ 111,615
Net operating loss carryforward 1,264,898 887,461
----------- -----------
Total 1,376,513 999,076
----------- -----------
Deferred tax liabilities:
Capital assets 2,284,334 1,644,750
----------- -----------
--------- -------
Net deferred tax liabilities $ 907,821 $ 645,674
----------- -----------
----------- -----------
</TABLE>
The Company has no valuation allowances as of December 31, 1999 and 1998.
A reconciliation of the tax provision at the statutory Federal income tax rate
and the Company's actual provision for income tax before extraordinary items is
as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Tax (benefit) at statutory rate of 34% $ 419,850 $(132,242)
Equity in (earnings) losses of affiliated companies (152,780) 19,755
State income taxes, less Federal benefit (36,144) (7,281)
Statutory depletion in excess of cost depletion (6,937) (13,874)
Other, net 4,804 31,879
----------- ---------
$ 228,793 $(101,763)
----------- ---------
----------- ---------
</TABLE>
In addition, the Company has minimum tax credits that can be carried forward
indefinitely to offset future regular tax. The aggregate amount of minimum tax
credits available at December 31, 1999, is approximately $112,000.
13. EMPLOYMENT COMMITMENTS:
On May 23, 1996, the Company entered into a ten-year employment contract with
its President and CEO (the "President"), which provides for an annual salary of
$155,000. The contract provides for a bonus to be paid based upon 10 percent of
the Company's pretax earnings on all amounts from $1,000,000 to $1,999,999 and
15 percent of the Company's pretax earnings on all amounts in excess of
$2,000,000. The President did not receive a bonus in 1999, however, $28,000 was
accrued for 1999 performance as of December 31, 1999. If the President is
terminated by the Company for any reason other than for cause during the term of
the employment contract, at the President's election, the Company would be
obligated to purchase all or a portion of the shares held by him and his family
(404,813 shares as of December 31, 1999) at a price equal to 150 percent of the
market value of the Company's shares on the date of termination. In addition,
the Company would be obligated to pay the President in a lump sum all salary
amounts owed through the term of the employment agreement plus an additional
$2,000,000.
14. RESTRUCTURING AND IMPAIRMENT CHARGES:
32
<PAGE>
In December 1998, the Company's Board of Directors approved a cost reduction
plan. Consistent with the plan, the Company recorded a $241,000 reserve related
to severance payments for former employees and employees that were laid-off in
January 1999. This reserve had been utilized by December 31, 1999. A total of
eight employees were laid-off. These employees were given payments totaling
$241,000. As discussed in Note 3, the Company also recorded an impairment charge
of approximately $1,020,000 related to its well property. The charge was in
response to lower wellhead prices for natural gas and the continued decline in
significance of the Company's exploration and production operation.
Approximately $833,000 of the impairment related to properties that had been
developed but require additional capital to be fully developed or are
undeveloped properties. At the end of 1998, it was not economically feasible to
develop these properties. Additionally, the Company recognized the impact of
declining prices on its producing properties by estimating the general decline
using 1996 as the base year. The Company determined that the prices had declined
21% since 1996 and recorded an impairment reserve of $187,000 in response to
this decline.
15. SEGMENT INFORMATION:
The Company classifies its business into five fundamental areas: natural gas
storage, production, transportation, propane distribution and parent company
activities. Storage activities include revenues derived from and expenses
incurred in the operation of the Saltville Storage Facility. The production
segment includes gas sales from Company operated wells through its Virginia Gas
Marketing Company and the related expenses. Transportation activities include
revenue derived from the Company's P-25 pipeline system and the expenses
incurred to operate that system. The propane distribution segment includes all
revenues obtained through the retail distribution of propane and the related
expenses. The parent company activities relate solely to activities of Virginia
Gas Company as a holding company. Information as to the operations of the
Company in different business segments is set forth below based on the nature of
the products and services offered.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998
------------ ------------
<S> <C> <C>
STORAGE:
Total assets $ 23,264,477 $ 18,453,478
Capital expenditures $ 5,331,379 $ 3,971,187
Operating revenues $ 2,924,552 $ 2,938,544
Interest income -- 276,041
Other income 2,729 725
Operation and maintenance (466,657) (505,099)
Depreciation, depletion, and amortization (564,987) (374,080)
------------ ------------
STORAGE OPERATING AND INTEREST INCOME $ 1,895,637 $ 2,336,131
------------ ------------
------------ ------------
PRODUCTION:
Total assets $ 4,032,109 $ 3,849,877
Capital expenditures $ 39,453 $ 46,259
</TABLE>
33
<PAGE>
<TABLE>
<S> <C> <C>
Operating revenues $ 3,528,617 $ 3,646,654
Interest income 43,545 42,157
Other income 20,666 7,038
Cost of natural gas sold (2,510,885) (3,042,541)
Production expense (87,933) (106,146)
Operations and maintenance (28,453) (77,506)
Depreciation, depletion, and amortization (178,086) (244,063)
------------ ------------
PRODUCTION OPERATING AND INTEREST INCOME $ 787,471 $ 225,593
------------ ------------
------------ ------------
TRANSPORTATION:
Total assets $ 14,751,201 $ 13,693,638
Capital expenditures $ 654,904 $ 11,442,048
Operating revenues $ 1,150,349 $ 507,246
Interest income -- 48,713
Other income 1,099 --
Operation and maintenance (17,916) (64,103)
Depreciation, depletion, and amortization (267,793) (135,610)
------------ ------------
TRANSPORTATION OPERATING AND INTEREST INCOME $ 865,739 $ 356,246
------------ ------------
------------ ------------
PROPANE DISTRIBUTION:
Total assets $ 4,787,296 $ 3,607,146
Capital expenditures $ 1,322,672 $ 1,226,069
Operating revenue $ 1,909,391 $ 1,321,698
Interest income -- 11,081
Other income 244,748 165,791
Propane gas expense (848,217) (574,002)
Operation and maintenance (374,386) (252,322)
Depreciation, depletion, and amortization (237,183) (152,938)
------------ ------------
PROPANE DISTRIBUTION OPERATING AND INTEREST INCOME $ 694,353 $ 519,308
------------ ------------
------------ ------------
PARENT COMPANY:
Investments in subsidiaries and affiliates $ 29,093,460 $ 28,680,554
Notes receivable from subsidiaries and affiliates $ 23,460,004 $ 21,469,845
Total assets $ 58,022,637 $ 54,776,897
Capital expenditures $ 141,499 $ 62,701
Operating revenue $ 712,036 $ 202
Interest income 2,258,695 2,066,314
Other income 256 2,420
Depreciation, depletion, and amortization (234,952) (66,200)
------------ ------------
</TABLE>
34
<PAGE>
<TABLE>
<S> <C> <C>
PARENT COMPANY OPERATING AND INTEREST INCOME $ 2,736,035 $ 2,002,736
------------ ------------
------------ ------------
ELIMINATION OF INTERCOMPANY/INTERSEGMENT ACTIVITY:
Total assets $(40,131,200) $(33,919,482)
Operating revenues $ (822,094) $ (248,573)
Interest income $ (944,501) $ (986,074)
VIRGINIA GAS COMPANY CONSOLIDATED:
Total assets $ 64,726,520 $ 60,461,554
Capital expenditures $ 7,489,907 $ 16,748,264
Operating revenues $ 9,402,851 $ 8,165,771
Interest income 1,357,739 1,458,232
Other income 269,498 175,974
Cost of gas sold (2,510,885) (3,042,541)
Propane gas expense (848,217) (574,002)
Production expense (87,933) (106,146)
Operations and maintenance (887,412) (899,030)
Depreciation, depletion, and amortization (1,483,001) (972,891)
VIRGINIA GAS COMPANY CONSOLIDATED OPERATING AND
------------ ------------
INTEREST INCOME $ 5,212,640 $ 4,205,367
------------ ------------
------------ ------------
</TABLE>
35
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
DIRECTORS
Set forth below is information regarding the Company's
Directors, their ages, the period during which they have served as a Director,
their business experience during at least the past five years and other
directorships currently held by them.
Glenn B. Rogers, age 61, served as Senior Vice President of Marketing
and Gas Supply for United Cities Gas Company from 1970 until his retirement in
October 1997. In this position, he was responsible for the propane operations of
United Cities Gas Company. From 1979 to 1987, Mr. Rogers served United Cities
Gas Company as Group Vice President of Gas Supply, Marketing and Rates and from
1976 to 1979 he served as Vice President of Gas Supply. Mr. Rogers is a past
president of the Southeastern Gas Association. He also serves as a director of
Vietti Food Corporation. Mr. Rogers holds a B.S. degree in mathematics from
Peabody College and a Master's degree in mathematics from Southeast Oklahoma
State College. Mr. Rogers' term as a Director expires in 2001. Mr. Rogers was
elected Chairman of the Board in April 1999.
Michael L. Edwards, age 47, has served as President and Director of the
Company since its formation in 1987 and as Chairman from 1987 to April 1999. He
also serves as President of Virginia Gas Exploration Company, Virginia Gas
Pipeline Company, Virginia Gas Marketing Company, Virginia Gas Propane Company,
Virginia Gas Storage Company and Virginia Gas Distribution Company. From 1983 to
1986 Mr. Edwards served as Executive Vice President and Director of Petroleum
Development Corporation. Mr. Edwards is a Phi Beta Kappa graduate of the
University of California, Berkeley and he received an MBA from the Stanford
University School of Business. Mr. Edwards' term as a Director expires in 2002.
He is the husband of Karen K. Edwards.
Karen K. Edwards, age 42, has served as Vice President and Director of
the Company since its formation in 1987. She served as Treasurer until September
1995 and as Secretary until March 1998. Ms. Edwards received an MBA from the
Colgate Darden Graduate School of Business at the University of Virginia and a
Bachelor's degree in Business Administration from the University of Colorado.
Ms. Edwards' term as a Director expires in 2001. She is the wife of Michael L.
Edwards.
Everette G. Allen, Jr., age 59, has served as a Director of the Company
since January 1998. He has served as Chairman of Hirschler, Fleischer, Weinberg,
Cox & Allen, a law firm located in Richmond, Virginia since 1986, and has been
employed by that firm since 1970. Mr. Allen is a director of Hersha Hospitality
Trust, a publicly traded real estate investment trust registered on the American
Stock Exchange. Mr. Allen has served as a member of the Board of Trustees for
Randolph-Macon College and is a Fellow with the American College of Trial
Lawyers. He is a Phi Beta Kappa graduate of Randolph-
36
<PAGE>
Macon College and a graduate of the University of Virginia Law School. Mr.
Allen's term as Director expires in 2000.
G. Lee Crenshaw, II, age 41, has served as a Director of the Company
since January 1998. He has served as a Director and Senior Vice President of
Anderson & Strudwick, Inc., an investment/brokerage firm, since 1994. From 1991
to 1994 he was employed at Scott & Stringfellow, an investment/brokerage firm,
as Vice President. Mr. Crenshaw was employed as a stockbroker at Wheat, First
Securities, Inc. from 1982 to 1991. He is a graduate of Virginia Commonwealth
University. Mr. Crenshaw's term as a Director expires in 2000.
EXECUTIVE OFFICERS
The executive officers are elected to serve annual terms at the first
Board of Directors meeting following the annual meeting of the stockholders.
Certain information concerning the Company's executive officers as of March 31,
2000 is set forth below, except that information concerning Mr. and Mrs. Edwards
is presented above.
James E. Talkington, III, age 40, has served as Vice President, Land
and Legal Affairs of the Company since April 1998. Mr. Talkington has also
served as the Company's Secretary since June 1999. He has been employed by the
Company since 1994 as land manager. Prior to his affiliation with the Company,
Mr. Talkington was an independent land manager for Ashland Exploration Company
in 1994. From 1989 to 1993 Mr. Talkington was employed by Continental Reserves
Oil Company as land manager.
Bradley L. Swanson, age 53, has served as Vice President, Marketing and
Government Affairs of the Company since April 1998. He has been employed by the
Company since 1987 with responsibility for land leasing, right of way purchases,
legal matters, marketing, and government relations. From 1983 to 1987 Mr.
Swanson was the owner and operator of Home Town Properties, a residential and
commercial real estate firm.
G. Scott Hill, age 43, has served as Vice President, Operations of the
Company since April 1998. He has been employed by the Company since March 1997
with responsibility for gas storage and pipeline operations. From 1985 to 1996
Mr. Hill was employed by Columbia Natural Resources as a drilling engineer.
Robert C. Withrow, Jr., age 52, has served as Treasurer of the Company
since April 1998. He has been employed by the Company since February 1998 as
director of accounting. From 1981 to 1997 Mr. Withrow was employed as Vice
President of Finance of The Dosco Corporation. From 1979 to 1980 he was employed
by American Electric Power Company as internal audit manager. Mr. Withrow was
employed by Deloitte & Touche from 1972 to 1979 as senior auditor. He is a
certified public accountant.
William L. Clear, age 29, has served as Chief Financial Officer of the
Company beginning in December 1998 and Assistant Secretary of the Company since
April 1998. He has been employed by the Company since March 1998 as Controller.
From 1993 to February 1998 Mr. Clear was employed by Coopers and Lybrand L.L.P.
as a business assurance senior associate specializing in audits of utility
37
<PAGE>
companies. He received a B.S. in accounting from Emory & Henry College and an
M.A. in accounting from the University of Tennessee, Knoxville. Mr. Clear is a
certified public accountant.
Timothy L. Ferguson, age 35, has served as Senior Vice President of the
Company since November 1998. He has been employed by the Company since March
1998 with responsibility primarily for pipeline and storage operations. Mr.
Ferguson also serves as Senior Vice President of Operations for Virginia Gas
Pipeline Company, Virginia Gas Storage Company, Virginia Gas Distribution
Company, Virginia Gas Exploration Company and Virginia Gas Propane Company.
Prior to his affiliation with the Company, Mr. Ferguson was employed by Palmer
Engineering Company, as an engineering project manager between 1994 and 1998,
and by Tenneco Gas, as a project engineer from 1989 to 1994.
ITEM 10. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Directors of the Company receive $2,500 for attending each Board of Directors
meeting. Directors also receive an additional $2,500 annually for serving on the
Audit Committee. Allen, Crenshaw, and Ms. Edwards serve on the Audit Committee.
Directors are eligible to participate in the Company's 1998 Stock Option Plan.
No stock options were granted during fiscal year 1999 to any directors
EXECUTIVE COMPENSATION
The following table presents information concerning the annual
compensation of the Chief Executive Officer and each executive officer of the
Company whose salary and bonus were greater than $100,000 in 1999. No
officer, except Michael Edwards, received salary and bonus in excess of
$100,000 in 1999. This table presents compensation for services rendered in
all capacities to the Company in 1999, 1998 and 1997.
SUMMARY COMPENSATION TABLE
--------------------------
<TABLE>
<CAPTION>
Stock
Options
Name and Principal and All Other
Position Year Salary(1) Bonus Warrants Comp.
---- --------- ----- --------- -----------
<S> <C> <C> <C> <C> <C>
Michael L. Edwards 1999 $155,000 $ - $ - $20,864 (2)
President and Chief 1998 $155,000 $31,802 $ - $32,441
Executive Officer 1997 $157,917 $50,000 $ - $32,837
</TABLE>
(1) Amounts include cash compensation earned and received by the named
officer as well as amounts deferred under a 401(k) Savings Plan.
(2) Amounts shown include Company contributions to a 401(k) Savings Plan of
$10,000, life insurance premiums of , board fees of $10,000, and
vehicle compensation of $864. vehicle allowances and directors' fees.
38
<PAGE>
EMPLOYMENT AGREEMENT
On May 23, 1996, the Company entered into a ten-year employment
agreement with Michael L. Edwards which provides for an annual salary of
$155,000. Mr. Edwards will also receive annual bonuses computed on the basis of
10% of the Company's pre-tax earnings on all amounts from $1,000,000 to
$1,999,999 and 15% of the Company's pre-tax earnings on all amounts in excess of
$2,000,000. The bonus for 1996 was $50,000 and was paid in 1997. The bonus for
1997 was $31,802 and was paid in 1998. In the event Mr. Edwards' employment is
terminated by the Company for any reason other than for cause during the term of
the employment agreement, at the election of Mr. Edwards the Company will be
obligated to purchase all or a portion of the shares held by him and/or his wife
at a price equal to 150% of the market value of the Company's shares on the date
of termination. In addition, the Company will be obligated to pay Mr. Edwards in
a lump sum all salary amounts payable to Mr. Edwards through the term of the
employment agreement plus an additional $2,000,000.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of common stock by the
Company's directors and executive officers as of March 31, 2000, as well as
additional information about beneficial owners of 5% or more of the Company's
common stock based upon filings with the Securities and Exchange Commission and
to the Company's knowledge.
<TABLE>
<CAPTION>
Name and Address (1) Amount of Percent of
of Beneficial Owner Ownership Class
- -------------------- --------- -----------
<S> <C> <C>
Dr. James T. Martin 800,058 14.53%
Eagle Top Long Road
Waitesville, Vermont 05673
Michael L. and Karen K. Edwards 752,576 (2) 13.67%
Michael L. Edwards 6,000 *
Karen K. Edwards 9,900 *
G. Lee Crenshaw, II 30,639 (3) *
707 East Main Street, 20th Floor
Richmond, Virginia 23219
Everette G. Allen, Jr. 95,000 (4) 1.73%
Federal Reserve Bank Building
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
701 East Byrd Street
Richmond, Virginia 23219
Glenn B. Rogers
605 Westover Drive
Nashville, Tennessee 37209 22,000 (5) *
------
All executive officers and directors as 1,738,977.83 31.59%
a group
</TABLE>
* Less than 1%.
(1) Except as otherwise noted, the address of the holder is in care of the
Company.
(2) Includes 363,663 shares which may be issued to Mr. and Mrs. Edwards
upon exercise of a presently exercisable warrant, the exercise price
under which is $9.90 per share.
(3) Includes 20,000 shares which may be issued to Mr. Crenshaw upon
exercise of presently exercisable stock options. Mr. Crenshaw also
holds options to acquire an additional 40,000 shares which may be
issued to Mr. Crenshaw upon exercise as follows: 20,000 shares
exercisable on each of October 1, 2000 and October 1, 2001.
(4) Includes 20,000 shares which may be issued to Mr. Allen upon exercise
of presently exercisable stock options. Mr. Allen also holds options to
acquire an additional 40,000 shares which may be issued to Mr. Allen
upon exercise as follows: 20,000 shares exercisable on each of October
1, 2000 and October 1, 2001.
(5) Includes 20,000 shares which may be issued to Mr. Rogers upon exercise
of presently exercisable stock options. Mr. Rogers also holds options
to acquire an additional 40,000 shares which may be issued to Mr.
Rogers upon exercise as follows: 20,000 shares exercisable on each of
October 1, 2000 and October 1, 2001.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert C. Bright, who served as Secretary of the Company from April
1998 through June 1999, is a stockholder in the Law Offices of Robert C. Bright,
a Professional Corporation, which provides certain legal services to the
Company. During 1998 and 1999, Mr. Bright's law firm received legal fees from
the Company of approximately $300,000 and $115,000, respectively. It is
anticipated that Mr. Bright will continue to provide limited legal services to
the Company.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
The following exhibits are included:
40
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<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
<S> <C>
* 3.1 Amended and Restated Certificate of Incorporation
* 3.2 Bylaws of Virginia Gas Company as Amended on June 10, 1998
* 4.1 John Hancock Note Purchase Agreement dated as of March 19, 1998
9.1 Shareholders' Agreement and Voting Trust (incorporated by
reference to Exhibit 9.1 to Virginia Gas Company's Registration
Statement, Registration No. 333-5362-NY).
10.1 Series A Preferred Stock Securities Purchase Agreement by and
between Virginia Gas Company and Sirrom Capital Corporation
(incorporated by reference to Exhibit 10.1 to Virginia Gas
Company's Registration Statement, Registration No. 333-5362-NY).
10.2 Stock Purchase Warrant issued by Virginia Gas Company to Sirrom
Capital Corporation (incorporated by reference to Exhibit 10.2 to
Virginia Gas Company's Registration Statement, Registration No.
333-5362-NY).
10.3 Placement Agreement between Virginia Gas Company and Anderson &
Strudwick, Incorporated (incorporated by reference to Exhibit
10.3 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.4 Warrant to Anderson & Strudwick Incorporated (incorporated by
reference to Exhibit 4.2 to Virginia Gas Company's Form SB-2
Registration No. 333-5362-NY)
10.5 Employment Agreement between Virginia Gas Company and Michael L.
Edwards (incorporated by reference to Exhibit 10.6 to Virginia
Gas Company's Registration Statement, Registration No.
333-5362-NY).
10.6 Lease Agreement between J.D. Morefield, et.al. and Virginia Gas
Company (incorporated by reference to Exhibit 10.7 to Virginia
Gas Company's Registration Statement, Registration No.
333-5362-NY).
10.7 Firm Gas Storage Agreement between Virginia Gas Storage Company
and Roanoke Gas Company (incorporated by reference to Exhibit
10.8 to Virginia Gas Company's Form SB-2 Registration No.
333-32009).
10.8 Firm Storage Service Agreement between Virginia Gas Storage
Company and Powell-Clinch Utility District (incorporated by
reference to Exhibit 10.9 to Virginia Gas Company's Registration
Statement, Registration No. 333-5362-NY).
10.9 Firm Storage Service Agreement between Virginia Gas Storage
Company and the Public Utility District of Jefferson and Cocke
Counties, Tennessee (incorporated by reference to Exhibit 10.10
to Virginia Gas Company's Registration Statement, Registration
No. 333-5362-NY).
10.10 Gas Storage Agreement between Virginia Gas Storage Company and
United Cities Gas Company (incorporated by reference to Exhibit
10.11 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.11 Firm Gas Storage Agreement between Virginia Gas Storage Company
and Knoxville Utilities Board (incorporated by reference to
Exhibit 10.12 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.12 Winter Service Firm Natural Gas Sales Agreement between Virginia
Gas Storage Company and Knoxville Utilities Board (incorporated
by reference to Exhibit
</TABLE>
41
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<TABLE>
<S> <C>
10.13 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.13 Interruptible Gathering Service Agreement between Columbia Gas
Transmission Corporation and Virginia Gas Storage Company
(incorporated by reference to Exhibit 10.15 to Virginia Gas
Company's Registration Statement, Registration No. 333-5362-NY).
10.14 Transfer Agreement between Virginia Gas Company and Tenneco
Energy Resources Corporation (incorporated by reference to
Exhibit 10.16 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.15 Amendment to Transfer Agreement between Virginia Gas Company and
Tenneco Energy Marketing Company, successor-in-interest to
Tenneco Energy Resources Corporation (incorporated by reference
to Exhibit 10.17 to Virginia Gas Company's Form 10-KSB for the
fiscal year ended December 31, 1996)
10.16 Promissory Note in principal amount of $1,725,000 in favor of
Tenneco Energy Resources Corporation (incorporated by reference
to Exhibit 10.17 to Virginia Gas Company's Registration
Statement, Registration No. 333-5362-NY).
10.17 United Cities Contract (incorporated by reference to Exhibit
10.18 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.18 Pipeline Balancing Agreement between East Tennessee Natural Gas
Company and Virginia Gas Pipeline Company (incorporated by
reference to Exhibit 10.19 to Virginia Gas Company's Registration
Statement, Registration No. 333-5362-NY).
10.19 Warrant to Shareholders (incorporated by reference to Exhibit
10.20 to Virginia Gas Company's Registration Statement,
Registration No. 333-5362-NY).
10.20 Firm Storage Service Agreement between Virginia Gas Storage
Company and Sevier County Utility District (incorporated by
reference to Exhibit 10.22 to Virginia Gas Company's Form 10-KSB
for the fiscal year ended December 31, 1996)
10.21 Firm Storage Service Agreement between Virginia Gas Storage
Company and Natural Gas Utility District of Hawkins County
(incorporated by reference to Exhibit 10.23 to Virginia Gas
Company's Form 10-KSB for the fiscal year ended December 31,
1996)
10.22 Firm Storage Service Agreement between Virginia Gas Pipeline
Company and Citizens Gas Utility District (incorporated by
reference to Exhibit 10.24 to Virginia Gas Company's Form 10-KSB
for the fiscal year ended December 31, 1996)
10.23 Firm Gas Storage Agreement between Virginia Gas Pipeline Company
and Knoxville Utilities Board (incorporated by reference to
Exhibit 10.25 to Virginia Gas Company's Form 10-KSB for the
fiscal year ended December 31, 1996)
10.24 Underwriting Agreement between Virginia Gas Company and Anderson
& Strudwick, Incorporated (incorporated by reference to Exhibit
1.1 to Virginia Gas Company's Form SB-2 Registration No.
333-5362-NY)
10.25 Description of Stock Options issued to named executive officers
(incorporated by reference to Exhibit 10.27 to Virginia Gas
Company's Form SB-2 Registration No. 333-32009)
10.26 Amendment to the Firm Storage Service Agreement between Virginia
Gas Storage Company and Powell-Clinch Utility District
(incorporated by reference to
</TABLE>
42
<PAGE>
<TABLE>
<S> <C>
Exhibit 10.28 to Virginia Gas Company's Form SB-2 Registration
No. 333-32009)
10.27 Firm Storage Service Contract between Virginia Gas Pipeline
Company and Hawkins County Utility District (incorporated by
reference to Exhibit 10.29 to Virginia Gas Company's Form SB-2
Registration No. 333-32009)
10.30 Firm Storage Service Contract between Virginia Gas Pipeline
Company and ALCOA (incorporated by reference to Exhibit 10.30 to
Virginia Gas Company's Form SB-2 Registration No. 333-32009)
10.31 Gas Transportation Agreement between Virginia Gas Distribution
Company and East Tennessee Gas Company (incorporated by reference
to Exhibit 10.31 to Virginia Gas Company's Form SB-2 Registration
No. 333-32009)
10.32 Underwriting Agreement between Virginia Gas Company and Ferris,
Baker Watts, Incorporated (incorporated by reference to Exhibit
1.1 to Virginia Gas Company's Form SB-2 Registration No.
333-32009)
21.1 Subsidiaries and Affiliates of Virginia Gas Company incorporated
by reference to Exhibit 21.1 to Virginia Gas Company's 10KSB for
fiscal 1999
23.1 Consent of Arthur Andersen LLP incorporated by reference to
Exhibit 23.1 to Virginia Gas Company's 10KSB for fiscal 1999
27.1 Financial Data Schedule incorporated by reference to Exhibit 27.1
to Virginia Gas Company's 10KSB for fiscal 1999
99.1 Financial Statements of Virginia Gas Storage Company incorporated
by reference to Exhibit 99.1 to Virginia Gas Company's 10KSB for
fiscal 1999
99.2 Financial Statements of Virginia Gas Distribution Company
incorporated by reference to Exhibit 99.2 to Virginia Gas
Company's 10KSB for fiscal 1999
</TABLE>
- ------------
* Filed herewith
(b) The Company filed the following Current Reports on Form 8-K during the
quarter ended December 31, 1999:
Current Report on Form 8-K as filed with the Securities and Exchange
Commission on December 23, 1999
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 15, 2000
VIRGINIA GAS COMPANY
(Registrant)
By /s/ MICHAEL L. EDWARDS
-------------------------
Michael L. Edwards
President, Chief Executive Officer, and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on March 15, 2000.
/s/ GLENN B. ROGERS Chairman of the Board of Directors
- ----------------------------------
Glenn B. Rogers
/s/ KAREN K. EDWARDS Vice President and Director
- ----------------------------------
Karen K. Edwards
/s/ WILLIAM L. CLEAR Vice President and Chief Financial Officer
- ----------------------------------
William L. Clear
44
<PAGE>
EXHIBIT 3.1
45
<PAGE>
SECOND
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
VIRGINIA GAS COMPANY
Virginia Gas Company, a corporation organized and existing under the laws
of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is Virginia Gas Company, originally
incorporated under the name Edwards Petroleum Company on March 24, 1987.
2. An Amended and Restated Certificate of Incorporation of Virginia Gas
Company was filed on August 2, 1996. This Second Amended and Restated
Certificate of Incorporation restates and integrates and further amends the
Certificate of Incorporation of this Corporation.
3. The text of the Certificate of Incorporation as amended or supplemented
heretofore is further amended hereby to read in full as set forth herein:
FIRST: The name of the Corporation is Virginia Gas Company.
SECOND: The registered office of the Corporation in the State of Delaware
is located at Corporation Trust Center, 1209 Orange Street, in the city of
Wilmington, County of New Castle, Zip Code 19801. The name of its registered
agent is The Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware
19801.
THIRD: The nature of the business, objects and purposes to be transacted,
promoted or carried on by the Corporation are:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Laws of the State of Delaware.
FOURTH: The total number of shares of stock that the corporation shall have
authority to issue is 101,000,000 of which stock 1,000,000 shares of no par
value each shall be designated Preferred Stock, and of which 100,000,000 shares
of the par value of $.001 each shall be designated Common Stock.
Shares of Preferred Stock may be issued from time to time in one
or more series, each such series to have distinctive serial designations, as
shall hereafter be determined in the resolution or resolutions providing for the
issue of such Preferred Stock from time to time adopted by the Board of
Directors pursuant to authority so to do, which is hereby vested in the Board of
Directors.
Each series of Preferred Stock
(a) may have such number of shares;
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<PAGE>
(b) may have such voting powers, full or limited, or may be
without voting powers;
(c) may be subject to redemption by the Corporation at its
option or at the option of the holders of such stock or upon
the happening of a specified event at such time or times and
at such prices;
(d) may be entitled to receive dividends (which may be
cumulative or noncumulative) at such rate, on such
conditions and at such times, and payable in preference to,
or in such relation to, the dividends payable on any other
class or classes of any series of stock;
(e) may have such rights upon dissolution of, or upon any
distribution of the assets of, the Corporation;
(f) may be convertible into, or exchangeable for, at the
option of either the holder or the Corporation or upon the
happening of a specified event, shares of any other class or
classes or of any other series of the same or any other
class or classes of stock of the Corporation, at such price
or prices or at such rate or rates of exchange, and with
such adjustments; and
(g) may have such other relative, participating, optional or
other special rights, and qualifications, limitations or
restrictions thereof; all as shall be stated in said
resolution or resolutions providing for the issue of such
Preferred Stock. Except where otherwise set forth in the
resolution or resolutions adopted by the Board of Directors
providing for the issue of any series of Preferred Stock,
the number of shares comprising such series may be increased
(but not above the total number of authorized shares of
Preferred Stock) or decreased (but not below the number of
shares then outstanding) from time to time by like action of
the Board of Directors.
Shares of any series of Preferred Stock that have been redeemed
(whether through the operation of a sinking fund or otherwise) or purchased by
the Corporation, or which, if convertible or exchangeable, have been converted
into or exchanged for shares of stock of any other class or classes shall have
the status of authorized and unissued shares of Serial Preferred Stock and may
be reissued as a part of the series of which they were originally a part or may
be reclassified and reissued as part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board of Directors or as part of any
other series of Preferred Stock, all subject to the conditions or restrictions
on issuance set forth in the resolution or resolutions adopted by the Board of
Directors providing for the issue of any series of Preferred Stock and to any
filing required by law.
Except as otherwise provided by law or by the resolution or
resolutions of the Board of Directors providing for the issue of any series of
the Preferred Stock, the Common Stock shall have the exclusive right to vote for
the election of Directors and for all other purposes, each holder of the Common
Stock being entitled to one vote for each one share held.
Subject to all of the rights of the Preferred Stock or any series
thereof, the holders of the Common Stock shall be entitled to receive, when, as
and if declared by the Board of Directors, out of funds legally available
therefor, dividends payable in cash, stock or otherwise.
Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, and after the holders of the
Preferred Stock of each series shall have been paid in full amounts to which
they respectively shall be entitled, or a sum sufficient for such payments in
full shall have been set aside, the remaining net assets of the Corporation
shall be distributed pro rata to the holders of the Common Stock in accordance
with their respective rights and interests, to the exclusion of the holders of
the Preferred Stock.
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<PAGE>
FIFTH: Elections of directors need not be by written ballot unless the
bylaws of the Corporation shall so provide.
SIXTH: A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. If the General Corporation Law of the State of
Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the corporation shall be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended. Any repeal or modification of this paragraph by the stockholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification.
4. This Second Amended and Restated Certificate of Incorporation was duly
adopted at the annual meeting of the stockholders held on June 10, 1998 in
accordance with the applicable provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said VIRGINIA GAS COMPANY has caused this certificate
to be signed by Michael L. Edwards, its President and William L. Clear, its
Assistant Secretary, this 10th day of June, 1998.
By:
-------------------------------------
Michael L. Edwards
President
ATTEST:
---------------------------------
William L. Clear
Assistant Secretary
48
<PAGE>
EXHIBIT 3.2
49
<PAGE>
BYLAWS OF
VIRGINIA GAS COMPANY
AS AMENDED ON JUNE 10, 1998
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the
Corporation shall be in the City of Abingdon, Virginia.
SECTION 1.2 REGISTERED OFFICE. The registered office of the
Corporation required to be maintained in the State of Delaware by the General
Corporation Laws of the State of Delaware, may be, but need not be, identical
with the Corporation's principal office, and the address of the registered
office may be changed from time to time by the Board of Directors.
SECTION 1.3 OTHER OFFICES. The Corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the holders
of shares of each class or series of stock as are entitled to notice thereof and
to vote thereat pursuant to applicable law and the Corporation's Certificate of
Incorporation for the purpose of electing directors and transacting such other
proper business as may come before it shall be held in each year, at such time,
on such day and at such place, within or without the State of Delaware, as may
be designated by the Board of Directors.
SECTION 2.2 SPECIAL MEETINGS. In addition to such special
meetings as are provided by law or the Corporation's Certificate of
Incorporation, special meetings of the holders of any class or series or of all
classes or series of the Corporation's stock for any purpose or purposes, may be
called at any time by the Board of Directors and may be held on such day, at
such time and at such place, within or without the State of Delaware, as shall
be designated by the Board of Directors.
SECTION 2.3 NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Except
as otherwise provided by law, written notice of any meeting of Stockholders (i)
shall be given either by personal delivery or by mail to each Stockholder of
record entitled to vote thereat, (ii) shall be in such form as is approved by
the Board of Directors, and (iii) shall state the date, place and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such written
notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting. Except when a Stockholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the
50
<PAGE>
meeting is not lawfully called or convened, presence in person or by proxy of a
Stockholder shall constitute a waiver of notice of such meeting. Further, a
written waiver of any notice required by law or by these Bylaws, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Except as otherwise provided by law, the
business that may be transacted at any such meeting shall be limited to and
consist of the purpose or purposes stated in such notice. If a meeting is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place thereof are announced at the meeting at which the
adjournment is taken; PROVIDED, HOWEVER, that if the adjournment is for more
than thirty (30) days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each Stockholder of record entitled to vote at the meeting.
SECTION 2.4 VOTING LISTS. The officer or agent having charge
of the stock transfer books for shares of the Corporation shall keep a complete
list of Stockholders entitled to vote at meetings or any adjournments thereof,
arranged in alphabetical order, in accordance with applicable law and shall make
same available prior to and during each Stockholders' meeting for inspection by
the Corporation's Stockholders as required by law. The Corporation's original
stock transfer books shall be PRIMA FACIE evidence as to who are the
Stockholders entitled to examine such list or transfer books or to vote at any
meeting of Stockholders.
SECTION 2.5 QUORUM. Except as otherwise provided by law or by
the Corporation's Certificate of Incorporation, the holders of a majority of the
Corporation's stock issued and outstanding and entitled to vote at a meeting,
present in person or represented by proxy, without regard to class or series,
shall constitute a quorum at all meetings of the Stockholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the Stockholders, the holders of a majority of the
shares of stock present in person or represented by proxy and entitled to vote,
may adjourn any meeting from time to time without notice other than announcement
at the meeting, except as otherwise required by these Bylaws, until a quorum
shall be present or represented. At any such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which might have
been transacted at the meeting as originally called.
SECTION 2.6 ORGANIZATION. Meetings of the Stockholders shall
be presided over by the Chairman of the Board of Directors, if one shall be
elected, or in his absence, by the President or by any Vice President, or, in
the absence of any of such officers, by a chairman to be chosen by a majority of
the Stockholders entitled to vote at the meeting who are present in person or by
proxy. The Secretary, or, in his absence, any Assistant Secretary or any person
appointed by the individual presiding over the meeting, shall act as secretary
at meetings of the Stockholders.
SECTION 2.7 VOTING. Each Stockholder of record, as determined
pursuant to Section 2.8, who is entitled to vote in accordance with the terms of
the Corporation's Certificate of Incorporation and in accordance with the
provisions of these Bylaws, shall be entitled to one vote, in person or by
proxy, for each share of stock registered in his name on the books of the
Corporation. Every Stockholder entitled to vote at any Stockholders' meeting may
authorize another person or persons to act for him by proxy pursuant to Section
2.12(c), provided that no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only so long as, it is coupled with an interest sufficient in law to support
an irrevocable power. A Stockholder's attendance at any meeting shall not have
the effect of revoking a previously granted proxy unless such Stockholder shall
in writing so notify the Secretary of
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the meeting prior to the voting of the proxy. Unless otherwise provided by law,
no vote on the election of directors or any question brought before the meeting
need be by ballot unless the chairman of the meeting shall determine that it
shall be by ballot or the holders of a majority of the shares of stock present
in person or by proxy and entitled to participate in such vote shall so demand.
In a vote by ballot, each ballot shall state the number of shares voted and the
name of the Stockholder or proxy voting. Except as otherwise provided by law, by
the Corporation's Certificate of Incorporation or these Bylaws, all elections of
directors and all other matters before the Stockholders shall be decided by the
vote of the holders of a majority of the shares of stock present in person or by
proxy at the meeting and entitled to vote in the election or on the question. In
the election of directors, votes may not be cumulated.
SECTION 2.8 STOCKHOLDERS ENTITLED TO VOTE. The Board of
Directors may fix a date not more than sixty (60) days nor less than ten (10)
days prior to the date of any meeting of Stockholders, or, in the case of
corporate action by written consent in accordance with the terms of Section
2.10, not prior to the date upon which the resolution of the Board of Directors
fixing the record date is adopted and not more than ten (10) days after the date
upon which the resolution of the Board of Directors fixing the record date is
adopted, as a record date for the determination of the Stockholders entitled to
notice of and to vote at such meeting and any adjournment thereof, or to act by
written consent, and in each case such Stockholders and only such Stockholders
as shall be Stockholders of record on the date so fixed shall be entitled to
notice of and to vote at such meeting and any adjournment thereof, or to act by
written consent, as the case may be, notwithstanding any transfer of any stock
on the books of the Corporation after such record date fixed as aforesaid.
SECTION 2.9 ORDER OF BUSINESS. The order of business at all
meetings of Stockholders shall be as determined by the chairman of the meeting
or as is otherwise determined by the vote of the holders of a majority of the
shares of stock present in person or by proxy and entitled to vote without
regard to class or series at the meeting.
SECTION 2.10 STOCKHOLDER PROPOSALS.
(a) At any annual meeting of the Stockholders, only such
business shall be conducted as shall have been brought before the meeting (i) by
or at the direction of the Board of Directors or (ii) by any Stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 2.10. For business to be
properly brought before an annual meeting by a Stockholder, the Stockholder must
have given timely notice thereof in writing to the Secretary of the Corporation.
To be timely, a Stockholder's notice must be delivered or mailed to and received
at the principal executive offices of the Corporation not less than ninety (90)
days prior to the date of the annual meeting; except that in the event that less
than one hundred (100) days' notice or prior public disclosure of the date of
the meeting is given or made to Stockholders, notice by the Stockholder must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A Stockholder's notice to the Secretary shall set forth as
to each matter such Stockholder proposes to bring before the annual meeting (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
Stockholder who proposes such business, (iii) the class and number of shares of
the Corporation's capital stock that are beneficially owned by such Stockholder
and (iv) any material interest of such Stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or
52
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conducted at an annual meeting except in accordance with the provisions of this
Section 2.10. The chairman of the annual meeting shall, if the facts so warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 2.10 and,
if he should so determine, shall so declare to the meeting, and any such
business so determined to be not properly brought before the meeting shall not
be transacted.
At any special meeting of the Stockholders, only such
business shall be conducted as shall have been brought before the meeting by or
at the direction of the Board of Directors.
(b) Only persons who are nominated in accordance with
the procedures set forth in these Bylaws shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of Stockholders at which directors are to
be elected only (i) by or at the direction of the Board of Directors or (ii) by
any Stockholder of the Corporation entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this Section 2.10. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made by timely notice in writing
to the Secretary of the Corporation. To be timely, a Stockholder's notice shall
be delivered or mailed to and received at the principal executive offices of the
Corporation not less than ninety (90) days prior to the date of the meeting;
except that in the event that less than one hundred (100) days' notice or prior
public disclosure of the date of the meeting is given or made to Stockholders,
notice by the Stockholder must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such Stockholder's
notice shall set forth (i) as to each person whom such Stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to Rule
14A under the Securities Exchange Act of 1934, as amended (including such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); and (ii) as to the Stockholder giving the
notice (x) the name and address, as they appear on the Corporation's books, of
such Stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such Stockholder. At the request of
the Board of Directors, any person nominated by the Board of Directors for
election as a director shall furnish to the Secretary of the Corporation that
information required to be set forth in a Stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the provisions
of this Section 2.10. The chairman of the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he should so determine, shall so declare to the meeting, and
the defective nomination shall be disregarded.
SECTION 2.11 ACTION BY WRITTEN CONSENT. Unless otherwise
provided by law or the Corporation's Certificate of Incorporation, any action
required or permitted to be taken by the Stockholders of the Corporation may be
taken without prior notice and an actual meeting if a consent in writing setting
forth the action so taken shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted. Except as provided above, no action shall be
taken by the Stockholders by written consent. Prompt notice of the taking of any
corporate action without a meeting by less than unanimous written consent shall
be given to those Stockholders who have not consented in writing.
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SECTION 2.12 AUTHORIZATION OF PROXIES. Without limiting the
manner in which a Stockholder may authorize another person or persons to act for
him as proxy, the following are valid means of granting such authority. A
Stockholder may execute a writing authorizing another person or persons to act
for him as proxy. Execution may be accomplished by the Stockholder or his
authorized officer, director, employee or agent signing such writing or causing
his or her signature to be affixed to such writing by any reasonable means
including, but not limited to, by facsimile signature. A Stockholder may also
authorize another person or persons to act for him as proxy by transmitting or
authorizing the transmission of a telegram, cablegram, or other means of
electronic transmission to the person who will be the holder of the proxy or to
a proxy solicitation firm, proxy support service organization or like agent duly
authorized by the person who will be the holder of the proxy to receive such
transmission, provided that any such telegram, cablegram or other means of
electronic transmission must either set forth or be submitted with information
from which it can be determined that the telegram, cablegram or other electronic
transmission was authorized by the Stockholder. If it is determined that such
telegrams, cablegrams or other electronic transmissions are valid, the
inspectors or, if there are no inspectors, such other persons making that
determination shall specify the information upon which they relied. Any copy,
facsimile telecommunication or other reliable reproduction of the writing or
transmission created pursuant to this section may be substituted or used in lieu
of the original writing or transmission for any and all purposes for which the
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
SECTION 2.13 INSPECTORS AND VOTING PROCEDURES.
(a) The Corporation shall, in advance of any meeting
of Stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no inspector
or alternate is able to act at a meeting of Stockholders, the person presiding
at the meeting shall appoint one or more inspectors to act at the meeting. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector with strict impartiality
and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of
shares outstanding and the voting power of each, (ii) determine the shares
represented at a meeting and the validity of proxies and ballots, (iii) count
all votes and ballots, (iv) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors, and (v) certify their determination of the number of shares
represented at the meeting, and their count of all votes and ballots. The
inspectors may appoint or retain other persons or entities to assist the
inspectors in the performance of the duties of the inspectors.
(c) The date and time of the opening and closing of
the polls for each matter upon which the Stockholders will vote at a meeting
shall be announced at the meeting. No ballot, proxies or votes, nor any
revocations thereof or changes thereto, shall be accepted by the inspectors
after the closing of the polls unless the Court of Chancery upon application by
a Stockholder shall determine otherwise.
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(d) In determining the validity and counting of
proxies and ballots, the inspectors may examine and consider such records or
factors as allowed by the General Corporation Laws of the State of Delaware.
ARTICLE III
DIRECTORS
SECTION 3.1 MANAGEMENT. The property, affairs and business of
the Corporation shall be managed by or under the direction of the Board of
Directors which may exercise all powers of the Corporation and do all lawful
acts and things as are not by law, by the Corporation's Certificate of
Incorporation or by these Bylaws directed or required to be exercised or done by
the Stockholders.
SECTION 3.2 CLASSIFICATION OF BOARD. The Board of Directors
shall consist of five members who shall be divided into three classes in respect
of term of office. Of the first Board of Directors elected after the adoption of
these Bylaws, the members of one class, which shall consist of two directors,
shall serve until the annual meeting of Stockholders held in the year following
their election, the members of the second class, which shall consist of two
directors, shall serve until the annual meeting of Stockholders held two years
following their election, and the member of the third class, which shall consist
of one director, shall serve until the annual meeting of Stockholders held three
years following his election; provided, however, that in each case directors
shall continue to serve until their successors shall be elected and shall
qualify. At each annual meeting of Stockholders following election of the first
Board of Directors elected after the adoption of the Bylaws, one class of
directors shall be elected to serve until the annual meeting of Stockholders
held three years next following and until their successors shall be elected and
shall qualify. Directors need not be Stockholders. No decrease in the number of
directors shall have the effect of shortening the term of office or any
incumbent director.
SECTION 3.3 QUORUM AND MANNER OF ACTION. At all meetings of
the Board of Directors a majority of the total number of directors holding
office shall constitute a quorum for the transaction of business and the act of
a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by law, by the Corporation's Certificate of Incorporation
or these Bylaws. When the Board of Directors consists of one director, the one
director shall constitute a majority and a quorum. If at any meeting of the
Board of Directors there shall be less than a quorum present, a majority of
those present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at such adjourned meeting. Attendance by a director at a meeting shall
constitute a waiver of notice of such meeting except where a director attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
SECTION 3.4 VACANCIES. Except as otherwise provided by law or
the Corporation's Certificate of Incorporation, in the case of any increase in
the authorized number of directors or of any vacancy in the Board of
Directors, however created, the additional director or directors may be
elected, or, as the case may be, the vacancy or vacancies may be filled by
majority vote of the directors remaining on the whole Board of Directors
although less than a quorum, or by a sole remaining director. In the event
one or more directors shall resign, effective at a future date, such vacancy
or vacancies shall be filled by a majority of the directors who will remain
on the whole Board of Directors, although less than a
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quorum, or by a sole remaining director. Any director elected or chosen as
provided herein shall serve until the sooner of: (i) the unexpired term of
the directorship to which he is appointed; (ii) until his successor is
elected and qualified; or (iii) until his earlier resignation or removal.
SECTION 3.5 RESIGNATIONS. A director may resign at any time
upon written notice of resignation to the Corporation. Any resignation shall be
effective immediately unless a certain effective date is specified therein, in
which event it will be effective upon such date and acceptance of any
resignation shall not be necessary to make it effective.
SECTION 3.6 REMOVALS. Any director or the entire Board of
Directors may be removed, with or without cause, and another person or persons
may be elected to serve for the remainder of his or their term by the holders of
a majority of the shares of the Corporation entitled to vote in the election of
directors. In case any vacancy so created shall not be filled by the
Stockholders at such meeting, such vacancy may be filled by the directors as
provided in Section 3.4.
SECTION 3.7 ANNUAL MEETINGS. The annual meeting of the Board
of Directors shall be held, if a quorum be present, immediately following each
annual meeting of the Stockholders at the place such meeting of Stockholders
took place, for the purpose of organization and transaction of any other
business that might be transacted at a regular meeting thereof, and no notice of
such meeting shall be necessary. If a quorum is not present, such annual meeting
may be held at any other time or place that may be specified in a notice given
in the manner provided in Section 3.9 for special meetings of the Board of
Directors or in a waiver of notice thereof.
SECTION 3.8 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such places and times as shall be
determined from time to time by resolution of the Board of Directors. Except as
otherwise provided by law, any business may be transacted at any regular meeting
of the Board of Directors.
SECTION 3.9 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the President, or by the Secretary on the written
request of one-third (l/3) of the members of the whole Board of Directors
stating the purpose or purposes of such meeting. Notices of special meetings, if
mailed, shall be mailed to each director not later than five (5) days before the
day the meeting is to be held or if otherwise given in the manner permitted by
these Bylaws, not later than the day before such meeting. Neither the business
to be transacted at, nor the purpose of, any special meeting need be specified
in any notice or written waiver of notice unless so required by the
Corporation's Certificate of Incorporation or by these Bylaws. Any and all
business may be transacted at a special meeting, unless limited by law, the
Corporation's Certificate of Incorporation or by these Bylaws.
SECTION 3.10 ORGANIZATION OF MEETINGS. At any meeting of the
Board of Directors, business shall be transacted in such order and manner as
such Board of Directors may from time to time determine, and all matters shall
be determined by the vote of a majority of the directors present at any meeting
at which there is a quorum, except as otherwise provided by these Bylaws or
required by law.
SECTION 3.11 PLACE OF MEETINGS. The Board of Directors may
hold their meetings and have one or more offices, and keep the books of the
Corporation, outside the State of Delaware, at any office or offices of the
Corporation, or at any other place as they may from time to time by resolution
determine.
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SECTION 3.12 COMPENSATION OF DIRECTORS. Directors shall not
receive any stated salary for their services as directors, but by resolution of
the Board of Directors a fixed honorarium or fees and expenses, if any, of
attendance may be allowed for attendance at each meeting. Nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
such committee meetings.
SECTION 3.13 ACTION BY UNANIMOUS WRITTEN CONSENT. Unless
otherwise restricted by law, the Corporation's Certificate of Incorporation or
these Bylaws, any action required or permitted to be taken at any meeting of the
Board of Directors or of any committee thereof may be taken without a meeting if
all members of the Board of Directors or of such committee, as the case may be,
consent thereto in writing and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or the committee.
SECTION 3.14 PARTICIPATION IN MEETINGS BY TELEPHONE. Unless
otherwise restricted by the Corporation's Certificate of Incorporation or these
Bylaws, members of the Board of Directors or of any committee thereof may
participate in a meeting of such Board of Directors or committee by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting in such manner shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
on the grounds that the meeting is not lawfully called or convened.
ARTICLE IV
COMMITTEES OF THE BOARD
SECTION 4.1 MEMBERSHIP AND AUTHORITIES. The Board of Directors
may, by resolution or resolutions passed by a majority of the whole Board of
Directors, designate one (1) or more Directors to constitute an Executive
Committee and such other committees as the Board of Directors may determine,
each of which committees to the extent provided in said resolution or
resolutions or in these Bylaws, shall have and may exercise all the powers of
the Board of Directors in the management of the business and affairs of the
Corporation, except in those cases where the authority of the Board of Directors
is specifically denied to the Executive Committee or such other committee or
committees by law, the Corporation's Certificate of Incorporation or these
Bylaws, and may authorize the seal of the Corporation to be affixed to all
papers that may require it. The designation of an Executive Committee or other
committee and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility imposed
upon it or him by law.
SECTION 4.2 NOMINATING COMMITTEE. The Board of Directors shall
appoint a Nominating Committee of the Board, consisting of three (3) members,
one of which shall be the President of the Corporation if, and only so long as,
the President remains in office as a member of the Board of Directors. The
Nominating Committee shall have authority (a) to review any nominations for
election to the Board of Directors made by a Stockholder of the Corporation
pursuant to Section 2.10 of these Bylaws in order to determine compliance with
such Bylaw, and (b) to recommend to the Board of
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Directors nominees for election to the Board of Directors to replace those
directors whose terms expire at the next ensuing annual meeting of Stockholders.
SECTION 4.3 MINUTES. Each committee designated by the Board of
Directors shall keep regular minutes of its proceedings and report the same to
the Board of Directors when required.
SECTION 4.4 VACANCIES. The Board of Directors may designate
one (1) or more of its members as alternate members of any committee who may
replace any absent or disqualified member at any meeting of such committee. If
no alternate members have been appointed, the committee member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any absent or
disqualified member. The Board of Directors shall have the power at any time to
fill vacancies in, to change the membership of, and to dissolve, any committee.
SECTION 4.5 TELEPHONE MEETINGS. Members of any committee
designated by the Board of Directors may participate in or hold a meeting by use
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this Section 4.4 shall constitute presence in person at such
meeting, except where a person participates in the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
SECTION 4.6 ACTION WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of any committee designated by the Board of
Directors may be taken without a meeting if a consent in writing, setting forth
the action so taken, is signed by all the members of the committee and filed
with the minutes of the committee proceedings. Such consent shall have the same
force and effect as a unanimous vote at a meeting.
ARTICLE V
OFFICERS
SECTION 5.1 NUMBER AND TITLE. The elected officers of the
Corporation shall be chosen by the Board of Directors and shall be a President,
a Vice President, a Secretary and a Treasurer. The Board of Directors may also
choose a Chairman of the Board, who must be a Board member of the Board of
Directors, and additional Vice Presidents, Assistant Secretaries and/or
Assistant Treasurers. One person may hold any two or more of these offices and
any one or more of the Vice Presidents may be designated as an Executive Vice
President or Senior Vice President.
SECTION 5.2 TERM OF OFFICE; VACANCIES. So far as is
practicable, all elected officers shall be elected by the Board of Directors at
the annual meeting of the Board of Directors in each year, and except as
otherwise provided in this Article V, shall hold office until the next such
meeting of the Board of Directors in the subsequent year and until their
respective successors are elected and qualified or until their earlier
resignation or removal. All appointed officers shall hold office at the pleasure
of the Board of Directors. If any vacancy shall occur in any office, the Board
of Directors may elect or appoint a successor to fill such vacancy for the
remainder of the term.
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SECTION 5.3 REMOVAL OF ELECTED OFFICERS. Any elected officer
may be removed at any time, with or without cause, by affirmative vote of a
majority of the whole Board of Directors, at any regular meeting or at any
special meeting called for such purpose.
SECTION 5.4 RESIGNATIONS. Any officer may resign at any time
upon written notice of resignation to the President, Secretary or Board of
Directors of the Corporation. Any resignation shall be effective immediately
unless a date certain is specified for it to take effect, in which event it
shall be effective upon such date, and acceptance of any resignation shall not
be necessary to make it effective, irrespective of whether the resignation is
tendered subject to such acceptance.
SECTION 5.5 THE CHAIRMAN OF THE BOARD. The Chairman of the
Board, if one shall be elected, shall preside at all meetings of the
Stockholders and Board of Directors. In addition, the Chairman of the Board
shall perform whatever duties and shall exercise all powers that are given to
him by the Board of Directors.
SECTION 5.6 PRESIDENT. The President shall be the chief
executive officer of the Corporation; shall (in the absence of the Chairman of
the Board, if one be elected) preside at meetings of the Stockholders and Board
of Directors; shall be EX OFFICIO a member of all standing committees; shall
have general and active management of business of the corporation; shall
implement the general directives, plans and policies formulated by the Board of
Directors; and shall further have such duties, responsibilities and authorities
as may be assigned to him by the Board of Directors. He may sign, with any other
proper officer, certificates for shares of the Corporation and any deeds, bonds,
mortgages, contracts and other documents which the Board of Directors has
authorized to be executed, except where required by law to be otherwise signed
and executed and except where the signing and execution thereof shall be
expressly delegated by the Board of Directors or these Bylaws, to some other
officer or agent of the Corporation. In the absence of the President, his duties
shall be performed and his authority may be exercised by a Vice President of the
Corporation as may have been designated by the President with the right reserved
to the Board of Directors to designate or supersede any designation so made.
SECTION 5.7 VICE PRESIDENTS. The several Vice Presidents shall
have such powers and duties as may be assigned to them by these Bylaws and as
may from time to time be assigned to them by the Board of Directors and may
sign, with any other proper officer, certificates for shares of the Corporation.
SECTION 5.8 SECRETARY. The Secretary, if available, shall
attend all meetings of the Board of Directors and all meetings of the
Stockholders and record the proceedings of the meetings in a book to be kept for
that purpose and shall perform like duties for any committee of the Board of
Directors as shall designate him to serve. He shall give, or cause to be given,
notice of all meetings of the Stockholders and meetings of the Board of
Directors and committees thereof and shall perform such other duties incident to
the office of secretary or as may be prescribed by the Board of Directors or the
President, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or any Assistant Secretary, or any
other person whom the Board of Directors may designate, shall have authority to
affix the same to any instrument requiring it, and when so affixed it may be
attested by his signature or by the signature of any Assistant Secretary or by
the signature of such other person so affixing such seal.
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SECTION 5.9 ASSISTANT SECRETARIES. Each Assistant Secretary
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as may be assigned to him by the Board of
Directors, the President or the Secretary. The Assistant Secretary or such other
person as may be designated by the President shall exercise the powers of the
Secretary during that officer's absence or inability to act.
SECTION 5.10 TREASURER. The Treasurer shall have the custody
of and be responsible for the corporate funds and securities, shall keep full
and accurate accounts of receipts and disbursements in the books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the President and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his transactions as Treasurer and of the financial condition
of the Corporation and he shall perform all other duties incident to the
position of Treasurer, or as may be prescribed by the Board of Directors or the
President. If required by the Board of Directors, he shall give the Corporation
a bond in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the Corporation.
SECTION 5.11 ASSISTANT TREASURERS. Each Assistant Treasurer
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as may be assigned to him by the Board of
Directors, the President or the Treasurer. The Assistant Treasurer or such other
person designated by the President shall exercise the power of the Treasurer
during that officer's absence or inability to act.
SECTION 5.12 SUBORDINATE OFFICERS. The Board of Directors may
(i) appoint such other subordinate officers and agents as it shall deem
necessary who shall hold their offices for such terms, have such authority and
perform such duties as the Board of Directors may from time to time determine,
or (ii) delegate to any committee or officer the power to appoint any such
subordinate officers or agents.
SECTION 5.13 SALARIES AND COMPENSATION. The salary or other
compensation of officers shall be fixed from time to time by the Board of
Directors. The Board of Directors may delegate to any committee or officer the
power to fix from time to time the salary or other compensation of subordinate
officers and agents appointed in accordance with the provisions of Section 5.12.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) The Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was, at any time
prior to or during which this Article VI is in effect, a director, officer,
employee or agent of the Corporation, or is or was, at any time prior to or
during which this Article VI is in effect, serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture,
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trust, employee benefit plan or other enterprise against reasonable expenses
(including attorneys' fees), judgments, fines, penalties, amounts paid in
settlement and other liabilities actually and reasonably incurred by such person
in connection with such action, suit or proceeding to the full extent permitted
by the General Corporation Laws of the State of Delaware, upon such
determination having been made as to such person's good faith and conduct.
(b) Expenses (including attorneys' fees) incurred by a person
who is or was a director or officer of the Corporation in appearing at,
participating in or defending any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative or investigative, shall
be paid by the Corporation at reasonable intervals in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized by this Article VI.
(c) It is the intention of the Corporation to indemnify the
persons referred to in this Article VI to the fullest extent permitted by law
and with respect to any action, suit or proceeding arising from events which
occur at any time prior to or during which this Article VI is in effect. The
indemnification and advancement of expenses provided by this Article VI shall
not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be or become entitled under any
law, the Corporation's Certificate of Incorporation, these Bylaws, agreement,
the vote of Stockholders or disinterested directors or otherwise, or under any
policy or policies of insurance purchased and maintained by the Corporation on
behalf of any such person, both as to action in his official capacity and as to
action in another capacity while holding such office and shall continue as to a
person who has ceased to be a director, officer, employee or agent and shall
inure to the benefit of the heirs, executors and administrators of such person.
(d) The indemnification provided by this Article VI shall be
subject to all valid and applicable laws, and, in the event this Article VI or
any of the provisions hereof or the indemnification contemplated hereby are
found to be inconsistent with or contrary to any such valid laws, the latter
shall be deemed to control and this Article VI shall be regarded as modified
accordingly, and, as so modified, to continue in full force and effect.
ARTICLE VII
CAPITAL STOCK
SECTION 7.1 CERTIFICATES OF STOCK. Certificates of stock shall
be issued to each Stockholder certifying the number of shares owned by him in
the Corporation and shall be in a form not inconsistent with the Certificate of
Incorporation and as approved by the Board of Directors. The certificates shall
be signed by the Chairman of the Board, the President or a Vice President and by
the Secretary or an Assistant Secretary, or the Treasurer or an Assistant
Treasurer and may be sealed with the seal of the Corporation or a facsimile
thereof. Any or all of the signatures on the certificate may be a facsimile. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer,
transfer agent or registrar at the date of issue.
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If the Corporation shall be authorized to issue more than one
(1) class of stock or more than one (1) series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock provided
that, except as otherwise provided by statute, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate
which the Corporation shall issue to represent such class or series of stock, a
statement that the Corporation will furnish without charge to each Stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
SECTION 7.2 LOST CERTIFICATES. The Board of Directors may
direct a new certificate to be issued in place of any certificate theretofore
issued by the Corporation alleged to have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the owner of such certificate, or his
legal representative. When authorizing the issuance of a new certificate, the
Board of Directors may in its discretion, as a condition precedent to the
issuance thereof, require the owner, or his legal representative, to give a bond
in such form and substance with such surety as it may direct, to indemnify the
Corporation against any claim that may be made on account of the alleged loss,
theft or destruction of such certificate or the issuance of such new
certificate.
SECTION 7.3 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD FOR CERTAIN PURPOSES.
(a) In order that the Corporation may determine the
Stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion or exchange of capital stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty (60) days prior to the date of payment of such
dividend or other distribution or allotment of such rights or the date when any
such rights in respect of any change, conversion or exchange of stock may be
exercised or the date of such other action. In such a case, only Stockholders of
record on the date so fixed shall be entitled to receive any such dividend or
other distribution or allotment of rights or to exercise such rights or for any
other purpose, as the case may be, notwithstanding any transfer of any stock on
the books of the Corporation after any such record date fixed as aforesaid.
(b) If no record date is fixed, the record date for
determining Stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 7.4 DIVIDENDS. Subject to the provisions of the
Corporation's Certificate of Incorporation, if any, and except as otherwise
provided by law, the directors may declare dividends upon the capital stock of
the Corporation as and when they deem it to be expedient. Such dividends may be
paid in cash, in property or in shares of the Corporation's capital stock.
Before declaring any dividend there may be set apart out of the funds of the
Corporation available for dividends, such sum or sums as the directors from time
to time in their discretion think proper for working capital or as a reserve
fund to meet contingencies or for equalizing dividends, or for such other
purposes as the directors shall think
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conducive to the interests of the Corporation and the directors may modify or
abolish any such reserve in the manner in which it was created.
SECTION 7.5 REGISTERED STOCKHOLDERS. Except as expressly
provided by law, the Corporation's Certificate of Incorporation or these Bylaws,
the Corporation shall be entitled to treat registered Stockholders as the only
holders and owners in fact of the shares standing in their respective names and
the Corporation shall not be bound to recognize any equitable or other claim to
or interest in such shares on the part of any other person, regardless of
whether it shall have express or other notice thereof.
SECTION 7.6 TRANSFER OF STOCK. Transfers of shares of the
capital stock of the Corporation shall be made only on the books of the
Corporation by the registered owners thereof, or by their legal representatives
or their duly authorized attorneys. Upon any such transfers the old certificates
shall be surrendered to the Corporation by the delivery thereof to the person in
charge of the stock transfer books and ledgers, by whom they shall be canceled
and new certificates shall thereupon be issued.
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ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 CORPORATE SEAL. If one be adopted, the corporate
seal shall have inscribed thereon the name of the Corporation and shall be in
such form as may be approved by the Board of Directors. Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
SECTION 8.2 FISCAL YEAR. The fiscal year of the Corporation
shall be fixed by resolution of the Board of Directors.
SECTION 8.3 CHECKS, DRAFTS, NOTES. All checks, drafts or other
orders for the payment of money, notes or other evidences of indebtedness issued
in the name of the Corporation shall be signed by such officer or officers,
agent or agents of the Corporation, and in such manner as shall from time to
time be determined by resolution (whether general or special) of the Board of
Directors or may be prescribed by any officer or officers, or any officer and
agent jointly, thereunto duly authorized by the Board of Directors.
SECTION 8.4 NOTICE AND WAIVER OF NOTICE. Whenever notice is
required to be given to any director or Stockholder under the provisions of
applicable law, the Corporation's Certificate of Incorporation or these Bylaws,
such notice shall be in writing and delivered either (i) personally, or (ii) by
registered or certified mail, or (iii) by telegram, telecopy, or similar
facsimile means (delivered during the recipient's regular business hours). Such
notice shall be sent to such director or Stockholder at the address or telecopy
number as it appears on the records of the Corporation, unless prior to the
sending of such notice he has designated, in a written request to the Secretary
of the Corporation, another address or telecopy number to which notices are to
be sent. Notices shall be deemed given when received, if sent by telegram,
telex, telecopy or similar facsimile means (confirmation of such receipt by
confirmed facsimile transmission being deemed receipt of communications sent by
telex, telecopy or other facsimile means); and when delivered and receipted for
(or upon the date of attempted delivery where delivery is refused), if
hand-delivered, sent by express courier or delivery service, or sent by
certified or registered mail. Whenever notice is required to be given under any
provision of law, the Corporation's Certificate of Incorporation or these
Bylaws, a waiver thereof in writing, by telegraph, cable or other form of
recorded communication, signed by the person or persons entitled to said notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Stockholders, directors, or members of a committee of
directors need be specified in any written waiver of notice unless so required
by the Corporation's Certificate of Incorporation or these Bylaws.
SECTION 8.5 EXAMINATION OF BOOKS AND RECORDS. The Board of
Directors shall determine from time to time whether, and if allowed, when and
under what conditions and regulations the accounts and books of the Corporation
(except such as may by statute be specifically opened to inspection) or any of
them shall be open to inspection by the Stockholders, and the Stockholders'
rights in this respect are and shall be restricted and limited accordingly.
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SECTION 8.6 VOTING UPON SHARES HELD BY THE CORPORATION. Unless
otherwise provided by law or by the Board of Directors, the Chairman of the
Board of Directors, if one shall be elected, or the President, if a Chairman of
the Board of Directors shall not be elected, acting on behalf of the
Corporation, shall have full power and authority to attend and to act and to
vote at any meeting of Stockholders of any corporation in which the Corporation
may hold stock and, at any such meeting, shall possess and may exercise any and
all of the rights and powers incident to the ownership of such stock which, as
the owner thereof, the Corporation might have possessed and exercised, if
present. The Board of Directors by resolution from time to time may confer like
powers upon any person or persons.
ARTICLE IX
AMENDMENTS
SECTION 9.1 AMENDMENT. The Stockholders may make, repeal,
alter, amend or rescind any of the provisions of these Bylaws by the vote of
holders of not less than a majority of the total voting power of all shares of
stock of the Corporation entitled to vote in the election of directors,
considered for purposes of this Article IX as one class.
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EXHIBIT 4.1
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VIRGINIA GAS COMPANY
8.50% SENIOR NOTES DUE DECEMBER 31, 2012
PPN: 927814 A* 4
- --------------------------------------------------------------------------------
NOTE PURCHASE AGREEMENT
- --------------------------------------------------------------------------------
Dated as of March 19, 1998
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<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PARAGRAPH PAGE
<S> <C> <C>
1. AUTHORIZATION; RANKING ................................................................1
1.1 AUTHORIZATION OF ISSUE OF THE NOTES..................................1
1.2 RANKING..............................................................1
2. PURCHASE AND SALE OF THE NOTES.........................................................1
3. CLOSING................................................................................1
4. CONDITIONS OF CLOSING..................................................................2
4.1 REPRESENTATION AND WARRANTIES........................................2
4.2 MATERIAL ADVERSE CHANGE..............................................2
4.3 PERFORMANCE; NO DEFAULT..............................................2
4.4 COMPLIANCE CERTIFICATES..............................................2
4.5 OPINION OF COMPANY COUNSEL...........................................2
4.6 OPINION OF PURCHASERS' SPECIAL COUNSEL...............................2
4.7 PURCHASE PERMITTED BY APPLICABLE LAWS................................3
4.8 SALE OF ALL NOTES....................................................3
4.9 PAYMENT OF SPECIAL COUNSEL FEES......................................3
4.10 PRIVATE PLACEMENT NUMBER.............................................3
4.11 CHANGES IN ORGANIZATIONAL STRUCTURE..................................3
4.12 WHOLLY-OWNED SUBSIDIARIES'GUARANTY...................................3
4.13 PLEDGE OF EQUITY INTERESTS...........................................3
4.14 DOCUMENTS AND PROCEEDINGS............................................3
4.15 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS..........................3
5. REPRESENTATIONS AND WARRANTIES.........................................................3
5.1 ORGANIZATION, ETC....................................................3
5.2 STOCK OWNERSHIP......................................................4
5.3 DISCLOSURE...........................................................4
5.4 FINANCIAL STATEMENTS.................................................5
5.5 CONFLICTING AGREEMENTS AND OTHER MATTERS. ..........................5
5.6 GOVERNMENTAL AUTHORIZATIONS, ETC.....................................5
5.7 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS............5
5.8 TAX RETURNS AND PAYMENTS.............................................5
5.9 TITLE TO PROPERTIES..................................................6
5.10 ERISA................................................................6
5.11 OFFERING OF NOTES....................................................7
5.12 REGULATION G, ETC....................................................7
5.13 EXISTING INDEBTEDNESS; FUTURE LIENS..................................7
5.14 STATUS UNDER CERTAIN FEDERAL STATUTES; FOREIGN ASSET CONTROL.........8
5.15 COMPLIANCE WITH LAWS, ETC............................................8
5.16 ENVIRONMENTAL MATTERS................................................8
5.17 FINANCIAL CONDITION..................................................9
6. REPRESENTATIONS OF THE PURCHASERS......................................................9
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
7. PREPAYMENT, REPAYMENT AND REDEMPTION..................................................10
7.1 SCHEDULED REPAYMENT OF NOTES........................................11
7.2 OPTIONAL PREPAYMENT OF NOTES WITH MAKE-WHOLE AMOUNT.................11
7.3 PAYMENTS PRO RATA; APPLICATION OF PAYMENTS..........................11
7.4 MATURITY; SURRENDER, ETC............................................11
7.5 PURCHASE, REDEMPTION AND RETIREMENT OF NOTES........................11
7.6 MAKE-WHOLE AMOUNT...................................................11
8. AFFIRMATIVE COVENANTS.................................................................13
8.1 FINANCIAL AND OTHER REPORTING BY THE COMPANY........................14
8.2 INFORMATION REQUIRED BY RULE 144A...................................14
8.3 INSPECTION OF PROPERTY..............................................15
8.4 COMPLIANCE WITH LAWS, ETC...........................................15
8.5 INSURANCE...........................................................15
8.6 MAINTENANCE OF PROPERTIES AND LEASES................................15
8.7 CORPORATE EXISTENCE, ETC............................................15
8.8 PAYMENT OF TAXES AND CLAIMS.........................................16
8.9 SCOPE OF BUSINESS...................................................16
8.10 USE OF PROCEEDS.....................................................16
8.11 ENVIRONMENTAL COMPLIANCE............................................16
8.12 MAINTENANCE OF BOOKS AND RECORDS....................................16
8.13 DELIVERY OF GUARANTEE AND PLEDGE....................................17
8.14 VIRGINIA GAS PIPELINE COMPANY.......................................17
9. NEGATIVE COVENANTS....................................................................17
9.1 FINANCIAL COVENANTS.................................................17
9.2 RESTRICTED PAYMENTS AND RESTRICTED INVESTMENT.......................18
9.3 LIENS...............................................................18
9.4 SALE OF STOCK, EQUITY INTEREST......................................20
9.5 MERGER AND SALE OF ASSETS...........................................20
9.6 SUBSIDIARY DIVIDEND AND OTHER RESTRICTIONS..........................21
9.7 TRANSACTIONS WITH AFFILIATES........................................21
9.8 SALES OF RECEIVABLES................................................21
9.9 SUBSIDIARY DEBT.....................................................22
9.10 COMPLIANCE WITH ERISA...............................................22
EVENTS OF DEFAULT........................................................................23
11. REMEDIES ON DEFAULT, ETC..............................................................24
11.1 ACCELERATION........................................................24
11.2 OTHER REMEDIES......................................................25
11.3 RESCISSION OF ACCELERATION..........................................25
11.4 NOTICE OF ACCELERATION OR RESCISSION................................25
11.5 NO WAIVERS OR ELECTION OF REMEDIES..................................25
12. REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT OF NOTES.............................25
12.1 REGISTRATION........................................................25
12.2 TRANSFER AND EXCHANGE...............................................26
12.3 REPLACEMENT.........................................................26
13. PAYMENTS ON NOTES.....................................................................26
</TABLE>
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<CAPTION>
<S> <C> <C>
13.1 PLACE OF PAYMENT....................................................26
13.2 HOME OFFICE PAYMENT.................................................26
13.3 NO DEDUCTION OR SET-OFF.............................................26
14. EXPENSES..............................................................................27
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT..........................27
16. AMENDMENT AND WAIVER..................................................................27
16.1 REQUIREMENTS........................................................27
16.2 SOLICITATION OF HOLDERS OF NOTES....................................28
16.3 BINDING EFFECT, ETC.................................................28
17. NOTICES...............................................................................28
18. REPRODUCTION OF DOCUMENTS.............................................................29
19. CONFIDENTIAL INFORMATION..............................................................29
20. SUBSTITUTION OF PURCHASER.............................................................29
21. MISCELLANEOUS.........................................................................30
21.1 SUCCESSORS AND ASSIGNS..............................................30
21.2 PAYMENTS DUE ON NON-BUSINESS DAYS...................................30
21.3 SEVERABILITY........................................................30
21.4 CONSTRUCTION........................................................30
21.5 COUNTERPARTS........................................................30
21.6 DESCRIPTIVE HEADINGS................................................30
21.7 GOVERNING LAW.......................................................30
21.8 CONSENT TO JURISDICTION AND SERVICE AND WAIVER OF TRIAL BY JURY.....30
21.9 TERMINATION.........................................................31
21.10 COMPLIANCE BY SUBSIDIARIES..........................................31
</TABLE>
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<S> <C>
SIGNATURE PAGE.................................................................................32
</TABLE>
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<CAPTION>
SCHEDULES AND EXHIBITS
<S> <C>
EXHIBIT A - Form of Note
EXHIBIT B - Opinion of Counsel to the Company
EXHIBIT C - Form of Subsidiaries' Guaranty
EXHIBIT D - Pledge Agreement
SCHEDULE A - Purchasers
SCHEDULE B - Definitions
SCHEDULE 3 - Wiring Instructions
SCHEDULE 5.1 - Organization; Foreign Qualifications; Etc.
SCHEDULE 5.2 - Ownership of Stock
SCHEDULE 5.3 - Disclosure Matters
SCHEDULE 5.4 - Financial Statements
SCHEDULE 5.7 - Litigation, Etc.
SCHEDULE 5.13 - Existing Debt
SCHEDULE 5.16 - Environmental Matters
SCHEDULE 8.9 - Scope of Business
SCHEDULE 8.10 - Use of Proceeds
SCHEDULE 9.3 - Existing Liens
SCHEDULE 9.7 - Transactions with Affiliates
</TABLE>
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VIRGINIA GAS COMPANY
200 East Main Street
Abingdon, VA 24210
March 19, 1998
To: The Purchasers Listed
on SCHEDULE A
Gentlemen:
The undersigned, Virginia Gas Company, a Delaware corporation, (together
with any surviving or acquiring entity in any merger or consolidation with the
Company permitted by PARAGRAPH 9.5, the "COMPANY") agrees with you as follows:
1. AUTHORIZATION; RANKING
1.1 AUTHORIZATION OF ISSUE OF THE NOTES. The Company will authorize the
issue and sale of $24,000,000 in aggregate principal amount of its 8.50%
Senior Notes , to be dated the date of issue, to mature on December 31, 2012,
to bear interest on the unpaid principal balance from the date of issue until
the principal shall have become due and payable at the rate of 8.50% per
annum (computed on the basis of a 360-day year of twelve 30 day months),
payable quarterly in arrears, and to bear interest on overdue principal,
overdue Make Whole Amount and, to the extent permitted by law, overdue
interest, at the rate of 10.50% per annum payable on demand, which notes
shall be in the form of EXHIBIT A (together with all notes issued in
substitution, replacement or exchange therefor in accordance with the terms
of this Agreement, the "NOTES"). Certain capitalized terms used in this
Agreement are defined in SCHEDULE B and PARAGRAPH 7.6; references to a
"SCHEDULE" or an "EXHIBIT" are, unless otherwise specified, to a SCHEDULE or
an Exhibit attached to this Agreement.
1.2 RANKING. The Notes shall rank PARI PASSU with each other, will
constitute the direct senior obligations of the Company and will rank not less
than pari passu in priority of payment with all other outstanding Debt of the
Company, present or future, except for Debt which is preferred as a result of
being secured (but only to the extent such security is not prohibited by
PARAGRAPH 9.3 and then only to the extent of such security).
2. PURCHASE AND SALE OF THE NOTES.
Subject to the terms and conditions of this Agreement, the Company shall
sell to each of you (individually a "PURCHASER" and collectively, the
"PURCHASERS"), and each Purchaser shall purchase from the Company, Notes of
principal amount specified below such Purchaser's name in SCHEDULE A, at a price
equal to 100% of such principal amount, registered in such Purchaser's name or
that of the Purchasers' nominee or nominees as specified in SCHEDULE A.
Notwithstanding the foregoing, each Purchaser's obligations under this Agreement
are several and not joint obligations and no Purchaser shall have any obligation
or liability for the performance or non-performance by any other Purchaser of
such other Purchaser's obligations under this Agreement.
3. CLOSING
The purchase and sale of the Notes shall take place at the offices of
Sullivan & Worcester LLP, One Post Office Square, Boston, Massachusetts 02109,
at a closing (the "CLOSING") to be held on March 19, 1998 or on such
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other Business Day as the Purchasers and the Company may agree (the "CLOSING
Date"). At the Closing, the Company will deliver to each Purchaser, the Notes to
be purchased by it, against payment of the purchase price therefor by transfer
of immediately available funds to the Company in accordance with the wiring
instructions set forth on SCHEDULE 3. If at the Closing, the Company fails to
tender any Notes to any Purchaser as provided in this PARAGRAPH 3, or if any of
the conditions specified in PARAGRAPH 4 shall not have been fulfilled to a
Purchaser's satisfaction or waived by such Purchaser, such Purchaser may, at its
election, be relieved of all further obligations under this Agreement, without
thereby waiving any rights such Purchaser may have by reason of such failure or
non-fulfillment.
4. CONDITIONS OF CLOSING. Each Purchaser's obligation to purchase and pay for
its Notes is subject to the fulfillment to its satisfaction or its written
waiver, at or before the Closing, of the following conditions:
4.1 REPRESENTATION AND WARRANTIES. The representations and warranties of
the Company in this Agreement, the other Transaction Documents and any
certificates delivered at Closing to the Purchasers in connection therewith
shall be correct when made and at the time of the Closing.
4.2 MATERIAL ADVERSE CHANGE. Since December 31, 1996, except to the extent
specifically described in SCHEDULE 4.2, there has been no material adverse
change in the Company's business, assets, liabilities, financial condition or
results of operations. To the Company's knowledge, there is no event known to
the Company which could reasonably be expected to have a Material Adverse
Effect.
4.3 PERFORMANCE; NO DEFAULT. The Company shall have performed and complied
with all agreements and conditions contained in this Agreement required to
be performed or complied with by it prior to or at the Closing and after
giving effect to the issue and sale of the Notes (and the application of the
proceeds thereof as contemplated by SCHEDULE 8.10) no Default or Event of
Default shall have occurred and be continuing. Neither the Company nor any
Subsidiary shall have entered into any transaction since the date of the most
recent of the Financial Statements that would have been prohibited by
PARAGRAPHS 9.2 or 9.6 had this Agreement been in effect since such date.
4.4 COMPLIANCE CERTIFICATES.
(a) The Company shall have delivered to the Purchasers an Officer's
Certificate, dated the date of the Closing, certifying that the conditions
specified in PARAGRAPHS 4.1, 4.2, 4.3 and 4.11 have been fulfilled.
(b) The Company and each Subsidiary shall have delivered to the
Purchasers a certificate from its Secretary certifying as to its organizational
documentation and the resolutions and other proceedings relating to the
authorization, execution and delivery of the Transaction Documents to which it
is a party.
4.5 OPINION OF COMPANY COUNSEL. The Purchasers shall have received an
opinion, in form and substance satisfactory to them, dated the Closing Date
and addressed to them, from Bright & Barnes, a Professional Corporation,
counsel to the Company, covering the matters set forth in EXHIBIT B and such
other matters as any Purchaser or Special Counsel may reasonably request.
To the extent that any opinion referred to in this PARAGRAPH 4.5 is rendered in
reliance upon the opinion of any other counsel, the Purchasers shall have
received a copy of the opinion of such other counsel, dated the Closing Date and
addressed to them, or a letter from such other counsel, dated the Closing Date
and addressed to them, authorizing them to rely on such other counsel's opinion.
4.6 OPINION OF PURCHASERS' SPECIAL COUNSEL. The Purchasers shall have received
from Special Counsel an opinion satisfactory to them as to such matters
incident to the transactions contemplated by this Agreement as they may
reasonably request.
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4.7 PURCHASE PERMITTED BY APPLICABLE LAWS. On the date of the Closing, each
Purchaser's purchase of Notes shall (i) be permitted by the laws and
regulations of each jurisdiction to which it is subject, without recourse to
provisions (such as Section 1405(a)(8) of the New York Insurance Law)
permitting limited investments by insurance companies without restriction as
to the character of the particular investment, (ii) not violate any
applicable law or regulation (including, without limitation, Section 5 of the
Securities Act or Regulation G, T or X of the Board of Governors of the
Federal Reserve System) and (iii) not subject any Purchaser to any tax,
penalty or liability under or pursuant to any applicable law or regulation,
which law or regulation was not in effect on the date hereof. If requested by
a Purchaser, such Purchaser shall have received an Officer's Certificate
certifying as to such matters of fact as a Purchaser may reasonably specify
to enable it to determine whether such purchase is so permitted.
4.8 SALE OF ALL NOTES. At the Closing, the Company shall have sold to each
Purchaser, and each Purchaser shall have purchased, the Notes to be purchased
by it as set forth in SCHEDULE A.
4.9 PAYMENT OF SPECIAL COUNSEL FEES. Without limiting the provisions of
PARAGRAPH 14, the Company shall have paid, at or before the Closing, the
fees, charges and disbursements of Special Counsel (which may include a
reasonable reserve for anticipated fees and expenses for closing the
transactions contemplated hereby) to the extent reflected in a statement of
Special Counsel rendered to the Company at least one Business Day prior to
the Closing.
4.10 PRIVATE PLACEMENT NUMBER. A Private Placement Number shall have been
assigned to the Notes by Standard & Poor's CUSIP Service Bureau.
4.11 CHANGES IN ORGANIZATIONAL STRUCTURE. The Company shall not have
changed its jurisdiction of organization or been a party to any merger or
consolidation or succeeded to all or any substantial part of the liabilities
of any other Person at any time after the date of the most recent Financial
Statements.
4.12 WHOLLY-OWNED SUBSIDIARIES' GUARANTY. Each Wholly-Owned Subsidiary of
the Company (other than Virginia Gas Pipeline Company) shall have executed and
delivered to the Purchasers the Guaranty in the form of EXHIBIT G (the
"SUBSIDIARIES' GUARANTY") and the Subsidiaries' Guaranty shall be in full force
and effect.
4.13 PLEDGE OF EQUITY INTERESTS. The Company and each Wholly-Owned
Subsidiary shall have pledged any Equity Interests owned by it in any Subsidiary
(other than Wholly-Owned Subsidiary) for the benefit of the Holders pursuant to
a Pledge Agreement in the form of EXHIBIT C (the "PLEDGE AGREEMENT") and the
Pledge Agreement shall be in full force and effect.
4.14 DOCUMENTS AND PROCEEDINGS. All proceedings taken or to be taken in
connection with the transactions contemplated by this Agreement and all
documents and instruments incident thereto shall be satisfactory to the
Purchasers and Special Counsel, and the Purchasers shall have received all
such counterpart originals or certified or other copies of such documents as
they may reasonably request.
4.15 APPOINTMENT OF AGENT FOR SERVICE OF PROCESS. The Purchasers shall have
received written evidence satisfactory to them that CT Corporation has been
appointed, and has accepted such appointment, by the Company as its agent for
service of process in the Commonwealth of Massachusetts and that CT
Corporation has agreed to provide the Purchasers with not less than 30 days'
prior notice of any termination of such appointment.
5. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants that:
5.1 ORGANIZATION, ETC. (i) The Company and each Subsidiary is duly
organized, validly existing and in
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good standing under the laws of the jurisdiction of its organization and is
qualified and in good standing in each jurisdiction in which it is required to
be qualified to do business (other than those jurisdictions in which the failure
to be so qualified, individually and in aggregate, could not reasonably be
expected to have a Material Adverse Effect) and has all requisite corporate and
other power and authority to own, operate and lease its property and to carry on
its business as now being conducted and which it proposes to conduct. The
Company has all requisite power and authority to execute, deliver and perform
each Transaction Document and to issue and sell the Notes. Each Subsidiary has
all requisite power and authority to execute, deliver and perform each
Transaction Document to which it is a party. SCHEDULE 5.1 correctly identifies
the correct legal name, the jurisdiction of organization, the jurisdictions in
which qualified to do business and the officers and directors of each
Subsidiary.
(ii) Each Transaction Document to which the Company is a party has
been duly authorized by all necessary corporate action on the part of the
Company and has been (or will have been as of the Closing Date) duly
executed and delivered by an authorized officer of the Company and
constitutes (or will constitute upon execution thereof by the Company) the
legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except as affected by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and general equitable
principles (whether considered in a proceeding in equity or at law).
(iii) Each Transaction Document to which a Subsidiary is a party has
been duly authorized by all necessary corporate action on the part of each
such Subsidiary, has been (or will have been as of the Closing Date) duly
executed and delivered by an authorized officer of each such Subsidiary and
constitutes (or will constitute upon execution thereof by each such
Subsidiary) the legal, valid and binding obligation of such Subsidiary,
enforceable in accordance with its terms, except as affected by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and
general equitable principles (whether considered in a proceeding in equity
or at law).
5.2 STOCK OWNERSHIP. (i) All of the outstanding capital stock,
or other equity interest, of each Subsidiary is validly issued, fully paid and
non-assessable and is now owned and will be owned immediately prior to the
Closing, of record and beneficially, in the amounts and by the Persons as set
forth in SCHEDULE 5.2, free and clear of any Lien of any kind.
(ii) No Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement and customary
limitations imposed by corporate law statutes) restricting the ability of
such Subsidiary to pay dividends out of profits or make any other similar
distributions of profits to the Company or to any other Subsidiary of the
Company.
(iii) Except as set forth in SCHEDULE 5.2, no Subsidiary has any
outstanding rights, options, warrants or other agreements which would
require it to issue any additional shares of its capital stock after the
Closing Date.
5.3 DISCLOSURE. Except as disclosed in SCHEDULE 5.3, the Transaction
Documents, the Financial Statements and the other documents, certificates and
statements furnished to the Purchasers by or on behalf of the Company or any
Subsidiary in connection herewith taken as a whole do not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements contained herein and therein, in light of the
circumstances under which they are made, not misleading. Except as expressly
described in SCHEDULE 5.3, or in one of the documents, certificates or other
writings identified therein, or in the Financial Statements, since December
31, 1996, there has been no adverse change in the financial condition,
operations, business, properties or prospects of the Company and each
Subsidiary, taken as a whole, except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
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5.4 FINANCIAL STATEMENTS. The Company has delivered to the Purchasers the
financial statements of the Consolidated Group listed on SCHEDULE 5.4, which
collectively, with their related schedules and notes, are referred to in this
Agreement as the "FINANCIAL STATEMENTS". The Financial Statements fairly
present in all material respects the financial condition of the Consolidated
Group as of the respective dates thereof and the results of its operations
and cash flows for the respective periods specified thereby. The Financial
Statements have been prepared in accordance with GAAP, consistently applied
throughout the periods involved except as set forth in the notes thereto.
5.5 CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the Company nor any
Subsidiary is in violation of any term of its charter or by-laws or other
organizational documents, or in violation or breach of any term of any
agreement (including any agreement with stockholders), instrument, order,
judgment, decree, statute, law, rule or regulation (including any
Environmental Law) to which it is a party or to which it is subject which
default or violation, individually or in the aggregate, has or is reasonably
expected to have, a Material Adverse Effect. The execution and delivery of
the Transaction Documents and the offering, issuance and sale of the Notes
and fulfillment of and compliance with the terms and provisions of the
Transaction Documents do not and will not conflict with the provisions of, or
constitute a default under, or result in any violation of, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any Subsidiary pursuant to its charter or by-laws or other organizational
documents, any award of any arbitrator or any agreement (including any
agreement with stockholders or other equity holders), instrument, order,
judgment, decree, statute, law, rule or regulation to which it is subject,
except for defaults under, conflicts with, or violations of, any such awards,
agreements, instruments, orders, judgements, decrees, laws, rules or
regulations which are not material in nature and which individually and in
the aggregate do not, and are not reasonably expected to, have a Material
Adverse Effect. Neither the Company nor any Subsidiary is a party to, or
otherwise subject to any provision contained in, any instrument evidencing
Debt, any agreement relating thereto or any other contract or agreement
(including its charter) which limits the amount of, or otherwise imposes
restrictions on the incurring of, any Debt of the Company to be evidenced by
the Notes.
5.6 GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval or authorization
of, or registration, filing or declaration with, any Governmental Authority
is required in connection with the execution, delivery or performance by the
Company of this Agreement or the Company's offer, issuance and sale of the
Notes.
5.7 LITIGATION; OBSERVANCE OF AGREEMENTS, STATUTES AND ORDERS.
(a) Except as disclosed in SCHEDULE 5.7, there are no actions, suits or
proceedings pending and publicly filed or, to the knowledge of the Company,
otherwise pending or threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any term of
any agreement or instrument to which it is a party or by which it is bound, or
any order, judgment, decree or ruling of any court, arbitrator or Governmental
Authority or is in violation of any applicable law, ordinance, rule or
regulation (including without limitation Environmental Laws) of any Governmental
Authority, which default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
5.8 TAX RETURNS AND PAYMENTS. The Company and each Subsidiary has filed all
federal, state, local and foreign income tax returns, franchise tax returns,
real and personal property tax returns and other tax returns required by law
to be filed by or on its behalf, or with respect to its properties or assets,
and all Taxes, assessments and other governmental charges imposed upon the
Company and each Subsidiary or the properties, assets, income or franchises
of the Company and each Subsidiary which are due and payable have been paid,
other than those (i) the amount of which is not, individually or in the
aggregate, Material or (ii) presently being contested in good faith by
appropriate proceedings
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diligently conducted and for which such reserves or other appropriate
provisions, if any, as may be required by GAAP have been made. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of Taxes for all fiscal periods are adequate and the Company knows of no unpaid
assessment on the Company or any Subsidiary for additional Taxes for any period
or any basis for any such assessment that individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect.
5.9 TITLE TO PROPERTIES.
(a) The Company and each Subsidiary has good and sufficient title to
all of its properties and assets reflected in the most recent audited
balance sheet for the Consolidated Group included in the Financial
Statements or purported to have been acquired by the Company or a
Subsidiary after such date (other than properties and assets disposed of
since such date in the ordinary course of business), in each case free of
any Lien not permitted by PARAGRAPH 9.3.
(b) The Company and each Subsidiary enjoys peaceful and undisturbed
possession under all leases which are Material and all such leases are
valid and subsisting and are in full force and effect in all material
respects.
(c) The Company and each Subsidiary owns or has the right to use
(under agreements or licenses which are in full force and effect) all
Intellectual Property necessary for it to conduct its business as currently
conducted, without any known conflict with the rights of others. To the
Company's knowledge, neither the Company nor any Subsidiary is infringing
upon any Intellectual Property owned by any other Person and there is no
violation by any Person of any right of the Company or any Subsidiary with
respect to any Intellectual Property owned or used by the Company or any
Subsidiary which is Material.
5.10 ERISA.
(a) The Company and each Subsidiary and each ERISA Affiliate has
operated and administered each Plan in compliance with all applicable laws
except for such instances of noncompliance as have not resulted in and
could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company, any Subsidiary nor any ERISA Affiliate has incurred
any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans (as defined
in Section 3 of ERISA), and no event, transaction or condition has occurred
or exists that could reasonably be expected to result in the incurrence of
any such liability by the Company, any Subsidiary or any ERISA Affiliate,
or in the imposition of any Lien on any of the rights, properties or assets
of the Company, any Subsidiary or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax
provisions or to Section 401(a)(29) or 412 of the Code, other than such
liabilities or Liens as would not be, individually or in the aggregate
Material.
(b) The present value of the aggregate benefit liabilities under any
of the Plans that is subject to Title IV of ERISA (other than Multiemployer
Plans), determined as of the end of such Plan's most recently ended plan
year on the basis of the actuarial assumptions specified for funding
purposes in such Plan's most recent actuarial valuation report, did not
exceed the aggregate current value of the assets of such Plan allocable to
such benefit liabilities. The term "BENEFIT LIABILITIES" has the meaning
specified in section 4001 of ERISA and the terms "CURRENT VALUE" and
"PRESENT VALUE" have the meaning specified in Section 3 of ERISA.
(c) Neither the Company, any Subsidiary nor any ERISA Affiliate has
incurred withdrawal liabilities (and neither the Company, any Subsidiary
Group nor any ERISA Affiliate is subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are Material.
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(d) The expected postretirement benefit obligation (determined as of
the last day of the Company's most recently ended fiscal year in accordance
with Financial Accounting Standards Board Statement No. 106, without regard
to liabilities attributable to continuation coverage mandated by section
490B of the Code) of the Company and each Subsidiary is not Material.
(e) The execution and delivery of the Transaction Documents, the
issuance and sale of the Notes and the consummation of the transactions
contemplated by the Agreement will not involve a transaction which is
subject to the prohibitions of Section 406 of ERISA or in connection with
which a Tax could be imposed pursuant to Section 4975(c)(1)(A)-(D) of the
Code. The representation in the preceding sentence is made in reliance upon
and subject to the accuracy of the Purchasers' representations in PARAGRAPH
6(B) as to the source of the funds to be used to pay the purchase price of
the Notes.
5.11 OFFERING OF NOTES. Neither the Company nor anyone acting on its
behalf has, directly or indirectly, offered the Notes or similar
securities for sale to, or solicited any offers to buy any of the same
from, or otherwise approached or negotiated in respect thereof with, any
Person other than the Purchasers, each of which has been offered the
Notes at a private sale for investment. Neither the Company nor anyone
acting on its behalf has taken or will take any action which would
subject the issuance or sale of the Notes to the provisions of Section 5
of the Securities Act or to the registration provisions of any
securities or Blue Sky law of any applicable jurisdiction. As of the
Closing Date, the Notes will not be of the same class as securities of
the Company listed on a national securities exchange registered under
Section 6 of the Exchange Act or quoted in a U.S. automated inter-dealer
quotation system, within the meaning of Rule 144A.
5.12 REGULATION G, ETC. None of the proceeds of the sale of the Notes
will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any margin
stock within the meaning of Regulation G of the Board of Governors of
the Federal Reserve System (12 CFR Part 207) or for the purpose of
buying or carrying or trading in any securities under such circumstances
as to involve the Company in a violation of Regulation X of such Board
(12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of such Board (12 CFR 220). Margin stock does not
constitute more than 25% of the value of the assets of the Consolidated
Group or of the Company and the Company has no present intention that
margin stock will constitute more than 25% of the value of its or the
Consolidated Group's assets. As used in this PARAGRAPH 5.12, the terms
"MARGIN STOCK" and "PURPOSE OF BUYING OR CARRYING" shall have the
meanings assigned to them in said Regulation G.
5.13 EXISTING INDEBTEDNESS; FUTURE LIENS.
(a) SCHEDULE 5.13 sets forth a complete and correct list of all
outstanding Debt of the Company and each Subsidiary as of the Closing Date
both immediately before and after the application of the proceeds of the
Notes as set forth in PARAGRAPH 8.10 and a list of each instrument or
agreement evidencing or otherwise governing the terms and conditions of
such Debt. The Company has previously delivered to Special Counsel true,
correct and complete copies of each instrument or agreement listed on
SCHEDULE 5.13. Neither the Company nor any Subsidiary is in default and no
waiver of default is currently in effect, in the payment of any principal
or interest on any such Debt and no event or condition exists with respect
to any such Debt that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Debt to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
(b) Neither the Company nor any Subsidiary has agreed or consented to
cause or permit in the future (upon the happening of a contingency or
otherwise) any of its property, whether now owned or hereafter acquired, to
be subject to a Lien not permitted by PARAGRAPH 9.3.
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5.14 STATUS UNDER CERTAIN FEDERAL STATUTES; FOREIGN ASSET CONTROL. Neither
the Company nor any Subsidiary is subject to regulation under the Investment
Company Act of 1940, as amended or the Public Utility Holding Company Act of
1935, as amended. Neither the sale of the Notes hereunder nor the use of the
proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.15 COMPLIANCE WITH LAWS, ETC. The Company and each Subsidiary is in
compliance with the requirements of all applicable laws, rules, regulations
and orders of any Governmental Authority (including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA and any
Environmental Laws), and has in effect all licenses, certificates, permits,
franchises, filing and other governmental authorizations necessary to the
ownership of its properties or to the conduct of its businesses, in each case
to the extent failure does not, and could not reasonably be expected,
individually and in the aggregate, to have a Material Adverse Effect.
5.16 ENVIRONMENTAL MATTERS. Except as disclosed on SCHEDULE 5.16, there are
no claims and neither the Company nor any Subsidiary has received any notice
of any claim, and no proceeding has been instituted raising any claim,
against or involving the Company or any Subsidiary or any of their respective
real properties now or formerly owned, leased, occupied or operated by the
Company or any Subsidiary or other assets, alleging any damage to the
environment or violation of or liability under any Environment Laws. Neither
the Company nor any Subsidiary has received any request for information or
similar inquiry with respect to any property now or formerly owned, leased,
operated or occupied by the Company or any Subsidiary or with respect to any
off-site location to or at which Hazardous Materials used or generated by the
Company or any Subsidiary have been transported or disposed or have come to
be located.
Except as otherwise disclosed in SCHEDULE 5.16:
(i) the Company has no knowledge of any facts which would give
rise to any claim, public or private, of violation of or liability
under Environmental Laws or damage to the environment emanating from,
occurring on or in any way related to real properties now or formerly
owned, leased, occupied or operated by the Company or any Subsidiary
or relating to any other assets of the Company or any Subsidiary or
its use, or any disposal of release of Hazardous Materials used or
generated by the Company or any Subsidiary except, in each case, such
as could not reasonably be expected to result in a Material Adverse
Effect;
(ii) neither the Company nor any Subsidiary has stored or
disposed of any Hazardous Materials on real properties now or formerly
owned, leased, occupied or operated by the Company or any Subsidiary
and has disposed of any Hazardous Materials in a manner which could
reasonably be expected to have a Material Adverse Effect and in any
event, in violation of any Environmental Laws;
(iii) all buildings on all real properties now owned, leased,
occupied or operated by the Company or any Subsidiary are in
compliance with applicable Environmental Laws, except where failure to
comply could not reasonably be expected to result in a Material
Adverse Effect; and
(iv) the Company and each Subsidiary have obtained all permits,
licenses and other authorizations and has made all filings,
registrations and other submittals which are required of it under all
Environmental Laws (except to the extent failure to have any such
permits, licenses or authorizations or to have made any such filings,
registrations or submittals individually and in the aggregate does
not, and is not reasonably expected to, result in a Material Adverse
Effect) and the Company and each Subsidiary is in compliance with all
Environmental Laws and with the terms and conditions of all such
permits, licenses, authorizations, filings, registrations and
submittals and in compliance with all applicable orders, decrees,
judgments and injunctions, issued, entered,
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promulgated or approved under any Environmental Law (except to the
extent failures to comply, individually and in the aggregate do not,
and are not reasonably expected in the future, to result in a Material
Adverse Effect).
(v) Other than releases which have occurred in de minimis
quantities and in the ordinary course of business which in the
aggregate are not material, no release of Hazardous Materials has
occurred on any property now or formerly owned, leased, operated or
occupied by the Company or any Subsidiary in a manner which could
reasonably be expected to require remediation, cleanup or other
response by the Company or any Subsidiary under any applicable
Environmental Law.
(vi) The Company has provided to the Purchasers true and complete
copies of all environmental assessment reports in the possession of
the Company or any Subsidiary which relate to the Company or any
Subsidiary or to any property owned, leased, operated or occupied by
the Company or any Subsidiary.
(vii) To the knowledge of the Company, no property or facility to
or at which the Company or any Subsidiary has, directly or indirectly,
disposed of, or arranged for the disposal of any Hazardous Materials
is currently on or formally proposed for listing on any federal or
state "Superfund" list or is the subject of any investigation in
connection with or related to the release of Hazardous Materials.
(viii) No underground storage tanks, polychlorinated biphenyls or
friable asbestos are currently located at or have been released at or
from any property now owned, leased, operated or occupied by the
Company or any Subsidiary.
5.17 FINANCIAL CONDITION. After giving effect to the transactions
contemplated hereby, (i) the aggregate present fair saleable value of the
assets of the Company will be greater than the amount that will be required
to pay the probable liabilities of the Company on its debts, including
contingent liabilities, as they become absolute and mature; (ii) the Company
has (and has no reason to believe that it will not have) sufficient capital
for the conduct of its business as presently conducted; and (iii) the Company
does not intend to incur, or believe it has incurred, debts beyond its
ability to pay as they mature.
5.18 SECURITIES FILINGS. All reports and statements required to be filed by
the Company with the SEC since October 4, 1996, at the time filed or, if
amended, as of the date of the last such amendment, conformed in all material
respects to the applicable requirements of the Securities Act and the Exchange
Act, as the case may be, and the rules and regulations promulgated thereunder
and did not include at the time of filing or, if amended, as of the date of the
last such amendment, such documents any untrue statement of a material fact or
omit to state any material fact required to be stated or necessary to make the
statements made, in light of the circumstances under which they were made, not
misleading and the consolidated financial statements of the Company and the
Consolidated Group included therein comply as to form in all material respects
with applicable accounting requirements and the published rules and regulations
of the SEC with respect thereto. Since October 4, 1996, the Company has not
failed to make any filing required by the Exchange Act on a timely basis.
6. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents that:
(a) It is an `accredited investor" (as defined in Rule 501 of the
Securities Act) and it is purchasing its Notes for its own account or for
one or more separate accounts maintained by it or for the account of one or
more pension or trust funds, in each case for investment and not with a
view to the distribution thereof, PROVIDED that the disposition of such
Purchaser's property shall at all times be within its control. The Company
acknowledges that a Purchaser's sale of all or a portion of its Notes to
one or more Qualified Institutional Buyers in compliance with Rule 144A
would not be a breach of this representation.
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(b) With respect to each source of funds to be used by it to pay the
purchase price of its Notes (respectively, the "SOURCE"), at least one of
the following statements is accurate as of the Closing Date:
(i) the Source is an "insurance company general account" within
the meaning of Department of Labor Prohibited Transaction Exemption
("PTE") 95-60 (issued July 12, 1995) and there is no "employee benefit
plan" (within the meaning of Section 3(3) of ERISA or Section
4975(e)(1) of the Code and treating as a single plan all plans
maintained by the same employer or employee organization) with respect
to which the amount of the general account reserves and liabilities
for all contracts held by or on behalf of such plan exceed ten percent
(10%) of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth
in the NAIC Annual Statement filed with the state of domicile of the
Purchaser.
(ii) The Source is either (i) an insurance company pooled
separate account and the purchase is exempt in accordance with PTE
90-1 (issued January 29, 1990), or (ii) a bank collective investment
fund, within the meaning of PTE 91-38 (issued July 21, 1991) and,
except as such Purchaser has disclosed to the Company in writing
pursuant to this CLAUSE (II), no employee benefit plan or group of
plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(iii) The Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning
of Part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of Section
V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of Part I(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled by the QPAM (applying the definition
of "control" in Section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and (i) the identity of such QPAM and (ii) the
names of all employee benefit plans whose assets are included in such
investment fund have been disclosed to the Company in writing pursuant
to this CLAUSE (III); or
(iv) The Source is a "governmental plan" as defined in Title I,
Section 3(32) of ERISA;
or
(v) The Source is one or more plans or a separate account or
trust fund comprised of one or more plans each of which has been
identified to the Company in writing pursuant to this CLAUSE (V); or
(vi) The Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this PARAGRAPH 6, the terms "EMPLOYEE BENEFIT PLAN", "GOVERNMENTAL
PLAN", "PARTY IN INTEREST" and "SEPARATE ACCOUNT" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
7. PREPAYMENT, REPAYMENT AND REDEMPTIONPREPAYMENT, REPAYMENT AND REDEMPTION.
The Notes may be prepaid only under the circumstances set forth in
PARAGRAPH 7.2 and shall be repaid in accordance with PARAGRAPH 7.1 and upon
any acceleration of final maturity as provided in PARAGRAPH 11.1.
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7.1 SCHEDULED REPAYMENT OF NOTES. The Company shall on each March 31,
June 30, September 30 and October 31 beginning in 2003, repay $585,365.85 of
the aggregate unpaid principal amount of the Notes and on December 31, 2012,
shall repay in full all unpaid principal of the Notes, in each case at 100%
of the principal amount so repaid.
7.2 OPTIONAL PREPAYMENT OF NOTES WITH MAKE-WHOLE AMOUNT. The Company may
prepay the Notes in full at any time or in part from time to time (provided
that any partial prepayment shall be of at least $1,000,000 in aggregate
principal amount or a larger principal amount which is an integral multiple
of $500,000), at 100% of the principal amount so prepaid, plus interest
accrued thereon to the Settlement Date and the Make-Whole Amount. The Company
shall give each Holder irrevocable written notice of any prepayment to be
made pursuant to this PARAGRAPH 7.2 at least 30 days, and not more than 60
days, prior to the Settlement Date, (i) specifying the Settlement Date and
the Called Principal of the Notes held by each such Holder (determined in
accordance with PARAGRAPH 7.3), (ii) stating that such prepayment is to be
made pursuant to this PARAGRAPH 7.2, (iii) stating the amount of interest to
be paid on the Settlement Date with respect to such Called Principal and (iv)
providing an estimate of the Make-Whole Amount payable on the Called
Principal of such Holder's Notes (calculated as if the date of such notice
were the date of prepayment) and setting forth the details of such
computation. Not later than the close of business on the second Business Day
prior to the Settlement Date, the Company shall deliver to the Holder of each
Note, an Officer's Certificate setting forth in detail the calculations used
in determining whether a Make-Whole Amount is payable on such prepayment and
the amount of such Make-Whole Amount.
7.3 PAYMENTS PRO RATA; APPLICATION OF PAYMENTS. Upon any partial prepayment
of the Notes pursuant to PARAGRAPH 7.2 the principal amount so prepaid shall
be allocated among the Holders in proportion to the respective outstanding
principal amounts of the Notes held by them.
7.4 MATURITY; SURRENDER, ETC. In the case of each prepayment of Notes
pursuant PARAGRAPH 7.2, the principal amount of each Note to be prepaid shall
mature and become due and payable on the Settlement Date, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount. From and after such date, unless the Company shall fail to
pay such principal amount when so due and payable, together with the interest
and Make-Whole Amount as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and cancelled and shall not be reissued, and no Note shall be issued
in lieu of any prepaid or repaid principal amount of any Note.
7.5 PURCHASE, REDEMPTION AND RETIREMENT OF NOTES. The Company shall not,
and shall not permit any of its Affiliates to, prepay or otherwise retire any
Note in whole or in part, prior to its stated maturity (other than by
prepayment pursuant to PARAGRAPH 7.2 or upon acceleration of final maturity
pursuant to PARAGRAPH 12.1), or purchase or otherwise acquire, directly or
indirectly, any Note unless the Company or such Affiliate shall have offered
to prepay or otherwise retire, purchase, redeem or otherwise acquire, as the
case may be, the same proportion of the aggregate outstanding principal
amount of Notes held by each other Holder at the time outstanding upon the
same terms and conditions. Any such offer shall provide each Holder with
sufficient information to enable it to make an informed decision with respect
to such offer, and shall remain open for at least 5 Business Days. If the
Required Holders accept such offer, the Company shall promptly notify the
remaining Holders of such fact and the expiration date for the acceptance by
Holders of such offer shall be extended by the number of days necessary to
give each such Holder at least 5 Business Days from its receipt of such
notice to accept such offer. No Notes so prepaid or otherwise retired or
purchased or otherwise acquired by the Company or any of its Affiliates shall
thereafter be reissued or deemed to be outstanding for any purpose under this
Agreement.
7.6 MAKE-WHOLE AMOUNT. The term "MAKE-WHOLE AMOUNT" means, with respect to
any Note, an amount equal to the excess, if any, of the Discounted Value of
the Remaining Scheduled Payments with respect to the Called Principal of such
Note over the amount of such Called Principal,
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PROVIDED that the Make-Whole Amount may in no event be less than zero. For the
purposes of this PARAGRAPH 7 and determining the Make-Whole Amount, the
following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to PARAGRAPH 7.2 or has become or
is declared to be immediately due and payable pursuant to PARAGRAPH 11.1,
as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor
(applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called
Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of
any Note, fifty basis points over the yield to maturity implied by (i) the
yields reported, as of 10:00 A.M. (New York City time) on the second
Business Day preceding the Settlement Date with respect to such Called
Principal, on the display designated as "Page USD" on the Bloomberg
Financial Markets (or such other display as may replace Page USD on
Bloomberg Financial Markets) for actively traded U.S. Treasury securities
having a maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date, or (ii) if such yields are not
reported as of such time or the yields reported as of such time are not
ascertainable, the Treasury Constant Maturity Series Yields reported, for
the latest day for which such yields have been so reported as of the second
Business Day preceding the Settlement Date with respect to such Called
Principal, in Federal Reserve Statistical Release H.15 (519) (or any
comparable successor publication) for actively traded U.S. Treasury
securities having a constant maturity equal to the Remaining Average Life
of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded
U.S. Treasury security with the duration closest to and greater than the
Remaining Average Life and (2) the actively traded U.S. Treasury security
with the duration closest to and less than the Remaining Average Life.
"REMAINING AVERAGE LIFE" means, with respect to any Called Principal,
the number of years (calculated to the nearest one-twelfth year) obtained
by dividing (i) such Called Principal into (ii) the sum of the products
obtained by multiplying (a) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (b) the number
of years (calculated to the nearest one-twelfth year) that will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, PROVIDED that if such Settlement Date is in
connection with a prepayment pursuant to PARAGRAPH 7.2 and is not a date on
which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to PARAGRAPH 7.2.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
PARAGRAPH 7.2 or has become or is declared to be immediately due and
payable pursuant to PARAGRAPH 11.1, as the context requires.
The Company acknowledges that the Make-Whole Amount due at any optional or
required prepayment of Notes (including any prepayment required pursuant to any
provision of PARAGRAPH 11.1) has been negotiated with
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the Purchasers to provide a bargained for rate of return on the Purchasers'
investment in the Notes and is not a penalty.
8. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any Note is outstanding;
8.1 FINANCIAL AND OTHER REPORTING BY THE COMPANY. The Company will
deliver to each Holder:
(i) as soon as practicable, and in any event not more than 45
days after the end of each fiscal quarter (other than the fourth
quarter), the unaudited consolidated and consolidating balance sheet of
the Consolidated Group as at the end of such quarter and the related
unaudited consolidated and consolidating statements of operations, cash
flows and stockholders' equity of the Consolidated Group for such
period and for the fiscal year to date, setting forth, in each case in
comparative form, figures for the corresponding period(s) in the
preceding fiscal year, all in reasonable detail and in accordance with
GAAP, and certified by the chief accounting officer or chief financial
officer of the Company as fairly presenting the financial condition of
the Consolidated Group as at the dates indicated and the results of its
operations and cash flows, in each case for the periods indicated, in
conformity with GAAP subject to changes resulting from normal year-end
adjustments;
(ii) as soon as practicable, and in any event not more than 90
days, after the end of each fiscal year of the Company, the
consolidated and consolidating balance sheet of the Consolidated Group
as of the end of such year and the related consolidated and
consolidating statements of operations, cash flows and stockholders'
equity of the Consolidated Group for such year, and setting forth in
each case in comparative form, corresponding figures for the preceding
fiscal year, all in reasonable detail and in accordance with GAAP and
accompanied by an opinion thereon of the Approved Auditor, which
opinion shall be without limitation as to the scope of the audit and
shall state that such financial statements present fairly in all
material respects the consolidated financial condition of the
Consolidated Group as at the dates indicated and the results of their
consolidated operations and cash flows for the periods indicated in
conformity with GAAP (except as otherwise specified in such report) and
that the audit by such accountants in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and provides a reasonable basis for such opinion;
(iii) together with each delivery of financial statements of
the Consolidated Group pursuant to SUBPARAGRAPHS (I) and (II) of this
PARAGRAPH 8.1, a certificate of the chief financial officer of the
Company (a) stating that the signer has reviewed the terms of the
Transaction Documents and has made, or caused to be made under the
signer's supervision, a review in reasonable detail of the transactions
and condition of the Consolidated Group during the fiscal period
covered by such financial statements and that such review has not
disclosed the existence during or at the end of such fiscal period, and
that after reasonable investigation the signer has no knowledge of the
existence as at the date of such certificate, of any condition or event
which constitutes a Default or Event of Default or, if any such
condition or event existed or exists, specifying the nature and period
of existence thereof and what action the Company has taken or is taking
or proposes to take with respect thereto and (b) demonstrating
compliance by the Company with the provisions of PARAGRAPHS 9.1, 9.2
and 9.5(V), (c) if not specified in the accompanying financial
statements, specifying the aggregate amount of interest paid or accrued
by the Consolidated Group and the aggregate amount of depreciation,
depletion and amortization charged on the books of the Consolidated
Group and (d) identifying the names of each Subsidiary of the Company
included in such financial information;
(iv) promptly and in any event within 5 days after (A) any
Senior Officer becomes aware of the existence of any Default or Event
of Default or (B) any Holder gives notice to the Company or takes any
other action with respect to a claimed Default or Event of Default
under this Agreement, or (C) any Person
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gives any notice to the Company or any Subsidiary or takes any other
action with respect to a claimed default or event or condition of the
type referred to in CLAUSE (III) of PARAGRAPH 10, an Officer's
Certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by
such Holder or Person and the nature of such claimed Default, Event of
Default, event or condition, and what action the Company has taken, is
taking or proposes to take with respect thereto;
(v) promptly, and in any event within 5 days after any Senior
Officer becomes aware of any of the following, a written notice setting
forth the nature thereof and the action, if any, that the Company or
any ERISA Affiliate proposes to take with respect thereto:
(A) with respect to any Plan, any reportable event,
as defined in section 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived
pursuant to such regulations as in effect on the date hereof;
or
(B) the taking by the PBGC of steps to institute, or
the threatening by the PBGC of the institution of, proceedings
under section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan, or the
receipt by the Company or any Subsidiary or any ERISA
Affiliate of a notice from a Multiemployer Plan that such
action has been taken by the PBGC with respect to such
Multiemployer Plan; or
(C) any event, transaction or condition that could
result in the incurrence of any liability by the Company or
any Subsidiary or any ERISA Affiliate pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, or in the imposition
of any Lien on any of the rights, properties or assets of the
Company or any Subsidiary or any ERISA Affiliate pursuant to
Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, is reasonably
expected to have a Material Adverse Effect;
(vi) (A) promptly upon their becoming available, copies of (i)
all financial statements, proxy statements, notices and reports as the
Company or any Subsidiary shall send or make available to its security
holders generally and (ii) all registration statements (with exhibits),
prospectuses and all regular or periodic reports which it files with
the SEC or any stock exchange and of all press releases and other
statements made available generally by the Company or any Subsidiary to
the public concerning material developments and (B) promptly after
receipt thereof, copies of any reports, statements and notices the
Company or any Subsidiary may receive in accordance with Section 13(d)
or 14(d) of the Exchange Act or the rules and regulations of any stock
exchange; and
(vii) with reasonable promptness, such other information and
data relating to the business, operations, affairs, financial
condition, assets or properties of the Company or any Subsidiary or
relating to the ability of the Company or any Subsidiary to perform
their obligations under the Transaction Documents or relating to the
ability of the Company or any Subsidiary to comply with the terms of
the Transaction Documents as may from time to time be reasonably
requested by any Holder.
8.2 INFORMATION REQUIRED BY RULE 144A. The Company will, upon the
request of any Holder, provide to such Holder, and any Qualified Institutional
Buyer designated by such Holder, such financial and other information as such
Holder may reasonably determine to be necessary in order to permit compliance
with the information requirements of Rule 144A in connection with a resale or
proposed resale of any Note.
8.3 INSPECTION OF PROPERTY. The Company shall permit the
representatives of any Holder that is an Institutional Investor:
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<PAGE>
(i) if no Default or Event of Default then exists, at the expense of
such Holder and upon reasonable prior notice to the Company, to visit the
principal executive office of the Company, to discuss the affairs, finances and
accounts of the Company or any Subsidiary with the officers of the Company and,
with the consent of the Company, which consent will not be unreasonably withheld
or delayed, the independent public accountants of the Company and, with the
consent of the Company, which consent will not be unreasonably withheld or
delayed, to visit the offices of the Company and any Subsidiary, all at such
reasonable times and as often as may be reasonably requested in writing; and
(ii) if a Default or Event of Default then exists, at the expense of
the Company, to visit and inspect any of the offices or properties of the
Company and any Subsidiary, to examine all their respective books of account,
records, reports and other papers, to make copies and extracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
officers and independent public accountants (and by this provision the Company
authorizes said accountants to discuss the affairs, finances and accounts of the
Company and any Subsidiary), all at such times and as often as may be requested.
8.4 COMPLIANCE WITH LAWS, ETC. The Company and each Subsidiary will
comply with the requirements of all applicable laws, rules, regulations and
orders of any Governmental Authority (including, without limitation, the
Occupational Safety and Health Act of 1970, as amended, ERISA and all
Environmental Laws), and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of its properties or to the conduct of its
businesses, in each case to the extent necessary to ensure that any
non-compliance with such laws, ordinances or governmental rules or regulations
or any failure to obtain or maintain in effect such licenses, permits,
franchises and other governmental authorizations does not, and could not
reasonably be expected, individually or in the aggregate, to have a Material
Adverse Effect.
8.5 INSURANCE. The Company and each Subsidiary will maintain, with
financially sound and reputable insurers, rated at least A or A+ by A.M. Best,
insurance with respect to its properties and business of such types and in such
forms and amounts (including deductibles, co-insurance and self-insurance if
adequate reserves are maintained with respect thereto) and against such risks as
are reasonable and prudent in the circumstances and as are customarily insured
against by Persons of established reputation engaged in the same or similar
business and similarly situated.
8.6 MAINTENANCE OF PROPERTIES AND LEASES. The Company and each
Subsidiary will (i) maintain all its properties in good repair and working order
and condition (other than ordinary wear and tear) so that the business carried
on in connection therewith may be properly conducted at all times and from time
to time make or cause to be made all appropriate repairs, renewals,
replacements, additions and improvements thereof as needed, PROVIDED that this
PARAGRAPH 8.6 shall not prevent either the Company or any Subsidiary from
discontinuing the operation or maintenance of any of their properties if such
discontinuance is desirable in the conduct of their business and the Company has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and (ii) comply in all
material respects with the provisions of all leases or licenses under which it
leases or licenses any such properties to the extent necessary to ensure that
any such non-compliance with such leases or licenses could not reasonably be
expected to have a Material Adverse Effect.
8.7 CORPORATE EXISTENCE, ETC. Except as otherwise specifically
permitted by this Agreement, the Company and each Subsidiary will at all times
preserve and keep in full force and effect their separate legal existence and
all its Material rights and franchises, and qualify and maintain their
qualification to do business and good standing in any jurisdiction, except in
each case where the failure to do so, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect.
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<PAGE>
8.8 PAYMENT OF TAXES AND CLAIMS.
(a) The Company and each Subsidiary will file all tax returns required
to be filed in any jurisdiction and pay all Taxes shown to be due and payable on
such returns and all other Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income, sales and
services, or profits when the same become due and payable, but in any event
before any penalty or interest accrues thereon, and all claims (including,
without limitation, claims for labor, services, materials and supplies) for sums
which have become due and payable and which have or might become a Lien upon any
of its properties or assets, PROVIDED, that no such Tax or claim need be paid if
(a) it is being contested in good faith by appropriate proceedings promptly
initiated and diligently conducted and if such reserves or other appropriate
provision, if any, as shall be required by GAAP shall have been made therefor,
and (b) the failure to pay such Tax or claim could not reasonably be expected,
if such contest were adversely determined, individually or in the aggregate, to
have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary will consent to or permit
the filing of or be a party to any consolidated income tax return on its behalf
with any Person (other than a consolidated return that includes solely the
Consolidated Group).
8.9 SCOPE OF BUSINESS. Neither the Company nor any Subsidiary will
engage to a substantial extent in any business other than the business described
in the SCHEDULE 8.9 and businesses reasonably related thereto or in furtherance
thereof.
8.10 USE OF PROCEEDS. The Company will use the proceeds of the sale of
the Notes only as designated on SCHEDULE 8.10 and not for any purpose which
would violate any applicable law or governmental regulation or which is
otherwise prohibited under PARAGRAPH 5.12.
8.11 ENVIRONMENTAL COMPLIANCE. The Company and each Subsidiary will (i)
obtain and maintain all permits, licenses, and other authorizations that are
required of it under all Environmental Laws other than those which the failure
to obtain or maintain, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect, and (ii) comply with all terms and
conditions of all such permits, licenses, and authorizations and with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables contained in all Environmental Laws or in
any regulation, ordinance or code applicable to it and any, plan, order, decree,
judgment, injunction, notice, or demand letter issued, entered, promulgated, or
approved thereunder applicable to it, except to the extent of any noncompliance
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect and (iii) operate all property owned or leased or
otherwise used by it such that no claim or obligation, including a clean-up
obligation, which, individually or in the aggregate, with all such other
obligations could reasonably be expected to have a Material Adverse Effect shall
arise under any Environmental Law.
8.12 MAINTENANCE OF BOOKS AND RECORDS. The Company and each Subsidiary
will: (i) keep proper records and books of account with respect to its business
activities in which proper entries are made in the ordinary course of all
dealings or transactions of or in relation to its business and affairs; (ii) set
up on its books adequate reserves with respect to all Taxes, assessments,
charges, levies and claims; and (iii) set up on its books reserves against
doubtful accounts receivable, advances and all other proper reserves (including
reserves for depreciation, obsolescence or amortization of its property). All
determinations pursuant to this PARAGRAPH 8.12 shall be made in accordance with,
or as required by, GAAP in order to fairly reflect all of the financial
transactions of the Company and each Subsidiary. Notwithstanding the foregoing,
the Company and each Subsidiary may make adjustments and changes in the manner
in which its books and records are kept, PROVIDED, that:
(A) all such adjustments and changes shall be required or
permitted by GAAP, but need not conform with the prior accounting
practice of the Company or such Subsidiary or its predecessor;
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<PAGE>
(B) each Holder shall be given written notice of all such
changes or adjustments together with the financial statements required
by CLAUSE (I) of PARAGRAPH 8.1 for the quarter in which such change
occurred, and together with the financial statements required by CLAUSE
(II) of PARAGRAPH 8.1, a year-end listing and description of all such
changes and adjustments and the effect thereof certified by the chief
accounting or chief financial officer of the Company; and
(C) the financial covenants and ratios set forth in PARAGRAPH
9.1 shall continue to be calculated without regard to such adjustments
or changes unless and until the Required Holders have consented
thereto.
8.13 DELIVERY OF GUARANTY AND PLEDGE. Promptly upon, and in any event
within 10 Business Days of, the Company acquiring any Wholly-Owned Subsidiary,
such Wholly-Owned Subsidiary shall become a party to the Subsidiaries' Guaranty;
PROVIDED, if the Company acquires a Subsidiary which is not a Wholly-Owned
Subsidiary, the Company may, in lieu of such Subsidiary becoming a party to the
Subsidiaries' Guaranty, pledge, or caused to be pledged, any Equity Interest it
or any of its other Subsidiaries has in such Subsidiary for the benefit of the
Holders pursuant to the terms of the Pledge Agreement. Promptly, upon and in any
event within 10 Business Days of any Subsidiary becoming a Wholly-Owned
Subsidiary, it shall also become a party to the Subsidiaries' Guaranty. In
either case, the Company shall provide to the Holders evidence satisfactory to
the Required Holders (which, upon the request of the Required Holders, shall
include an opinion of counsel) that the Subsidiaries' Guaranty and/or the Pledge
Agreement remains in full force and effect and is enforceable against such
Subsidiary in accordance with its terms. Upon delivery of such evidence in the
case of a Wholly-Owned Subsidiary becoming a party to the Subsidiaries'
Guaranty, each Holder shall promptly deliver to the Collateral Agent under the
Pledge Agreement, its written consent to the release from the Pledge Agreement
of the Equity Interest of such Subsidiary.
8.14 VIRGINIA GAS PIPELINE COMPANY. Promptly following the Closing
Date, the Company will use its best efforts to promptly obtain such regulatory
consent(s) as are required to permit Virginia Gas Pipeline Company to become a
party to the Subsidiaries' Guaranty and upon obtaining such consent(s) will
cause Virginia Gas Pipeline Company to become a party thereto.
9. NEGATIVE COVENANTS. The Company covenants that for so long as any Note
is outstanding:
9.1 FINANCIAL COVENANTS.
9.1.1 CONSOLIDATED TANGIBLE NET WORTH. Consolidated Tangible Net Worth
shall not, as of the last day of any fiscal quarter ending on or after the
Closing Date, be less than $24,000,000 plus, if such amount is greater than
zero, an amount equal to 25% of Consolidated Net Income for the period after
December 31, 1997, taken as a single accounting period.
9.1.2 LIMITATION ON CONSOLIDATED TOTAL LIABILITIES. As of the last day
of any fiscal quarter ending on or after the Closing Date, the ratio of (a)
Consolidated Total Liabilities to (b) Consolidated Tangible Net Worth shall not
be greater than the ratio set forth below for such fiscal quarter:
<TABLE>
<CAPTION>
<S> <C>
Any fiscal quarter ended on or
before December 31, 1998 1.20 to 1.00
Any fiscal quarter ended after
December 31, 1998 and on or
before December 31, 1999 1.10 to 1.00
Any fiscal quarter ended after
December 31, 1999 1.00 to 1.00
</TABLE>
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<PAGE>
9.1.3 DEBT SERVICE COVERAGE. As of the last day of any fiscal quarter
ending on or after the Closing Date, the ratio of (a) Consolidated EBITDA to (b)
Consolidated Pro-Forma Debt Service shall not be less than the ratio set forth
below for such fiscal quarter:
<TABLE>
<CAPTION>
<S> <C>
Any fiscal quarter ended on or
before December 31, 1998 1.00 to 1.00
Any fiscal quarter ended after
December 31, 1998 and on or
before December 31, 1999 1.50 to 1.00
Any fiscal quarter ended after
December 31, 1999 and on or
before December 31, 2001 1.75 to 1.00
Any fiscal quarter ended after
December 31, 2001 2.00 to 1.00
</TABLE>
9.2 RESTRICTED PAYMENTS AND RESTRICTED INVESTMENTS. Neither the Company
nor any Wholly-Owned Subsidiary shall make, declare or incur any liability to
make any Restricted Payments or any Restricted Investment after the Closing Date
other than any Restricted Payment or Restricted Investment if immediately after
giving effect thereto, the aggregate amount of all Restricted Payments made or
declared by the Company and each Subsidiary since the Closing Date plus the
aggregate value of all Restricted Investments at such time (including those made
pursuant to this sentence) does not exceed the sum of (a) 25% of Consolidated
Net Income for each full fiscal year ended after December 31, 1997 (or if
Consolidated Net Income for any such year is a loss, then 100% of Consolidated
Net Income for such year, expressed as a negative number) plus (b) the Net
Proceeds of Eligible Capital Stock received by the Company after December 31,
1997; provided, in either case, (i) no Event of Default or Default exists
immediately before or immediately after making or declaring such Restricted
Payment or Restricted Investment or would otherwise be reasonably expected to
result therefrom and (ii) immediately after giving effect thereto the Company
could incur an additional $1.00 of Debt and not violate the financial covenants
set forth in PARAGRAPH 9.1.
Neither the Company nor any Wholly-Owned Subsidiary shall make, declare
or incur any liability to make any Restricted Investment after the Closing Date
unless (i) no Event of Default or Default exists immediately before or
immediately after making, declaring or incurring liability to make such
Restricted Investment or could reasonably be expected to result therefrom, (ii)
immediately after giving effect thereto the Company could incur an additional
$1.00 of Debt and not violate the financial covenants set forth in PARAGRAPH 9.1
and (iii) if the Restricted Investment is in an Affiliate, the Restricted
Investment is represented by a promissory note the repayment of which is secured
by a perfected, first priority Lien on assets of the Affiliate with a fair
market value at least equal to the principal amount of the promissory note. For
the purpose of this PARAGRAPH 9.2, the value of a Restricted Investment which
constitutes a liability (contingent or otherwise) shall be the maximum amount of
such liability.
9.3 LIENS. Neither the Company nor any Subsidiary shall create, assume
or suffer to exist any Lien on its properties or assets, whether now owned or
hereafter acquired, or upon any income or profits therefrom or proceeds of
dispositions thereof, or transfer any property for the purpose of subjecting the
same to the payment of obligations in priority to the payment of its general
creditors without equally and ratably securing the Notes, except for:
(i) Liens, and other charges incidental to the
conduct of its business, or the ownership of its property
(including charges for Taxes or otherwise arising by operation
of law, mechanics', carriers', workers', repairmen's,
warehousers' or other similar Liens), which are not incurred
in
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<PAGE>
connection with the borrowing of money or the securing of
Debt, PROVIDED that, in each case, the obligation secured is
not overdue or is being contested in good faith by appropriate
actions or procedures promptly instituted and diligently
conducted and such reserves as shall be required by GAAP shall
have been made therefor, but only so long as no foreclosure,
distraint, sale or similar proceedings have been commenced
with respect thereto (unless the same shall have been fully
bonded or otherwise effectively stayed);
(ii) Liens arising as a result of any judicial
proceedings with respect to which it shall then, in good faith
and by appropriate actions and procedures promptly instituted
and diligently conducted, be prosecuting appeal or other
proceedings for review and Liens arising from judgments or
decrees not constituting a Default or Event of Default unless,
in either case, such Lien remains undischarged, unstayed
pending appeal, unbonded or undismissed for a period of 60
consecutive days and PROVIDED, in either case, such reserves
as shall be required by GAAP shall have been made therefor and
such Liens in the aggregate do not have a Material Adverse
Effect;
(iii) deposits or pledges to secure worker's
compensation, unemployment insurance, old age benefits or
other social security obligations or retirement benefits;
(iv) Liens arising out of deposits in connection
with, or given to secure the performance of leases, bids,
tenders, trade contracts not for the payment of money, or to
secure statutory obligations or surety or appeal bonds,
performance bonds or other pledges or deposits for purposes of
like nature in the ordinary course of business but only so
long as no foreclosure, distraint, sale or similar proceedings
have been commenced with respect thereto (unless the same
shall have been fully bonded or otherwise effectively stayed);
(v) minor survey exceptions or encumbrances,
easements or reservations, or rights of others for
rights-of-way, utilities and other similar purposes, or zoning
or other restrictions as to the use of real properties, which
are necessary for the conduct of its activities or which
customarily exist on properties of Persons engaged in similar
activities and similarly situated and which do not in the
aggregate have a Material Adverse Effect or materially impair
the use of such real properties in the operation of its
business;
(vi) Liens on any properties or assets of a
Subsidiary in favor of the Company or a Wholly-Owned
Subsidiary and Liens, if any, securing the Notes;
(vii) Liens existing as of the Closing and described
on SCHEDULE 9.3;
(viii) Liens securing Debt of the Company or any
Wholly-Owned Subsidiary to finance the acquisition of assets
provided that (a) any such Lien is confined solely to the
asset so acquired, (b) the principal amount of the Debt
secured by such Lien does not exceed the cost of such asset,
(c) any such Lien shall be created within 60 days of the date
such asset was acquired and (d) the aggregate principal amount
of the Debt secured by Liens permitted by this CLAUSE (VIII)
does not exceed $500,000 (which amount shall be reduced by the
principal amount of any Debt secured by Liens of the type
permitted by this CLAUSE (VIII) and described in SCHEDULE
9.3);
(ix) Liens on the assets of any Person (other than
the Company or an existing Subsidiary) existing at the time
such assets are acquired by it whether by merger,
consolidation, purchase of assets or otherwise so long as such
(A) Liens are not created, incurred or assumed in
contemplation of such assets being acquired by it; (B) no
Default or Event of Default exists immediately before or
immediately after the incurrence of such Liens or could
reasonably be anticipated to result therefrom; (C) after
giving effect to such acquisition and the Debt secured by such
Lien, the financial tests set forth in PARAGRAPH 9.1,
calculated on the basis of the most
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<PAGE>
recently available financial information, would be satisfied,
and (D) such Liens do not extend to any other assets of the
Company or any Subsidiary; and
(x) any Lien resulting from renewing, extending or
refinancing any Liens permitted by CLAUSES (VII), (VIII), (IX)
or (X) above, provided that (a) such Lien does not extend to
any property of the Company or any Subsidiary other than a
Subsidiary which is an existing obligor on the Debt secured by
the Lien being renewed, refinanced or extended and (b)
immediately after such extension, renewal or refunding, no
Default or Event of Default would exist or could reasonably be
expected to result therefrom.
9.4 SALE OF STOCK, EQUITY INTEREST. No Subsidiary of the Company shall
issue, sell or otherwise dispose of, or part with control of, any of its own
Equity Interest (other than directors' qualifying shares) either directly or
indirectly by the issuance of rights, options for securities convertible into or
exchangeable for its Equity Interest unless (i) the proceeds of such issuance,
transfer or sale are used to make a Qualifying Reinvestment within the meaning
of CLAUSE (V) of PARAGRAPH 9.5 and (ii) after such sale, transfer or other
disposition, such Subsidiary remains a Subsidiary.
9.5 MERGER AND SALE OF ASSETS. Neither the Company nor any Subsidiary
shall merge or consolidate with any other Person or sell, lease or transfer or
otherwise dispose of its respective assets to any Person or Persons, except
that:
(i) any Subsidiary may merge or consolidate with or
sell, lease, transfer or otherwise dispose of all or any of
its assets to the Company or a Wholly-Owned Subsidiary
(PROVIDED, that the Company or such Wholly-Owned Subsidiary
shall be the continuing or surviving corporation in the case
of a merger or consolidation and, in any case, the acquiring
or surviving entity is a corporation organized under the laws
of, and having its principal place of business in, a state of
the United States of America or the District of Columbia) and
upon any such sale, transfer or other disposition, such
Subsidiary may liquidate and dissolve;
(ii) the Company may merge or consolidate with any
other Person; PROVIDED, that (A) the Company shall be the
continuing or surviving Person, or (B) the successor or
acquiring Person (1) shall be a solvent Person organized under
the laws of any state of the United States of America or the
District of Columbia; (2) shall expressly assume in writing
all of the obligations and covenants of the Company under the
Transaction Documents; and (3) shall provide the Holders the
written opinion of counsel satisfactory in form and substance
to the Holders confirming that the assumption of such
obligations by such Person is duly authorized and constitutes
the legal, valid and binding obligation of such Person,
enforceable (subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and
subject, as to enforceability, to general principles of equity
regardless of whether enforcement is sought in a proceeding in
equity or at law) against such Person in accordance with its
terms, PROVIDED, that in either case, immediately after and
giving effect thereto, on a pro forma basis, based on the most
recently available financial information, the financial tests
set forth in PARAGRAPH 9.1 would be satisfied, and PROVIDED
FURTHER, that in either case, immediately after and giving
effect thereto, on a pro forma basis, the Company is able to
incur at least $1.00 of Debt;
(iii) the Company and each Subsidiary may sell or
lease, as lessor, inventory in the ordinary course of its
business;
(iv) the Company and each Subsidiary may dispose of
equipment or other assets which have become obsolete or
otherwise no longer useful or required for the conduct of
their business, provided such dispositions do not,
individually or in the aggregate, constitute a liquidation of
all or substantially all of the Company's or any Subsidiary's
assets; and
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<PAGE>
(v) in addition to the matters set forth above, the
Company and any Subsidiary may sell, transfer or otherwise
dispose of some or all of its respective properties or assets
in a transaction not otherwise permitted pursuant to this
PARAGRAPH 9.5 for fair and adequate consideration (a
"DISPOSITION"), and if such Disposition is a Disposition of
all or substantially all of the assets of a Subsidiary, such
Subsidiary may thereafter liquidate and dissolve; PROVIDED,
that immediately after and giving effect to any such
Disposition, the greater of (a) the aggregate book value of
each property and asset so sold (each an "ASSET SOLD" and
collectively, the "ASSETS SOLD"), as reflected on the most
recent consolidated balance sheet of the Consolidated Group
furnished to the Holders pursuant to PARAGRAPH 8.1 prior to
the date of Disposition of such Asset Sold, or (b) the
aggregate net proceeds (with any non-cash proceeds being
valued at its fair market value) of the Assets Sold (1) during
the immediately preceding twelve months, less the aggregate
amount of Qualifying Reinvestments, did not exceed more than
10% of Consolidated Total Assets as reflected on the most
recent consolidated balance sheet of the Consolidated Group
delivered to the Holders pursuant to PARAGRAPH 8.1 or (2)
since the Closing Date, less the aggregate amount of
Qualifying Reinvestments, did not exceed more than 25% of
Consolidated Total Assets as reflected on the most recent
consolidated balance sheet of the Consolidated Group delivered
to the Holders pursuant to PARAGRAPH 8.1;
PROVIDED, that, in each case other than the sale or lease of inventory pursuant
to SUBPARAGRAPH (III) above, no Default or Event of Default exists immediately
before or immediately after giving effect to such sale, transfer or disposition
of properties or assets or such merger or consolidation nor would any Default or
Event of Default reasonably be expected to result therefrom and in the case of a
sale, transfer or other disposition of outstanding Equity Interest of a
Subsidiary pursuant to SUBPARAGRAPH (V) above, such sale, transfer or other
disposition otherwise satisfies the requirements of PARAGRAPH 9.4.
For purposes of SUBPARAGRAPH (V) of this PARAGRAPH 6C(3), a "QUALIFYING
REINVESTMENT" is the use of the proceeds, or of funds expended in anticipation
of the proceeds, of Assets Sold not more than twelve months after the date of a
Disposition, to (a) purchase (x) assets usable in any business permitted to be
conducted by PARAGRAPH 8.9, or (y) either (1) all of the outstanding capital
stock or other equity interests of a Person which, immediately after such
purchase, is a Wholly-Owned Subsidiary of the Company and is engaged in a
business permitted to be conducted by PARAGRAPH 8.9, or (2) all or substantially
all of the assets and business of a Person which is engaged in any business
permitted to be conducted by PARAGRAPH 8.9; PROVIDED, that if the Assets Sold
are subject to a Lien securing the Notes at the time of sale or other
disposition, the assets, equipment, real property, improvements, capital stock
or other equity interests purchased with the proceeds of such Assets Sold shall
not constitute Qualifying Reinvestments unless promptly made subject to a Lien
securing the Notes with the same priority and otherwise substantially the same
terms and conditions as the Liens on the Assets Sold or (b) to make an optional
prepayment of the Notes pursuant to PARAGRAPH 7.2 or to prepay any other Debt
ranking at least pari passu with the Notes.
9.6 SUBSIDIARY DIVIDEND AND OTHER RESTRICTIONS. Except for this
Agreement, enter into, or be otherwise subject to, any contract or agreement
(including its charter) which limits the amount of, or otherwise imposes
restrictions on the payment of, dividends by, or distributions on any securities
of, any Subsidiary of the Company.
9.7 TRANSACTIONS WITH AFFILIATES. Except as set forth on SCHEDULE 9.7,
directly or indirectly, engage in any transaction or group of transactions
(including, without limitation, the purchase, sale or exchange of assets or the
payment of salary, bonuses and other compensation for services rendered) with
any Affiliate, except in the ordinary course of business pursuant to the
reasonable requirements of its business and upon commercially reasonable terms
which are no less favorable to it than those which might be obtained at arms'
length with a Person not an Affiliate.
9.8 SALES OF RECEIVABLES. The Company will not, and will not permit any
of its Subsidiaries to, discount, pledge, sell (with or without recourse), or
otherwise sell for less than face value thereof any of its accounts
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or notes receivable, EXCEPT for sales of receivables (i) without recourse which
are seriously past due and which have been substantially written off as
uncollectible or collectible only after extended delays, or (ii) made in
connection with the sale of a business but only with respect to the receivables
directly generated by the business so sold.
9.9 SUBSIDIARY DEBT. Except for Debt owing to the Company or a
Wholly-Owned Subsidiary (to the extent incurred in compliance with PARAGRAPH
9.2) and except for the Debt in existence on the Closing Date as set forth on
SCHEDULE 5.13, the Company will not permit any Subsidiary to create, incur,
assume or otherwise become or remain directly or indirectly liable with respect
to any Debt.
9.10 COMPLIANCE WITH ERISA. The Company, its Subsidiaries and any ERISA
Affiliate shall not:
(i) engage in any transaction in connection with
which the Company or any Subsidiary or any ERISA Affiliate
could be subject to either a civil penalty assessed pursuant
to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code, terminate or withdraw from any Plan (other than a
Multiemployer Plan) in a manner, or take any other action with
respect to any such Plan (including, without limitation, a
substantial cessation of business operations or an amendment
of a Plan within the meaning of Section 4041(e) of ERISA,
which could result in any liability to the PBGC, to a Plan, to
a Plan participant, to the Department of Labor or to a trustee
appointed under Section 4042(b) or (c) of ERISA), incur any
liability to the PBGC or a Plan on account of a withdrawal
from or a termination of a Plan under Section 4063 or 4064 of
ERISA, fail to make full payment when due of all amounts
which, under the provisions of any Plan or applicable law, it
is required to pay as contributions thereto, or permit to
exist any accumulated funding deficiency, whether or not
waived, with respect to any Plan (other than a Multiemployer
Plan) other than such penalties, taxes, liabilities, failures
or deficiencies which individually and in the aggregate do
not, and are not reasonably expected to have in the future, a
Material Adverse Effect;
(ii) at any time permit the termination of any
defined benefit pension plan intended to be qualified under
Section 401(a) and Section 501(a) of the Code unless such plan
is funded so that the value of all benefit liabilities upon
the termination date does not exceed the then current value of
all assets in such plan by an amount the payment of which
would have a Material Adverse Effect; or
(iii) at any time permit the aggregate complete or
partial withdrawal liability under Title IV of ERISA with
respect to Multiemployer Plans incurred by the Company or any
Subsidiary and their ERISA Affiliates, or the aggregate
liability under Title IV of ERISA incurred by the Company or
any Subsidiary and their ERISA Affiliates, to exceed an amount
the payment of which would have a Material Adverse Effect.
For the purposes of CLAUSE (III) of this PARAGRAPH 9.10, the amount of the
withdrawal liability of the Company, its Subsidiaries and their ERISA Affiliates
at any date shall be the aggregate present value of the amounts claimed to have
been incurred less any portion thereof as to which the Company reasonably
believes, after appropriate consideration of possible adjustments arising under
subtitle E of Title IV of ERISA, that neither the Company, any Subsidiary nor
any ERISA Affiliate will have any liability, PROVIDED, that the Company shall
promptly obtain written advice from independent actuarial consultants supporting
such determination. The Company will (x) once in each calendar year, beginning
in 1997, request and obtain a current statement of withdrawal liability from
each Multiemployer Plan to which the Company, its Subsidiaries or any ERISA
Affiliate is or has been obligated to contribute and (y) to the extent such
liabilities, individually or in the aggregate, are Material, transmit a copy of
such statement to each Holder, within 15 days after the Company receives the
same. As used in this PARAGRAPH 9.10, the term "ACCUMULATED FUNDING DEFICIENCY"
has the meaning specified in section 302 of ERISA and section 412 of the Code,
the terms "PRESENT VALUE" and "CURRENT VALUE" have the meanings specified in
section 3 of ERISA, the term "BENEFIT LIABILITIES" has the meaning specified in
section 4001(a)(16) of ERISA and the term "AMOUNT OF UNFUNDED LIABILITIES" has
the meaning specified in section 4001(18) of ERISA.
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10. EVENTS OF DEFAULT.
If any of the following events shall occur or conditions shall exist
for any reason whatsoever, and whether such occurrence or condition shall be
voluntary or involuntary or come about or be effected by operation of law or
otherwise, such occurrence or condition shall constitute an "EVENT OF DEFAULT":
(i) the Company defaults in the payment of any principal of
any Note or Make-Whole Amount when the same shall become due and
payable, whether by the terms thereof or otherwise as provided by the
terms of this Agreement; or
(ii) the Company defaults in the payment of interest on any
Note, whether by the terms thereof or otherwise as provided by this
Agreement or in the Payment of any Expense or any other amount due
under any Note or this Agreement and such Default shall continue for 3
Business Days after the same shall become due and payable; or
(iii) any representation or warranty made in writing by the
Company or any Subsidiary in any Transaction Document or in any writing
furnished at Closing in connection with any Transaction Document proves
to have been false or incorrect in any Material respect on the date as
of which made; or
(iv) with respect to any Debt, other than the Debt represented
by the Notes, the Company or any Subsidiary (A) defaults (whether as
primary obligor or guarantor or surety) in any payment of principal of,
premium, if any, make-whole amount or interest on any such Debt, the
outstanding principal amount of which exceeds $500,000 in the
aggregate, beyond any period of grace provided with respect thereto, or
(B) fails to perform or observe any other agreement, term or condition
contained in any agreement under which such Debt is created (or if any
other event thereunder or under any such agreement shall occur and be
continuing) and the effect of such default or other event is to cause,
or to permit the holder or holders of such Debt (or a trustee on behalf
of such holder or holders) to declare such Debt to become due or to be
required to be redeemed or repurchased prior to any stated maturity or
regularly scheduled dates of payment;
(iv) the Company or any Subsidiary fails to perform or observe
any covenant contained in PARAGRAPH 8.7, 8.10, 9.1, 9.2, or 9.3.
(v) the Company or any Subsidiary fails to perform or observe
any other agreement, term or condition of any of the Transaction
Documents applicable to it and such failure shall not be remedied
within 30 days; or
(vi) the Company voluntarily or involuntarily suspends or
discontinues operation or liquidates all or substantially all of its assets; or
(vii) the Company or any Subsidiary (A) is generally not
paying, or admits in writing that it is not able to pay, its debts as
such debts become due; or (B) files, or consents by answer or otherwise
to the filing against it of, a petition for relief or reorganization or
arrangement or any other petition in bankruptcy, for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction;
or (C) makes an assignment for the benefit of its creditors; or (D)
consents to the appointment of a custodian, receiver, trustee or other
officer with similar powers with respect to it or with respect to any
substantial part of its property; (E) is adjudicated insolvent or to be
liquidated or (F) takes corporate action for the purpose of any of the
foregoing; or
(viii) a Governmental Authority enters an order appointing,
without the consent of the Company or any such Subsidiary, a custodian,
receiver, trustee or other officer with similar powers with respect to
it or with respect to any substantial part of the its property, or
constituting an order for relief or approving a
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petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any Subsidiary without the
consent of the Company or such Subsidiary and such order remains
unstayed and in effect for 60 days; or
(ix) a final judgment or judgments for the payment of money
aggregating in excess of $500,000 is rendered against the Company or
any Subsidiary and within 60 days thereof such judgment or judgments
are not bonded or discharged or execution thereof stayed pending
appeal, or within 60 days after the expiration of any such stay, such
judgment or judgments are not discharged; or
(x) if (A) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any year or part thereof or a waiver
of such standards or extension of any amortization period is sought or
granted under section 412 of the Code, (B) a notice of intent to
terminate (other than a notice of a "standard termination" as defined
in Section 4041(b) of ERISA) any Plan shall have been or is reasonably
expected to be filed with the PBGC or the PBGC shall have instituted
proceedings under ERISA section 4042 to terminate or appoint a trustee
to administer any Plan or the PBGC shall have notified the Company or
any Subsidiary or any ERISA Affiliate that a Plan may become a subject
of any such proceedings, (C) the aggregate "amount of unfunded benefit
liabilities" (within the meaning of section 4001(a)(18) of ERISA) under
all Plans, determined in accordance with Title IV of ERISA, shall
exceed $500,000, (D) the Company, any Subsidiary or any ERISA Affiliate
shall have incurred or is reasonably expected to incur any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, (E) the
Company, any Subsidiary or any ERISA Affiliate withdraws from any
Multiemployer Plan, or (F) the Comapny or any Subsidiary establishes or
amends any employee welfare benefit plan that provides post-employment
welfare benefits in a manner that would increase the liability of the
Company or any Subsidiary thereunder; and any such event or events
described in CLAUSES (A) through (F) above, either individually or
together with any other such event or events, could reasonably be
expected to result in a Material Adverse Effect. As used in this CLAUSE
(X), the terms "EMPLOYEE BENEFIT PLAN" and "EMPLOYEE WELFARE BENEFIT
PLAN" shall have the respective meanings assigned to such terms in
Section 3 of ERISA; or
(xi) there shall have occurred a Change of Control.
11. REMEDIES ON DEFAULT, ETC.
11.1 ACCELERATION.
(a) If an Event of Default with respect to the Company
described in CLAUSES (VII) or (VIII) of PARAGRAPH 10 has occurred, all Notes
then outstanding shall automatically become immediately due and payable at 100%
of the principal amount thereof together with all interest accrued thereon and
the Make-Whole Amount, without presentment, demand, protest or notice of any
kind, all of which are expressly waived by the Company.
(b) If any other Event of Default has occurred, the Required
Holders may at their option declare each Note to be, and each Note shall
thereupon be immediately due and payable at 100% of the principal amount thereof
together with all interest accrued thereon and the Make-Whole Amount, without
presentment, demand, protest or notice of any kind, all of which are expressly
waived by the Company.
(c) if an Event of Default specified in CLAUSE (I) or (II) of
PARAGRAPH 10 has occurred, any Holder, whether or not the Required Holders have
declared each Note to be due and payable pursuant to the immediately preceding
SUBPARAGRAPH (B), may declare each Note held by such Holder to be immediately
due and payable at 100% of the principal amount thereof together with interest
accrued thereon and Make-Whole Amount, without presentment, demand, protest or
notice of any kind, all of which are expressly waived by the Company.
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11.2 OTHER REMEDIES.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under PARAGRAPH 11.1, any Holder may
proceed to protect and enforce the rights of such Holder by an action at law,
suit in equity or other appropriate proceeding, whether for the specific
performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
11.3 RESCISSION OF ACCELERATION. At any time after any Note shall have
been declared immediately due and payable pursuant to SUBPARAGRAPH (B) or (C) of
PARAGRAPH 11.1, the Required Holders may, by written notice to the Company,
rescind and annul any such declaration with respect to the Notes if (i) the
Company shall have paid all interest, principal and Make-Whole Amount payable
with respect to any Note which have become due otherwise than by reason of such
declaration, including any interest on any such overdue interest, principal and
the Make-Whole Amount, at the Default Rate, (ii) the Company shall not have paid
any amounts which have become due solely by reason of such declaration, (iii)
all Events of Default and Defaults, other than non-payment of amounts which have
become due solely by reason of such declaration, shall have been cured or waived
pursuant to PARAGRAPH 16, and (iv) no judgment or decree shall have been entered
for the payment of any amounts due pursuant to the Transaction Documents solely
by reason of such declaration. No such rescission or annulment shall extend to
or affect any subsequent Default or Event of Default or impair any right arising
therefrom.
11.4 NOTICE OF ACCELERATION OR RESCISSION. Whenever any Note shall be
declared immediately due and payable pursuant to SUBPARAGRAPH (B) or (C) of
PARAGRAPH 11.1, or any such declaration under PARAGRAPH 11.1 shall be rescinded
and annulled pursuant to PARAGRAPH 11.3, the Company shall forthwith give
written notice thereof to each other Holder at the time outstanding, PROVIDED,
the failure to give such notice shall not affect the validity of any such
declaration, rescission or annulment.
11.5 NO WAIVERS OR ELECTION OF REMEDIES. No course of dealing or
failure or delay by any Holder in exercising any right, power or remedy under a
Transaction Document or any other document executed in connection therewith
shall operate as a waiver thereof or otherwise prejudice such Holder's rights,
powers or remedies, nor shall any single or partial exercise of any such right
or remedy preclude any other right or remedy hereunder or thereunder. No right,
power or remedy conferred by this Agreement or by any Note or upon any Holder
shall be exclusive of any other right, power or remedy referred to herein or
therein or now or hereafter available at law, in equity, by statute or
otherwise. Without limiting the obligations of the Company under PARAGRAPH 14,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this PARAGRAPH 11, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
12. REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT OF NOTES.
12.1 REGISTRATION. The Notes are to be issued and are transferable in
whole or in part as registered Notes without coupons in denominations of at
least $500,000, except as may be necessary to reflect any remaining principal
amount less than $500,000 and may be exchanged for one or more Notes of any
authorized denomination and like class and like aggregate outstanding principal
amount. The Company shall keep at the principal executive office of the Company
a register in which the Company shall record the registrations of the Notes and
the names and addresses of the Holders from time to time and all transfers
thereof. The Company shall provide any Holder, promptly upon request, a complete
and correct copy of the names and addresses of the then Holders. Prior to due
presentment for registration of transfer, the Person in whose name any Note
shall be registered shall be deemed and treated as the owner and Holder thereof
for all purposes hereof, and the Company shall not be affected by any notice or
knowledge to the contrary.
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12.2 TRANSFER AND EXCHANGE. Upon surrender of any Note at the principal
executive office of the Company for registration of transfer or exchange (and in
the case of a surrender for registration of transfer, duly endorsed or
accompanied by a written instrument of transfer duly executed by the registered
Holder of such Note or his attorney duly authorized in writing and accompanied
by the address for notices of each transferee of such Note or part thereof), the
Company shall execute and deliver, within 5 Business Days, at the Company's
expense (except as provided below), one or more new Notes (as requested by the
Holder thereof) in exchange therefor, in an aggregate principal amount equal to
the unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of EXHIBIT A. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $500,000, PROVIDED that
if necessary to enable the registration of transfer by a Holder of its entire
holding of Notes, one Note may be in a denomination of less than $500,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representations set forth in
PARAGRAPH 6.
12.3 REPLACEMENT. Upon receipt of written notice from a Holder of the
loss, theft, destruction or mutilation of a Note and, in the case of any such
loss, theft or destruction, upon receipt of an indemnification agreement of such
Holder (and, in the case of a Holder which is not a Institutional Investor, with
such security as may be reasonably requested by the Company) satisfactory to the
Company, or in the case of any such mutilation upon surrender and cancellation
of such Note, the Company will make and deliver, within 5 Business Days, a new
Note, at its expense, of like class and tenor, in lieu of the lost, stolen,
destroyed or mutilated Note, and each new Note will bear interest from the date
to which interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or if no interest has been paid thereon, the date of such lost,
stolen, destroyed or mutilated Note.
13. PAYMENTS ON NOTES.
13.1 PLACE OF PAYMENT. Subject to PARAGRAPH 13.2, payment of principal,
Make-Whole Amount, if any, and interest becoming due and payable on the Notes
shall be made in Abingdon, Virginia at the principal office of the Company such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
13.2 HOME OFFICE PAYMENT. The Company agrees that, so long as a
Purchaser shall hold any Notes, all payments in respect of such Notes, required
by the terms thereof or otherwise by this Agreement, will be made in compliance
with the applicable terms thereof or hereof and by wire transfer to such
Purchaser of immediately available funds for credit to the account or accounts
as specified in SCHEDULE A for such Purchaser, or such other account or accounts
in the United States as a Purchaser may designate in writing, notwithstanding
any contrary provision in this Agreement or the Notes, with respect to the place
of payment. Each Purchaser agrees that, before disposing of any Note, it will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made and of the date to which interest has been paid. The
Company agrees to afford the benefits of this PARAGRAPH 13.2 to any Holder which
shall have made the same agreement in writing as the Purchasers have made in
this PARAGRAPH 13.2.
13.3 NO DEDUCTION OR SET-OFF. The obligation of the Company to pay
principal, interest, Make-Whole Amounts and any other amounts under the
Transaction Documents owed by the Company shall be absolute and unconditional
and shall not be affected by any circumstances, including without
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limitation any set-off, counterclaim, recoupment, defense or other right which
the Company may have against a Purchaser or any Holder for any reason
whatsoever.
14. EXPENSES.
Whether or not the transactions provided for hereby shall be
consummated, the Company will pay on demand and save each Purchaser and each
Holder harmless against liability for the payment of, all out-of-pocket expenses
arising in connection with such transactions and in connection with any
subsequent modification of, or waiver or consent under or in respect of, the
Transaction Documents, whether or not such transactions are consummated or
modification shall be effected or consent or waiver granted ("EXPENSES"),
including (i) the reasonable fees and expenses of Special Counsel and its agents
and of any other special or local counsel or other special advisers engaged and
reasonably required by the Purchasers in connection with the transactions
contemplated by this Agreement; provided the Company shall not be liable for the
fees and expenses of more than one Special Counsel in any single matter, (ii)
the costs of obtaining the private placement number from Standard & Poor's
Ratings Group for the Notes, (iii) the costs and expenses, including reasonable
attorneys' fees and the fees of any other special or financial advisers,
incurred in enforcing and defending and, during the continuance of a Default or
after the occurrence of an Event of Default, monitoring or evaluating any rights
under the Transaction Documents (including, without limitation, any costs,
expenses or fees incurred in connection with perfecting or maintaining
perfection of any Lien hereafter existing in favor of the Purchasers or any
Holder as security for the obligations of the Company under the Transaction
Documents or maintaining or protecting the collateral which is the subject of
such Lien) or in responding to any subpoena or other legal process or informal
investigation issued in connection with the Transaction Documents or the
transactions provided for hereby or thereby or by reason of a Purchaser or any
Holder having acquired any of its Notes, and (iv) costs and expenses, including
financial advisors fees, incurred in connection with any bankruptcy or
insolvency of the Company or any Subsidiary or in connection with any workout or
restructuring of any of the transactions contemplated by the Transaction
Documents. The Company will pay and will save each Purchaser and each Holder
from all claims in respect of any fees, costs or expenses, if any, of any
brokers and finders not retained by such Purchaser or Holder. The obligations of
the Company under this PARAGRAPH 14 shall survive the transfer of any of its
Notes or any interest therein by a Purchaser or any Holder and the payment of
any Notes.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained in any Transaction
Document or made in any other writing by or on behalf of the Company in
connection herewith shall survive the execution and delivery of such Transaction
Document or other writing, the transfer by a Purchaser of any Notes or portion
thereof or interest therein and the payment of any Notes and may be relied upon
by any Holder as having been true when made, regardless of any investigation
made at any time by or on behalf of the Purchasers or any Holder. All statements
contained in any certificate or other instrument delivered by or on behalf of
the Company or any Subsidiary pursuant to any Transaction Document shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, the Transaction Documents embody the entire
agreement and understanding between the Purchasers and the Company and supersede
all prior agreements and understandings relating to the subject matter hereof
and thereof.
16. AMENDMENT AND WAIVER.
16.1 REQUIREMENTS. This Agreement and the Notes may be amended, and the
observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that (i) no amendment or waiver of any
of the provisions of PARAGRAPHS 1, 2, 3, 4, 5, 6 or 20 hereof, or any defined
term (as it is used therein), will be effective as to any Holder unless
consented to by such Holder in writing and (ii) no such amendment or waiver may,
without the written consent of each Holder affected thereby, (A) subject to the
provisions of PARAGRAPH 11 relating to acceleration or rescission, change the
amount or time of any prepayment or payment of principal of, or reduce the rate
or change the time of payment or method of
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computation of interest or of the Make-Whole Amount on, the Notes, (B) change
the percentage of the principal amount of the Notes the Holders of which are
required to consent to any such amendment or waiver or (C) amend any of
PARAGRAPHS 7, 10(I) AND (II), 11, 16 or 19.
16.2 SOLICITATION OF HOLDERS OF NOTES.
16.2.1 SOLICITATION. The Company will provide each Holder (irrespective
of the amount of Notes then owned by it) with sufficient information,
sufficiently far in advance of the date a decision is required, to enable such
Holder to make an informed and considered decision with respect to any proposed
amendment, waiver or consent in respect of any of the provisions hereof or of
the Notes. The Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of this
PARAGRAPH 16 to each Holder promptly following the date on which it is executed
and delivered by, or receives the consent or approval of, the Required Holders.
16.2.2 PAYMENT. The Company will not directly or indirectly pay or
cause to be paid any remuneration, whether by way of supplemental or additional
interest, fee or otherwise, or grant any security, to any holder of Notes as
consideration for or as an inducement to the entering into by any Holder of any
waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted, on the
same terms, ratably to each Holder even if such Holder did not consent to such
waiver or amendment.
16.3 BINDING EFFECT, ETC.
Any amendment or waiver consented to as provided in this PARAGRAPH
16 applies equally to all Holders and is binding upon them and upon each future
Holder and upon the Company without regard to whether such Note has been marked
to indicate such amendment or waiver. No such amendment or waiver will extend to
or affect any obligation, covenant, agreement, Default or Event of Default not
expressly amended or waived or impair any right consequent thereon. No course of
dealing between the Company and any Holder nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any such Holder.
17. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or its nominee, to it at the
address specified for it for such communications in SCHEDULE
A, or at such other address as such Purchaser shall have
specified to the Company in writing,
(ii) if to any other Holder, to such Holder at such
address or fax number as is specified for such Holder in the
Note register referenced in PARAGRAPH 12, or
(iii) if to the Company, to the Company at its
address set forth at the beginning hereof to the attention of
Michael L. Edwards, Chairman of the Board and President, or at
such other address as the Company shall have specified to each
Holder in writing.
Notices given in accordance with this PARAGRAPH 17 will be deemed given upon the
earlier of actual receipt or the second Business Day after dispatch.
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18. REPRODUCTION OF DOCUMENTS.
Any Transaction Document and any documents relating thereto,
including, without limitation, (i) consents, waivers and modifications that may
hereafter be executed, (ii) documents received by the Purchasers at the Closing
(except the Notes), and (iii) financial statements, certificates and other
information previously or hereafter furnished to the Purchasers, may be
reproduced by any Purchaser by any photographic, photostatic, microfilm,
microcard, miniature photographic or other similar process and the Purchasers
may destroy any original document so reproduced. The Company agrees and
stipulates that, to the extent permitted by applicable law, any such
reproduction shall be admissible in evidence as the original itself in any
judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by such Purchaser in the
regular course of business) and any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence. This
PARAGRAPH 18 shall not prohibit the Company or any Holder from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
19. CONFIDENTIAL INFORMATION.
For the purposes of this PARAGRAPH 19, "CONFIDENTIAL INFORMATION" means
information delivered to a Purchaser by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement, that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by the
Purchaser as being confidential information of the Company or any of its
Subsidiaries, PROVIDED that such term does not include information that (i) was
publicly known or otherwise known to the Purchaser prior to the time of such
disclosure, (ii) subsequently becomes publicly known through no act or omission
by the Purchaser, (iii) otherwise becomes known to the Purchaser other than
through disclosure by the Company or any Subsidiary or (iv) constitutes
financial statements delivered to the Purchaser under PARAGRAPH 8.1 that are
otherwise publicly available. Each Purchaser will maintain the confidentiality
of such Confidential Information in accordance with the procedures adopted by it
in good faith to protect confidential information of third parties delivered to
it. Notwithstanding the foregoing, a Purchaser may deliver copies of any
Confidential Information to such Purchaser's and its Subsidiaries' directors,
officers, employees, and to its agents and professional consultants who in the
ordinary course of performance of their duties to or for the benefit of such
Purchaser have a need to have access to such information, any other Purchaser,
any Person to whom such Purchaser offers to sell any of its Notes or any part
thereof or to whom such Purchaser sells or offers to sell a participation in all
or any part of its Notes (provided such Person has entered into a
confidentiality agreement with respect to such information substantially on the
terms of the first two sentences of this PARAGRAPH 19), any federal or state
regulatory authority having jurisdiction over such Purchaser, any Person from
which a Purchaser offers to purchase any security of the Company or any
Subsidiary (provided such Person has entered into a confidentiality agreement
with respect to such information substantially on the terms of the first two
sentences of this PARAGRAPH 19), the NAIC or any regulatory agency which
generally requires access to information about a Purchaser's investment
portfolio or any similar organization, or any nationally recognized rating
agency that requires access to information about a Purchaser's investment
portfolio or any other Person to which such delivery or disclosure may be
necessary or appropriate (a) in compliance with any law, rule, regulation or
order applicable to such Purchaser, (b) in response to any subpoena or other
legal process, (c) in connection with any litigation to which such Purchaser is
a party relating to the transactions contemplated by this Agreement, or (d) if
an Event of Default has occurred and is continuing, to the extent that such
Purchaser determines disclosure is necessary or appropriate in the enforcement
of or for the protection of its rights and remedies under the Transaction
Documents. Each Holder, by its acceptance thereof, will be deemed to have agreed
to be bound by and to be entitled to the benefits of this PARAGRAPH 19 as though
it were a party to this Agreement.
20. SUBSTITUTION OF PURCHASERSUBSTITUTION OF PURCHASER.
Each Purchaser has the right to substitute any one of its Affiliates as
the purchaser of the Notes that it has agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by such Purchaser and its
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in PARAGRAPH 6. In the event
that such Affiliate is so substituted as a Purchaser hereunder and such
Affiliate thereafter transfers to the
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original Purchaser all of the Notes then held by such Affiliate, upon receipt by
the Company of notice of such transfer, such Purchaser shall have all the rights
of a Purchaser.
21. MISCELLANEOUS.
21.1 SUCCESSORS AND ASSIGNS. All covenants and other agreements
contained in this Agreement by or on behalf of any of the parties hereto bind
and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent Holder) whether so expressed or not;
PROVIDED, that except as expressly permitted by this Agreement, the Company may
not delegate the performance of any of its obligations hereunder.
21.2 PAYMENTS DUE ON NON-BUSINESS DAYS. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
Make-Whole Amount or interest on any Note that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without including
the additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.
21.3 SEVERABILITY. Any provision of this Agreement that is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
21.4 CONSTRUCTION. Each covenant contained herein shall be construed
(absent express provision to the contrary) as being independent of each other
covenant contained herein, so that compliance with any one covenant shall not
(absent such an express contrary provision) be deemed to excuse compliance with
any other covenant. Where any provision herein refers to action to be taken by
any Person, or which such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person.
21.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.
21.6 DESCRIPTIVE HEADINGS. The descriptive headings of the several
paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
21.7 GOVERNING LAW. THIS AGREEMENT IS TO BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE COMMONWEALTH OF MASSACHUSETTS (WITHOUT GIVING EFFECT TO ANY LAWS OR RULES
RELATING TO CONFLICTS OF LAWS THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF
ANY JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS).
21.8 CONSENT TO JURISDICTION AND SERVICE AND WAIVER OF TRIAL BY JURY.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY HEREBY ABSOLUTELY AND
IRREVOCABLY CONSENTS AND SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF
THE COMMONWEALTH OF MASSACHUSETTS AND OF ANY FEDERAL COURT LOCATED IN SAID
JURISDICTION IN CONNECTION WITH ANY ACTIONS OR PROCEEDINGS BROUGHT AGAINST IT BY
ANY HOLDER ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTION DOCUMENTS AND
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. THE COMPANY HEREBY
WAIVES AND AGREES NOT TO ASSERT IN ANY SUCH ACTION OR PROCEEDING, IN
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EACH CASE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY CLAIM THAT (A)
IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF ANY SUCH COURT, (B) IT IS
IMMUNE FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT
PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION, EXECUTION OR OTHERWISE) WITH
RESPECT TO IT OR ITS PROPERTY, (C) ANY SUCH SUIT, ACTION OR PROCEEDING IS
BROUGHT IN AN INCONVENIENT FORUM, OR (D) SUCH TRANSACTION DOCUMENT MAY NOT BE
ENFORCED IN OR BY ANY SUCH COURT. IN ANY SUCH ACTION OR PROCEEDING, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE COMPANY HEREBY ABSOLUTELY AND
IRREVOCABLY WAIVES TRIAL BY JURY AND PERSONAL IN HAND SERVICE OF ANY SUMMONS,
COMPLAINT, DECLARATION OR OTHER PROCESS AND HEREBY ABSOLUTELY AND IRREVOCABLY
AGREES THAT THE SERVICE MAY BE MADE BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, DIRECTED TO IT AT ITS ADDRESS SET FORTH IN OR FURNISHED
PURSUANT TO THE PROVISIONS OF THIS AGREEMENT, OR BY ANY OTHER MANNER PROVIDED BY
LAW. ANYTHING HEREINBEFORE TO THE CONTRARY NOTWITHSTANDING, ANY HOLDER MAY SUE
THE COMPANY IN ANY OTHER APPROPRIATE JURISDICTION AND ANY PARTY MAY SUE ANY
OTHER PARTY ON A JUDGMENT RENDERED BY ANY COURT PURSUANT TO THE PROVISIONS OF
THE FIRST SENTENCE OF THIS PARAGRAPH 21.8 IN THE COURTS OF ANY COUNTRY, STATE OF
THE UNITED STATES OR PLACE WHERE SUCH OTHER PARTY OR ANY OF ITS PROPERTY OR
ASSETS MAY BE FOUND OR IN ANY OTHER APPROPRIATE JURISDICTION.
21.9 TERMINATION. This Agreement and the rights of the Holders and the
obligations of the Company hereunder shall not terminate until each of the
Notes, including all principal, interest, including interest on overdue interest
and Make-Whole Amount has been indefeasibly paid in full and all Expenses and
all other amounts owed to any Purchaser or any Holder pursuant to the terms of
any Transaction Document have been indefeasibly paid in full.
21.10 COMPLIANCE BY SUBSIDIARIES. The Company, as the holder of the
Equity Interests of its Wholly-Owned Subsidiaries, shall cause such meetings to
be held, votes to be cast, resolutions to be passed, by-laws to be made and
confirmed, documents to be executed and all other things and acts to be done to
ensure that, at all times, the provisions of this Agreement relating to its
Subsidiaries are complied with. The Company, as the holder of the Equity
Interests of its Subsidiaries (other than its Wholly-Owned Subsidiaries) shall,
to the extent it may do so, cause such meetings to be held, and shall vote its
Equity Investors in favor of such resolutions to be passed, by-laws to be made
and confirmed, documents to be executed and all other things and acts to be done
to cause the provisions of this Agreement relating to such Subsidiaries to be
complied with.
[SIGNATURES FOLLOW ON PAGE 35]
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If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to the
Company, whereupon this letter shall become a binding agreement, executed under
seal between you and the Company.
Very truly yours,
VIRGINIA GAS COMPANY
By:
By:____________________________
Name:
Title:
The foregoing Agreement is hereby accepted as of the date first above written.
JOHN HANCOCK MUTUAL LIFE
INSURANCE COMPANY
By:______________________________________
Name:
Title:
JOHN HANCOCK VARIABLE LIFE
INSURANCE COMPANY
By:______________________________________
Name:
Title:
MELLON BANK, N.A., SOLELY IN ITS CAPACITY AS TRUSTEE FOR THE LONG-TERM
INVESTMENT TRUST, (as directed by John Hancock Mutual Life Insurance Company),
and not in its individual capacity
By:______________________________________
Name:
Title:
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