UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended June 30, 2009
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 0-16704
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
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(Exact name of registrant as specified in its charter)
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Rhode Island 05-0344399
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(State or other jurisdiction of I.R.S. Employer Identification No.
incorporation or organization)
75 Hammond Street, Worcester, Massachusetts 01610
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 755-4000
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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 ___
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Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer X Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
YES ___ NO X
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of August 13, 2009, the registrant has 4,807,702 shares of common stock, par
value $.50 per share, outstanding.
PROVIDENCE AND WORCESTER RAILROAD COMPANY
Index to Quarterly Report on Form 10-Q
Part I - Financial Information
Item 1 - Financial Statements:
Condensed Balance Sheets - June 30, 2009
and December 31, 2008 (Unaudited).................................3
Condensed Statements of Operations -
Three and Six Months Ended June 30, 2009
and 2008 (Unaudited) .............................................4
Condensed Statements of Cash Flows -
Six Months Ended June 30, 2009 and 2008
(Unaudited) ......................................................5
Notes to Condensed Financial
Statements (Unaudited) ........................................6-10
Item 2 -Management's Discussion and Analysis of Financial
Condition and Results of Operations......................11-17
Item 3 -Quantitative and Qualitative Disclosures
About Market Risk..........................................17
Item 4T -Controls and Procedures..................................18
Part II - Other Information:
Item 4 -Submission of Matters to a Vote of Security Holders.......19
Item 5 -Reports on Form 8-K.......................................19
Item 6 -Exhibits..................................................19
Signatures.............................................................20
2
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
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PROVIDENCE AND WORCESTER RAILROAD COMPANY
CONDENSED BALANCE SHEETS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
ASSETS
JUNE 30,DECEMBER 31,
2009 2008
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Current Assets:
Cash and cash equivalents ........................... $ 1,437 $ 876
Accounts receivable, net of allowance for
doubtful accounts of $130 in 2009 and 2008 ......... 1,669 3,526
Materials and supplies .............................. 1,032 1,103
Prepaid expenses and other current assets ........... 22 442
Deferred income taxes ............................... 348 318
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Total Current Assets ............................... 4,508 6,265
Property and Equipment, net .......................... 80,845 80,787
Land Held for Development ............................ 11,958 11,958
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Total Assets ......................................... $97,311 $99,010
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable .................................... $ 2,389 $ 2,418
Accrued expenses .................................... 1,629 1,460
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Total Current Liabilities .......................... 4,018 3,878
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Deferred Income Taxes ................................ 11,718 12,123
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Deferred Grant Income ................................ 8,108 8,212
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Commitments and Contingent Liabilities................
Shareholders' Equity:
Preferred stock, 10% noncumulative, $50 par
value; authorized, issued and outstanding
640 shares in 2009 and 2008 ........................ 32 32
Common stock, $.50 par value; authorized
15,000,000 shares; issued and outstanding
4,807,702 shares in 2009 and 4,801,340
shares in 2008 ..................................... 2,404 2,401
Additional paid-in capital .......................... 36,821 36,705
Retained earnings ................................... 34,210 35,659
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Total Shareholders' Equity ......................... 73,467 74,797
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Total Liabilities and Shareholders' Equity ........... $97,311 $99,010
======= =======
The accompanying notes are an integral part of the financial statements.
3
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2009 2008 2009 2008
------- ------- ------- -------
Revenues:
Operating Revenues .............. $ 6,111 $ 8,094 $11,052 $14,090
Other Income .................... 1,189 188 1,334 307
------- ------- ------- -------
Total Revenues ................ 7,300 8,282 12,386 14,397
------- ------- ------- -------
Operating Expenses:
Maintenance of way and
structures ..................... 909 1,150 2,166 2,524
Maintenance of equipment ........ 817 888 1,870 1,730
Transportation .................. 2,099 2,772 4,069 5,023
General and administrative ...... 1,183 1,213 2,389 2,540
Depreciation .................... 772 719 1,507 1,438
Taxes, other than income
taxes .......................... 609 595 1,196 1,211
Car hire, net ................... 153 229 304 431
Employee retirement plans ....... 61 58 122 116
Track usage fees ................ 130 178 258 276
------- ------- ------- -------
Total Operating Expenses ....... 6,733 7,802 13,881 15,289
------- ------- ------- -------
Income (Loss) before Income
Taxes ........................... 567 480 (1,495) (892)
Provision for Income Taxes
(Benefit) ....................... 245 160 (435) (290)
------- ------- ------- -------
Net Income (Loss) ................ 322 320 (1,060) (602)
Preferred Stock Dividends ........ -- -- 3 3
------- ------- ------- -------
Net Income (Loss) Available to
Common Shareholders ............. $ 322 $ 320 $(1,063) $ (605)
======= ======= ======= =======
Basic and Diluted Income
(Loss) Per Common Share ......... $ .07 $ .07 $ (.22) $ (.13)
======= ======= ======= =======
Weighted-Average Common Shares
Outstanding:
For basic ....................... 4,805,754 4,794,964 4,804,389 4,782,213
For diluted ..................... 4,875,021 4,875,813 4,804,389 4,782,213
========= ========= ========= =========
The accompanying notes are an integral part of the financial statements.
4
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
Six Months Ended June 30,
2009 2008
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Cash flows from operating activities:
Net loss ............................................ $(1,060) $ (602)
Adjustments to reconcile net loss to net
cash flows from (used in) operating
activities:
Depreciation ...................................... 1,507 1,438
Amortization of deferred grant income ............. (128) (126)
Gains from sale and disposal of property,
equipment and easements ......................... (66) (26)
Deferred income taxes ............................. (435) (290)
Share-based compensation .......................... 81 103
Increase (decrease) in cash from:
Accounts receivable ............................. 1,881 (915)
Materials and supplies .......................... 71 (161)
Prepaid expenses and other ...................... 420 57
Accounts payable and accrued expenses ........... 181 (333)
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Net cash flows from (used in) operating
activities ......................................... 2,452 (855)
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Cash flows from Investing Activities:
Purchase of property and equipment .................. (1,606) (1,746)
Proceeds from sale of property, equipment
and easements ...................................... 66 26
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Net cash flows used in investing activities ......... (1,540) (1,720)
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Cash Flows from Financing Activities:
Payments on line of credit .......................... -- (900)
Dividends paid ...................................... (389) (387)
Issuance of common shares to GATX
Corporation ........................................ -- 5,509
Issuance of common shares for stock options
exercised and employee stock purchases ............. 38 36
Proceeds from deferred grant income ................. -- 182
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Net cash flows (used in) from financing
activities ......................................... (351) 4,440
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Increase in Cash and Cash Equivalents ................ 561 1,865
Cash and Cash Equivalents, Beginning of
Period .............................................. 876 181
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Cash and Cash Equivalents, End of Period ............. $ 1,437 $ 2,046
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The accompanying notes are an integral part of the financial statements.
5
PROVIDENCE AND WORCESTER RAILROAD COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS (Unaudited)
(Dollars in Thousands Except Per Share Amounts)
1. In the opinion of management, the accompanying condensed interim financial
statements of the Providence and Worcester Railroad Company (the "Company")
contain all adjustments (consisting solely of normal recurring adjustments)
necessary to present fairly the financial position as of June 30, 2009 and
the results of operations and cash flows for the Interim periods ended June
30, 2009 and 2008. Results for interim periods may not be necessarily
indicative of the results to be expected for the full year. These interim
financial statements should be read in conjunction with the Company's
Annual Report on Form 10-K for the year ended December 31, 2008 filed with
the Securities and Exchange Commission.
In connection with preparation of the financial Statements and in
accordance with recently issued Statement of Financial Accounting Standards
No. 165 "Subsequent Events" ("SFAS 165"), the Company evaluated subsequent
events after the balance sheet date of June 30, 2009 through August 13,
2009. Management is not aware of any significant subsequent events that
would have a material impact on the financial statements.
2. Recent Accounting Pronouncements:
In December 2007 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No 160,
"Noncontrolling Interests in Consolidated Financial Statements - an
amendment of ARB No. 51", ("SFAS No. 160"). SFAS No. 160 was issued to
improve the relevance, comparability, and transparency of the financial
information that a reporting entity provides in its consolidated financial
statements by establishing accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. The provisions of SFAS No. 160 shall be applied prospectively
as of the beginning of the fiscal year in which it is initially applied,
except for the presentation and disclosure requirements, which shall be
applied retrospectively for all periods presented. SFAS No. 160 is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company adopted SFAS No. 160
on January 1, 2009. The adoption of SFAS No. 160 did not have any impact on
its Financial Statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS No. 141(R)"). SFAS No. 141R establishes principles and
requirements for how the acquirer in a business combination should
recognize and measure in its financial statements the identifiable assets
acquired, the liabilities assumed and any noncontrolling interest in the
acquiree, recognize and measure the goodwill acquired in the business
combination or a gain from a bargin purchase and determine what information
to disclose to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. The provisions of
SFAS No. 141(R) shall be applied prospectively to business combinations
with acquisition dates on or after the beginning of the first annual
reporting period in which it is initially applied. SFAS No. 141(R) is
effective for fiscal years and interim periods within those fiscal years,
beginning on or after December 15, 2008. The Company adopted SFAS No.
141(R) on January 1, 2009. The adoption of SFAS No. 141(R) did not have any
impact on its Financial Statements.
In April 2008, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets
Acquired and Liabilities Assumed in a Business Combination That Arise form
Contingencies" which amends and clarifies SFAS No. 141(R), "Business
Combinations", to address application issues raised by preparers, auditors,
and members of the legal profession on initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. FSP FAS
141(R)-1 is effective for assets or liabilities arising from contingencies
6
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company adopted FSP FAS 141(R)-1 on January 1, 2009.
The adoption of FSP FAS 141(R)-1 did not have any impact on its Financial
Statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement
("SFAS No. 157")." SFAS No. 157 defines fair value, establishes a framework
for measuring fair value in accordance with GAAP and expands disclosures
about fair value measurements. On February 12, 2008, the FASB issued FSP
FAS No. 157-2, "Effective Date of FASB Statement No. 157" that partially
deferred the effective date of SFAS No. 157 for one year for non-financial
assets and non- financial liabilities that are recognized or disclosed at
fair value in the financial statements on a non-recurring basis. SFAS No.
157 does not require any new fair value measurements, rather, it applies
under other accounting pronouncements that require or permit fair value
measurements. The provisions of SFAS No. 157 are to be applied
prospectively as of the beginning of the fiscal year in which it is
initially applied, with any transition adjustment recognized as a
cumulative-effect adjustment to the opening balance of retained earnings.
Notwithstanding the effective date deferral discussed above, SFAS No. 157-2
was adopted on January 1, 2008. The Company adopted the provision of FSP
SFAS No. 157-2 regarding non-financial assets and non-financial liabilities
on January 1, 2009 and it did not have a material impact on its Financial
Statements.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB
Interpretation No. 46(R)." SFAS No. 167, among other things, requires a
qualitative rather than a quantitative analysis to determine the primary
beneficiary of a variable interest entity ("VIE"); requires continuous
assessments of whether an enterprise is the primary beneficiary of a VIE;
enhances disclosures about an enterprise's involvement with a VIE; and
amends certain guidance for determining whether an entity is a VIE. SFAS
No. 167 will be effective for the Company on January 1, 2010, and will be
applied prospectively. Under SFAS No. 167, a VIE must be consolidated if
the enterprise has both (a) the power to direct the activities of the VIE
that most significantly impact the entity's economic performance, and (b)
the obligation to absorb losses or the right to receive benefits from the
VIE that could potentially be significant to the VIE. The Company is
evaluating the impact that the adoption of SFAS No. 167 will have on our
consolidated financial statements. The Company does not expect the adoption
of SFAS No. 167 to have a material impact on the financial statements.
In June 2009, the FASB issued SFAS 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles
- a replacement of FASB Statement No. 162" (SFAS 168). SFAS 168 provides
for the FASB Accounting Standards Codification (the "Codification") to
become the single official source of authoritative, nongovernmental U.S.
generally accepted accounting principles (GAAP). The Codification did not
change GAAP but reorganizes the literature. SFAS 168 is effective for
interim and annual periods ending after September 15, 2009.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." SFAS No.
165 establishes authoritative accounting and disclosure guidance for
recognized and non-recognized subsequent events that occur after the
balance sheet date but before financial statements are issued. SFAS No. 165
also requires disclosure of the date through which an entity has evaluated
subsequent events and the basis for that date. SFAS No. 165 was effective
for the Company beginning with the Quarterly Report on Form 10-Q for the
three and six months ended June 30, 2009, and will be applied
prospectively. The adoption of SFAS No. 165 had no impact on the financial
statements.
In April 2009 the FASB issued Staff Position No. FAS 107-1, "Interim
Disclosures about Fair Value of Financial Instruments" ("FSP 107-1"). FSP
107-1 expands the fair value disclosures required for all financial
instruments within the scope of Statement of Financial Accounting Standards
("SFAS") No. 107 to include interim periods. The Company adopted the
provisions of FSP 107-1 for the quarter ended June 30, 2009. The adoption
of FSP 107-1 had no impact on the Company's financial statements.
7
3. Changes in Shareholders' Equity:
Total
Additional Share
Preferred Common Paid-in Retained holders'
Stock Stock Capital Earnings Equity
------- ------- ------- ------- -------
Balance December 31,2008. $ 32 $ 2,401 $36,705 $35,659 $74,797
Issuance of 6,362
common shares for
stock options
exercised, employee
stock purchases and
employee stock
awards ................. 3 66 69
Share-based
compensation -
options granted ........ 50 50
Dividends:
Preferred stock,
$5.00 per share ........ (3) (3)
Common stock, $.08
per share .............. (386) (386)
Net loss for the
period ................. (1,060) (1,060)
----- ------- ------- ------- -------
Balance June 30, 2009 ... $ 32 $ 2,404 $36,821 $34,210 $73,467
===== ======= ======= ======= =======
4. Revolving Line of Credit:
In June 2009 the Company obtained a revolving line of credit facility in
the amount of $5,000 from a commercial bank expiring in June 2011.
Borrowings under this line of credit are unsecured, due on demand and bear
interest at either the bank's prime rate or one and three quarters per cent
over the thirty, sixty or ninety day London Interbank Offered Rate
("LIBOR") with a LIBOR floor of one and one quarter percent. The Company
pays no commitment fee on this line of credit and has no compensating
balance requirements. It is subject to financial and non-financial
covenants including maintenance of a minimum net worth and restrictions as
to the incurrence of additional indebtedness, as well as the sale or
encumbrance of its assets. No borrowings have been made under this line of
credit through June 30, 2009. This line of credit facility replaces another
facility, in the same amount, from another commercial bank which expired on
May 31, 2009.
5. Other Income:
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ------------------
2009 2008 2009 2008
------ ------ ------ ------
Gains from sale and
disposal of property,
equipment and
easements, net ...... $ 55 $ 26 $ 66 $ 26
Rentals .............. 184 156 317 260
Interest ............. -- 6 1 21
Other ................ 950 -- 950 --
------ ------ ------ ------
$1,189 $ 188 $1,334 $ 307
====== ====== ====== ======
In June 2009 the Company received $950,000 for the settlement of certain
legal proceedings and the granting of a permanent easement.
8
6. Income (Loss) per Common Share:
Basic income (loss) per common share is computed using the weighted-average
number of common shares outstanding during each period. Diluted income
(loss) per common share reflects the effect of the Company's outstanding
convertible preferred stock and stock options except where such items would
be antidilutive.
A reconciliation of weighted-average shares used for the basic computation
and that used for the diluted computation is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Weighted-average shares
for basic ............ 4,805,754 4,794,964 4,804,389 4,782,213
Dilutive effect of
convertible preferred
stock and stock options 69,267 80,949 -- --
--------- --------- --------- ---------
Weighted-average shares
for diluted .......... 4,875,021 4,875,813 4,804,389 4,782,213
========= ========= ========= =========
Options to purchase 35,621 shares of common stock were outstanding for the
three-month period ended June 30, 2009, but were not included in the
computation of diluted income per share because their effect would be
antidilutive.
Preferred stock convertible into 64,000 shares of common stock and options
to purchase 51,960 and 48,833 shares of common stock were outstanding for
the six-month periods ended June 30, 2009 and 2008, respectively. These
common stock equivalents were not included in the computation of the
diluted loss per share for these periods because their effect would be
antidilutive.
7. Commitments and Contingent Liabilities:
The Company is a defendant in certain lawsuits relating to casualty losses,
many of which are covered by insurance subject to a deductible. The Company
believes that adequate provision has been made in the financial statements
for any expected liabilities which may result from disposition of such
lawsuits.
On January 29, 2002, the Company received a "Notice of Potential Liability"
from the United States Environmental Protection Agency ("EPA") regarding an
existing Superfund Site that includes the J.M. Mills Landfill in
Cumberland, Rhode Island. EPA sends these "Notice" letters to potentially
responsible parties ("PRPs") under the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"). EPA identified the
Company as a PRP based on its status as an owner and/or operator because
its railroad property traverses the Site. Via these Notice letters, EPA
makes a demand for payment of past costs (identified in the letter as $762)
and future costs associated with the response actions taken to address the
contamination at the Site, and requests PRPs to indicate their willingness
to participate and resolve their potential liability at the Site. The
Company has responded to EPA by stating that it does not believe it has any
liability for this Site, but that it is interested in cooperating with EPA
to address issues concerning liability at the Site. At this point, two
other parties have already committed via a consent order with EPA to pay
for the Remedial Investigation/Feasibility Study ("RI/FS") phase of the
clean- up at the Site, which will take approximately two or more years to
complete. After that, EPA will likely seek to negotiate the cost of the
Remedial Design and implementation of the remedy at the Site with the PRPs
it has identified via these Notice Letters (which presently includes over
9
sixty parties, and is likely to increase after EPA completes its
investigation of the identity of PRPs). On December 15, 2003, the EPA
issued a second "Notice of Potential Liability" letter to the Company
regarding the Site. EPA again identified the Company as a PRP, this time
because EPA "believes that [the Company] accepted hazardous substance for
transport to disposal or treatment facilities and selected the site for
disposal." The Company responded again to EPA stating that it is interested
in cooperating with EPA but that it does not believe it has engaged in any
activities that caused contamination at the Site. The Company believes that
none of its activities caused contamination at the Site, and will contest
this claim by EPA and therefore no liability has been accrued for this
matter.
In connection with the EPA claim described above, the two parties who have
committed to conduct the RI/FS at the Site filed a complaint in the U.S.
District Court of Rhode Island against the Company, in an action entitled
CCL Custom Manufacturing, Inc. v. Arkwright Incorporated, et al
(consolidated with Unilever Bestfoods v. American Steel & Aluminum Corp. et
al), C.A. No. 01-496/L, on December 18, 2002. The Company was one of about
sixty parties named by Plaintiffs, in this suit, to recover response costs
incurred in investigating and responding to the releases of hazardous
substances at the Site. Plaintiffs alleged that the Company is liable under
42 U.S.C. section 961(a)(3) of CERCLA as an "arranger" or "generator" of
waste that ended up at the Site. The Company entered into a Generator
Cooperation Agreement with other defendants to allocate costs in responding
to this suit, and to share technical costs and information in evaluating
the Plaintiffs' claims. Although the Company does not believe it generated
any waste that ended up at this Site, or that its activities caused
contamination at the Site, the Company paid $45 to settle this suit in
March 2006.
8. Dividends:
On July 29, 2009, the Company declared a dividend of $.04 per share on its
outstanding Common Stock payable August 24, 2009 to shareholders of record
August 10, 2009.
10
PROVIDENCE AND WORCESTER RAILROAD COMPANY
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ----------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
The statements contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MDA") which are not historical are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements represent the Company's present
expectations or beliefs concerning future events. The Company cautions, however,
that actual results could differ materially from those indicated in MDA.
Critical Accounting Policies
- ----------------------------
The Securities and Exchange Commission ("SEC") defines critical accounting
policies as those that require application of management's most difficult,
subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in
subsequent periods.
The Company's significant accounting policies are described in Note 1 of the
Notes to Financial Statements in its Annual Report on Form 10-K. Not all of
these significant accounting policies require management to make difficult,
subjective or complex judgments or estimates. Management believes that the
Company's policy for the evaluation of long-lived asset impairment is a critical
accounting policy.
The Company evaluates long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. When factors indicate that assets should be evaluated for
possible impairment, the Company uses an estimate of the related undiscounted
future cash flows over the remaining lives of the assets in measuring whether
the carrying amounts of the assets are recoverable.
Forward-Looking Statements
- --------------------------
This Quarterly Report on Form 10-Q contains forward-looking statements,
including, without limitations, statements concerning the conditions in our
industry and our operations, economic performance and financial condition,
including, in particular, statements relating to our business and strategy. The
words "may," "might," "should," "estimate," "project," "plan," "anticipate,"
"expect," "intend," "outlook," "believe," and other similar expressions are
intended to identify forward-looking statements and information although not all
forward-looking statements include these identifying words. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of their dates. These forward-looking statements are based on estimates
and assumptions by our management that, although we believe to be reasonable,
are inherently uncertain and subject to a number of risks and uncertainties.
In particular, our business might be affected by uncertainties affecting he
railroad and transportation industry generally as well as the following, among
other factors:
* general economic, financial and political conditions, including
downturns affecting the railroad industry and credit markets;
* our ability to comply with financial and non-financial covenants
contained in our revolving line of credit;
* limitations and restrictions on the operation of our business
contained in the documents governing our indebtedness;
11
* increases in transportation costs, including fuel prices, which in
some instances may not be passed on to customers;
* competitive pressures, including changes in competitors' pricing;
* our ability to generate cash flows to invest in the operation of our
business;
* our dependence upon our key executives and other key employees;
Recent Accounting Pronouncements
- --------------------------------
In December 2007 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No 160, "Noncontrolling
Interests in Consolidated Financial Statements - an amendment of ARB No. 51",
("SFAS No. 160"). SFAS No. 160 was issued to improve the relevance,
comparability, and transparency of the financial information that a reporting
entity provides in its consolidated financial statements by establishing
accounting and reporting standards for the noncontrolling interest in a
subsidiary and for the deconsolidation of a subsidiary. The provisions of SFAS
No. 160 shall be applied prospectively as of the beginning of the fiscal year in
which it is initially applied, except for the presentation and disclosure
requirements, which shall be applied retrospectively for all periods presented.
SFAS No. 160 is effective for fiscal years and interim periods within those
fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS
No. 160 on January 1, 2009. The adoption of SFAS No. 160 did not have any impact
on its Financial Statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), "Business
Combinations" ("SFAS No. 141(R)"). SFAS No. 141R establishes principles and
requirements for how the acquirer in a business combination should recognize and
measure in its financial statements the identifiable assets acquired, the
liabilities assumed and any noncontrolling interest in the acquiree, recognize
and measure the goodwill acquired in the business combination or a gain from a
bargin purchase and determine what information to disclose to enable users of
the financial statements to evaluate the nature and financial effects of the
business combination. The provisions of SFAS No. 141(R) shall be applied
prospectively to business combinations with acquisition dates on or after the
beginning of the first annual reporting period in which it is initially applied.
SFAS No. 141(R) is effective for fiscal years and interim periods within those
fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS
No. 141(R) on January 1, 2009. The adoption of SFAS No. 141(R) did not have any
impact on its Financial Statements.
In April 2008, the FASB issued FSP FAS 141(R)-1, "Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise form Contingencies"
which amends and clarifies SFAS No. 141(R), "Business Combinations", to address
application issues raised by preparers, auditors, and members of the legal
profession on initial recognition and measurement, subsequent measurement and
accounting, and disclosure of assets and liabilities arising from contingencies
in a business combination. FSP FAS 141(R)-1 is effective for assets or
liabilities arising from contingencies in business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The Company adopted FSP FAS
141(R)-1 on January 1, 2009. The adoption of FSP FAS 141(R)-1 did not have any
impact on its Financial Statements.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement ("SFAS
No. 157")." SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in accordance with GAAP and expands disclosures about fair
value measurements. On February 12, 2008, the FASB issued FSP FAS No. 157-2,
"Effective Date of FASB Statement No. 157" that partially deferred the effective
date of SFAS No. 157 for one year for non- financial assets and non-financial
liabilities that are recognized or disclosed at fair value in the financial
statements on a non-recurring basis. SFAS No. 157 does not require any new fair
value measurements, rather, it applies under other accounting pronouncements
that require or permit fair value measurements. The provisions of SFAS No. 157
are to be applied prospectively as of the beginning of the fiscal year in which
it is initially applied, with any transition adjustment recognized as a
cumulative-effect adjustment to the opening balance of retained earnings.
Notwithstanding the effective date deferral discussed above, SFAS No. 157-2 was
12
adopted on January 1, 2008. The Company adopted the provision of FSP SFAS No.
157-2 regarding non-financial assets and non-financial liabilities on January 1,
2009 and it did not have a material impact on its Financial Statements.
In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation
No. 46(R)." SFAS No. 167, among other things, requires a qualitative rather than
a quantitative analysis to determine the primary beneficiary of a variable
interest entity ("VIE"); requires continuous assessments of whether an
enterprise is the primary beneficiary of a VIE; enhances disclosures about an
enterprise's involvement with a VIE; and amends certain guidance for determining
whether an entity is a VIE. SFAS No. 167 will be effective for the Company on
January 1, 2010, and will be applied prospectively. Under SFAS No. 167, a VIE
must be consolidated if the enterprise has both (a) the power to direct the
activities of the VIE that most significantly impact the entity's economic
performance, and (b) the obligation to absorb losses or the right to receive
benefits from the VIE that could potentially be significant to the VIE. The
Company is evaluating the impact that the adoption of SFAS No. 167 will have on
our consolidated financial statements. The Company does not expect the adoption
of SFAS No. 167 to have a material impact on the financial statements.
In June 2009, the FASB issued SFAS 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles - a
replacement of FASB Statement No. 162" (SFAS 168). SFAS 168 provides for the
FASB Accounting Standards Codification (the "Codification") to become the single
official source of authoritative, nongovernmental U.S. generally accepted
accounting principles (GAAP). The Codification did not change GAAP but
reorganizes the literature. SFAS 168 is effective for interim and annual periods
ending after September 15, 2009.
In May 2009, the FASB issued SFAS No. 165, "Subsequent Events." SFAS No. 165
establishes authoritative accounting and disclosure guidance for recognized and
non-recognized subsequent events that occur after the balance sheet date but
before financial statements are issued. SFAS No. 165 also requires disclosure of
the date through which an entity has evaluated subsequent events and the basis
for that date. SFAS No. 165 was effective for the Company beginning with the
Quarterly Report on Form 10-Q for the three and six months ended June 30, 2009,
and will be applied prospectively. The adoption of SFAS No. 165 had no impact on
the financial statements.
In April 2009 the FASB issued Staff Position No. FAS 107-1, "Interim Disclosures
about Fair Value of Financial Instruments" ("FSP 107-1"). FSP 107-1 expands the
fair value disclosures required for all financial instruments within the scope
of Statement of Financial Accounting Standards ("SFAS") No. 107 to include
interim periods. The Company adopted the provisions of FSP 107-1 for the quarter
ended June 30, 2009. The adoption of FSP 107-1 had no impact on the Company's
financial statements.
Results of Operations
- ---------------------
The following table sets forth the Company's operating revenues by category in
dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2009 2008 2009 2008
------------- ------------- -------------- --------------
(In thousands, except percentages)
Freight Revenues:
Conventional
carloads ...... $5,685 93.0% $7,477 92.4% $10,087 91.3% $12,756 90.5%
Containers ..... 171 2.8 351 4.3 426 3.9 720 5.1
Other freight
related ....... 128 2.1 182 2.3 315 2.8 417 3.0
Other Operating
Revenues ....... 127 2.1 84 1.0 224 2.0 197 1.4
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $6,111 100.0% $8,094 100.0% $11,052 100.0% $14,090 100.0%
====== ===== ====== ===== ======= ===== ======= =====
13
The following table sets forth a comparison of the Company's operating expenses
expressed in dollars and as a percentage of operating revenues:
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- -----------------------------
2009 2008 2009 2008
------------- ------------- -------------- --------------
(In thousands, except percentages)
Salaries, wages,
payroll taxes and
employee benefits. $3,892 63.7% $3,863 47.7% $7,744 70.1% $7,800 55.3%
Casualties and
insurance ...... 315 5.2 222 2.7 536 4.8 447 3.2
Depreciation .... 772 12.6 719 8.9 1,507 13.6 1,438 10.2
Diesel fuel ..... 457 7.5 1,215 15.0 884 8.0 1,920 13.6
Car hire, net ... 153 2.5 229 2.8 304 2.8 431 3.0
Purchased
services,
including legal
and professional
fees ........... 566 9.3 461 5.7 1,051 9.5 969 6.9
Repair and
maintenance of
equipment ...... 394 6.4 338 4.2 966 8.7 646 4.6
Track and signal
materials ...... 364 6.0 271 3.3 646 5.9 545 3.9
Track usage fees. 130 2.1 177 2.2 258 2.3 275 2.0
Other materials
and supplies ... 211 3.5 280 3.5 501 4.5 577 4.1
Other ........... 425 6.9 499 6.2 923 8.4 975 6.9
------ ----- ------ ----- ------- ----- ------- -----
Total .......... 7,679 125.7 8,274 102.2 15,320 138.6 16,023 113.7
Less capitalized
and recovered
costs ......... 946 15.5 472 5.8 1,439 13.0 734 5.2
------ ----- ------ ----- ------- ----- ------- -----
Total ........ $6,733 110.2% $7,802 96.4% $13,881 125.6% $15,289 108.5%
====== ===== ====== ===== ======= ===== ======= =====
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
Operating Revenues:
Operating revenues decreased $3.0 million, or 21.6%, to $11.1 million in the six
months ended June 30, 2009 from $14.1 million in 2008. This decrease is the
result of a $2.7 million (20.9%) decrease in conventional freight revenues, a
$294,000 (40.8%) decrease in container freight revenues and a $102,000 (24.5%),
decrease in other freight-related revenues offset, to a minor extent, by a
$27,000 (13.7%) increase in other operating revenues.
The decrease in conventional freight revenues results from a 19.8% decline in
traffic volume and a small (1.3%) reduction in the average revenue received per
conventional carloading. The Company's conventional carloadings decreased by
3,174 to 12,820 in the first six months of 2009 from 15,994 in 2008.
Shipments of most commodities handled by the Company decreased during the first
six months of 2009. This decline is primarily attributable to the current state
of the United States and world economies and is consistent with the experience
of other railroads in North America. Carloadings for some new customers have
partially offset the overall decrease in conventional traffic volume. While
there have been some recent signs of improvement, management cannot predict if
and when economic conditions will improve enough to enable the Company to return
to operating profitability. The small decrease in the average revenue received
per conventional carloading is largely attributable to a reduction in diesel
fuel surcharges due to the significant reduction in the cost of diesel fuel
experienced this year.
14
The decrease in container freight revenues is the result of a 47.1% decline in
traffic volume partially offset by an 11.9% increase in the average revenue
received per container. Container traffic volume decreased by 5,410 containers
to 6,069 containers in the first six months of 2009 from 11,479 containers in
2008. This significant decline in traffic volume continues a trend which began
in 2007 in which cross country container traffic to the East Coast has been
shifted from rail to all water routes. Current economic conditions have further
added to this decline in traffic. The increase in the average revenue received
per container is attributable to a change in the mix of traffic toward higher
rated containers as well as contractual rate adjustments based upon railroad
industry cost indices.
The decrease in other freight-related revenues results, primarily, from a
decrease in demurrage revenue. This decrease is consistent with the decrease in
conventional traffic volume and the related decline in net car hire expense.
The small increase in other-operating revenues reflects an increase in
maintenance department billings, primarily during the second quarter of 2009,
for services rendered to freight customers and other outside parties.
Other Income:
Other income increased from $307,000 in the first six months of 2008 to $1.3
million in 2009. This increase is attributable to $950,000 received in June 2009
for the settlement of certain legal proceedings and the granting of a permanent
easement.
Operating Expenses:
Operating expenses for the first six months of 2009 decreased by $1.4 million,
or 9.2%, to $13.9 million from $15.3 million in 2008. Reductions in the cost of
diesel fuel due to declining prices of petroleum products as well as decreased
usage due to the reduced traffic volume accounted for $1.0 million of this
decrease. Also contributing to decreased operating costs is the fact that the
Company's maintenance of way personnel were engaged in more capitalized track
projects in the first half of 2009 than was the case in 2008 resulting in more
capitalized labor and overhead costs. Decreases in other operating expenses have
been some what offset by increased costs incurred for the repair and maintenance
of locomotives and freight cars during the six month period.
Provision for Income Taxes (Benefit):
The income tax benefit for the first six months of 2009 is equal to 29.1% of the
pre-tax loss. This effective rate reflects the federal income tax rate reduced
by the effect of non deductible expenses and the non utilization of net
operating losses for state tax purposes.
Three Months Ended June 30, 2009 Compared to Three Months Ended June 30, 2008
Operating Revenues:
Operating revenues decreased $2.0 million, or 24.5%, to $6.1 million in the
second quarter of 2009 from $8.1 million in the second quarter of 2008. This
decrease is the result of $1.8 million (24.0%) decrease in conventional freight
revenues a, $180,000 (51.3%) decrease in container freight revenues and a
$54,000 (29.7%) decrease in other freight-related revenues offset, to a small
degree, by a $43,000 (51.2%) increase in other operating revenues.
15
The decrease in conventional freight revenues is attributable to 20.4% decline
in traffic volume and a 4.5% decrease in the average revenue received per
conventional carloading. The Company's conventional carloadings decreased by
2,068 to 8,063 in the second quarter of 2009 from 10,131 in 2008. The reasons
for the declines in conventional traffic volume and average revenue per
carloading are as previously discussed for the six months ended June 30, 2009.
The decrease in container freight revenues is the result of a 56.7% decline in
traffic volume partially offset by a 12.5% increase in the average revenue
received per container. Container traffic volume decreased by 3,143 containers
to 2,402 in the second quarter of 2009 from 5,545 in the second quarter of 2008.
The reasons for the decrease in traffic volume and the average revenue received
per container during the second quarter are as previously discussed.
The reasons for the decrease in other freight-related revenues and the increase
in other operating revenues are as previously discussed
Other Income:
Other income increased from $188,000 in the second quarter of 2008 to $1.2
million in the second quarter of 2009, primarily because of $950,000 received in
June 2009 as previously discussed.
Operating Expenses:
Operating expenses for the second quarter of 2009 decreased by $1.1 million, or
13.7%, to $6.7 million from $7.8 million in the second quarter of 2008. The
principal reasons for this overall reduction were decreased diesel fuel costs,
in the amount of $758,000 and increased levels of track capitalization as
previously discussed.
Provision for Income Taxes:
The income tax provision for the second quarter of 2009 is equal to
approximately 43% of pre-tax income. This effective tax rate represents the
federal income tax rate increased by the impact of state income taxes and non
deductible expenses.
Liquidity and Capital Resources
- -------------------------------
During the six months ended June 30, 2009 the Company generated $2.5 million of
cash from its operations. Total cash and cash equivalents increased by $561,000
during the period. The principal uses of cash, other than for operations, were
for capital expenditures and the payment of dividends. Management believes that
cash generated from operations during the remainder of the year will be
sufficient to fund its operations, capital additions and dividend requirements.
The Company's $5.0 million revolving line of credit with its, then, principal
bank expired on May 31, 2009. In June 2009 the Company obtained a $5.0 million
line of credit facility with another commercial bank which expires in June 2011.
Borrowings under this new line of credit are unsecured, due on demand and bear
interest at either the bank's prime rate or one and three quarters per cent over
the thirty, sixty or ninety day London Interbank Offered Rate ("LIBOR") with a
LIBOR floor of one and one quarter percent. The Company pays no commitment fee
on this line of credit and has no compensating balance requirements. It is
subject to financial and non-financial covenants including maintenance of a
minimum net worth and restrictions as to the incurrence of additional
indebtedness, as well as the sale or encumbrance of its assets. Although we have
not utilized this revolving credit facility, a review of the underlying credit
commitment indicates there is relatively little risk that funds would not be
available should we attempt to draw on the line of credit.
16
Seasonality
- -----------
Historically, the Company's operating revenues are lowest for the first quarter
due to the absence of construction aggregate shipments during a portion of this
period and to winter weather conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
Cash and Equivalents
As of June 30, 2009, the Company is exposed to market risks which primarily
include changes in U.S. interest rates.
The Company invests cash balances in excess of operating requirements in
short-term securities, generally with maturities of 90 days or less. In
addition, the Company's revolving line of credit agreement provides for
borrowings which bear interest at variable rates based on either the prime rate
or one and three quarters percent over LIBOR. The Company had no borrowings
outstanding pursuant to the revolving line of credit agreement at June 30, 2009.
The Company believes that the effect, if any, of reasonably possible near-term
changes in interest rates on the Company's financial position, results of
operations, and cash flows should not be material.
Item 4T. Controls and Procedures
- --------------------------------
Our management with the participation of our Chief Executive Officer and Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures (as defined in rule 13a- 15(e) and 15d-15(e) under the Securities and
Exchange Act of 1934) as of June 30, 2009. Based on this evaluation, Chief
Executive Officer and Chief Financial Officer concluded that, as of June 30,
2009, our disclosure controls and procedures were effective in ensuring that
information to be disclosed by us in the reports that we file or submit under
Securities and Exchange Act of 1934 is recorded, processed, summarized and
reported within the periods specified in the Securities and Exchange
Commission's rules and forms and that information required to be disclosed by us
in the reports that we file or submit under the Securities and Exchange Act of
1934 is accumulated and communicated to our management, including our principal
executive and principal financial officers, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure.
We continually seek ways to improve the effectiveness and efficiency of our
internal controls over the financial reporting, resulting in frequent process
refinement. However, there have been no changes in our internal control over
financial reporting that occurred during our last fiscal period to which this
Quarterly Report on Form 10Q for the quarter ended June 30, 2009 relates that
have materially affected, or are reasonably likely to materially affect, our
internal control over financial reporting.
17
PART II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The Annual Meeting of Shareholders was held on April 29, 2009. Of the
4,803,900 shares of common stock entitled to vote, 4,336,152 shares
were present, in person or by proxy. Of the 640 shares of preferred
stock entitled to vote, 503 shares were present, in person or by
proxy.
All directors of the Company are elected on an annual basis and the
following were so elected at this Annual Meeting:
Richard W. Anderson, Robert H. Eder, John J. Healy and Paul F.
Titterton were elected Common Stock Directors. Mr. Anderson received
4,152,765 affirmative votes and 183,387 votes withheld, Mr. Eder
received 3,580,909 affirmative votes and 755,243 votes withheld, Mr.
Healy received 4,150,018 affirmative votes and 186,134 votes withheld
and Mr. Titterton received 4,152,473 affirmative votes and 183,679
votes withheld of common shares.
Frank W. Barrett, P. Scott Conti, J. Joseph Garrahy, James C. Garvey,
Charles M. McCollam, Jr. and Craig M. Scott were elected Preferred
Stock Directors. Each of them received 503 affirmative votes with no
votes withheld of preferred shares except for Mr. Conti who received
500 affirmative votes with 3 votes withheld.
Item 5. Reports on Form 8-K
-------------------
A report on Form 8-K was filed on June 29, 2009 in which the Company
announced that it had consummated a $5 million unsecured line of
credit facility with Commerce Bank & Trust Company.
Item 6. Exhibits
--------
(10) Material Contracts - Business Loan Agreement dated June 25, 2009
between the Registrant and Commerce Bank & Trust Company
(31.1) Rule 13a-14(a) Certification of Chairman of the Board and Chief
Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
(31.2) Rule 13a-14(a) Certification of Treasurer and Principal
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002
(32) Certifications of Chairman of the Board and Chief Executive
Officer and Treasurer and Principal Financial Officer pursuant to
18 U.S.C Section 1350 as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
18
SIGNATURES
----------
Pursuant to the requirements 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.
PROVIDENCE AND WORCESTER
RAILROAD COMPANY
By: /s/ Robert H. Eder
----------------------------
Robert H. Eder,
Chairman of the Board
and Chief Executive Officer
By: /s/ Robert J. Easton
----------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
DATED: August 13, 2009
19
EXHIBIT 10.1
Commerce Bank & Trust Company
June 25, 2009
Providence and Worcester Railroad Company
75 Hammond Street
P.O. Box 16551 Worcester, MA 01601
Attn: P. Scott Conti, President
Re: $5 Million Promissory Note dated June 25, 2009
Dear Mr. Conti:
As you know, Commerce Bank & Trust Company ("Commerce") has issued a
commitment to Providence and Worcester Railroad Company ("P&W" or the
"Company") for a $5 Million unsecured line of credit (the "Line") and,
in that connection, has furnished P&W with documents for execution
including a Promissory Note (the "Note") and a Business Loan Agreement
(the "Agreement") (the Note and the Agreement are together referred to
herein as the "Loan Documents"). The Loan Documents are form documents
that include various provisions that are inconsistent with the terms of
Commerce's commitment to P&W and, to the extent inconsistent, are
inapplicable to our business arrangement. Accordingly, this letter
serves to identify such provisions, listed on Exhibit A attached
hereto, and to confirm the inapplicability of the provisions to the
Loan notwithstanding their inclusion in the Loan Documents.
Accordingly, Commerce hereby agrees that the provisions listed on
Exhibit A attached hereto are inapplicable to the Line notwithstanding
their inclusion in the Loan Documents, that all such provisions are
null and void and that Commerce shall have no rights against P&W with
respect to any such provision, including, without limitation, any right
of enforcement, whether by declaring a default under the Line or
otherwise.
If you are in agreement with the matters set forth in this letter,
please acknowledge your agreement by signing this letter in the space
indicated below.
Very truly yours,
/s/ John McKenna
John McKenna
Senior Vice
President/Director Commerce
Bank & Trust Company
- --------------------------------------------------------------------------------
386-390 MAIN STREET o PO BOX 15020 o WORCESTER, MASSACHUSETTS o 01615-0020 o
PHONE: 508-797-6800
WWW.BANKATCOMMERCE.COM
[OBJECT OMITTED]
ACKNOWLEDGED AND AGREED BY
PROVIDENCE AND WORCESTER RAILROAD COMPANY
this 25th day of June, 2009
/s/ Robert J. Easton
Robert J. Easton
Treasurer
Attest:
/s/ Marie A. Angelini
Marie A. Angelini
General Counsel
EXHIBIT A
TO LETTER AGREEMENT BY AND BETWEEN
COMMERCE BANK & TRUST COMPANY ("Commerce") and
PROVIDENCE AND WORCESTER RAILROAD COMPANY ("P&W" or the "Company")
Promissory Note in the face amount of $5,000,000 dated June 25, 2009 executed
------------------------------------------------------------------------------
and delivered by P&W to Commerce:
---------------------------------
1. Change in Ownership. This provision is inapplicable to P&W, a publicly-traded
--------------------
company.
2. Jury Waiver. This provision is inapplicable.
------------
Business Loan Agreement regarding $5,000,000 loan (the "Loan") by and between
Commerce and P&W dated June , 2009 (the "Agreement")
1. Representations and Warranties
a. Collateral for the Loan. P&W has not granted and Commerce has not
obtained a security interest in any assets for the Loan, which is
unsecured. Each reference to the term "Collateral," as well as any and all
of the provisions of the Agreement with respect to Collateral including,
without limitation, those representations and warranties concerning (a) the
location of Company books concerning the Collateral, (b) any use,
generation, manufacture, storage, treatment, disposal or release of
Hazardous Substances (as defined in the Agreement) with respect to
Collateral, (c) Commerce's right to enter upon any property serving as
Collateral, (d) the absence of urea formaldehyde or any form thereof from
Collateral, (e) P&W's due diligence with respect to Collateral, (f) P&W's
release and waiver of any claims against Commerce with respect to Hazardous
Substances or like matters, and (g) the priority of Commerce's lien upon
Collateral are inapplicable.
b. Litigation and Claims. P&W is a defendant in certain lawsuits relating
to casualty losses, many of which are covered by insurance subject to a
deductible. P&W believes that adequate provisions have been made in its
audited financial statements for the period ended December 31, 2009 for any
expected liabilities which may result from the disposition of such
lawsuits.
2. Affirmative Covenants
a. Collateral/Security Interest for the Loan. Because P&W has not granted,
and Commerce has not obtained, a security interest in any assets for the
Loan which is unsecured, the provisions of the paragraphs entitled
"Insurance," "Insurance Reports," "Compliance with Governmental
Requirements," "Inspection" and "Additional Assurances" are inapplicable.
b. Environmental Studies. This provision is inapplicable.
c. Lender's Expenditures. To the extent the expenditures for which P&W has
agreed to be liable relate to Collateral, they are inapplicable.
3. Negative Covenants
a. Continuity of Operations. The provisions of subsection (2) with respect
to the sale of Collateral outside the ordinary course of business are
inapplicable, as is the prohibition of dividend payments in cash on P&W's
stock.
4. Default. This provision with respect to change in ownership is inapplicable
to P&W, a publicly-traded company.
5. Miscellaneous Provisions. The provision waiving P&W's right to trial by
jury is hereby deleted.
6. Definitions. Definitions of the terms Collateral, Grantor, Security
Agreement and Security Interest are inapplicable to the transaction.
[OBJECT OMITTED]
- --------------------------------------------------------------------------------
Principal Loan Date Maturity Loan No Call / Coil Account Officer Initials
$5,000,000.00 06-25-2009 06-25-2011 540 / 404 ***"
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
References in the boxes above are for Lender's use only and do not limit the
applicability of this document to any particular loan or item
Any item above containing "***" has been omitted due to text length limitations.
- --------------------------------------------------------------------------------
Borrower: Providence and Worcester Railroad Lender:Commerce Bank & Trust Company
Railroad Company Commercial Lending
75 Hammond Street 386 Main Street
Worcester, MA 01610-1729 PO Box 15020
Worcester, MA 01615-0020
- --------------------------------------------------------------------------------
THIS BUSINESS LOAN AGREEMENT dated June 25, 2009, Is made and executed between
Providence and Worcester Railroad Company ("Borrower") and Commerce Bank & Trust
Company ("Lender") on the following terms and conditions. Borrower has received
prior commercial loans from Lender or has applied to Lender for a commercial
loan or loans or other financial accommodations, including those which may be
described on any exhibit or schedule attached to this Agreement. Borrower
understands and agrees that: (A) In granting, renewing, or extending any Loan,
Lender Is relying upon Borrower's representations, warranties, and agreements as
set forth in this Agreement; (B) the granting, renewing, or extending of any
Loan by Lender at all times shall be subject to Lender's sole judgment and
discretion; and (C) all such Loans shall be and remain subject to the terms and
conditions of this Agreement.
TERM. This Agreement shall be effective as of June 25, 2009, and shall continue
in full force and effect until such time as all of Borrower's Loans in favor of
Lender have been paid in full, including principal, interest, costs, expenses,
attorneys' fees, and other fees and charges, or until such time as the parties
may agree in writing to terminate this Agreement.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make the initial
Advance and each subsequent Advance under this Agreement shall be subject to the
fulfillment to Lender's satisfaction of all of the conditions set forth in this
Agreement and in the Related Documents.
Loan Documents. Borrower shall provide to Lender the following documents
for the Loan: (1) the Note; (2) together with all such Related Documents as
Lender may require for the Loan; all in form and substance satisfactory to
Lender and Lender's counsel.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions, duly
authorizing the execution and delivery of this Agreement, the Note and the
Related Documents. In addition, Borrower shall have provided such other
resolutions, authorizations, documents and instruments as Lender or its
counsel, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender all fees,
charges, and other expenses which are then due and payable as specified in
this Agreement or any Related Document.
Representations and Warranties. The representations and warranties set
forth in this Agreement, in the Related Documents, and in any document or
certificate delivered to Lender under this Agreement are true and correct.
No Event of Default. There shall not exist at the time of any Advance a
condition which would constitute an Event of Default under this Agreement
or under any Related Document.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants to Lender, as
of the date of this Agreement, as of the date of each disbursement of loan
proceeds, as of the date of any renewal, extension or modification of any Loan,
and at all times any Indebtedness exists:
Organization. Borrower is a corporation for profit which is, and at all
times shall be, duly organized, validly existing, and in good standing
under and by virtue of the laws of the State of Rhode Island. Borrower is
duly authorized to transact business in all other states in which Borrower
is doing business, having obtained all necessary filings, governmental
licenses and approvals for each state in which Borrower is doing business.
Specifically, Borrower is, and at all times shall be duly qualified as a
foreign corporation in all states in which the failure to so qualify would
have a material adverse effect on its business or financial condition.
Borrower has the full power and authority to own its properties and to
transact the business in which it is presently engaged or presently
proposes to engage. Borrower maintains its principal office at 75 Hammond
Street, Worcester, MA 01610-1729. Unless Borrower has designated otherwise
in writing, this is the principal office at which Borrower keeps its books
and records including its records concerning the Collateral. Borrower will
notify Lender prior to any change in the location of Borrower's state of
organization or any change in Borrower's name. Borrower shall do all things
necessary to preserve and to keep in full force and effect its existence,
rights and privileges, and shall comply with all regulations, rules,
ordinances, statutes, orders and decrees of any governmental or
quasi-governmental authority or court applicable to Borrower and Borrower's
business activities.
Assumed Business Names. Borrower has filed or recorded all documents or
filings required by law relating to all assumed business names used by
Borrower. Excluding the name of Borrower, the following is a complete list
of all assumed business names under which Borrower does business: None.
Authorization. Borrower's execution, delivery, and performance of this
Agreement and all the Related Documents have been duly authorized by all
necessary action by Borrower and do not conflict with, result in a
violation of, or constitute a default under (1) any provision of (a)
Borrower's articles of incorporation or organization, or bylaws. or (b) any
agreement or other instrument binding upon Borrower or (2) any law,
governmental regulation, court decree, or order applicable to Borrower or
to Borrower's properties.
Financial Information. Each of Borrower's financial statements supplied to
Lender truly and completely disclosed Borrower's financial condition as of
the date of the statement, and there has been no material adverse change in
Borrower's financial condition subsequent to the date of the most recent
financial statement supplied to Lender. Borrower has no material contingent
obligations except as disclosed in such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or agreement
Borrower is required to give under this Agreement when delivered will
constitute legal, valid, and binding obligations of Borrower enforceable
against Borrower in accordance with their respective terms.
Properties. Except as contemplated by this Agreement or as previously
disclosed in Borrower's financial statements or in writing to Lender and as
accepted by Lender, and except for property tax liens for taxes not
presently due and payable, Borrower owns and has good title to all of
Borrower's properties free and clear of all Security Interests, and has not
executed any security documents or financing statements relating to such
properties. All of Borrower's properties are titled in Borrower's legal
name, and Borrower has not used or filed a financing statement under any
other name for at least the last five (5) years.
Hazardous Substances. Except as disclosed to and acknowledged by Lender in
writing, Borrower represents and warrants that (1) During the period of
Borrower's ownership of xxx xxxxaxxxxx, there has been no use, generation,
manufacture, storage, treatment, disposal, release or threatened release of
any Hazardous Substance by any person on, under, about or from any of xxx
xxxxxxxxxx. (2) Borrower has no knowledge of, or reason to believe that
there has been (a) any breach or violation of any Environmental Laws; (b)
any use, generation, manufacture, storage, treatment, disposal, release or
threatened release of any Hazardous Substance on, under, about or from xxx
xxxxxxxxxx by any prior owners or occupants of any of xxx xxxxxxxxxx; or
(c) any actual or threatened litigation or claims of any kind by any person
relating to such matters. (3) Neither Borrower nor any tenant, contractor,
agent or other authorized user of any of xxx xxxxxxxxxx shall use,
generate, manufacture, store, treat, dispose of or release any Hazardous
Substance on, under, about or from any of xxx xxxxxxxxxx; and any such
activity shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including without
limitation all Environmental Laws. Borrower authorizes Lender and its
agents to enter upon xxx xxxxxxxxxx to make such inspections and tests as
Lender may deem appropriate to determine compliance of xxx xxxxxxxxxx with
this section of the Agreement. In addition, Borrower represents and
warrants that Borrower's xxxxxxxxxx does not contain urea formaldehyde foam
insulation or urea formaldehyde resin in violation of any applicable state
laws. Any inspections or tests made by Lender shall be at Borrower's
expense and for Lender's purposes only and shall not be construed to create
any responsibility or liability on the part of Lender to Borrower or to any
other person. The representations and warranties contained herein are based
on Borrower's due diligence in investigating xxx xxxxxxxxxx for hazardous
waste and Hazardous Substances. Borrower hereby (1) releases and waives any
future claims against Lender for indemnity or contribution in the event
Borrower becomes liable for cleanup or other costs under any such laws, and
(2) agrees to indemnity, defend, and hold harmless Lender against any and
all claims, losses, liabilities, damages, penalties, and expenses which
Lender may directly or indirectly sustain or suffer resulting from a breach
of this section of the Agreement or as a consequence of any use,
generation, manufacture, storage, disposal, release or threatened release
of a hazardous waste or substance on xxx xxxxxxxxxx. The provisions of this
section of the Agreement, including the obligation to indemnify and defend,
shall survive the payment of the Indebtedness and the termination,
expiration or satisfaction of this Agreement and shall not be affected by
Lender's acquisition of any interest in any of xxx xxxxxxxxxx, whether by
foreclosure or otherwise.
Litigation and Claims. No litigation, claim, investigation, administrative
proceeding or similar action (including those for unpaid taxes) against
Borrower is pending or threatened, and no other event has occurred which
may materially adversely affect Borrower's financial condition or
properties, other than litigation, claims, or other events, if any, that
have been disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all of Borrower's tax returns
and reports that are or were required to be filed, have been filed, and all
taxes, assessments and other governmental charges have been paid in full,
except those presently being or to be contested by Borrower in good truth
in the ordinary course of business and for which adequate reserves have
been provided.
BUSINESS LOAN AGREEMENT
(Continued) Page 2 Page 2
[OBJECT OMITTED]
Lien Priority. Unless otherwise previously disclosed to Lender in writing,
Borrower has not entered into or granted any Security Agreements. or
permitted the filing or attachment of any Security Interests on or
affecting any of xxx xxxxxxxxxx directly or indirectly securing repayment
of Borrowers Loan and Note, that would be prior or that may in any way be
superior to Lender's Security Interests and rights in and to xxxx
xxxxxxxxxx.
Binding Effect. This Agreement, the Note, xxx xxxxxxxx xxxxxxxxxx xxxxxxxx,
and all Related Documents are binding upon the signers thereof, as well as
upon their successors, representatives and assigns, and are legally
enforceable in accordance with their respective terms.
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender that, so long
as this Agreement remains in effect, Borrower will:
Notices of Claims and Litigation. Promptly inform Lender in writing of (1)
all material adverse changes in Borrower's financial condition, and (2) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or any
Guarantor which could materially affect the financial condition of Borrower
or the financial condition of any Guarantor.
Financial Records. Maintain its books and records in accordance with GAAP,
applied on a consistent basis, and permit Lender to examine and audit
Borrower's books and records at all reasonable times.
Financial Statements. Furnish Lender with the following:
Annual Statements. As soon as available, but in no event later than
one-hundred-twenty (120) days after the end of each fiscal year,
Borrower's balance sheet and income statement for the year ended,
audited by a certified public accountant satisfactory to Lender.
Interim Statements. As soon as available, but in no event later than
45 days after the end of each fiscal quarter, Borrower's balance sheet
and profit and loss statement for the period ended, prepared by
Borrower.
All financial reports required to be provided under this Agreement shall be
prepared in accordance with GAAP, applied on a consistent basis, and
certified by Borrower as being true and correct.
Additional Information. Furnish such additional information and statements,
as Lender may request from time to time.
Financial Covenants and Ratios. Comply with the following covenants and
ratios:
Tangible Net Worth Requirements. Maintain a minimum Tangible Net Worth
of not less than: $70,000,000.00. Other Net Worth requirements are as
follows: Minimum Net Worth will be tested quarterly. Except as
provided above, all computations made to determine compliance with the
requirements contained in this paragraph shall be made in accordance
with generally accepted accounting principles, applied on a consistent
basis, and certified by Borrower as being true and correct.
Insurance. Maintain fire and other risk insurance, public liability
insurance, and such other insurance as Lender may require with respect to
Borrower's properties and operations, in form, amounts, coverages and with
insurance companies acceptable to Lender Borrower. upon request of Lender,
will deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations that
coverages will not be cancelled or diminished without at least ten (10)
days prior written notice to Lender. Each insurance policy also shall
include an endorsement providing that coverage in favor of Lender will not
be impaired in any way by any act. Omission or default of Borrower or any
other person. In connection with all policies covering assets in which
Lender holds or is offered x xxxxxxxx xxxxxxxx for the Loans, Borrower will
provide Lender with such lenders loss payable or other endorsements as
Lender may require.
Insurance Reports. Furnish to Lender, upon request of Lender, reports on
each existing insurance policy showing such information as Lender may
reasonably request, including without limitation the following: (1) the
name of the insurer; (2) the risks insured; (3) the amount of the policy,
(4) the properties insured; (5) the then current property values on the
basis of which insurance has been obtained, and the manner of determining
those values; and (6) the expiration date of the policy. In addition, upon
request of Lender (however not more often than annually). Borrower will
have an independent appraiser satisfactory to Lender determine, as
applicable, the actual cash value or replacement cost of xxx xxxxxxxxxx.
The cost of such appraisal shall be paid by Borrower.
Other Agreements. Comply with all terms and conditions of all other
agreements, whether now or hereafter existing, between Borrower and any
other party and notify Lender immediately in writing of any default in
connection with any other such agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's business
operations, unless specifically consented to the contrary by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all assessments.
faxes, governmental charges, levies and liens, of every kind and nature,
imposed upon Borrower or its properties, income, or profits, prior to the
date on which penalties would attach, and all lawful claims that, it
unpaid, might become a lien or charge upon any of Borrower's properties,
income, or profits. Provided however, Borrower will not be required to pay
and discharge any such assessment. tax, charge, levy, lien or claim so long
as (1) the legality of the same shall be contested in good faith by
appropriate proceedings. and (2) Borrower shall have established on
Borrower's books adequate reserves with respect to such contested
assessment, tax, charge. levy, lien, or claim in accordance with GAAP.
Performance. Perform and comply, in a timely manner, with all terms,
conditions, and provisions set forth in this Agreement, in the Related
Documents, and in all other instruments and agreements between Borrower and
Lender. Borrower shall notify Lender immediately in writing of any default
in connection with any agreement.
Operations. Maintain executive and management personnel with substantially
the same qualifications and experience as the present executive and
management personnel; provide written notice to Lender of any change in
executive and management personnel; conduct its business affairs in a
reasonable and prudent manner.
Environmental Studies. Promptly conduct and complete, at Borrower's
expense, all such investigations, studies, samplings and testings as may be
requested by Lender or any governmental authority relative to any
substance, or any waste or by-product of any substance defined as toxic or
a hazardous substance under applicable federal, state, or local law, rule,
regulation, order or directive, at or affecting any property or any
facility owned, leased or used by Borrower.
Compliance with Governmental Requirements. Comply with all laws,
ordinances, and regulations, now or hereafter in effect, of all
governmental authorities applicable to the conduct of Borrower's
properties, businesses and operations, and to the use or occupancy of xxx
xxxxxxxxxx, including without limitation, the Americans With Disabilities
Act. Borrower may contest in good faith any such law, ordinance, or
regulation and withhold compliance during any proceeding, including
appropriate appeals, so long as Borrower has notified Lender in writing
prior to doing so and so long as, in Lender's sole opinion, Lender's
interests in xxx xxxxxxxxxx are not jeopardized. Lender may require
Borrower to post adequate security or a surety bond, reasonably
satisfactory to Lender, to protect Lender's interest.
Inspection. Permit employees or agents of Lender at any reasonable time to
inspect any and all xxxxxxxxxx for the Loan or Loans and Borrower's other
properties and to examine or audit Borrower's books, accounts, and records
and to make copies and memoranda of Borrower's books, accounts, and
records. If Borrower now or at any time hereafter maintains any records
(including without limitation computer generated records and computer
software programs for the generation of such records) in the possession of
a third party, Borrower, upon request of Lender, shall notify such party to
permit Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it may request, all at Borrower's
expense.
Compliance Certificates. Unless waived in writing by Lender, provide Lender
at least annually, with a certificate executed by Borrower's chief
financial officer, or other officer or person acceptable to Lender,
certifying that the representations and warranties set forth in this
Agreement are true and correct as of the date of the certificate and
further certifying that, as of the date of the certificate, no Event of
Default exists under this Agreement.
Environmental Compliance and Reports. Borrower shall comply in all respects
with any and all Environmental Laws; not cause or permit to exist, as a
result of an intentional or unintentional action or omission on Borrower's
part or on the part of any third party, on properly owned and/or occupied
by Borrower, any environmental activity where damage may result to the
environment, unless such environmental activity is pursuant to and in
compliance with the conditions of a permit issued by the appropriate
federal, state or local governmental authorities, shall furnish to Lender
promptly and in any event within thirty (30) days after receipt thereof a
copy of any notice, summons. lien, citation, directive, letter or other
communication from any governmental agency or instrumentality concerning
any intentional or unintentional action or omission on Borrower's part in
connection with any environmental activity whether or not there is damage
to the environment and/or other natural resources.
Additional Assurances. Make, execute and deliver to Lender such promissory
notes, mortgages, deeds of trust, security agreements, assignments,
financing statements, instruments, documents and other agreements as Lender
or its attorneys may reasonably request to evidence and secure the Loans
and to perfect xxx xxxxxxxx xxxxxxxxx.
LENDER'S EXPENDITURES. If any action or proceeding is commenced that would
materially affect Lender's interest in xxx xxxxxxxxxx or if Borrower fails to
comply with any provision of this Agreement or any Related Documents, including
but not limited to Borrower's failure to discharge or pay when due any amounts
Borrower is required to discharge or pay under this Agreement or any Related
Documents, Lender on Borrower's behalf may (but shall not be obligated to) take
any action that Lender deems appropriate, including but not limited to
discharging or paying all taxes, liens, security
[OBJECT OMITTED] (Continued) Page 3 [OBJECT OMITTED]
interests, encumbrances and other claims, at any time levied or placed on any
Collateral and paying all costs for insuring, maintaining and preserving any
Collateral. All such expenditures incurred or paid by Lender for such purposes
will then bear interest at the rate charged under the Note from the date
incurred or paid by Lender to the date of repayment by Borrower. All such
expenses will become a part of the indebtedness and, at Lender's option, will
(A) be payable on demand. (B) be added to the balance of the Note and be
apportioned among and be payable with any installment payments to become due
during either (1) the term of any applicable Insurance policy; or (2) the
remaining term of the Note, or (C) be treated as a balloon payment which will be
due and payable at the Note's maturity.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that while this
Agreement is in effect, Borrower shall not, without the prior written consent of
Lender:
Indebtedness and Liens, (1) Except for trade debt incurred in the normal
course of business and indebtedness to Lender contemplated by this
Agreement, create, incur or assume indebtedness for borrowed money,
including capital leases, (2) sell, transfer, mortgage, assign, pledge,
lease, grant a security interest in, or encumber any of Borrower's assets
(except as allowed as Permitted Liens), or (3) sell with recourse any of
Borrower's accounts, except to Lender.
Continuity of Operations. (1) Engage in any business activities
substantially different than those in which Borrower is presently engaged,
(2) cease operations, liquidate. merge, transfer, acquire or consolidate
with any other entity, change its name, dissolve or transfer or sell
Collateral out of the ordinary course of business, or (3) pay any dividends
on Borrower's stock (other than dividends payable in its stock), provided,
however that notwithstanding the foregoing, but only so long as no Event of
Default has occurred and Is continuing or would result from the payment of
dividends, if Borrower is a "Subchapter S Corporation" as defined in the
Internal Revenue Code of 1986, as amended). Borrower may pay cash dividends
on its stock to its shareholders from time to time in amounts necessary to
enable the shareholders to pay income taxes and make estimated income tax
payments to satisfy their liabilities under federal and state law which
arise solely from their status as Shareholders of a Subchapter S
Corporation because of their ownership of shares of Borrower's stock, or
purchase or retire any of Borrower's outstanding shares or alter or amend
Borrower's capital structure.
Loans, Acquisitions and Guaranties. (1) Loan, invest in or advance money or
assets to any other person, enterprise or entity, (2) purchase, create or
acquire any interest in any other enterprise or entity, or (3) incur any
obligation as surety or guarantor other than in the ordinary course of
business.
Agreements. Borrower will not enter into any agreement containing any
provisions which would be violated or breached by the performance of
Borrower's obligations under this Agreement or in connection herewith.
CESSATION OF ADVANCES. If Lender has made any commitment to make any Loan to
Borrower, whether under this Agreement or under any other agreement, Lender
shall have no obligation to make Loan Advances or to disburse Loan proceeds if:
(A) Borrower or any Guarantor is in default under the terms of this Agreement or
any of the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender: (B) Borrower or any Guarantor dies, becomes
incompetent or becomes insolvent, files a petition in bankruptcy or similar
proceedings, or is adjudged a bankrupt: (C) there occurs a material adverse
change in Borrower's financial condition, in the financial condition of any
Guarantor, or in the value of any Collateral securing any Loan; or (D) any
Guarantor seeks, claims or otherwise attempts to limit, model(,) or revoke such
Guarantor's guaranty of the Loan or any other loan with Lender: or (E) Lender in
good faith deems itself insecure, even though no Event of Default shall have
occurred.
RIGHT OF SETOFF. To the extent permitted by applicable law, Lender reserves a
right of setoff in all Borrower's accounts with Lender (whether checking,
savings, or some other account). This includes all accounts Borrower holds
jointly with someone else and all accounts Borrower may open in the future.
However, this does not include any IRA or Keogh accounts, or any trust accounts
for which setoff would be prohibited by law. Borrower authorizes Lender, to the
extent permitted by applicable law, to charge or setoff all sums owing on the
debt against any and all such accounts.
DEFAULT. Each of the following shall constitute an Event of Default under
this Agreement:
Payment Default. Borrower fails to make any payment when due under the
Loan.
Other Defaults. Borrower fails to comply with or to perform any other term,
obligation, covenant or condition contained in this Agreement or in any of
the Related Documents or to comply with or to perform any term, obligation,
covenant or condition contained in any other agreement between Lender and
Borrower.
False Statements. Any warranty, representation or statement made or
furnished to Lender by Borrower or on Borrower's behalf under this
Agreement or the Related Documents is false or misleading in any material
respect, either now or at the time made or furnished or becomes false or
misleading at any time thereafter.
Insolvency. The dissolution or termination of Borrower's existence as a
going business, the insolvency of Borrower, the appointment of a receiver
for any part of Borrower's property, any assignment for the benefit of
creditors, any trust mortgage or any other type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency laws by
or against Borrower.
Defective Collateralization. This Agreement or any of the Related Documents
ceases to be in full force and effect (including failure of any collateral
document to create a valid and perfected security interest or lien) at any
time and for any reason.
Creditor or Forfeiture Proceedings. Commencement of foreclosure or
forfeiture proceedings, whether by judicial proceeding, self-help,
repossession or any other method, by any creditor of Borrower or by any
governmental agency against any collateral securing the Loan. This includes
a garnishment of any of Borrower's accounts, including deposit accounts,
with Lender. However, this Event of Default shall not apply if there is a
good faith dispute by Borrower as to the validity or reasonableness of the
claim which is the basis of the creditor or forfeiture proceeding and if
Borrower gives Lender written notice of the creditor or forfeiture
proceeding and deposits with Lender monies or a surety bond for the
creditor or forfeiture proceeding, in an amount determined by Lender, in
its sole discretion, as being an adequate reserve or bond for the dispute.
Events Affecting Guarantor. Any of the preceding events occurs with respect
to any Guarantor of any of the Indebtedness or any Guarantor dies or
becomes incompetent, or revokes or disputes the validity of, or liability
under, any Guaranty of the Indebtedness.
Change in Ownership. Any change in ownership of twenty-five percent (25%)
or more of the common stock of Borrower.
Adverse Change. A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Loan is impaired.
Insecurity. Lender in good faith believes itself insecure.
Right to Cure. If any default, other than a default an Indebtedness, is
curable and lf Borrower or Grantor, as the case may be, has not been given
a notice of a similar default within the preceding twelve (12) months, it
may be cured if Borrower or Grantor, as the case may be, after receiving
written notice from Lender demanding cure of such default: (1) cure the
default within fifteen (15) days, or (2) if the cure requires more than
fifteen (15) days, immediately initiate steps which Lender deems in
Lender's sole discretion to be sufficient to cure the default and
thereafter continue and complete all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall occur, except where
otherwise provided in this Agreement or the Related Documents, all commitments
and obligations of Lender under this Agreement or the Related Documents or any
other agreement immediately will terminate (including any obligation to make
further Loan Advances or disbursements), and at Lender's option, all
Indebtedness immediately will become due and payable, all without notice of any
kind to Borrower, except that in the case of an Event of Default at the type
described in the 'Insolvency' subsection above, such acceleration shall be
automatic and not optional, In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law, in equity, or
otherwise. Except as may be prohibited by applicable law, all of Lender's rights
and remedies shall be cumulative and may be exercised singularly or
concurrently. Election by Lender to pursue any remedy shall not exclude pursuit
of any other remedy, and an election to make expenditures or to take action to
perform an obligation of Borrower or of any Grantor shall not affect Lender's
right to declare a default and to exercise its rights and remedies.
WAIVERS AND MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are
a part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties as to the
matters set forth in this Agreement. No alteration of or amendment to this
Agreement shall be effective unless given in writing and signed by the
party or parties sought to be charged or bound by the alteration or
amendment.
Attorneys' Fees; Expenses. Borrower agrees to pay upon demand all of
Lender's costs and expenses, including Lender's attorneys' fees and
Lender's legal expenses, incurred in connection with the enforcement of
this Agreement. Lender may hire or pay someone else to help enforce this
Agreement, and Borrower shall pay the costs and expenses of such
enforcement. Costs and expenses include Lender's attorneys' fees and legal
expenses whether or not there is a lawsuit, including attorneys' fees and
legal expenses for bankruptcy proceedings (including efforts to modify or
vacate any automatic stay or injunction), appeals, and any anticipated
post-judgment collection services. Borrower also shall pay all court costs
and such additional fees as may be directed by the court.
Caption Headings. Caption headings in this Agreement are for convenience
purposes only and are not to be used to interpret or define the provisions
of this Agreement.
Consent to Loan Participation. Borrower agrees and consents to Lender's
sale or transfer, whether now or later of one or more participation
BUSINESS LOAN AGREEMENT
(Continued) Page 4
interests in the Loan to one or more purchasers, whether related or
unrelated to Lender. Lender may provide, without any limitation whatsoever,
to any one or more purchasers, or potential purchasers, any information or
knowledge Lender may have about Borrower or about any other matter relating
to the Loan, and Borrower hereby waives any rights to privacy Borrower may
have with respect to such matters. Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices at any
repurchase of such participation interests. Borrower also agrees that the
purchasers at any such participation interests will be considered as the
absolute owners of such interests in the Loan and will have all the rights
granted under the participation agreement or agreements governing the sale
of such participation interests. Borrower further waives all rights of
offset or counterclaim that it may have now or later against Lender or
against any purchaser of such a participation interest and unconditionally
agrees that either Lender or such purchaser may enforce Borrower's
obligation under the Loan irrespective of the failure or insolvency at any
holder of any interest in the Loan. Borrower further agrees that the
purchaser of any such participation interests may enforce its interests
irrespective of any personal claims or defenses that Borrower may have
against Lender.
Governing Law. This Agreement will be governed by federal law applicable to
Lender and, to the extent not preempted by federal law, the laws of the
Commonwealth of Massachusetts without regard to its conflicts of law
provisions. This Agreement has been accepted by Lender in the Commonwealth
of Massachusetts.
Choice of Venue. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of Worcester County,
Commonwealth of Massachusetts.
No Waiver by Lender. Lender shall not be deemed to have waived any rights
under this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising any right
shall operate as a waiver of such right or any other right. A waiver by
Lender of a provision of this Agreement shall not prejudice or constitute a
waiver of Lender's right, otherwise to demand strict compliance with that
provision or any other provision of this Agreement. No prior waiver by
Lender, nor any course of dealing between Lender and Borrower, or between
Lender and any Grantor, shall constitute a waiver of any of Lender's rights
or of any of Borrower's or any Grantor's obligations as to any future
transactions. Whenever the consent of Lender is required under the
Agreement, the granting of such consent by Lender in any instance shall not
constitute continuing consent to subsequent instances where such consent is
required and in all cases such consent may be granted or withheld in the
sole discretion of Lender.
Notices. Any notice required to be given under this Agreement shall be
given in writing, and shall be effective when actually delivered, when
actually received by telefacsimile (unless otherwise required by law), when
deposited with a nationally recognized Overnight courier, or, if mailed,
when deposited in the United States mail, as first class, certified or
registered mail postage prepaid, directed to the addresses shown near the
beginning of this Agreement. Any party may change its address for notices
under this Agreement by giving formal written notice to the other parties,
specifying that the purpose of the notice is to change the party's address.
For notice purposes, Borrower agrees to keep Lender informed at all times
of Borrower's current address. Unless otherwise provided or required by
law, if there is more than one Borrower, any notice given by Lender to any
Borrower is deemed to be notice given to all Borrowers.
Severability. If a court of competent jurisdiction finds any provision of
this Agreement to be illegal, invalid, or unenforceable as to any
circumstance, that finding shall not make the offending provision illegal,
invalid, or unenforceable as to any other circumstance. If feasible, the
offending provision shall be considered modified so that it becomes legal,
valid and enforceable. If the offending provision cannot be so modified, it
shall be considered deleted from this Agreement. Unless otherwise required
by law, the illegality, invalidity, or unenforceability of any provision of
this Agreement shall not affect the legality, validity or enforceability of
any other provision of this Agreement.
Subsidiaries and Affiliates of Borrower. To the extent the context of any
provisions of this Agreement makes it appropriate, including without
limitation any representation, warranty or covenant, the word "Borrower" as
used in this Agreement shall include all of Borrower's subsidiaries and
affiliates. Notwithstanding the foregoing however, under no circumstances
shall this Agreement be construed to require Lender to make any Loan or
other financial accommodation to any of Borrower's subsidiaries or
affiliates.
Successors and Assigns. All covenants and agreements by or on behalf of
Borrower contained in this Agreement or any Related Documents shall bind
Borrower's successors and assigns and shall inure to the benefit of Lender
and its successors and assigns. Borrower shall not, however, have the right
to assign Borrower's rights under this Agreement or any interest therein,
without the prior written consent of Lender.
Survival of Representations and Warranties. Borrower understands and agrees
that in extending Loan Advances, Lender is relying on all representations,
warranties, and covenants made by Borrower in this Agreement or in any
certificate or other instrument delivered by Borrower to Lender under this
Agreement or the Rotated Documents. Borrower further agrees that regardless
of any investigation made by Lender, all such representations, warranties
and covenants will survive the extension of Loan Advances and delivery to
Lender of the Related Documents, shall be continuing in nature, shall be
deemed made and redated by Borrower at the time each Loan Advance is made,
and shall remain in full force and effect until such time as Borrower's
Indebtedness shall be paid in full, or until this Agreement shall be
terminated in the manner provided above, whichever is the last to occur.
Time is of the Essence. Time is of the essence in the performance of this
Agreement.
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DEFINITIONS. The following capitalized words and terms shall have the following
meanings when used in this Agreement. Unless specifically stated to the
contrary, all references to dollar amounts shall mean amounts in lawful money of
the United States of America. Words and terms used in the singular shall include
the plural, and the plural shall include the singular, as the context may
require. Words and terms not otherwise defined in lees Agreement shall have the
meanings attributed to such terms In the Uniform Commercial Code. Accounting
words and terms not otherwise defined in this Agreement shall have the meanings
assigned to them in accordance with generally accepted accounting principles as
in effect on the date of this Agreement:
Advance. The word "Advance" means a disbursement of Loan funds made, or to
be made, to Borrower or on Borrower's behalf on a line of credit or
multiple advance basis under the terms and conditions of this Agreement.
Agreement. The word "Agreement" means this Business Loan Agreement together
with all exhibits and schedules attached to this Business Loan Agreement
from time to time, if any, as amended from time to time.
Borrower. The word "Borrower" means Providence and Worcester Railroad
Company and includes all co-signers and co-makers signing the Note and all
their successors and assigns.
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Environmental Laws. The words "Environmental Laws' mean any and all state,
federal and local statutes, regulations and ordinances relating to the
protection of human health or the environment, including without limitation
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended. 42 U.S.C. Section 9601, et seq ("CERCLA"), the Superfund
Amendments and Reauthorization Act of 1986. Pub. L. No 99.499 ("SARA"), the
Hazardous Materials Transportation Act, 49 U.S.C. Section 1801, et seq.,
the Resource Conservation and Recovery Act. 42 U.S.C. Section 6901, at
seq., the Massachusetts Hazardous Waste Management Act, Mass Gen. Laws Ch.
21C. the Massachusetts Oil and Hazardous Material Release Prevention Act,
Mass, Gen. Laws, Ch. 21E, or other applicable state or federal laws, rules,
or regulations adopted pursuant thereto.
Event of Default. The words "Event of Default" mean any of the events of
default set forth in this Agreement in the default section of this
Agreement.
GAAP. The word "GAAP" means generally accepted accounting principles.
Grantor. The word "Grantor" means each and all of the persons or entities
granting a xxxxxxxx xxxxxxxx in any xxxxxxxxxx for the Loan, including
without limitation all Borrowers granting such a xxxxxxxx xxxxxxxx.
Guarantor. The word "Guarantor" means any guarantor, surety, or
accommodation party of any or all of the Loan.
Guaranty. The word 'Guaranty" means the guaranty from Guarantor to Lender,
including without limitation a guaranty of all or part of the Note.
Hazardous Substances. The words "Hazardous Substances" mean materials that,
because of their quantity, concentration or physical, chemical or
infectious characteristics, may cause or pose a present or potential hazard
to human health or the environment when improperly used, treated, stored,
disposed of, generated, manufactured, transported or otherwise handled. The
words "Hazardous Substances" are used in their very broadest sense and
include without limitation any and all hazardous or toxic substances,
materials or waste as defined by or listed under the Environmental Laws.
The term "Hazardous Substances" also includes, without limitation,
petroleum and petroleum by-products or any fraction thereof and asbestos,
Indebtedness. The word "Indebtedness" means the indebtedness evidenced by
the Note or Related Documents, including all principal and interest
together with all other indebtedness and costs and expenses for which
Borrower is responsible under this Agreement or under any of the
[OBJECT OMITTED]
( (Continued) Page 5
Related Documents.
Lender. The word "Lender" means Commerce Bank & Trust Company, its
successors and assigns.
Loan. The word "Loan" means any and all loans and financial accommodations
from Lender to Borrower whether now or hereafter existing, and however
evidenced, including without limitation those loans and financial
accommodations described herein or described on any exhibit or schedule
attached to this Agreement from time to time.
Note. The word "Note" means the Note executed by Providence and Worcester
Railroad Company in the principal amount of $5,000,000.00 dated June 25,
2009, together with all renewals of, extensions of, modifications of,
refinancings of, consolidations of, and substitutions for the note or
credit agreement.
Permitted Liens. The words "Permitted Liens" mean (1) liens and security
interests securing Indebtedness owed by Borrower to Lender. (2) liens for
taxes. assessments, or similar charges either not yet due or being
contested in good faith; (3) liens of materialmen mechanics warehousemen,
or carriers, or other like liens arising in the ordinary course of business
and securing obligations which are not yet delinquent. (4) purchase money
liens or purchase money security interests upon or in any property acquired
or held by Borrower in the ordinary course of business to secure
indebtedness outstanding on the date of this Agreement or permitted to be
incurred under the paragraph of this Agreement titled 'Indebtedness and
Liens'. (5) liens and security interests which, as of the date of this
Agreement, have been disclosed to and approved by the Lender in writing;
and (6) those liens and security interests which in the aggregate
constitute an immaterial and insignificant monetary amount with respect to
the net value of Borrower's assets.
Related Documents. The words "Related Documents" mean all promissory notes,
credit agreements, loan agreements, environmental agreements, guaranties,
xxxxxxxx xxxxxxxxxx, mortgages, deeds of trust, security deeds, collateral
mortgages, and all other instruments, agreements and documents, whether now
or hereafter existing, executed in connection with the Loan.
Security Agreement. The words "Security Agreement" mean and include without
limitation any agreements, promises, covenants, arrangements,
understandings or other agreements, whether created by law, contract, or
otherwise, evidencing, governing, representing, or creating a Security
Interest.
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Tangible Net Worth. The words "Tangible Net Worth" mean Borrower's total
assets excluding all intangible assets (i.e., goodwill, trademarks,
patents, copyrights, organizational expenses, and similar intangible items,
but including leaseholds and leasehold improvements) less total debt.
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS BUSINESS LOAN
AGREEMENT AND BORROWER AGREES TO ITS TERMS. THIS BUSINESS LOAN AGREEMENT IS
DATED JUNE 25, 2009.
THIS AGREEMENT IS GIVEN UNDER SEAL AND IT IS INTENDED THAT THIS AGREEMENT IS AND
SHALL CONSTITUTE AND HAVE THE EFFECT OF A SEALED INSTRUMENT ACCORDING TO LAW.
This Business Loan Agreement is subject to the terms and conditions of a certain
letter agreement dated June 25, 2009 between Lender and Borrower, the terms of
which are hereby incorporated by reference.
BORROWER:
PROVIDENCE AND WORCESTER RAILROAD COMPANY
By: /s/ Robert J. Easton (Seal)
------------------------------------
Robert J. Easton, Treasurer of Providence and Worcester
Railroad Company
ATTEST:
/s/ Marie A. Angelini ( Corporate Seal )
- ------------------------------------
Secretary
LENDER:
COMMERCE BANK & TRUST COMPANY
By: /s/ John McKenna (Seal)
- ------------------------------------
Authorized Signer
EXHIBIT 31.1
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT H. EDER, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: August 13, 2009
By: /s/ Robert H. Eder
----------------------------
Robert H. Eder,
Chairman of the Board
and Chief Executive Officer
EXHIBIT 31.2
Providence and Worcester Railroad Company
Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, ROBERT J. EASTON certify that:
1. I have reviewed this quarterly report on Form 10-Q of Providence and
Worcester Railroad Company;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the registrant and we have:
a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, is made known to us by others within those entities,
particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report, based on our evaluation; and
c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of
directors:
a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
DATE: August 13, 2009
By: /s/ Robert J. Easton
----------------------------
Robert J. Easton
Treasurer and Chief
Financial Officer
EXHIBIT 32
PROVIDENCE AND WORCESTER RAILROAD COMPANY
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Providence and Worcester Railroad
Company ("the Company") on form 10-Q for the quarterly period ended June 30,
2009, as filed with the Securities and Exchange Commission on the date hereof
("the Report"), I, Robert H. Eder, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert H. Eder
-----------------------------
Robert H. Eder,
Chairman of the Board and Chief
Executive Officer
August 13, 2009
In connection with the Quarterly Report of Providence and Worcester Railroad
Company ("the Company") on form 10-Q for the quarterly period ended June 30,
2009, as filed with the Securities and Exchange Commission on the date hereof
("the Report"), I, Robert J. Easton, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Company.
/s/ Robert J. Easton
-----------------------------
Robert J. Easton,
Treasurer and Chief Financial Officer
August 13, 2009