-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Pa9bEizgvd2CTU++HDlcHGQfCSSuqvJj8Waa9UsBz4yxTEV/8bWjUknmFaeYUlQ/ tUHy3H7/Vp4/0py0/IxSVg== 0000912057-99-010724.txt : 19991229 0000912057-99-010724.hdr.sgml : 19991229 ACCESSION NUMBER: 0000912057-99-010724 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991228 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FALL RIVER GAS CO CENTRAL INDEX KEY: 0000034371 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 041298780 STATE OF INCORPORATION: MA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13517 FILM NUMBER: 99781486 BUSINESS ADDRESS: STREET 1: 155 N MAIN ST STREET 2: P O BOX 911 CITY: FALL RIVER STATE: MA ZIP: 02722-0911 BUSINESS PHONE: 5086757811 MAIL ADDRESS: STREET 1: 155 NO MAIN ST STREET 2: 155 NO MAIN ST CITY: FALL RIVER STATE: MA ZIP: 02720 10-K 1 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) For the fiscal year ended September 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) Commission File Number 0-449 FALL RIVER GAS COMPANY - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) MASSACHUSETTS 04-1298780 - ------------------------------------ -------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization Identification No.) 155 NORTH MAIN STREET, FALL RIVER, MASSACHUSETTS 02720 - -------------------------------------------------- -------------------------- (Address or principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 675-7811 ----------------------------- Securities registered pursuant to Section 12 (b) of the Act: Name of each exchange on Title of each class which registered ------------------- --------------------- Common Stock Par Value $.83 1/3 Per Share American Stock Exchange - ----------------------------------------- ----------------------- Securities registered pursuant to Section 12 (g) of the Act: Common Stock Par Value $.83 1/3 Per Share ----------------------------------------- (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by references in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the Registrant (1,933,161) shares was $41,079,671 as of December 14, 1999 of $21.25. Indicate the number of shares outstanding of each of the Registrant's classes of the latest practicable date. Class Outstanding at December 14, 1999 ----- -------------------------------- Common Stock, $.83 1/3 par value 2,208,145 Documents incorporated by reference: Definitive Proxy Statement dated December 17, 1999 (Part III) FALL RIVER GAS COMPANY ---------------------- 1999 FORM 10-K ANNUAL REPORT ---------------------------- Table of Contents PART I ------
Page Item 1. Business 3 General 3 Sales And Transportation 4 Rates and Regulation 6 Gas Supply And Storage 9 Competition 12 Employees 14 Item 2. Properties 15 Item 3. Legal Proceedings/Environmental Matters 15 Item 4. Submission of Matters to a Vote of Security Holders 17 PART II Item 5. Market for the Registrant's Common Stock and 20 Related Stockholder Matters Item 6. Selected Financial Data 21 Item 7. Management's Discussion and Analysis of Financial 22 Condition and Results of Operations Item 8. Financial Statements and Supplementary Data 28-37 Item 9. Disagreements on Accounting and Financial Disclosure 37 PART III Item 10. Directors and Executive Officers of the Registrant 37 Item 11. Executive Compensation 38 Item 12. Security Ownership of Certain Beneficial Owners and 38 Management Item 13. Certain Relationships and Related Transactions 38 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports 39 of Form 8-K
2 PART I ITEM 1. BUSINESS GENERAL The Company, organized as a Massachusetts corporation on September 25, 1880, is an investor-owned public utility company that sells, distributes and transports natural gas (mixed with propane and liquefied natural gas during winter months) at retail through a pipeline distribution system in the City of Fall River and the towns of Somerset, Swansea and Westport, all located within the southeastern portion of the Commonwealth of Massachusetts. The principal markets served by the Company are (1) residential customers using gas for heating, cooking and water heating, (2) industrial customers using gas for processing items such as textile and metal goods, (3) commercial customers using gas for cooking and heating, and (4) federal and state housing projects using gas for heating, cooking and water heating. The Company is engaged in only one line of business as described above, and in activities incidental thereto. The Company has one wholly-owned subsidiary, Fall River Gas Appliance Company, Inc., a Massachusetts corporation, which rents water heaters and conversion burners (primarily for residential use) in the Company's gas service area. Earnings from the Appliance Company are primarily the result of revenues from the rental of water heaters and conversion burners. As of September 30, 1999, the water heater program had 14,063 rentals in service and the conversion burner program had 4,399 rentals in service. The Appliance Company also derives revenues from the sale of central heating and air-conditioning systems and water heaters. This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the 3 Exchange Act, particularly in the "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources" and "Business" sections. Forward-looking statements are generally identified with the following phrases: "believes", "expects", and "anticipates", or words of similar import. Actual results could differ materially from those expressed or implied in such forward-looking statements as a result of the risk factors set forth below and other information contained elsewhere in the Annual Report. In addition to the other information contained and incorporated by reference in this Annual Report, the following factors should be carefully considered in evaluating the Company and its business. SALES AND TRANSPORTATION The Company's service territory is approximately 50 square miles in the area surrounding the City of Fall River, Massachusetts. The Company had an average of 47,843 sales customers during the twelve months ended September 30, 1999, of which approximately 94% were residential and 6% were commercial and industrial. For the twelve months ended September 30, 1999 approximately 73% of the Company's gas operating revenues were derived from sales to residential customers and 27% were derived from sales or transportation to commercial and industrial customers. At September 30, 1999 the Company had 46 commercial and industrial transportation customers, which, in the aggregate, accounted for 24% of the total gas carried over the Company's pipeline system ("throughput") and approximately 4% of gas operating revenues for the twelve months ended September 30, 1999. The Company's tariffs currently do not allow for residential transportation service. The Company's residential customers take service only under firm sales tariffs and use natural gas for heating, cooking and water heating, of which heating use constitutes most of such consumption. Commercial customers (such as stores, restaurants and offices) generally use gas for 4 cooking and heating. Under currently effective tariffs, commercial customers may take the Company's transportation service and purchase their own gas. At this time, however, most commercial customers take firm sales service from the Company. Industrial customers primarily use natural gas in manufacturing and processing applications, such as for metal or textile goods. Such firm industrial sales and transportation load is fairly level throughout the year because generally a small part of those customers' usage is for heating. Certain of the Company's industrial customers also take interruptible service either on a sales or transportation basis. These customers are subject to service discontinuance on short notice as system firm requirements may demand. Such customers generally use interruptible natural gas service for boiler or plant heating and are able to change to an alternate fuel when there are supply constraints (generally during the heating season). Also, the prices of alternative sources of energy impact the interruptible markets. Prices for these customers are based on the price of the customers' alternative fuel. The following table shows the Company's throughput during each of the periods shown below in millions of cubic feet ("MMcf"): 5 For the Fiscal Year Ended September 30,
1999 1998 1997 1996 1995 ------------------------------- Residential.............. 3,738 3,823 4,063 4,351 3,858 Commercial............... 1,250 1,302 1,400 1,454 1,262 Industrial-firm.......... 148 261 383 418 443 Industrial-interruptible. 38 32 15 71 430 Special Contracts........ 0 0 0 498 441 Transportation........... 1,626 1,523 1,701 1,101 818 ----- ----- ----- ------ ----- TOTAL.................... 6,800 6,941 7,562 7,893 7,252 ===== ====== ===== ===== =====
The Company's utility sales business is seasonal. See "Management's Discussion and Analysis of Financial Condition and Results of Operations-Seasonality". RATES AND REGULATION The Company is subject to the regulatory authority of the Massachusetts Department of Telecommunications and Energy ("MDTE") with respect to various matters, including the rates it charges for services, financings, certain gas supply contracts and planning and safety matters. The Company's principal firm sales rate classifications are residential, commercial and industrial. The Company also provides transportation service and, from time to time subject to specific MDTE 6 approval, may provide service under special contracts. As of and after October 1, 1997, the Company had no special contracts. The Company's rate structure is based on the cost of providing service to each class of customer. The Company's firm rate structure is based on generally seasonal rates, whereby base rates are higher in the winter (November through April) and lower in the summer (May through October). In addition to its base rates, the Company has a seasonal cost of gas adjustment rate schedule (the "CGAC"), which provides for the recovery from firm customers of all purchased gas costs. Through the CGAC, the Company also imposes charges, subject to MDTE approval, that are estimated semi-annually and include credits for gas pipeline refunds and profit margins applicable to interruptible sales. Actual gas costs are reconciled semi-annually and any difference is included as an adjustment in the calculation of the CGAC charges. Charges under the CGAC rate schedule are added to the base rates and are designed generally to recover higher costs in the winter and refund lower gas costs in the summer. Pursuant to MDTE approvals, the Company has collected all Federal Energy Regulatory Commission ("FERC") Order 636 transition costs billed to it. On May 17, 1996 the Company filed revised tariffs with the MDTE to unbundle its commercial and industrial service classes and to increase annual revenues. By order dated October 16, 1996, the MDTE authorized the Company to increase its rates for sales of gas effective December 1, 1996. The amount of this increase on an annualized basis was $3,200,000. That MDTE order also approved various changes to the Company's commercial and industrial rates to facilitate the ability of customers on such rates to choose between purchasing their gas supplies from the Company on a "bundled" basis or purchasing from third parties and having the Company transport and deliver such supplies. Such rates were also designed to make the Company economically indifferent to a customer's choice of bundled sales service or transportation service. Such transition to local 7 distribution companies ("LDC's"), such as the Company, providing more service by transporting, as opposed to selling, natural gas has continued. Over the past year, LCDs, unregulated gas marketers, customer groups and the Massachusetts Attorney General have worked together to address a variety of issues relating to restructuring the natural gas industry. This effort, known as the Massachusetts Gas Collaborative has led to further unbundling by several Massachusetts LDCs and an agreement by such industry participants on the basic rules governing the relationships and transactions between LDCs and marketers. In February 1999, the MDTE issued an order establishing a three year transition period for industry restructuring. Specifically, the MDTE ruled that with the exceptions of marketers' existing customers, natural gas marketers or customers MUST accept portions of the LDC's supply and transportation contract capacity rights when customers shift from purchasing their gas supplies from LDCs to marketers. The MDTE also required exploration of issues such as LDCs outsourcing management of their supply portfolio or sale thereof by auction and exiting the business of selling natural gas generally. Such developments will over time lead to increased activity by marketers and a greater percentage of LDCs' (including the Company's) throughput being transportation rather than sales. Also the MDTE is currently considering other issues that are central to the structure and extent of composition within the natural gas industry in Massachusetts, including the structure and mechanics of assigning (and where applicable, recalling) capacity to marketers of LDCs; providing "default service' (i.e., where the customer returns to the LDC as its source of supply); and provision of peaking service to marketers. The regulation of prices, terms and conditions of interstate pipeline transportation and sales of natural gas is subject to the jurisdiction of FERC. Although the Company is not under the direct jurisdiction of FERC, the Company monitors, and periodically participates in, proceedings before 8 FERC that affect the Company's pipeline gas transporters, the Company's operations and other matters pertinent to the Company's business. The Company is also subject to standards prescribed by the Secretary of Transportation under the Natural Gas Pipeline Safety Act of 1968 with respect to the design, installation, testing, construction and maintenance of pipeline facilities. The enforcement of these standards has been delegated to the MDTE. GAS SUPPLY AND STORAGE For several decades, until 1993, the Company primarily relied upon a single supplier, Algonquin Gas Transmission Company ("Algonquin"), for its gas supply needs. In its merchant role, Algonquin provided all the Company's pipeline-supplied natural gas and storage, as well as transported such pipeline and storage supplies to the Company's system. This supply paradigm changed, however, in 1993 following FERC's issuance of Order 636. Order 636 was intended to encourage more competition among natural gas suppliers and required interstate pipelines to unbundle or separate gas sales, transportation and storage services. With the implementation of Order 636, most pipeline companies (including Algonquin) discontinued their traditional merchant function. Order 636 allowed pipeline companies to recover from their customers, gas distribution companies such as the Company, costs associated with the service unbundling and discontinuation of merchant service. This resulted in each local distribution company becoming responsible for obtaining all of its gas supply in the open market. While unbundling of these services allows a local distribution company, such as the Company, more flexibility in selecting and managing the type of services required to provide its customers with the lowest possible priced gas while maintaining a reliable gas supply, it also places additional responsibility on a distribution company to obtain its natural gas supply in the open market on a timely basis to fulfill commitments 9 during peak demand periods. With the advent of FERC Order 636, which was implemented on June 1, 1993, the Company assumed the full responsibility for aggregating, gathering and arranging for the transmission of all required pipeline gas supplies to its distribution system. The pipelines serving the Company, Algonquin and its affiliate Texas Eastern Transmission Company ("Texas Eastern"), have made the required compliance filings of tariff sheets and have fully implemented the provisions of Order 636. The primary related issue of the billing by Algonquin and Texas Eastern of transition costs has been resolved. The Company has made appropriate arrangements for supplies to replace the sales service formerly provided by Algonquin, or "Conversion Supplies". The Company is required to obtain the approval of the MDTE for gas supplies that are to be purchased over a period in excess of one year, including any Conversion Supplies. Through its arrangements for the Conversion Supplies, the Company has contracted for a "city gate management service", which includes the provision of transportation, sales and storage services by a third party. The Company has maintained reliability and flexibility of service through this arrangement at a cost very competitive with any other combination of unbundled services, but with much less administrative risk and costs than would pertain to alternatives. Approximately 90% of the Company's Conversion Supplies are provided under a multi-year contract with SEMPRA Energy Trading (formerly CNG Energy Services Corporation) ("SEMPRA") in quantities described below. Such contract remains effective through October,2000. In June 1995, the MDTE approved the Company's contract with SEMPRA and in November 1999 the MDTE approved an extension thereof. The Company also has short-term arrangements in place for supplemental supplies for the 1999-2000 winter heating season. The Company is currently analyzing the proper amount of such supply for future years and has filed a "Forecast and Supply Plan" with the MDTE, 10 along with a request for approval thereof and certain supplemental gas supplies. The MDTE's decision is pending. The Company has contracted with SEMPRA for the purchase of all pipeline commodity supplies for delivery to the Company's distribution system, as well as storage services, management of Company-owned pipeline and storage capacity and provision of significant amounts of back-up deliveries from a different gas production area. SEMPRA's firm, year-round contract deliveries to the Company provide for an annual contract quantity of 5,219,255 Mcf delivered to the Company's facilities ("City Gate") on a 365-day basis and for deliveries into storage for the Company in an annual amount of 841,355 Mcf. The maximum daily quantity ("MDQ") of City Gate deliveries are 17,461 Mcf and the storage MDQ is 11,441 Mcf with 7,124 Mcf of that total MDQ available for City Gate deliveries from November 16 through April 15 as winter service supplies delivered via Algonquin. The remainder of the MDQ is available each day of the year. All commodity deliveries are priced at an index price reflective of the market price. This type of pricing mechanism is designed to allow the Company to obtain its gas supply at competitive prices. The SEMPRA supply contract includes a mechanism whereby alternative market indices may be used in conjunction with the futures market to fix the price of all or part of the gas supplied if the market is such that additional price security is deemed prudent. The SEMPRA contract commenced on June 1, 1993 and has been extended until October 31, 2000. The Company, along with the informal buying group with whom it arranged the original SEMPRA contract, has been discussing with SEMPRA and other suppliers, potential arrangements for supply after October 31, 2000. In addition to the supplemental gas supplies described below, the Company has requirements for a supply of approximately (1,479,000) Mcf during the 1999-2000 heating season (November through March). To fulfill this portion of its supply portfolio, the Company obtained bids from 11 several potential suppliers and has entered into supply contracts for a three year term with Distrigas of Massachusetts Corporation ("DOMAC") and a separate one year contract with SEMPRA. Supplies are currently being provided under the DOMAC contracts, though the MDTE must approve the contract. The Company has made the necessary filing with the MDTE and awaits action on its request for approval. The Company has a renewable one-year Firm Liquid Contract with DOMAC for 200,000 MMBTU of liquefied natural gas ("LNG"), to be delivered by truck to the Company's storage tank for use in "peak shaving" operations which supplement pipeline volumes in peak requirement situations. In addition to the LNG peak shaving facilities, the Company also maintains storage and send out facilities for liquefied propane gas ("LPG") that provide an additional 88,000 MMBTU of sendout capacity when needed. The Company's projected peak day requirements are 68,598 Mcf for the 1999-2000 heating season compared to the Company's peak day capacity of 70,000 Mcf. The Company's peak day capacity is comprised of 29,859 Mcf of pipeline deliveries pursuant to the SEMPRA contracts to the City Gate; 13,000 Mcf of supplemental DOMAC and SEMPRA gas supplies, delivered by pipeline; vaporization of Company stored liquid propane ("LP") into gas for injection (all by Company-owned equipment) into the Company's distribution system in daily amounts of about 10,000 Mcf; and vaporization of Company-stored LNG and injection into the distribution system in daily amounts of about 20,000 Mcf. COMPETITION Historically, the Company was not subject to competition from any other gas public utility or gas marketers with respect to sales of the natural gas commodity, but rather only from electricity, oil, coal and other fuels for heating, water heating, cooking, air conditioning and other 12 purposes. Generally, the Company does not face competition relative to its delivery of natural gas. As discussed above, however, the status of competition among suppliers of natural gas sales service has significantly increased with the level of marketer activity and tariff and regulatory changes that facilitate competition. As a result, marketers are currently selling natural gas to several large volume end-users to whom the Company has historically made sales. Marketers can be expected to seek to provide an increasing volume of sales services to end-users located within the Company's service territory. At the current time, for all third-party commodity sales that are occurring in the Company's service territory, the Company transports those gas supplies within the Company's service territory and delivers the supplies to the customers. The margins earned by the Company for such transportation services are the same as margins earned on bundled supply/delivery sales to the same end-users. Similar opportunities may exist for the Company to broker gas to new or existing customers, whether or not located within the Company's service territory, although the Company has not done so to date and strict affiliate transaction rules would apply. The principal considerations in the competition between the Company and suppliers of other fuel or energy include price, equipment operational efficiencies and ease of delivery. In addition, the type of equipment already installed in the businesses and residences significantly affects the customer's choice of fuel or energy source, and in some cases whether a customer will choose to transport gas supplied by marketers, or to purchase from the Company. The price of natural gas currently compares favorably to electricity but is generally higher than fuel oil, especially the grade of oil used by certain commercial and industrial customers. As price is generally considered the most significant factor affecting competition among the various energy sources, there is always uncertainty in the continuing 13 competition among such energy sources, due to variations in price. Equipment operational efficiencies and ease of delivery give natural gas advantages over oil and also makes natural gas comparable to electricity in these respects. Because of the environmental advantages associated with natural gas and the efficiency and security of its supply, the demand for natural gas is expected to continue to increase. Also, manufacturing, processing and other equipment requirements are such that the use of gas rather than another fuel is virtually a necessity for certain large commercial and industrial customers. Heating, water heating and other domestic or commercial equipment is generally designed for a particular energy source, and especially with respect to heating equipment, the cost of conversion is a disincentive for individuals and businesses to change their energy source. Currently, the Company estimates that its gas heating saturation in areas in which it has been in active service is approximately 89%. The regulatory initiatives now under consideration pursuant to which gas distribution companies in Massachusetts, such as the Company, would restrict their sales activities, will also have a significant impact on the role of the Company in an increasingly competitive market. For all of these reasons, the Company believes that competition in the area of natural gas sales from natural gas brokers and marketers, as well as from other fuel sources, will intensify in the future. EMPLOYEES The Company employed 171 full-time and 7 part-time employees as of September 30, 1999. Of those employees, 73 are represented by the Utility Workers Union of America, AFL-CIO, Local No. 431. The Company and its union employees currently have a contract through April 30, 2002. The Company believes that it enjoys generally good labor relations. 14 ITEM 2. PROPERTIES The Company owns approximately 635 miles of distribution mains, the major portion of which are constructed of coated steel, plastic or cast iron. The Company owns and operates LP vaporizing equipment with an approximate daily capacity of 14,000 Mcf and six LP storage tanks with a total capacity of approximately 320,000 gallons. The Company also owns and operates an LNG storage tank with a capacity of 45,000 barrels, equivalent to approximately 157,000 Mcf of vaporized gas, and LNG vaporization equipment with a daily vaporization rate of approximately 20,000 Mcf. The Company has three gate stations receiving gas from the Algonquin pipeline. The Company also owns four office and operations buildings in the service area. All of the principal properties of the Company are owned in fee, subject to the lien of the mortgage securing the Company's First Mortgage Bonds (the "Indenture of First Mortgage"), and further subject to covenants, restrictions, easements, leases, rights-of-way and other similar minor encumbrances common to properties of comparable size and character, and none of which, in the opinion of the Company's management, materially interferes with the Company's use of its properties for the conduct of its business. The Company's gas mains are primarily located under public highways and streets. Where they are under private property, the Company has obtained easements or rights-of-way from the record holders of title. These easements and rights are deemed by the Company to be adequate for the purpose for which they are being used. ITEM 3. LEGAL PROCEEDINGS/ENVIRONMENTAL MATTERS In January 1990 the Company received notification from the Massachusetts Department of Environmental Protection ("MDEP") that it is one of numerous "potentially responsible parties" under Massachusetts laws in connection with two sites in Massachusetts which were the subject of 15 alleged releases of hazardous materials, including lead, by a company which had purchased scrap meters from various utilities including the Company. The Company has entered into an agreement with a group of other potentially responsible parties (the "Group") to respond jointly and to share costs associated with the MDEP's investigation. The Group negotiated an agreement with the MDEP to conduct limited response actions at one of the sites without admission of liability, at a cost of about $100,000 to the entire Group, pursuant to which members of the Group would be released from any further liability at the site. Remedial actions were commenced September 5, 1995 and have been completed. Though final MDEP approval of the actions taken has not been issued, the Group considers the issue closed. Efforts regarding the second site are in the early stages and potential remediation costs at the second site and the Company's degree of responsibility has not been determined, but the Group has made an offer to the MDEP for the Group to undertake to do some remidiation work at the Main Street site, but not to assume full responsibility for performing response actions with respect to either debris at that site or contamination in wetlands of surface water. This offer would be in exchange for a release from all other past of future response costs. The MDEP has not yet responded to this offer. The Company does not expect its allocated share of costs of any response actions which it may take or which may be required at the second site to be significant. On July 12, 1999, the suit, Louis Andrade, Donald P. Rodrigues and Dawn C. Rodrigues v. Fall River Gas Company, United States District Court of Massachusetts, C.A. No. 99-11669CAO, against the Company was filed with the United States District Court of the District of Massachusetts. The Plaintiffs are the mortgagee and owners, respectively, of 12 acres of land located in Tiverton, Rhode Island. The Plaintiffs have asserted claims against the Company pursuant to the Federal Comprehensive Environment Response, Compensation and Liability Act ("CERCLA") and the Rhode Island 16 Industrial Remediation and Refuse Act seeking to recover from the Company the costs of remediation of alleged lead and coal gas waste contamination on the property. The site of the contamination is within the 12 acres but does not comprise the full 12 acres. The Plaintiffs have made a settlement demand in the amount of $300,000 on October 22, 1999. The Company has refused that demand. The Plaintiffs allege that the Company is responsible for the presence of the hazardous materials found at the property. The only support the Plaintiffs have for their allegations is the eyewitness testimony of a single witness and his recollections from the 1930's, who has provided inconsistent testimony. The Company intends to contest the Plaintiffs' claims vigorously. The Company believes it will ultimately prevail and thus has not provided for any loss relative to this matter in its financial statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 17 ADDITIONAL ITEM - EXECUTIVE OFFICERS OF THE REGISTRANT Executive Officers: RAYMOND H. FAXON* Age 92, currently Vice Chairman of the Board of Directors and assistant Treasurer of the Registrant. His current business function is Vice Chairman of the Board of Directors and Assistant Treasurer. He is the father of Bradford J. Faxon. Positions held for the past five years are as follows: 1/1/88 - 12/31/93 - Chairman of the Board of Directors and Assistant Treasurer 1/1/94 - to Present - Vice Chairman of the Board of Directors and Assistant Treasurer His principal occupation for the past five years has been employment with the Registrant. BRADFORD J. FAXON* Age 61, currently chairman of the Board of Directors, President and a Director of the Registrant. His current business function is Chief Executive Officer. Positions held with the Registrant for the past five years are as follows: 12/1/78 to Present - Director 8/1/86 to Present - President 1/1/94 to Present - Chairman of the Board of Directors He is the son of Raymond H. Faxon. His principal occupation for the past five years has been employment with the Registrant. PETER H. THANAS Age 55, currently Senior Vice President and Treasurer of the Registrant. His current business function is Chief Financial and Accounting Officer of the Registrant. Positions held for the past five years are as follows: 18 8/ 1/86 to 9/19/94 - Financial Vice President and Treasurer 9/20/94 to Present - Senior Vice President and Treasurer His principal occupation for the past five years has been employment with the Registrant. JOHN F. FANNING Age 53, currently Vice President of Production and Gas Supply. His current business function is Vice President of Production and Gas Supply of the Registrant. Positions held with the Registrant for the past five years are as follows: 7/ 1/87 - 12/31/89 - Manager of Gas Supply 1/ 1/90 - 9/20/93 - Superintendent of Production and Gas Supply 9/21/93 to Present - Vice President of Production and Gas Supply His principal occupation for the past five years has been employment with the Registrant. WALLACE E. FLETCHER Age 66, currently Comptroller and Assistant Treasurer. His current business function is Comptroller and Assistant Treasurer of the Registrant. Positions held with the Registrant for the past five years are as follows: 5/27/92 to Present - Comptroller and Assistant Treasurer His principal occupation for the past five years has been employment with the Registrant. All officers are either elected or appointed at the Directors' Meeting following the annual Stockholders' meeting. Their terms of office are to be for one year or until their successors have been duly elected or appointed. *Members of the Executive Committee. 19 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCK- Holders Matters - -------------------------------------------------------------------------------- (a) Common Stock Quotations AMEX 3 Months Ended 9/30/99 6/30/99 3/31/99 12/31/98 9/30/98 6/30/98 3/31/98 12/31/97 (See Note) High 22 19-7/8 18-1/4 17-1/2 16-3/8 16-3/4 17-1/4 16-5/8 Low 18-3/4 17-1/8 16-7/8 15-1/8 14-3/8 14-1/4 14-7/8 13 Because of the infrequency of trading of the Registrant's Common Stock, such quotations may reflect inter-dealer prices, not actual transactions. (b) Number of Stockholders at September 30, 1999 is 789. (c) Dividends:
1999 1998 ---- ---- November 15, 1998 - $.24 November 15, 1997 - $.24 February 15, 1999 - .24 February 15, 1998 - .24 May 15, 1999 - .24 May 15, 1998 - .24 August 15, 1999 - .24 August 15, 1998 - .24
As of September 30, 1999 the Registrant had retained earnings totaling $10,661,885 of which $6,865,649 was restricted against payment of cash dividends under the terms of the Registrant's Indenture of Trust. ITEM 6. SELECTED FINANCIAL DATA The following table summarizes certain consolidated financial data and is qualified in its entirety by the more detailed Consolidated Financial Statements included herein. 20 Selected Financial Data Fall River Gas Company and Subsidiary The following table summarizes certain consolidated financial data and is qualified in its entirety by the more detailed Consolidated Financial Statements included herein.
Twelve Months Ended September 30, --------------------------------- 1999 1998 1997 1996 1995 ----------- ----------- ---------- ----------- ----------- Balance Sheet Data: Assets (in thousands) Utility plant-net................... $39,766 $39,650 $39,340 $38,653 $36,209 Non-utility plant-net............... 4,182 4,248 2,924 2,762 2,613 Current assets...................... 11,298 11,269 10,154 9,088 9,934 Other assets........................ 437 472 2,517 2,688 2,201 -------- --------- ------- ------ ------- Total......................... $55,683 $55,639 $54,935 $53,191 $50,957 ======= ======= ======= ======= ======= Capitalization and liabilities Capitalization Common equity....................... $17,584 $17,430 $12,618 $12,637 $12,922 Long-term debt (less current maturities)........................ 19,500 19,500 13,500 13,500 6,500 ------- -------- ------- ------- ------- Total.......................... 37,084 36,930 26,118 26,137 19,422 Current Liabilities................... 10,616 10,915 21,390 20,014 24,692 Other Liabilities..................... 7,983 7,794 7,427 7,040 6,843 -------- -------- ------ ------- ------ Total.......................... $55,683 $55,639 $54,935 $53,191 $50,957 ======= ======= ======= ======= ======= Income Statement Data: Gas operating revenues................... $42,081 $42,671 $45,261 $48,966 $44,418 Operating expenses: Cost of gas sold....................... 22,491 22,921 25,315 31,133 28,097 Other operation and maintenance........ 12,561 12,601 13,314 12,257 10,992 Depreciation........................... 2,104 2,050 1,935 1,609 1,499 Taxes-other than Federal income taxes.. 1,602 1,434 1,408 1,283 1,053 Federal income......................... 607 687 428 342 471 ------- ------ ------ ------ ------ Total........................... 39,365 39,693 42,400 46,624 42,112 ------- ------ ------ ------ ------ Operating income......................... 2,716 2,978 2,861 2,342 2,306 Other income-net of tax.................. 1,019 871 850 790 772 Total interest charges................... 1,635 1,769 2,086 1,708 1,461 ------ ------ ------ ------ ------ Net income............................... $2,100 $2,080 $1,625 $1,424 $1,617 ====== ====== ====== ====== ====== Shares outstanding-average............... 2,196,938 2,146,119 1,784,993 1,780,542 1,780,542 Earnings per share....................... $0.96 $0.97 $0.91 $0.80 $0.91 Dividends declared per share............. $0.96 $0.96 $0.96 $0.96 $0.96 Appliance Company net income............. $1,007 $851 $825 $779 $753
21 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OVERVIEW Operating results are derived from two major classifications - utility and non-utility. Utility revenues are generated from the operations of the regulated natural gas distribution company and include the sale and distribution, as well as the transportation, of natural gas to firm and interruptible customers. Non-utility revenues are almost entirely from the rental of water heaters and conversion burners. The sale and distribution, as well as the transportation, of natural gas to customers on a year-round basis for heating, water heating, cooking and processing are the sources of firm utility revenues, as described below. Firm customers can be residential, commercial or industrial. The revenues from firm sales customers are determined by regulated tariff schedules and through Massachusetts Department of Telecommunications and Energy ("MDTE") approved commodity charge factors. These factors include the Cost of Gas Adjustment Clause ("CGAC"), which allows the Company to collect from or return to customers changes in gas cost from those included in the regulated tariffs. The CGAC also provides for collection of: (i) carrying costs on gas purchases; (ii) pipeline transition costs; (iii) costs, incentives and lost base revenues associated with demand side management (DSM) programs; and (iv) certain costs of compliance with environmental regulations. In accordance with the Company's approved CGAC, increases or decreases in the cost of gas sold continue to be passed directly to firm customers, dollar for dollar. Sales to other utilities ("off-system sales") and to dual-fuel customers ("interruptible sales") are made when excess gas supplies are available and prices are competitive. Interruptible sales are generally made in non-winter months and can be interrupted by the Company at any time. Transportation, the delivery of gas purchased to customers from marketers and other third parties through the Company's distribution system, has recently become a growing portion of the Company's business. With the restructuring of the natural gas pipeline industry and the development of the state-level policy of unbundling of delivery and commodity sales functions, the Company's largest customers have moved first from firm tariffed sales service to firm sales service under special contracts and more recently to transportation service. The movement to the Company's transportation service occurred primarily after implementation of new rates on December 1, 1996. Under these rates, the Company earns the same margins on transportation service as it does on bundled commodity sales and delivery. Accordingly, the Company is generally indifferent as to whether customers take bundled sales and delivery or unbundled transportation service only. Such movement to transportation results in reduced gas operating revenues, because no commodity is bought by the Company for such customers. Correspondingly, cost of gas sold is reduced. Consequently, there is no impact on earnings because the Company earns no margin on the sale of natural gas itself. The Appliance Company generates non-utility revenues primarily from the rental of water heaters and conversion burners. The Appliance Company also sells such equipment and other gas-burning appliances such as central heating and air conditioning systems and water heaters. Such rentals and sales are made to the Company's gas customers and thereby assist the utility sales efforts. For income statement purposes, the net earnings of the Appliance Company are shown under "Other Income." A breakdown of the revenue and expenses of the Appliance Company is found in the Notes to Consolidated Financial Statements. 22 SEASONALITY The nature of the Company's business is highly seasonal and temperature-sensitive. As a result, the Company's operating results in any given period reflect, in addition to other matters, the impact of the weather, with colder temperatures resulting in increased sales and transportation by the Company. The substantial impact of this sensitivity to seasonal conditions is reflected in the Company's results of operations and the Company anticipates that it will continue to be so reflected in future periods. Short-term borrowing requirements vary according to the seasonal nature of sales and expense activities of the Company. Accordingly, there is a greater need for short-term borrowings during periods when internally generated funds are not sufficient to cover all capital and operating requirements, particularly in the fall and winter. Short-term borrowings utilized for construction expenditures generally are replaced by permanent financing when it becomes economical and practical to do so and where appropriate to maintain an acceptable relationship between borrowed and equity resources. RESULTS OF OPERATION FISCAL 1999 VERSUS FISCAL 1998 Operating revenues in fiscal 1999 totalled $42,081,000 a decrease of 1.4% from fiscal 1998. The decrease was attributable to a weather related decline in firm sales and transportation, and a decrease in gas costs recovered through the Company's CGAC. As discussed earlier, fluctuations in the cost of gas do not impact the profitability of the Company as these changes are recovered or returned to customers through the CGAC. Firm gas sales and transportation services was 6,761,000 Mcf in fiscal 1999, a decrease of 2.1% from fiscal 1998. The primary factor for the decline in firm gas sales was weather, which was 9.2% warmer than a normal year and 2.1% warmer than the prior year. Cost of gas sold includes costs for gas operation including supplemental fuels, such as, liquefied natural gas (LNG), propane (LPG), and storage, which are used to augment the Company's primary supply of natural gas during periods of peak usage. During fiscal 1999, gas costs decreased $430,000, 1.9%, to $22,491,000, due to reduced firm gas sales. The average cost per Mcf of gas distributed in fiscal 1999 and 1998 was $4.25 and $4.39, respectively. Other operations expense in fiscal 1999 totalled $11,033,000, a 0.7% decrease from the prior period. A decrease in overtime hours associated with the warmer weather caused this decline. Maintenance expenses increased in fiscal 1999 by 2.8% over the prior fiscal period to $1,528,000. The slight increase was a result of normal wage and material costs. Earnings of Fall River Gas Appliance Company, Inc., the Company's wholly-owned subsidiary, totaled $1,007,000 in fiscal 1999, an increase of $156,000 over fiscal 1998. This increase was a result of increased rental revenues from water heaters and conversion burners, as a result of a higher rental rate, and increased merchandise sales. Fiscal 1999 interest expense was $1,636,000, a 7.5% decrease from the prior fiscal period as a result of decreased short-term interest expense offset by increased interest expense on long-term debt. The net proceeds of the Company's long-term debt and equity offerings during the first quarter of fiscal 1998 were used to reduce the short-term borrowing for utility operations resulting in the decrease interest expense. Fiscal 1998 versus Fiscal 1997 Operating revenues in fiscal 1998 totalled $42,671,000, a decrease of 5.7% from fiscal 1997. The decrease in revenues from the prior fiscal period was attributable to a weather related decline in firm sales and a decrease in gas costs recovered through the Company's CGAC. Firm gas sales volume, firm sales and firm transportation, was 6,910,000 Mcf in fiscal 1998, a decrease of 6.1% from fiscal 1997. This decrease was a result of warmer weather, which was 8.4% warmer than normal and 6.5% warmer than the prior fiscal period. Cost of gas sold includes the costs of all commodity, storage, transportation and peak shave fuel requirements to serve utility sales customers. The average cost per Mcf of gas distributed in fiscal 1998 and fiscal 1997 was $4.39 and $4.46, respectively. Other operations expense in fiscal 1998 totaled $11,113,000, a 2.0% decrease from the prior fiscal period. A reduction in the costs associated with employee benefit programs and pension expense were primarily responsible for this decrease. Maintenance expense totaled $1,487,000 in fiscal 1998, a 24.8% decrease from the prior fiscal period. More efficient use of Company labor with a strict cost cutting program generated substantial savings compared to fiscal year 1997. Earnings of the Company's appliance company totaled $850,000 in fiscal 1998 compared to $824,000 in fiscal 1997. This increase was the result of increased revenues from water heater and conversion burner rentals. Fiscal year 1998 interest was $1,769,000, a 15.2% decrease from the prior fiscal period as a result of the issuance of equity totaling approximately $5,000,000 and long-term debt totaling $6,000,000 during the first quarter of fiscal 1998. LIQUIDITY AND CAPITAL RESOURCES The Company's major capital requirements result from upgrading the efficiency of existing plant and expanding plant to serve additional customers. Such capital expenditures are primarily for expansion and improvements of the Company's distribution system. For the 1999 fiscal year, capital expenditures totalled approximately $2,150,000 compared to $2,289,000 in fiscal 1998 and $2,468,000 in fiscal year 1997. Capital expenditures and other cash requirements were financed by internally generated funds and supplemented by short-term borrowings. During fiscal 1999 and fiscal year 1998 gas cost billings were lower than the Company's cost of gas, thereby having a negative impact on cash flow of approximately $10,000 and $1,837,000 in fiscal years 1999 and 1998, respectively. Lower gas cost billings also increased the Company's deferred gas balance to $3,627,000 in fiscal year 1999 from $3,617,000. The Company's net cash generated from operating activities in fiscal year 1999 was $3,581,000 compared to $4,253,000 and $3,289,000 in fiscal years 1998, and 1997, respectively. The Company had capital expenditures for utility and non-utility operations in the amounts of $2,413,000, $2,672,000, and $2,894,000 in fiscal years 1999, 1998, and 1997, respectively. As is customary in the utility industry, cash for construction requirements in excess of internally generated funds are provided through short-term borrowings under existing lines of credit, then from time to time repaid with the proceeds 24 from equity and long-term financing as deemed appropriate by management. On September 30, 1999 the Company had $14,200,000 of available borrowings under its lines of credit. While these lines are reviewed annually by our lending banks, management believes they will be renewed or replaced. Management believes the available lines of credit are sufficient to meet cash requirements for the foreseeable future. Cash flow patterns reflect the seasonality of the Company's business. The sales of natural gas are seasonal, generating approximately seventy percent of the Company's annual revenues between November 1 and March 31. The greatest demand for cash is in the late fall and winter as construction projects are brought to completion and accounts receivable balances rise. The Company anticipates annual utility construction expenditures over the next fiscal year to be approximately $2,300,000 and non-utility capital expenditures to be approximately $400,000 over the same period. It is anticipated that such expenditures will be financed from internally generated sources supplemented, as required, by short-term borrowing. YEAR 2000 ISSUES Software applications currently in use by the Company are certified to be Year 2000 compliant by the software vendors from whom the applications were purchased. The Company has modified, replaced or upgraded those applications which were not Year 2000 compliant and based on its testing of its systems, management believes its systems are Year 2000 compliant. The Company compiled cost estimates of the effort involved to perform those modifications, replacements and upgrades and to date Year 2000 related costs have not been material to the Company. The Company has inquired of third parties; i.e., vendors, suppliers and customers, which have a material relationship with the Company as to the status of their Year 2000 readiness. The Company continues to work with critical vendors, suppliers and customers to gain assurance of their readiness for Year 2000 and has developed contingency plans to mitigate anticipated shortcomings in their readiness. The Company cannot guarantee that the systems of other on which the Company's systems rely will be timely converted, or that a failure to convert by another company, or a conversion that is incompatible with the Company's, would not have a material adverse impact on the Company. The Company expects that its Year 2000 plan will be adequate to address its Year 2000 issues and has developed contingency plans to further assure that the vital functions of the Company dependent on third parties will continue uninterrupted. FACTORS THAT MAY AFFECT FUTURE RESULTS The private Securities Litigation Reform Act of 1995 encourages the use of cautionary statements accompanying forward-looking statements. The preceding Management's Discussion and Analysis of Financial Condition and Results of Operations includes forward-looking statements concerning the impact of changes in the cost of gas and of the CGAC mechanism on total margin; projected capital expenditures and sources of cash to fund expenditures; and estimated costs of environmental remediation and anticipated regulatory approval of recovery mechanisms. The Company's future results generally and with respect to such forward-looking statements, may be affected by many factors, among which are uncertainty as to the regulatory allowance of recovery of changes in the cost of gas; uncertain demands for capital expenditures and the availability of cash from various sources; uncertainty as to whether transportation rates will be reduced to future regulatory proceedings with resulting decreases in transportation margins; and uncertainty as to environmental costs and as to regulatory approval of the full 25 recovery of environmental costs, transition costs and other regulatory assets. NEW ACCOUNTING STANDARD In June 1998, the FASB issued SFAS No. 133,":Accounting for Derivative Instruments and Hedging Activities". SFAS 133 establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. It also requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. The new standard, as amended by SFAS No. 137, is effective for fiscal years beginning after June 15, 2000. Adoption of SFAS No. 133 is not expected to effect the Company's financial condition or results of operation. 26 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Fall River Gas Company: We have audited the accompanying consolidated balance sheets of FALL RIVER GAS COMPANY (a Massachusetts corporation) and subsidiary as of September 30, 1999 and 1998 and the related consolidated statements of income, retained earnings and cash flows for each of the three years in the period ended September 30, 1999. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Fall River Gas Company and subsidiary as of September 30, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 1999, in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The financial statement schedule under part IV, Item 14, presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. This information has been subject to the auditing procedures applied in our audit of the basic consolidated financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic consolidated financial statements taken as a whole. /S/ARTHUR ANDERSEN LLP Boston, Massachusetts November 12, 1999 27 CONSOLIDATED STATEMENTS OF INCOME Fall River Gas Company and Subsidiary For the Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- GAS OPERATING REVENUES....................... $42,081,629 $42,670,838 $45,261,249 OPERATING EXPENSES: Operations - Cost of gas sold.......................... 22,491,345 22,920,783 25,314,769 Other..................................... 11,033,098 11,113,369 11,337,000 Maintenance................................ 1,527,715 1,487,345 1,977,172 Depreciation .............................. 2,103,801 2,050,207 1,934,959 Taxes - Local property and other.................. 1,602,272 1,433,887 1,408,507 Federal and state income (Note 3)......... 607,212 686,909 427,768 ----------- ----------- ----------- 39,365,443 39,692,500 42,400,175 ----------- ----------- ----------- OPERATING INCOME.............................. 2,716,186 2,978,338 2,861,074 OTHER INCOME (EXPENSE): Earnings of Fall River Gas Appliance Company Inc.(Note 2)...................... 1,006,938 850,517 824,724 Interest income............................ 13,723 13,661 13,775 Other...................................... (1,364) 6,836 11,375 ------------ ----------- ----------- INCOME BEFORE INTEREST EXPENSE................ 3,735,483 3,849,352 3,710,948 ----------- ----------- ----------- INTEREST EXPENSE: Long-term debt............................ 1,607,300 1,534,900 1,172,900 Other..................................... 28,342 234,390 913,405 ----------- ----------- ----------- 1,635,642 1,769,290 2,086,305 ----------- ----------- ----------- NET INCOME.................................... $ 2,099,841 $ 2,080,062 $ 1,624,643 =========== =========== =========== AVERAGE NUMBER OF COMMON SHARES OUTSTANDING-Basic and Diluted.................... 2,196,938 2,146,119 1,784,993 =========== =========== =========== EARNINGS PER AVERAGE COMMON SHARE-Basic and Diluted $ 0.96 $ 0.97 $ 0.91 =========== =========== ===========
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS For the Years Ended September 30, 1999, 1998, and 1997
1999 1998 1997 ---- ---- ---- BALANCE AT BEGINNING OF YEAR................. $10,672,783 $10,693,309 $10,865,648 Net Income................................... 2,099,841 2,080,062 1,624,643 ----------- ----------- ----------- Total.................................... 12,772,624 12,773,371 12,490,291 Dividends declared........................... 2,110,739 2,100,588 1,796,982 ----------- ----------- ----------- BALANCE AT END OF YEAR....................... $10,661,885 $10,672,783 $10,693,309 =========== =========== ===========
The accompanying notes are an integral part of these financial statements. 28 CONSOLIDATED BALANCE SHEETS Fall River Gas Company and Subsidiary September 30, 1999 and 1998
ASSETS 1999 1998 ---- ---- PROPERTY, PLANT AND EQUIPMENT, at original cost: Gas................................................... $ 62,319,207 $ 60,448,647 Nonutility, principally rented gas appliances......... 6,069,442 6,288,100 ------------ ------------ 68,388,649 66,736,747 Less-Accumulated depreciation......................... 24,440,265 22,839,053 ------------ ------------ 43,948,384 43,897,694 ------------ ------------ CURRENT ASSETS: Cash.................................................. 279,079 356,005 Accounts receivable, less allowance for doubtful accounts of $1,065,000 in 1999 and $957,000 in 1998............. 1,617,328 1,807,487 Inventories, at average cost - Liquefied natural gas, propane, and natural gas in storage 3,574,562 3,148,311 Materials and supplies................................ 1,345,614 1,273,772 Deferred gas costs.................................... 3,627,483 3,617,512 Prepaid taxes......................................... 143,478 401,160 Prepayments and other................................. 710,005 665,243 ------------ ------------ 11,297,549 11,269,490 ------------ ------------ DEFERRED CHARGES: Regulatory asset (Note 5)............................. 426,313 453,471 Other................................................. 10,702 18,885 ------------ ------------ 437,015 472,356 ------------ ------------ $ 55,682,948 $ 55,639,540 ============ ============
The accompanying notes are an integral part of these consolidated financial statement. 29 CONSOLIDATED BALANCE SHEETS(Cont.) Fall River Gas Company and Subsidiary September 30, 1999 and 1998
CAPITALIZATION: 1999 1998 ---- ---- Stockholders' investment- Common stock, par value $.83-1/3 per share, 2,951,334 shares authorized, 2,201,827 issued in 1999 and 2,201,334 in 1998................................. $ 1,836,109 $ 1,834,445 Premium paid-in on common stock..................... 5,085,540 4,954,532 Retained earnings (Note 4).......................... 10,661,885 10,672,783 ----------- ----------- 17,583,534 17,461,760 Less zero shares in 1999 and 9,326 in 1998 of common stock held in treasury, at cost.............. 0 31,443 ----------- ----------- 17,583,534 17,430,317 Long-term debt (Note 4) 19,500,000 19,500,000 ----------- ---------- Total capitalization.............................. 37,083,534 36,930,317 ----------- ----------- CURRENT LIABILITIES: Notes payable to banks (Note 4)....................... 5,800,000 5,100,000 Dividends payable..................................... 528,567 526,173 Accounts payable...................................... 1,798,662 3,074,673 Other................................................. 2,488,776 2,214,022 ----------- ----------- 10,616,005 10,914,868 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 6) DEFERRED CREDITS: Accumulated deferred income taxes (Note 3)............ 4,532,790 4,462,626 Unamortized investment tax credits (Note 3)........... 441,169 485,453 Other................................................. 2,625,687 2,390,716 Regulatory liability (Note 3)......................... 383,763 455,560 ----------- ----------- 7,983,409 7,794,355 ----------- ----------- $55,682,948 $55,639,540 =========== ===========
The accompanying notes are an integral part of these financial statements. 30 CONSOLIDATED STATEMENTS OF CASH FLOWS Fall River Gas Company and Subsidiary For the Years Ended September 30, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- Cash Provided by (Used for) Operating Activities: Net Income ....................................... $ 2,099,841 $ 2,080,062 $ 1,624,643 Items not requiring (providing) cash: Depreciation ................................... 2,347,615 2,292,374 2,121,759 Deferred income taxes .......................... 70,164 188,786 149,854 Investment tax credits, net .................... (44,284) (44,284) (37,958) Change in working capital ...................... (1,106,243) (1,278,188) (939,194) Other sources, net ............................. 213,624 1,013,970 370,037 ------------ ------------ ------------ Net cash provided by operating activities ..... 3,580,717 4,252,720 3,289,141 ------------ ------------ ------------ Investing Activities: Additions to utility property, plant and equipment (2,149,649) (2,288,562) (2,467,988) Additions to nonutility property ................. (263,764) (383,801) (426,502) ------------ ------------ ------------ Net cash used for investing activities ......... (2,413,413) (2,672,363) (2,894,490) ------------ ------------ ------------ Financing Activities: Cash dividends paid on common stock .............. (2,108,345) (2,086,070) (1,712,657) Retirement of long-term debt through sinking fund 0 0 0 Common stock transactions ........................ 164,115 4,832,318 153,471 Proceeds from long-term debt issue ................ 0 6,000,000 0 Increase(decrease) in notes payable to banks, net 700,000 (10,300,000) 1,100,000 ------------ ------------ ------------ Net cash used for financing activities .......... (1,244,230) (1,553,752) (459,186) Increase (decrease) in cash .............................. (76,926) 26,605 (64,535) Cash, beginning of year .................................. 356,005 329,400 393,935 ------------ ------------ ------------ Cash, end of year ........................................ $ 279,079 $ 356,005 $ 329,400 ============ ============ ============ Changes in Components of Working Capital(excluding cash): (Increase) decrease in current assets: Accounts receivable ............................. $ 190,159 $ 164,814 $ 704,021 Inventories ..................................... (498,093) 28,371 179,311 Prepayments and other ........................... 212,919 554,694 (434,175) Deferred gas cost ............................... (9,971) (1,836,714) (1,579,533) Increase (decrease) in current liabilities: Accounts payable ................................ (1,276,012) (470,971) (8,980) Gas supplier refunds due customers .............. 0 0 0 Accrued taxes ................................... 0 0 0 Other ........................................... 274,755 281,618 200,162 ------------ ------------ ------------ Change in working capital ...................... $ (1,106,243) $ (1,278,188) $ (939,194) ============ ============ ============ Supplemental Disclosure of Cash Flow Information: Cash paid for: Interest ........................................ $ 1,770,762 $ 1,745,556 $ 2,015,215 Income taxes .................................... 1,156,500 593,588 1,131,624
The accompanying notes are an integral part of these financial statements. 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Fall River Gas Company and Subsidiary September 30, 1999 1) ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION The Consolidated financial statements include the accounts of Fall River Gas Company (the Company) and subsidiary, Fall River Gas Appliance Company, Inc., (the Appliance Company). The Company's principal business is the operation of a regulated gas distribution company in southeastern Massachusetts, while its wholly-owned subsidiary rents gas appliances. All significant intercompany accounts and transactions have been eliminated in consolidation. REGULATION The Company's rates, operations, accounting and certain other practices are subject to the regulatory authority of the Massachusetts Department of Telecommunications & Energy (MDTE). The Company's accounting policies conform to generally accepted accounting principles applicable to rate regulated enterprises and the reported amounts of revenues and expenses during the reported period. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reporting and disclosure of assets and liabilities, including those that are of a contingent nature, at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. DEPRECIATION & AMORTIZATION Depreciation of property, plant and equipment is provided using the straight-line method at rates designed to amortize the cost of these assets over their estimated useful lives. The composite depreciation rate for gas plant is 3.5%. Rented gas appliances have estimated useful lives of 10 to 20 years. Installation costs of rented appliances are amortized over the estimated life of the lease period. GAS OPERATING REVENUES AND COST OF GAS SOLD Gas operating revenues are recorded based on meter readings made on a cycle basis throughout the month. Accordingly, in any period, the actual volume of gas supplied to customers may be more or less than the usage for which the customers have been billed. The Company's approved rate tariffs include a cost of gas adjustment (CGAC) factor allowing dollar-for-dollar recovery of the cost of gas sendout to firm customers. Actual costs incurred at the end of any period may differ from amounts recovered through application of the CGAC. Any excess or deficiency in amounts billed as compared to costs is deferred and either refunded to, or recovered from, the customers over a subsequent period. REGULATORY ASSETS Regulatory assets relate to unrecovered expense from the adoption of Statement of Financial Accounting Standards No. 106, "Employers", " Accounting for Posretirement Benefits other than Pensions" (SFAS)106. These regulatory assets do not earn a return on investment. 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (cont.) 2) FALL RIVER GAS APPLIANCE COMPANY, INC. The earnings of the Fall River Gas Appliance Company, Inc. are shown as Other Income in the accompanying Consolidated Statements of Income. Condensed operating information of the Appliance Company for the years ended September 30, 1999, 1998, and 1997 is as follows:
1999 1998 1997 ---- ---- ---- Operating revenues ........... $4,170,646 $3,409,506 $3,176,526 Costs and expenses ........... 2,475,830 1,976,501 1,786,944 ---------- ---------- ---------- Income before income taxes 1,694,816 1,433,005 1,389,582 Income tax expense ........... 687,878 582,488 564,858 ---------- ---------- ---------- Net income ........... $1,006,938 $ 850,517 $ 824,724 ========== ========== ==========
3) INCOME TAXES The Company and its subsidiary file a consolidated Federal income tax return. Each company provides Federal income taxes on a separate company basis. The following is a summary of the provision for Federal and State income taxes:
1999 1998 1997 -------------------------- -------------------------- -------------------------- FEDERAL STATE FEDERAL STATE FEDERAL STATE ----------- ----------- ----------- ----------- ----------- ----------- Current ............................... $ 999,764 $ 266,532 $ 891,431 $ 235,811 $ 693,858 $ 194,129 Deferred .............................. 57,443 12,721 155,731 33,056 123,690 26,164 Investment tax credits ................ (44,284) -- (44,284) -- (37,958) -- ----------- ----------- ----------- ----------- ----------- ----------- Total provision ................ $ 1,012,923 $ 279,253 $ 1,002,878 $ 268,867 $ 779,590 $ 220,293 =========== =========== =========== =========== =========== =========== Provision for income taxes included in: Operating expenses .................. $ 496,616 $ 110,596 $ 562,784 $ 124,125 $ 348,708 $ 79,060 Other income- Fall River Gas Appliance Company ............ 518,726 169,152 438,145 144,343 424,858 140,001 Other ............................... (2,419) (495) 1,949 399 6,024 1,232 ----------- ----------- ----------- ----------- ----------- ----------- Total provision ............... $1,012,923 $ 279,253 $ 1,002,878 $ 268,867 $ 779,590 $ 220,293 =========== =========== =========== =========== =========== ===========
On October 1, 1993, the Company adopted Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for Income Taxes". SFAS 109 requires adjustments of deferred tax assets and liabilities to reflect the future tax consequences, at currently enacted tax laws and rates, of items already reflected in the financial statements. The implementation of SFAS 109 resulted in the recognition of a regulatory liability of approximately $412,000 for the tax benefit of unamortized investment tax credits, which SFAS 109 requires to be treated as a temporary difference. This benefit is being passed on to customers over the lives of the property giving rise to the investment tax credit. The tax effect of the cumulative differences that gave rise to the deferred tax liabilities and deferred tax assets for the year ended September 30, 1999 and 1998 are detailed on the following page (in thousands): 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
1999 1998 ---------- ---------- Deferred Tax Assets: Allowance for doubtful accounts ...... $ 379,607 $ 362,311 Unamortized investment tax credits . 172,019 189,326 Contributions in aid of construction 261,493 226,199 Unbilled revenue ................... 377,378 340,971 Deferred pension ................... 313,044 253,461 Deferred compensation .............. 268,175 257,323 Regulatory liability ............... 195,035 195,035 Other .............................. 916,711 903,024 ---------- ---------- Total Deferred Tax Assets ..................... $2,883,462 2,727,650 Deferred Tax Liabilities: Property related ................... 5,365,346 5,272,976 Deferred gas costs ................. 1,416,336 1,410,829 Other .............................. 634,570 513,494 ---------- ---------- Total Deferred Tax Liabilities ................ 7,416,252 7,197,299 ---------- ---------- Net Deferred Tax Liability .................... $4,532,790 $4,469,649 ========== ==========
The combined Federal and State income tax provision set forth above represents approximately 38% of income taxes in 1999, 1998 and 1997. The combined statutory rate for Federal and State income tax was approximately 39% in 1999, 1998, and 1997. The difference between the effective income tax rate and statutory rate results primarily from the amortization of investment tax credits Investment tax credits are amortized over the life of the property giving rise to the credits. 4)CAPITALIZATION Common Stock Issuance During 1999 the Company issued the remaining 9,326 shares of Treasury stock bringing the treasury stock balance to zero. The Company also issued 493 shares from the previously authorized but unissued shares. All shares issued were the result of the Company's Dividend Reinvestment Plan (DRIP). Long-Term Debt And Notes Payable to Banks The Company has three issues of first-mortgage bonds outstanding with maturities from 2020 through 2027. Under the most restrictive terms of the indenture securing the bonds, retained earnings of $6,865,648 were restricted against payment of dividends at September 30, 1999. The Company's ability to pay dividends is not restricted by these terms. There are no aggregate maturities or sinking fund requirements for the next five years applicable to the issues outstanding at September 30, 1999. The fair value amounts disclosure below have been reported to meet the disclosure requirements of SFAS No. 107 "Disclosures About Fair Values of Financial Instruments" and are not necessarily indicative of amounts that the Company could realize in a current market exchange. At September 30, 1999 and 1998 the fair value of the Company's long-term debt is estimated to be $21,350,207 and $24,669,399, respectively, These amounts were calculated based on market rates of similar instruments. 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.) The Company maintains lines of credit with various banks under which it may borrow up to $20,000,000. These lines are reviewed periodically by the various banks and may be renewed or cancelled. The Company pays a commitment fee on the lines of credit at rates ranging from 5/16 of 1% to 1/2 of 1%. At September 30, 1999, there were $5,800,000 borrowings under these lines of credit. The following table summarizes certain information related to the Company's short-term borrowings for the years ended September 30, 1999 and 1998:
1999 1998 ------------ ------------- Average daily balance outstanding for the period .................. $ 4,799,000 $ 6,917,000 Weighted average interest rate for the period ..................... 5.4% 6.2% Maximum amount outstanding during the period based on month-end balances .................. $ 9,000,000 $ 16,900,000 Weighted average interest rate at end of period ................... 5.5% 6.0%
5) Disclosures about Pension and Other Postretirement Benefit Plans The Company has defined benefit plans covering substantially all of its employees. The benefits under these plans are based on years of service and employees' compensation levels. The Company's policy is to fund pension costs accrued including amortization of past service costs. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits to qualified retired employees. In 1994, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). Prior to 1994, expense was recognized when benefits were paid. In accordance with SFAS 106, the Company began recording the cost for this plan on an accrual basis for 1994. As permitted by SFAS 106, the Company is recording the transition obligation over a twenty year period. The following tables set forth the status of the Pension and other Postretirement Benefit Plans in a format as amended by SFAS No. 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits":
PENSION BENEFITS PENSION BENEFITS ------------------------ ------------------------ UNION NON-UNION & SALARIED ---------- ------------------------ 1999 1998 1999 1998 ---------- ---------- ---------- ---------- Change in benefit obligation Benefit obligation at beginning of year 7,342,996 6,450,299 7,516,071 6,897,893 Service cost 155,964 144,154 302,328 278,465 Interest cost 587,440 516,024 601,286 551,831 Plan participants' contributions 0 0 0 0 Amendments 0 0 0 0 Acturial gain/(loss) (346,984) 779,051 294,284 74,297 Acqusition 0 0 0 0 Benefits paid (548,282) (546,532) (302,835) (286,415) ---------- ---------- ---------- ---------- Benefit obligation at end of year 7,191,134 7,342,996 8,411,134 7,516,071 ---------- ---------- ---------- ---------- Fair value of plan assets at beginning of year 7,888,434 7,075,403 7,619,218 6,382,236 Actual return on plan assets 693,426 1,225,217 511,618 1,106,497 Acquisition 0 0 0 0 Employer contribution 154,128 134,346 306,135 416,900 Plan participants' contributions 0 0 0 0 Benefits paid (548,282) (546,532) (302,835) (286,415) ---------- ---------- ---------- ---------- Fair value of plan assets at end of year ..................... 8,187,706 7,888,434 8,134,136 7,619,218 ---------- ---------- ---------- ---------- Funded status ................................................ 996,572 545,438 (276,998) 103,147 Unrecognized net actuarial loss .............................. (1,459,195) (1,070,741) (1,149,006) (1,745,402) Unrecognized net obligation .................................. 224,712 299,616 84,664 112,883 Unrecognized transition obligation ........................... 0 0 0 0 Unrecognized prior service cost .............................. 193,070 231,684 944,988 1,063,112 ---------- ---------- ---------- ---------- Prepaid (accrued) benefit cost ............................... (44,841) 5,997 (396,352) (466,260) ---------- ---------- ---------- ----------
OTHER BENEFITS -------------- 1999 1998 ---------- ---------- Change in benefit obligation Benefit obligation at beginning of year 1,798,569 1,868,988 Service cost 152,282 155,425 Interest cost 130,706 132,889 Plan participants' contributions (105,495) (106,080) Amendments 0 0 Acturial gain/(loss) (59,773) (163,092) Acqusition 0 0 Benefits paid (86,222) (89,561) ---------- ---------- Benefit obligation at end of year 1,830,067 1,798,569 ---------- ---------- Fair value of plan assets at beginning of year 220,940 210,528 Actual return on plan assets 10,405 10,413 Acquisition 0 0 Employer contribution 0 0 Plan participants' contributions 0 0 Benefits paid 0 0 ---------- ---------- Fair value of plan assets at end of year 231,345 220,941 ---------- ---------- Funded status (1,598,722) (1,577,628) Unrecognized net actuarial loss (1,390,117) (1,445,572) Unrecognized net obligation 0 0 Unrecognized transition obligation 1,979,423 2,120,800 Unrecognized prior service cost 90,177 101,283 ---------- ---------- Prepaid (accrued) benefit cost (919,239) (801,117) ---------- ----------
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont.)
PENSION BENEFITS-UNION PENSION BENEFITS-NON-UNION OTHER BENEFITS ---------------------- -------------------------- -------------- Weighted-average assumptions as of December 31 1999 1998 1999 1998 1999 1998 ---- ---- ---- ---- ---- ---- Discount rate 8 8 8 8 8 8 Expected return on plan assets 8 8 9 9 8 8 Rate of compensation increase 3 3 3 3 0 0
For measurement purposes, a 7 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 1999. The rate was assumed to decrease gradually to 4 percent by fiscal 2009 and remain at that level thereafter.
PENSION BENEFITS-UNION PENSION BENEFITS-NON-UNION OTHER BENEFITS ---------------------- -------------------------- -------------- Components of net periodic benefit cost 1999 1998 1999 1998 1999 1998 -------- -------- -------- -------- -------- -------- Service cost 155,964 144,154 302,328 278,465 46,787 49,345 Interest cost 587,440 516,024 601,286 551,831 130,706 132,889 Expected return on plan assets (615,309) (549,937) (685,878) (580,282) (15,059) 0 Amortization of prior service cost 38,614 38,614 118,124 118,124 11,106 11,106 Unrecognized transition obligation 0 0 0 0 141,377 141,377 Recognized net actuarial loss (36,647) (69,631) (127,852) (90,222) (115,228) (88,898) Amortization of net obligation 74,904 74,904 28,219 28,219 0 0 -------- -------- -------- -------- -------- -------- Net periodic benefit cost 204,966 154,128 236,227 306,135 199,689 245,819 -------- -------- -------- -------- -------- --------
Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percent-point change in assumed health care cost trend would have the following effects:
1- 1- PERCENTAGE- PERCENTAGE- POINT POINT INCREASE DECREASE -------- -------- Effect on total of service and interest cost components 15,070 12,737 Effect on postretirement benefit obligation 127,272 109,978
September 30, 1999, the Company has a regulatory asset amounting to $426,313 related to unrecovered SFAS 106 expenses. On October 16, 1996, the MDTE approved a settlement agreement between the Company and intervenors for an increase in rates effective December 1, 1996. As part of the settlement agreement, the Company was allowed recovery of annual SFAS 106 expenses, as well as, amounts recorded as regulatory assets prior to December 1, 1996. 6) COMMITMENTS AND CONTINGENCIES The Company and certain of its predecessors owned or operated facilities for the manufacture of gas from coal, a process used through the mid-1900's that produced by-products that may be considered contaminated or hazardous under current law, and some of which may still be present at such facilities. The Company accrues environmental investigation and clean-up costs with respect to former manufacturing sites and other environmental matters when it is probable that a liability exists and the amount or range of amounts is reasonably certain. Under current MDTE regulatory practive, environmental remediation and other costs related to former manufactured gas plant sites and recoverable in rates over periods of seven years, without a return on the unrecovered balance. The Company had no significant accrued environmental liabilities as of September 30, 1999. 36 7) UNAUDITED QUARTERLY FINANCIAL INFORMATION The following is unaudited quarterly information for the fiscal years ended September 30, 1999 and 1998. Quarterly variations between periods are caused primarily by the seasonal nature of the gas distribution business.
FISCAL 1999 FISCAL 1998 ------------------------------------ ----------------------------------- QUARTER ENDED QUARTER ENDED ------------------------------------ ----------------------------------- (Thousands except per share amounts) DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 ------------------------------------ ----------------------------------- Operating Revenues............... $10,495 $20,260 $7,909 $3,417 $11,273 $18,513 $8,582 $4,303 Operating Income................. 509 1,935 339 (67) 791 1,791 429 (33) Net Income....................... 341 1,744 182 (167) 548 1,512 249 (229) Net Income per Share............. 0.16 0.79 0.08 (0.07) 0.27 0.69 0.11 (0.10)
8) NEW ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133 (SFAS133), "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of SFAS No. 133" to amend the implementation date of SFAS No. 133. Adoption of SFAS No. 133 for the Company is now required beginning with the first quarter of fiscal 2001. The Company is aware of certain provisions which may impact the gas industry but has not yet reviewed these provisions in detail against its existing accounting practices and disclosures. At this time, the Company cannot predict what impact, if any, the adoption of SFAS No. 133 will have on its financial condition or results of operations. 9) MERGER WITH SOUTHERN UNION On October 5, 1999 the Company and Southern Union Company (Southern Union) announced that their boards of directors have unanimously approved a definitive merger agreement. The agreement calls for Southern Union to acquire the Company in a transaction valued at approximately $75 million, including assumption of debt. Under the terms of agreement, the Company shareholders will receive $23.50 per Fall River Gas share in Southern Union common stock or cash. The Company's shareholders can elect to receive Southern Union common stock, cash, or a combination of stock and cash, subject to proration and an adjustment formula. The transaction will require the approval of the holders of two-thirds of the Company's outstanding shares, the Massachusetts Department of Telecommunications and Energy, the Pennsylvania Public Utility Commission, as well as regulators in Missouri, where Southern Union currently has operation. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT Information required under this item regarding directors and compliance with Section 16(A) of the Exchange Act is contained in the Registrant's 1999 Proxy Statement, to be filed with the commission pursuant to Regulation 14A, and is incorporated herein by reference, pursuant to Form 10-K General Instruction G(3). See also Additional Item - Executive Officers of Registrant in above. 37 ITEM 11. MANAGEMENT REMUNERATION AND TRANSACTIONS Information required under this item is contained in the Registrant's 1999 Proxy Statement, filed with the commission pursuant to Regulation 14A, and is incorporated herein by reference, pursuant to Form 10-K General Instruction G(3). ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information required under this item is contained in the Registrant's 1999 Proxy Statement, filed with the commission pursuant to Regulation 14A, and is incorporated herein by reference, pursuant to Form 10K General Instruction G(3). ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) (1) and (2) The response to this portion if Item 14 is submitted in the following pages. (b) The Registrant was not required to file a Form 8-K during fiscal year 1999. The Registrant does note that it did file a report on Form 8-K on October 20, 1999 with respect the proposed merger of the Registrant into Southern Union Company. 39 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FALL RIVER GAS COMPANY BY /S/ Peter H. Thanas ---------------------- Senior Vice President and Treasurer Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
President, Chairman of the Board and Director /s/ Bradford J. Faxon (Chief Executive Officer) 12/16/99 - ---------------------------- Vice Chairman of the /s/ Raymond H. Faxon Board and Director 12/16/99 - ---------------------------- Senior Vice President and Treasurer (Chief Financial and /s/ Peter H. Thanas Accounting Officer) 12/16/99 - ---------------------------- /s/ Cindy L.J. Audette Director 12/16/99 - ---------------------------- /s/ Thomas K. Barry Director 12/16/99 - ---------------------------- /s/ Thomas H. Bilodeau Director 12/16/99 - ---------------------------- /s/ Ronald J. Ferris Director 12/16/99 - ---------------------------- /s/ Jack R. McCormick Director 12/16/99 - ---------------------------- /s/ Gilbert C. Oliveira Jr. Director 12/16/99 - ---------------------------- /s/ Donald R. Patnode Director 12/16/99 - ----------------------------
40
PAGE NUMBER OR EXHIBIT INCORPORATION OR NUMBERS DESCRIPTION REFERENCE TO - ------- ----------- ------------------ (3) Articles of Incorporation and Exhibit 3 to Report By-Laws on Form 10-K for calender year ended December 31, 1982 (3a) A copy of an Amendment to the Exhibit 3a to Report Articles of Incorporation to on Form 10-K for increase the number of Common calendar year ended Shares from 366,889 to 1,100,667 December 31, 1987 and to change the Par Value from $5.00 to $1 2/3 (3b) A copy of an Amendment to the By-Laws Exhibit 3b to Report on Form 10-K for calendar year ended December 31, 1990 (3c) A copy of an Amendment to the By-Laws Exhibit 3c to Report on Form 10-K for calendar year ended December 31, 1991 (3d) A copy of an Amendment to the Articles To report on Form 10-K of Incorporation, dated December 31, 1993 for calendar year ended to increase the number of Common Shares September 30, 1997 from 1,100,667 to 2,201,334 and to change the Par Value from $1 2/3 to $0.83 1/3 (3e) A copy of an Amendment to the Articles of Exhibit3e to Report Incorporation, dated February 19, 1998 to on Form 10-K for increase the number of Common Shares fiscal year ended from 2,201,334 to 2,951,334 September 30, 1998 (4) Instruments defining the rights Exhibit 4 to Report of security holders, including on Form 10-K for indentures calendar year ended December 31, 1982 (4a) Thirteenth Supplemental Indenture Exhibit 4a to Report between the Registrant and on form 10-K for State Street Bank and Trust Co. fiscal year ended December 31, 1997 (10a) Purchase of F-1 from Algonquin Exhibit 10a to Report Gas Transmission Company on Form 10-K for calendar year ended December 31, 1982 (10b) Purchase of SNG from Algonquin Exhibit 10b to Report Gas Transmission Company on Form 10-K for calendar year ended December 31, 1982 (10c) A copy of the contract between Exhibit 10c to Report the Registrant and Utility on Form 10-K for Workers Union of America, AFL-CIO calendar year ended and Local No. 431, dated May 1, 1984 December 31, 1984 (10d) A copy of an Employment and Con- Exhibit 10d to Report sulting Agreement dated as of on Form 10-K for September 18, 1984, between the calendar year ended Registrant and Jack R. McCormick December 31, 1984 (10e) A copy of an Employment and con- Exhibit 10e to Report sulting Agreement dated as of on Form 10-K for September 18, 1984, between the calendar year ended Registrant and Bradford J. Faxon December 31, 1984
41
PAGE NUMBER OR EXHIBIT INCORPORATION OR NUMBERS DESCRIPTION REFERENCE TO - ------- ----------- ------------------ (10f) A copy of an Employment and Con- Exhibit 10f to Report sulting Agreement dated as of on Form 10-K for September 18, 1984 calendar year ended Registrant and Norman J. Meyer December 31, 1984 (10g) A copy of the Restatement of Con- Exhibit 10g to Report sulting Agreement dated as of on Form 10-K for December 13, 1983, between the calendar year ended Registrant and Thomas H. Bilodeau December 31, 1984 (10h) A copy of an Agreement, Combined Sup- Exhibit 10h to Report plementary Agreement, and Amendment on Form 10-K for to Agreement for Employment and calendar year ended Consulting Services between the December 31, 1984 Registrant and Raymond H. Faxon (10i) A copy of an Amendment to Employment Exhibit 10i to Report and Consulting Agreement dated on Form 10-K for January 1, 1987 between the Regi- calendar year ended strant and Bradford J. Faxon December 31, 1986 (10j) A copy of an Amendment to Employment Exhibit 10j to Report and Consulting Agreement dated on Form 10-K for January 1, 1987 between the Regi- calendar year ended strant and Norman J. Meyer December 31, 1986 (10k) A copy of an Employment and Consulting Exhibit 10k to Report Agreement dated as of August 1, 1986 on Form 10-K for between the Registrant and Peter H. calendar year ended Thanas December 31, 1986 (10L) A copy of an Amendment to Employment Exhibit 10L to Report and Consulting Agreement dated on Form 10-K for January 1, 1987 between the Regi- calendar year ended strant and Peter H. Thanas December 31, 1986 (10m) A copy of the Contract between the Exhibit 10m to Report Registrant and Utility Workers on Form 10-K for Union of America, AFL-CIO and calendar year ended Local, 431, dated May 31, 1987 December 31, 1987 (10n) A copy of Precedent Agreement for Exhibit 10n to Report Firm Sales Service under Rate on Form 10-K for Schedule F-4 calendar year ended December 31, 1987 (10o) Settlement Agreement between DOMAC Exhibit 10o to Report and Registrant to terminate and on Form 10-K for abandon GS-1 and TS-1 Service calendar year ended Agreements December 31, 1988 (10p) A copy of Service Agreement for Firm Exhibit 10p to Report Liquid Service between Distrigas on Form 10-K for and Registrant calendar year ended December 31, 1988 (10q) A copy of Service Agreement for Exhibit 10q to Report Interruptible Vapor Service be- on Form 10-K for tween Distrigas and Registrant calendar year ended December 31, 1988 (10r) A copy of Service Agreement for Firm Exhibit 10r to Report Vapor Service between Distrigas on Form 10-K for and Registrant calendar year ended December 31, 1988
42
PAGE NUMBER OR EXHIBIT INCORPORATION OR NUMBERS DESCRIPTION REFERENCE TO `------- ----------- ------------------ (10s) A copy of a Deferred Compensation Exhibit 10s to Report Agreement with Bradford J. Faxon on Form 10-K for calendar year ended December 31, 1989 (10t) A copy of a Deferred Compensation Exhibit 10t to Report Agreement with Peter H. Thanas on Form 10-K for calendar year ended December 31, 1989 (10u) A copy of the Contract between the Exhibit 10u to Report Registrant and Utility Workers on Form 10-K for Union of America, AFL-CIO and calendar year ended Local 431, dated May 1, 1990 December 31, 1990 (10v) A copy of an Employment Contract Exhibit 10v to Report with Bradford J. Faxon on Form 10-K for calendar year ended December 31, 1991 (10w) A copy of an Employment Contract Exhibit 10w to Report with Peter H. Thanas on Form 10-K for calendar year ended December 31, 1991 (10x) A copy of the Contract between the Exhibit 10x to Report Registrant and Utility Workers on Form 10-K for Union of America, AFL-CIO and fiscal year ended Local 431, dated May 1, 1995 September 30, 1995 (10y) A copy of Gas Sales Agreement Exhibit 10y to Report between CNG Gas Service Corporation on Form 10-K for and Fall River Gas Company fiscal year ended September 30, 1995 (10z) A copy of the Contract between the Exhibit 10z to Report Registrant and Utility Workers on Form 10-K for fiscal Union of America, AFL-CIO and September 30, 1998 Local 431, dated May 1, 1998 (10aa) A copy of Employment Agreement Attached hereto as Amendment with Bradford J. Faxon Exhibit 10(aa) (10bb) A copy of Employment Agreement Attached hereto as Amendment with Peter H. Thanas Exhibit 10(bb) (10cc) A copy of Employment Agreement Attached hereto as Amendment with John F. Fanning Exhibit 10(cc) (10dd) A copy of Severance Agreement Attached hereto as Bradford J. Faxon Exhibit 10(dd) (10ee) A copy of Severance Agreement Attached hereto as with Peter H. Thanas Exhibit 10(ee) (10ff) A copy of severance Agreement Attached hereto as John F. Fanning Exhibit 10(ff) (10gg) A copy of an Amendment to Attached hereto as Employment and Severance Agreement Exhibit 10(gg) with Bradford J. Faxon
43
PAGE NUMBER OR EXHIBIT INCORPORATION OR NUMBERS DESCRIPTION REFERENCE TO - ------- ----------- ------------------ (10hh) A copy of an Amendment to Attached hereto as Employment and Severance Agreement Exhibit 10(hh) with Peter H. Thanas (10ii) A copy of an Amendment to Attached hereto as Employment and Severance Agreement Exhibit 10(ii) with John F. Fanning (22) The Registrant has one Subsidiary, Fall River Gas Appliance Company, Inc., that is incorporated in Massachusetts, and does business under said name (23) Consent of Independent Public Accountants Attached To the Stockholders and Board of Directors of Fall River Gas Company
44 FALL RIVER GAS COMPANY AND SUBSIDIARY INDEX TO FINANCIAL STATEMENTS (Submitted in Answer to Item 14 of Form 10-K, Securities and Exchange Commission)
REFERENCE --------- Report of independent public accountants Page 27 Fall River Gas Company and Subsidiary Consolidated balance sheets - As of September 30, 1999 and September 30, 1998 Page 29 & 30 Consolidated statements for the years ended September 30, 1999, 1998, and 1997 Income Page 28 Retained earnings Page 28 Cash flows Page 31 Notes to consolidated financial statements Page 32-37
SCHEDULES VIII - Valuation and Qualifying Accounts and Reserves for the years ended September 30, 1999, 1998, and 1997 Attached
Schedules, other than the one listed to above, are either not required or not applicable or the required information is shown in the financial statements or notes thereto. 45 FALL RIVER GAS COMPANY AND SUBSIDIARY SCHEDULE VII VALUATION AND QUALIFYING ACCOUNTS AND RESERVES FOR YEAR ENDED SEPTEMBER 30, 1999
ADDITIONS DEDUCTIONS --------- ---------- BALANCE AT CHARGES TO CHARGES CHARGES FOR BALANCE AT BEGINNING COSTS AND TO OTHER WHICH RESERVES END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED OTHER PERIOD - ----------- --------- -------- -------- ------------- ----- ------- Allowance for doubtful accounts $957,148 $481,500 - $397,420 ($23,268) $1,064,496 --------- --------- --------- --------- --------- ----------
FOR YEAR ENDED SEPTEMBER 30, 1998
ADDITIONS DEDUCTIONS --------- ---------- BALANCE AT CHARGES TO CHARGES CHARGES FOR BALANCE AT BEGINNING COSTS AND TO OTHER WHICH RESERVES END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED OTHER PERIOD - ----------- --------- -------- -------- ------------- ----- ------- Allowance for doubtful accounts $907,357 $473,500 - $472,625 ($48,916) $957,148 --------- --------- --------- --------- --------- ---------
FOR YEAR ENDED SEPTEMBER 30, 1997
ADDITIONS DEDUCTIONS --------- ---------- BALANCE AT CHARGES TO CHARGES CHARGES FOR BALANCE AT BEGINNING COSTS AND TO OTHER WHICH RESERVES END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WERE CREATED OTHER PERIOD - ----------- --------- -------- -------- ------------- ----- ------- Allowance for doubtful accounts $670,038 $761,500 - $563,691 ($39,510) $907,357 --------- --------- -------- --------- ---------- ---------
46 EX-10.(AA) 2 EXHIBIT 10(AA) AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT This Amendment dated as of January 1, 1999 to that certain Employment Agreement entered into as of September 30, 1991 by and between Fall River Gas Company, a Massachusetts corporation with an office at 155 North Main Street, Fall River, Massachusetts 02722 (hereinafter called the "Company") and Bradford J. Faxon of Westport, Massachusetts (hereinafter called the "Executive"). RECITALS Whereas, the Executive and the Company are parties to an employment agreement entered into as of September 30, 1991 (the "Employment Agreement"); and Whereas, the Company desires to assure the continued service of Executive, and Executive is desirous of committing himself to continued service to the Company; and Whereas, the Executive and the Company desire to amend certain provisions of the Employment Agreement; AGREEMENTS NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is acknowledged by the Company and the Executive, the Company and the Executive hereby agree as follows: 1. Section 7 shall be amended by the addition of a new Section 7(f) which shall read as follows: "(f) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. Company shall pay to the Executive, on a monthly basis, an amount (the "Medicare Tax Reimbursement") equal to the hospital insurance tax (the "Medicare Tax") imposed upon the Executive pursuant to Section 3101(b) of the Internal Revenue Code of 1986, as amended (the "Code") with respect to all wages received by the Executive from the Company. In addition, the Company shall pay the Executive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes imposed upon the Medicare Tax Reimbursements and the Gross-Up Payment, the Executive retains from the Medicare Tax Reimbursements and the Gross-Up Payment an amount equal to the Medicare Tax imposed upon the Executive for the tax year." 2. Section 7 shall be amended by the addition of a new Section 7(g), which shall read as follows: "(g) EXCESS PENSION BENEFIT. (i) COMMENCEMENT OF EXCESS PENSION BENEFIT AT RETIREMENT. The Executive shall be entitled to receive an excess pension benefit (as determined pursuant to Section 7(g)(iii) hereof) (the "Excess Pension Benefit"), commencing as of the date the Executive terminates employment and first becomes eligible to receive benefits under the Pension Plan for Salaried and Non-Union Hourly Employees of Fall River Gas Company ("Pension Plan") (the "Commencement Date"), even if such Executive elects not to commence receiving such Pension Plan benefits at that time. (ii) FORM OF PAYMENT. The Executive will receive his Excess Pension Benefit hereunder in the same form as the Executive receives or has elected to receive, as the case may be, his retirement benefit under the Pension Plan. The company shall have the right to deduct from all benefits accrued and/or from payments made under this Section 7(g) any taxes required by law to be paid or withheld. (iii) AMOUNT OF BENEFIT. The Excess Pension Benefit shall be an amount equal to the following: (A) the Executive's annual retirement benefit calculated under Section V of the Pension Plan, and payable in accordance with Section VI of the Pension Plan, notwithstanding any restrictions imposed by Sections XXI and XXII of the Pension Plan and notwithstanding the limitations provided in Section 415(b), 415(e), and/or 401(a)(17) of the code, less (B) the actual amount of annual retirement benefit calculated under Section V of the Pension Plan, and payable to the Executive in accordance with Section VI of the Pension Plan after application of any restrictions imposed by Sections XXI and XXII of the Pension Plan and the limitations provided in Sections 415(b), 415(e), and/or 401(a)(17) of the Code. (iv) ACCRUED EXCESS PENSION BENEFIT. The Executive's accrued Excess Pension Benefit (the "Accrued Excess Pension Benefit") on any date prior to retirement shall equal the amount determined under Section 7(g)(i) hereof based upon his "Compensation" (as defined in Section I of the Pension Plan) and "Year of Service" (as defined in Section I of the Pension Plan as of such date. (v) EXCESS PENSION PRE-RETIREMENT DEATH BENEFIT. If the Executive dies prior to the Commencement Date, any Accrued Excess Pension Benefit shall be paid to the Executive's surviving spouse or, if there is no surviving spouse, to the beneficiary, if any, designated pursuant to the terms of the Pension Plan by the Executive to receive the Executive's retirement benefits under the Pension Plan (the "Designated Beneficiary") (and if no such beneficiary is designated, to the Executive's estate). Such benefits shall be paid at the same time and in the same form as the death benefit provided under the Pension Plan. (vi) DEATH ON OR AFTER RETIREMENT. If the Executive dies on or after the commencement Date, the Executive's surviving spouse or, if there is no surviving spouse, the Designated Beneficiary (and if there is no Designated Beneficiary, the Executive's estate) shall receive the Excess Pension Benefit that the Executive would have received. Such benefit shall be paid at the same time and in the same form as the payments the Executive would have received. (vii) SUSPENSION OF EXCESS PENSION BENEFIT. The payment of an Excess Pension Benefit otherwise due on behalf of the Executive shall be suspended for any calendar month in which his Pension Benefit under the Pension Plan is suspended, provided that payment of an Excess Pension Benefit which has been so suspended shall commence or resume when the Pension Benefits under the Pension Plan resume. Notice of suspension of payment of any Excess Pension Benefit shall be given to the Executive and such suspension of payment shall be governed by procedures established by the administrator of the Pension Plan. 3. Section 7 shall be amended by the addition of a new Section 7(h), which shall read as follows: "(h) CONTINUATION OF WELFARE BENEFITS. For a period commencing with the month in which termination of employment for other than Cause (as defined in the Agreement) shall have occurred, and ending the later of the date of the Executive's or the Executive's spouse's death, the Executive, his spouse and any dependents shall continue to be entitled to receive all health and dental care benefits under the company's welfare benefit plans (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended), at no cost to the Executive and at the same level that the Executive, his spouse and his dependents were receiving or were entitled to receive at the time of termination of employment (if and to the extent that such benefits shall not 2 be payable or provided under any Company plan, the Company shall pay or provide equivalent benefits on an individual basis)." 4. Section 10 shall be deleted in its entirety, and in its place shall be added the following: "10. CHANGE IN CONTROL. If, and only if, the Executive's employment is terminated following a Change in Control of the Company (as that term is defined in the Severance Agreement between the Executive and the Company, dated the 1st day of January, 1999 (the "Severance Agreement")), the provisions in this Section shall be superceded by the terms of the Severance Agreement and any other applicable Company plan, policy, arrangement or agreement (other than this Agreement)." 5. Section 12 shall be deleted in its entirety. 6. A new Section 12 shall be added, which shall read as follows: "12. SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be paid in cash from the general funds of the Company; provided, however, such payments shall be reduced by the amount of any payments made to the Executive or the Executive's dependents, beneficiaries, or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title, or interest whatsoever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company pursuant to this Agreement, such right shall be no greater than the right of an unsecured creditor of the Company." All the provisions of the Agreement not specifically mentioned in this First Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this First Amendment. Date: ______________________________ The Company By __________________________ Its The Executive _____________________________ 3 EX-10.(BB) 3 EXHIBIT 10(BB) Exhibit 10(bb) AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT This Amendment dated as of January 1, 1999 to that certain Employment Agreement entered into as of September 30, 1991 by and between Fall River Gas Company, a Massachusetts corporation with an office at 155 North Main Street, Fall River, Massachusetts 02722 (hereinafter called the "Company") and Peter H. Thanas of Cumberland, Rhode Island (hereinafter called the "Executive"). RECITALS Whereas, the Executive and the Company are parties to an employment agreement entered into as of September 30, 1991 (the "Employment Agreement"); and Whereas, the Company desires to assure the continued service of Executive, and Executive is desirous of committing himself to continued service to the Company; and Whereas, the Executive and the Company desire to amend certain provisions of the Employment Agreement; AGREEMENTS NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is acknowledged by the Company and the Executive, the Company and the Executive hereby agree as follows: 1. Section 7 shall be amended by the addition of a new Section 7(d) which shall read as follows: "(d) CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY. The Company shall pay to the Executive, on a monthly basis, an amount (the "Medicare Tax Reimbursement") equal to the hospital insurance tax (the "Medicare Tax") imposed upon the Executive pursuant to Section 3101(b) of the Internal Revenue Code of 1986, as amended (the "Code") with respect to all wages received by the Executive from the Company. In addition, the Company shall pay the Executive an additional payment (the "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes imposed upon the Medicare Tax Reimbursements and the Gross-Up Payment, the Executive retains from the Medicare Tax Reimbursements and the Gross-Up Payment an amount equal to the Medicare Tax imposed upon the Executive for the tax year." 2. Section 7 shall be amended by the addition of a new Section 7(e), which shall read as follows: "(e) EXCESS PENSION BENEFIT. (i) COMMENCEMENT OF EXCESS PENSION BENEFIT AT RETIREMENT. The Executive shall be entitled to receive an excess pension benefit (as determined pursuant to Section 7(e)(iii) hereof) (the "Excess Pension Benefit"), commencing as of the date the Executive terminates employment and first becomes eligible to receive benefits under the Pension Plan for Salaried and Non-Union Hourly Employees of Fall River Gas Company ("Pension Plan") (the "Commencement Date"), even if such Executive elects not to commence receiving such Pension Plan benefits at that time. (ii) FORM OF PAYMENT. The Executive will receive his Excess Pension Benefit hereunder in the same form as the Executive receives or has elected to receive, as the case may be, his retirement benefit under the Pension Plan. The company shall have the right to deduct from all benefits accrued and/or from payments made under this Section 7(e) any taxes required by law to be paid or withheld. 4 (iii) AMOUNT OF BENEFIT. The Excess Pension Benefit shall be an amount equal to the following: (A) the Executive's annual retirement benefit calculated under Section V of the Pension Plan, and payable in accordance with Section VI of the Pension Plan, notwithstanding any restrictions imposed by Sections XXI and XXII of the Pension Plan and notwithstanding the limitations provided in Section 415(b), 415(e), and/or 401(a)(17) of the code, less (B) the actual amount of annual retirement benefit calculated under Section V of the Pension Plan, and payable to the Executive in accordance with Section VI of the Pension Plan after application of any restrictions imposed by Sections XXI and XXII of the Pension Plan and the limitations provided in Sections 415(b), 415(e), and/or 401(a)(17) of the Code. (iv) ACCRUED EXCESS PENSION BENEFIT. The Executive's accrued Excess Pension Benefit (the "Accrued Excess Pension Benefit") on any date prior to retirement shall equal the amount determined under Section 7(e)(i) hereof based upon his "Compensation" (as defined in Section I of the Pension Plan) and "Year of Service" (as defined in Section I of the Pension Plan as of such date. (v) EXCESS PENSION PRE-RETIREMENT DEATH BENEFIT. If the Executive dies prior to the Commencement Date, any Accrued Excess Pension Benefit shall be paid to the Executive's surviving spouse or, if there is no surviving spouse, to the beneficiary, if any, designated pursuant to the terms of the Pension Plan by the Executive to receive the Executive's retirement benefits under the Pension Plan (the "Designated Beneficiary") (and if no such beneficiary is designated, to the Executive's estate). Such benefits shall be paid at the same time and in the same form as the death benefit provided under the Pension Plan. (vi) DEATH ON OR AFTER RETIREMENT. If the Executive dies on or after the commencement Date, the Executive's surviving spouse or, if there is no surviving spouse, the Designated Beneficiary (and if there is no Designated Beneficiary, the Executive's estate) shall receive the Excess Pension Benefit that the Executive would have received. Such benefit shall be paid at the same time and in the same form as the payments the Executive would have received. (vii) SUSPENSION OF EXCESS PENSION BENEFIT. The payment of an Excess Pension Benefit otherwise due on behalf of the Executive shall be suspended for any calendar month in which his Pension Benefit under the Pension Plan is suspended, provided that payment of an Excess Pension Benefit which has been so suspended shall commence or resume when the Pension Benefits under the Pension Plan resume. Notice of suspension of payment of any Excess Pension Benefit shall be given to the Executive and such suspension of payment shall be governed by procedures established by the administrator of the Pension Plan. 3. Section 7 shall be amended by the addition of a new Section 7(f), which shall read as follows: "(f) CONTINUATION OF WELFARE BENEFITS. For a period commencing with the month in which termination of employment for other than Cause (as defined in the Agreement) shall have occurred, and ending the later of the date of the Executive's or the Executive's spouse's death, the Executive, his spouse and any dependents shall continue to be entitled to receive all health and dental care benefits under the company's welfare benefit plans (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended), at no cost to the Executive and at the same level that the Executive, his spouse and his dependents were receiving or were entitled to receive at the time of termination of employment (if and to the extent that such benefits shall not 5 be payable or provided under any Company plan, the Company shall pay or provide equivalent benefits on an individual basis)." 4. Section 10 shall be deleted in its entirety, and in its place shall be added the following: "10. CHANGE IN CONTROL. If, and only if, the Executive's employment is terminated following a Change in Control of the Company (as that term is defined in the Severance Agreement between the Executive and the Company, dated the 1st day of January, 1999 (the "Severance Agreement")), the provisions in this Section shall be superceded by the terms of the Severance Agreement and any other applicable Company plan, policy, arrangement or agreement (other than this Agreement)." 5. Section 12 shall be deleted in its entirety. 6. A new Section 12 shall be added, which shall read as follows: "12. SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be paid in cash from the general funds of the Company; provided, however, such payments shall be reduced by the amount of any payments made to the Executive or the Executive's dependents, beneficiaries, or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title, or interest whatsoever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company pursuant to this Agreement, such right shall be no greater than the right of an unsecured creditor of the Company." All the provisions of the Agreement not specifically mentioned in this First Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this First Amendment. Date: ______________________ The Company By __________________________ Its The Executive _____________________________ 6 EX-10.(CC) 4 EXHIBIT 10(CC) Exhibit 10(cc) AMENDMENT NO.1 TO EMPLOYMENT AGREEMENT This Amendment dated as of January 1, 1999 to that certain Employment Agreement entered into as of November 15, 1998 by and between Fall River Gas Company, a Massachusetts corporation with an office at 155 North Main Street, Fall River, Massachusetts 02722 (hereinafter called the "Company") and John F. Fanning of Swansea, Massachusetts (hereinafter called the "Executive"). RECITALS Whereas, the Executive and the Company are parties to an employment agreement entered into as of November 15, 1998 (the "Employment Agreement"); and Whereas, the Company desires to assure the continued service of Executive, and Executive is desirous of committing himself to continued service to the Company; and Whereas, the Executive and the Company desire to amend certain provisions of the Employment Agreement; AGREEMENTS NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is acknowledged by the Company and the Executive, the Company and the Executive hereby agree as follows: 1. Section 7 shall be amended by the addition of a new Section 7(c), which shall read as follows: "(c) EXCESS PENSION BENEFIT. (i) COMMENCEMENT OF EXCESS PENSION BENEFIT AT RETIREMENT. The Executive shall be entitled to receive an excess pension benefit (as determined pursuant to Section 7(c)(iii) hereof) (the "Excess Pension Benefit"), commencing as of the date the Executive terminates employment and first becomes eligible to receive benefits under the Pension Plan for Salaried and Non-Union Hourly Employees of Fall River Gas Company ("Pension Plan") (the "Commencement Date"), even if such Executive elects not to commence receiving such Pension Plan benefits at that time. (ii) FORM OF PAYMENT. The Executive will receive his Excess Pension Benefit hereunder in the same form as the Executive receives or has elected to receive, as the case may be, his retirement benefit under the Pension Plan. The company shall have the right to deduct from all benefits accrued and/or from payments made under this Section 7(c) any taxes required by law to be paid or withheld. (iii) AMOUNT OF BENEFIT. The Excess Pension Benefit shall be an amount equal to the following: (A) the Executive's annual retirement benefit calculated under Section V of the Pension Plan, and payable in accordance with Section VI of the Pension Plan, notwithstanding any restrictions imposed by Sections XXI and XXII of the Pension Plan and notwithstanding the limitations provided in Section 415(b), 415(e), and/or 401(a)(17) of the code, less 7 (B) the actual amount of annual retirement benefit calculated under Section V of the Pension Plan, and payable to the Executive in accordance with Section VI of the Pension Plan after application of any restrictions imposed by Sections XXI and XXII of the Pension Plan and the limitations provided in Sections 415(b), 415(e), and/or 401(a)(17) of the Code. (iv) ACCRUED EXCESS PENSION BENEFIT. The Executive's accrued Excess Pension Benefit (the "Accrued Excess Pension Benefit") on any date prior to retirement shall equal the amount determined under Section 7(c)(i) hereof based upon his "Compensation" (as defined in Section I of the Pension Plan) and "Year of Service" (as defined in Section I of the Pension Plan as of such date. (v) EXCESS PENSION PRE-RETIREMENT DEATH BENEFIT. If the Executive dies prior to the Commencement Date, any Accrued Excess Pension Benefit shall be paid to the Executive's surviving spouse or, if there is no surviving spouse, to the beneficiary, if any, designated pursuant to the terms of the Pension Plan by the Executive to receive the Executive's retirement benefits under the Pension Plan (the "Designated Beneficiary") (and if no such beneficiary is designated, to the Executive's estate). Such benefits shall be paid at the same time and in the same form as the death benefit provided under the Pension Plan. (vi) DEATH ON OR AFTER RETIREMENT. If the Executive dies on or after the commencement Date, the Executive's surviving spouse or, if there is no surviving spouse, the Designated Beneficiary (and if there is no Designated Beneficiary, the Executive's estate) shall receive the Excess Pension Benefit that the Executive would have received. Such benefit shall be paid at the same time and in the same form as the payments the Executive would have received. (vii) SUSPENSION OF EXCESS PENSION BENEFIT. The payment of an Excess Pension Benefit otherwise due on behalf of the Executive shall be suspended for any calendar month in which his Pension Benefit under the Pension Plan is suspended, provided that payment of an Excess Pension Benefit which has been so suspended shall commence or resume when the Pension Benefits under the Pension Plan resume. Notice of suspension of payment of any Excess Pension Benefit shall be given to the Executive and such suspension of payment shall be governed by procedures established by the administrator of the Pension Plan. 2. Section 7 shall be amended by the addition of a new Section 7(d), which shall read as follows: "(d) CONTINUATION OF WELFARE BENEFITS. For a period commencing with the month in which termination of employment for other than Cause (as defined in the Agreement) shall have occurred, and ending the later of the date of the Executive's or the Executive's spouse's death, the Executive, his spouse and any dependents shall continue to be entitled to receive all health and dental care benefits under the company's welfare benefit plans (within the meaning of Section 3(1) of the Employee Retirement Income Security Act of 1974, as amended), at no cost to the Executive and at the same level that the Executive, his spouse and his dependents were receiving or were entitled to receive at the time of termination of employment (if and to the extent that such benefits shall not be payable or provided under any Company plan, the Company shall pay or provide equivalent benefits on an individual basis)." 3. Section 10 shall be deleted in its entirety, and in its place shall be added the following: "10. CHANGE IN CONTROL. If, and only if, the Executive's employment is terminated following a Change in Control of the Company (as that term is defined in the Severance Agreement between the Executive and the Company, dated the 1st day of January, 1999 (the 8 "Severance Agreement")), the provisions in this Section shall be superceded by the terms of the Severance Agreement and any other applicable Company plan, policy, arrangement or agreement (other than this Agreement)." 4. Section 12 shall be deleted in its entirety. 5. A new Section 12 shall be added, which shall read as follows: "12. SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be paid in cash from the general funds of the Company; provided, however, such payments shall be reduced by the amount of any payments made to the Executive or the Executive's dependents, beneficiaries, or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title, or interest whatsoever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company pursuant to this Agreement, such right shall be no greater than the right of an unsecured creditor of the Company." All the provisions of the Agreement not specifically mentioned in this First Amendment shall be considered modified to the extent necessary to be consistent with the changes made in this First Amendment. Date: ______________________________ The Company By __________________________ Its The Executive ___________________________ 9 EX-10.(DD) 5 EXHIBIT 10(DD) Exhibit 10(dd) SEVERANCE AGREEMENT BETWEEN FALL RIVER GAS CONPANY AND BRADFORD J. FAXON THIS AGREEMENT, effective this first day of January, 1999, by and between Fall River Gas Company, a Massachusetts Corporation (the "Company") and Bradford J. Faxon (the "Executive"). WITNESSETH: WHEREAS, the Executive is a valuable employee of Fall River Gas Company, an integral part of its management, and a key participant in the decision-making process relative to short-term and long-term planning and policy for the Company; and WHEREAS, the Company wishes to encourage the Executive to continue the Executive's career and services with the Company for the period during and after an actual or threatened Change in Control; and WHEREAS, the Board of Directors of the Company, at a meeting on February 10, 1998, determined that it would be in the best interests of the Company and its shareholders to better assure continuity in the management of the Company's administration and operations in the event of a Change in Control by entering into this Severance Agreement (the "Agreement") with the Executive; NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall have the same meaning as is provided in the Executives Employment Agreement. (c) Change in Control" shall mean: (i) any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding a corporation at least 90% of the ownership of which after acquiring its interest is owned directly by the holder of common shares of the Company immediately prior to such acquisition ("Person"), is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding common shares of the Company (other than the Savings Plan) requiring the filing of a report with the Securities and Exchange Commission under Section 13(d) of the 1934 Act; (ii) a purchase by any Person of shares pursuant to a tender or exchange offer to acquire any common shares of the Company (or securities convertible into common shares) for cash, securities, or any other consideration provided that, after consummation of the offer, such Person is the beneficial owner (as defined in Rule l3d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent or more of the outstanding common shares of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to acquire common shares); (iii) approval by the shareholders of the Company of (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or 10 pursuant to which common shares of the Company would be converted into cash, securities, or other property, other than a consolidation or merger of the Company in which holders of its common shares immediately prior to the consolidation or merger own at least 90% of the common shares of the surviving corporation immediately after the consolidation or merger, or (b) any consolidation or merger in which the Company is the continuing or surviving corporation but in which the common shareholders of the Company immediately prior to the consolidation or merger do not hold at least 90% of the outstanding common shares of the continuing or surviving corporation (except where such holders of common stock hold at least 90% of the common shares of the corporation which owns all of the common shares of the Company), or (c) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (d) any merger or consolidation of the Company where, after the merger or consolidation, one Person owns 100% of the common shares of the Company (except where the common holders of the Company's common shares immediately prior to such merger or consolidation own at least 90% of the outstanding common shares of such Person immediately after such merger or consolidation) (upon the Board's determination that the transaction subject to shareholder approval hereunder will not be consummated, a Change in Control shall not be deemed to have occurred from such date forward and this Agreement shall continue in effect as if no Change in Control had occurred, except to the extent termination requiring Severance Benefits under paragraph 3 hereof has occurred prior to such Board's determination); or (iv) a change in the majority of the members of the Board within a 24-month period unless the election or nomination for election or nomination for election by the Company's common shareholders of each new director was approved by the vote of at least two-thirds of the Directors then still in office who were in office at the beginning of the 24-month period. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Compensation" shall mean the sum of (i) the Executive's annual rate of base salary on the last day the Executive was an employee of the Company (or if higher, the annual rate in effect on the date of the Change in Control), including any elective contributions made by the Company on behalf of the Executive that are not includible in the gross income of the Executive under Sections 125 or 402(a)(8) of the Code or any successor provision thereto, and (ii) the average of the annual incentive payments paid to the Executive by the Company, if any, for the three consecutive calendar years immediately preceding employment termination (or a lesser period if the Executive was not eligible to receive annual incentive payments during such three year period). (f) "Coverage Period" means the period beginning on the Starting Date and ending on the Ending Date. (g) "Disability" means the Executive's incapacity due to physical or mental illness, which incapacity causes the Executive to be absent from his duties on a full time basis for 90 consecutive business days. (h) "Employment Agreement" shall mean the employment agreement between the Company and the Executive, entered into on October 7, 1991, together with any amendments thereto. (i) "Ending Date" means the earlier of (i) the date of the Board's determination that the transaction which was approved by the Company's shareholders, thus constituting a Change in Control pursuant to paragraph 1(c)(iii), will not be consummated, or (ii) the date which is 36 full calendar months following the date on which a Change in Control occurs or, if a Change in Control is based on shareholder approval pursuant to paragraph 1(c)(iii) hereof, the date which is 36 full calendar months following the date of the consummation of the transaction which was the subject of shareholder approval. 11 (j) "Good Reason" shall mean any of the following: (i) material change by the Company of the Executive's functions, duties or responsibilities which change would cause the Executive's position with the Company to become of less dignity, responsibility, importance, prestige or scope, including, without limitation, a change from being a senior officer of a publicly held company; (ii) assignment or reassignment by the Company of the Executive without the Executive's consent to another place of employment more than 50 miles from the Executive's current place of employment; or (iii) a reduction which is more than de minimis in the Executive's base pay or bonus opportunity except if such reduction is part of a reduction for all executive officers of the Company and any parent Company thereof. No such event described above shall constitute Good Reason unless the Executive gives written notice to the Company, specifying the event relied upon for such termination and given at any time within one year after the occurrence of such event and the Company has not remedied such within 30 days of the notice. The Company and Executive, upon mutual written agreement may waive any of the foregoing provisions which would otherwise constitute a Good Reason. (k) "Single Trigger Period" means the eighteen month period which (i) begins on the date on which a Change in Control occurs, or if a Change in Control is based on shareholder approval pursuant to paragraph 1(c)(iii) hereof, the date of the consummation of the termination which was the subject of shareholder approval, and (ii) ends eighteen months thereafter. (1) "Starting Date" means the date on which a Change in Control occurs. 2. TERM. This Agreement shall be effective as of the date above written and shall continue thereafter for 36 full calendar months following the date of an occurrence of a Change in Control or, if the Change in Control event is based on shareholder approval pursuant to paragraph 1(c)(iii), 36 full calendar months following the date of the consummation of the transaction which was the subject of shareholder approval. 3. SEVERANCE BENEFIT. If (i) at any time during the Coverage Period, the Executive's employment hereunder is terminated by the Company for any reason other than Cause, death or Disability, or by the Executive for Good Reason, or (ii) during the Single Trigger Period, the Executive terminates his employment for any reason, then, (a) within five business days after such termination, the Company shall pay to the Executive (or, if the Executive has died before receiving all payments to which the Executive has become entitled hereunder, to the estate of the Executive) (i) accrued but unpaid salary and accrued but unused vacation, if any, and (ii) severance pay in a lump sum cash amount equal to three (3) times the Executive's Compensation; (b) to the extent not paid or payable under such plans and/or arrangements, the Company shall pay to the Executive the present value of the benefits (calculated assuming the Executive will begin receiving benefits at the earliest retirement date under such plans and/or arrangements, or if later, at the end of the term of this Agreement, based on the actuarial assumptions used for purposes of the qualified defined benefit plan) that would have accrued, but did not accrue, under the Company's qualified defined benefit retirement plan, the Fall River Gas Company Survivor Benefit Deferred Compensation Agreement, and the excess pension benefit provision in the Employment Agreement and/or any successor or similar plan(s) or arrangements in place and operational on the date of termination and/or the Change in Control, as if (for vesting, benefit accrual, eligibility for early retirement, subsidized early retirement factors, actuarial 12 equivalence, and any other purposes) the Executive had continued to be employed and had continued to participate in such plans and arrangements through the end of the term of this Agreement; it being understood by all parties hereto that payments made under this Agreement and the deemed additional credited service shall not be considered for purposes of determining the actual benefit payable under the terms of such plans and arrangements and shall not be considered part of the relevant payroll records for purposes of such plans and arrangements; and (c) to the extent not already provided under the terms of the Employment Agreement, for a period commencing with the month in which termination of employment, as described in paragraph 3 hereof, shall have occurred, and ending the later of the date of the Executive's or the Executive's spouse's death, the Executive, his spouse and any dependents shall continue to be entitled to receive all health and dental care benefits under the Company's welfare benefit plans (within the meaning of Section 3(l) of the Employee Retirement Income Security Act of 1974, as amended), at no cost to the Executive and at the same level of benefits that the Executive, his spouse and his dependents were receiving or were entitled to receive at the time of termination of employment or, if it would result in greater benefits, at the date of the Change in Control (if and to the extent that such benefits shall not be payable or provided under any Company plan, the Company shall pay or provide equivalent benefits on an individual basis). 4. CERTAIN ADDITIONAL PAYMENTS. (a) If Independent Tax Counsel shall determine that the aggregate payments made to the Executive pursuant to this Agreement and any other payments to the Executive from the Company which constitute "parachute payments" as defined in Section 280G of the Code (or any successor provision thereto) ("Parachute Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount (determined by Independent Tax Counsel) such that after payment by the Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the payments. For purposes of this paragraph 4(a), "Independent Tax Counsel" shall mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm, with expertise in the area of executive compensation tax law, who shall be selected by the Executive and shall be reasonably acceptable to the Company, and whose fees and disbursements shall be paid by the Company. (b) If Independent Tax Counsel shall determine that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's Federal income tax return. If the Executive is subsequently required to make a payment of any Excise Tax, then the Independent Tax Counsel shall determine the amount (the amount of such additional payments are referred herein as "Gross-Up Underpayment") of such payment and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. The fees and disbursements of the Independent Tax Counsel shall be paid by the Company. (c) The Executive shall notify the Company in writing within 15 days of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. If the Company notifies the Executive in writing that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting 13 legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 4(c)(iv), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall, within 10 days, pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). 5. NO MITIGATION REQUIRED. In the event of any termination of the Executive's employment described in paragraph 3, the Executive shall be under no obligation to seek other employment, and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment; provided, however, to the extent the Executive receives medical and health benefits from a subsequent employer, medical and health benefits under paragraph 3(c) shall be secondary to those received from the subsequent employer.. 6.SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be paid in cash from the general funds of the Company; provided, however, such payments shall be reduced by the amount of any payments made to the Executive or the Executive's dependents, beneficiaries, or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title, or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company, such right shall be no greater than the right of an unsecured creditor of the Company. 7. LITIGATION EXPENSES: ARBITRATION. (a) Full Settlement, Litigation Expenses; Arbitration. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the Executive may reasonably incur as a result of any dispute or contest by or 14 with the Company or others regarding the validity or enforceability of, or liability under, any provision of this Agreement (except to the extent it is determined by a court of competent jurisdiction, mediator or arbitrator, as the case may be, that the Executive's material claim is, or claims are, frivolous or without merit in which case the Executive shall bear all such fees and expenses), together with interest on any delayed payments at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, the Executive, in his sole discretion, shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder. If the parties hereto so agree in writing, any disputes under this Agreement may be settled by arbitration. The obligation of the Company under this paragraph 7 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Executive, upon the expiration of this Agreement or otherwise). (b) In the event of any dispute or difference between the Company and the Executive with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Executive may, in the Executive's sole discretion by written notice to the Company, require such dispute or difference to be submitted to arbitration. The arbitrator or arbitrators shall be selected by agreement of the parties or, if they cannot agree on an arbitrator or arbitrators within 30 days after the Executive has notified the Company of Executive's desire to have the question settled by arbitration, then the arbitrator or arbitrators shall be selected by the American Arbitration Association (the "AAA") in Boston, Massachusetts upon the application of the Executive. The determination reached in such arbitration shall be final and binding on both parties without any right of appeal or further dispute. Execution of the determination by such arbitrator may be sought in any court of competent jurisdiction. The arbitrators shall not be bound by judicial formalities and may abstain from following the strict rules of evidence and shall interpret this Agreement as an honorable engagement and not merely as a legal obligation. Unless otherwise agreed by the parties, any such arbitration shall take place in Boston, Massachusetts, and shall be conducted in accordance with the Rules of the AAA. 8. INCOME TAX WITHHOLDING. The Company may withhold from any payments made under this Agreement all federal, state, or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 9. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any similar agreement between the Company and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of any kind elsewhere provided and not expressly provided for in this Agreement including, without limitation, any benefit or compensation under the Employment Agreement and/or the Fall River Gas Company Survivor Benefit Deferred Compensation Agreement. 10. SEVERABILILY. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with law continue in full force and effect. 11. CONSOLIDATION, MERGER. OR SALE OF ASSETS. If the Company consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity the term "the Company" as used herein shall mean such other entity and this Agreement shall continue in full force and effect. 12. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class as follows: a. to the Company; 15 Fall River Gas Company 155 North Main Street Fall River, Massachusetts 02722 Attention: -------------- b. to the Executive: ------------------------ ------------------------ ------------------------ or to such other address as either party shall have previously specified in writing to the other. 13. NO ATTACHMENT. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 14. BINDING AGREEMENT. This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors and assigns. 15. MODIFICATION AND WAIVER. Prior to the date of a Change in Control, this Agreement may be terminated, modified, amended or terminated by action of a majority of the members of the Board. After a Change in Control, this Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 16. HEADING OF NO EFFECT. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the choice of law provisions in the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Executive has signed this Agreement, all effective as of the date first above written. Witness: Fall River Gas Company: By: - ------------------------------- ------------------------------ Title: --------------------------- Witness: By: - ------------------------------- ------------------------------ Title: --------------------------- Witness: Executive: - ------------------------------- --------------------------------- 16 EX-10.(EE) 6 EXHIBIT 10(EE) Exhibit 10(ee) SEVERANCE AGREEMENT BETWEEN FALL RIVER GAS COMPANY AND PETER H. THANAS THIS AGREEMENT, effective this first day of January, 1999, by and between Fall River Gas Company, a Massachusetts Corporation (the "Company") and Peter H. Thanas (the "Executive"). WITNESSETH: WHEREAS, the Executive is a valuable employee of Fall River Gas Company, an integral part of its management, and a key participant in the decision-making process relative to short-term and long-term planning and policy for the Company; and WHEREAS, the Company wishes to encourage the Executive to continue the Executive's career and services with the Company for the period during and after an actual or threatened Change in Control; and WHEREAS, the Board of Directors of the Company, at a meeting on February 10, 1998, determined that it would be in the best interests of the Company and its shareholders to better assure continuity in the management of the Company's administration and operations in the event of a Change in Control by entering into this Severance Agreement (the "Agreement") with the Executive; NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall have the same meaning as is provided in the Executives Employment Agreement. (c) "Change in Control" shall mean: (i) any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding a corporation at least 90% of the ownership of which after acquiring its interest is owned directly by the holder of common shares of the Company immediately prior to such acquisition ("Person"), is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding common shares of the Company (other than the Savings Plan) requiring the filing of a report with the Securities and Exchange Commission under Section 13(d) of the 1934 Act; (ii) a purchase by any Person of shares pursuant to a tender or exchange offer to acquire any common shares of the Company (or securities convertible into common shares) for cash, securities, or any other consideration provided that, after consummation of the offer, such Person is the beneficial owner (as defined in Rule l3d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent or more of the outstanding common shares of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to acquire common shares); (iii) approval by the shareholders of the Company of (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or 17 pursuant to which common shares of the Company would be converted into cash, securities, or other property, other than a consolidation or merger of the Company in which holders of its common shares immediately prior to the consolidation or merger own at least 90% of the common shares of the surviving corporation immediately after the consolidation or merger, or (b) any consolidation or merger in which the Company is the continuing or surviving corporation but in which the common shareholders of the Company immediately prior to the consolidation or merger do not hold at least 90% of the outstanding common shares of the continuing or surviving corporation (except where such holders of common stock hold at least 90% of the common shares of the corporation which owns all of the common shares of the Company), or (c) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (d) any merger or consolidation of the Company where, after the merger or consolidation, one Person owns 100% of the common shares of the Company (except where the common holders of the Company's common shares immediately prior to such merger or consolidation own at least 90% of the outstanding common shares of such Person immediately after such merger or consolidation) (upon the Board's determination that the transaction subject to shareholder approval hereunder will not be consummated, a Change in Control shall not be deemed to have occurred from such date forward and this Agreement shall continue in effect as if no Change in Control had occurred, except to the extent termination requiring Severance Benefits under paragraph 3 hereof has occurred prior to such Board's determination); or (iv) a change in the majority of the members of the Board within a 24-month period unless the election or nomination for election or nomination for election by the Company's common shareholders of each new director was approved by the vote of at least two-thirds of the Directors then still in office who were in office at the beginning of the 24-month period. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Compensation" shall mean the sum of (i) the Executive's annual rate of base salary on the last day the Executive was an employee of the Company (or if higher, the annual rate in effect on the date of the Change in Control), including any elective contributions made by the Company on behalf of the Executive that are not includible in the gross income of the Executive under Sections 125 or 402(a)(8) of the Code or any successor provision thereto, and (ii) the average of the annual incentive payments paid to the Executive by the Company, if any, for the three consecutive calendar years immediately preceding employment termination (or a lesser period if the Executive was not eligible to receive annual incentive payments during such three year period). (f) "Coverage Period" means the period beginning on the Starting Date and ending on the Ending Date. (g) "Disability" means the Executive's incapacity due to physical or mental illness, which incapacity causes the Executive to be absent from his duties on a full time basis for 90 consecutive business days. (h) "Employment Agreement" shall mean the employment agreement between the Company and the Executive, entered into on October 7, 1991, together with any amendments thereto. (i) "Ending Date" means the earlier of (i) the date of the Board's determination that the transaction which was approved by the Company's shareholders, thus constituting a Change in Control pursuant to paragraph 1(c)(iii), will not be consummated, or (ii) the date which is 36 full calendar months following the date on which a Change in Control occurs or, if a Change in Control is based on shareholder approval pursuant to paragraph 1(c)(iii) hereof, the date which is 36 full calendar months following the date of the consummation of the transaction which was the subject of shareholder approval. 18 (j) "Good Reason" shall mean any of the following: (i) material change by the Company of the Executive's functions, duties or responsibilities which change would cause the Executive's position with the Company to become of less dignity, responsibility, importance, prestige or scope, including, without limitation, a change from being a senior officer of a publicly held company; (ii) assignment or reassignment by the Company of the Executive without the Executive's consent to another place of employment more than 50 miles from the Executive's current place of employment; or (iii) a reduction which is more than de minimis in the Executive's base pay or bonus opportunity except if such reduction is part of a reduction for all executive officers of the Company and any parent Company thereof. No such event described above shall constitute Good Reason unless the Executive gives written notice to the Company, specifying the event relied upon for such termination and given at any time within one year after the occurrence of such event and the Company has not remedied such within 30 days of the notice. The Company and Executive, upon mutual written agreement may waive any of the foregoing provisions which would otherwise constitute a Good Reason. (k) "Single Trigger Period" means the eighteen month period which (i) begins on the date on which a Change in Control occurs, or if a Change in Control is based on shareholder approval pursuant to paragraph 1(c)(iii) hereof, the date of the consummation of the termination which was the subject of shareholder approval, and (ii) ends eighteen months thereafter. (1) "Starting Date" means the date on which a Change in Control occurs. 2. TERM. This Agreement shall be effective as of the date above written and shall continue thereafter for 36 full calendar months following the date of an occurrence of a Change in Control or, if the Change in Control event is based on shareholder approval pursuant to paragraph 1(c)(iii), 36 full calendar months following the date of the consummation of the transaction which was the subject of shareholder approval. 3. SEVERANCE BENEFIT. If (i) at any time during the Coverage Period, the Executive's employment hereunder is terminated by the Company for any reason other than Cause, death or Disability, or by the Executive for Good Reason, or (ii) during the Single Trigger Period, the Executive terminates his employment for any reason, then, (a) within five business days after such termination, the Company shall pay to the Executive (or, if the Executive has died before receiving all payments to which the Executive has become entitled hereunder, to the estate of the Executive) (i) accrued but unpaid salary and accrued but unused vacation, if any, and (ii) severance pay in a lump sum cash amount equal to three (3) times the Executive's Compensation; (b) to the extent not paid or payable under such plans and/or arrangements, the Company shall pay to the Executive the present value of the benefits (calculated assuming the Executive will begin receiving benefits at the earliest retirement date under such plans and/or arrangements, or if later, at the end of the term of this Agreement, based on the actuarial assumptions used for purposes of the qualified defined benefit plan) that would have accrued, but did not accrue, under the Company's qualified defined benefit retirement plan, the Fall River Gas Company Survivor Benefit Deferred Compensation Agreement, and the excess pension benefit provision in the Employment Agreement and/or any successor or similar plan(s) or arrangements in place and operational on the date of termination and/or the Change in Control, as if (for vesting, benefit accrual, eligibility for early retirement, subsidized early retirement factors, actuarial 19 equivalence, and any other purposes) the Executive had continued to be employed and had continued to participate in such plans and arrangements through the end of the term of this Agreement; it being understood by all parties hereto that payments made under this Agreement and the deemed additional credited service shall not be considered for purposes of determining the actual benefit payable under the terms of such plans and arrangements and shall not be considered part of the relevant payroll records for purposes of such plans and arrangements; and (c) to the extent not already provided under the terms of the Employment Agreement, for a period commencing with the month in which termination of employment, as described in paragraph 3 hereof, shall have occurred, and ending the later of the date of the Executive's or the Executive's spouse's death, the Executive, his spouse and any dependents shall continue to be entitled to receive all health and dental care benefits under the Company's welfare benefit plans (within the meaning of Section 3(l) of the Employee Retirement Income Security Act of 1974, as amended), at no cost to the Executive and at the same level of benefits that the Executive, his spouse and his dependents were receiving or were entitled to receive at the time of termination of employment or, if it would result in greater benefits, at the date of the Change in Control (if and to the extent that such benefits shall not be payable or provided under any Company plan, the Company shall pay or provide equivalent benefits on an individual basis). 4. CERTAIN ADDITIONAL PAYMENTS. (a) If Independent Tax Counsel shall determine that the aggregate payments made to the Executive pursuant to this Agreement and any other payments to the Executive from the Company which constitute "parachute payments" as defined in Section 280G of the Code (or any successor provision thereto) ("Parachute Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount (determined by Independent Tax Counsel) such that after payment by the Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the payments. For purposes of this paragraph 4(a), "Independent Tax Counsel" shall mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm, with expertise in the area of executive compensation tax law, who shall be selected by the Executive and shall be reasonably acceptable to the Company, and whose fees and disbursements shall be paid by the Company. (b) If Independent Tax Counsel shall determine that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's Federal income tax return. If the Executive is subsequently required to make a payment of any Excise Tax, then the Independent Tax Counsel shall determine the amount (the amount of such additional payments are referred herein as "Gross-Up Underpayment") of such payment and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. The fees and disbursements of the Independent Tax Counsel shall be paid by the Company. (c) The Executive shall notify the Company in writing within 15 days of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. If the Company notifies the Executive in writing that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting 20 legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 4(c)(iv), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall, within 10 days, pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). 5. NO MITIGATION REQUIRED. In the event of any termination of the Executive's employment described in paragraph 3, the Executive shall be under no obligation to seek other employment, and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment; provided, however, to the extent the Executive receives medical and health benefits from a subsequent employer, medical and health benefits under paragraph 3(c) shall be secondary to those received from the subsequent employer.. 6.SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be paid in cash from the general funds of the Company; provided, however, such payments shall be reduced by the amount of any payments made to the Executive or the Executive's dependents, beneficiaries, or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title, or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company, such right shall be no greater than the right of an unsecured creditor of the Company. 7. LITIGATION EXPENSES: ARBITRATION. (a) Full Settlement, Litigation Expenses; Arbitration. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the Executive may reasonably incur as a result of any dispute or contest by or 21 with the Company or others regarding the validity or enforceability of, or liability under, any provision of this Agreement (except to the extent it is determined by a court of competent jurisdiction, mediator or arbitrator, as the case may be, that the Executive's material claim is, or claims are, frivolous or without merit in which case the Executive shall bear all such fees and expenses), together with interest on any delayed payments at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, the Executive, in his sole discretion, shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder. If the parties hereto so agree in writing, any disputes under this Agreement may be settled by arbitration. The obligation of the Company under this paragraph 7 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Executive, upon the expiration of this Agreement or otherwise). (b) In the event of any dispute or difference between the Company and the Executive with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Executive may, in the Executive's sole discretion by written notice to the Company, require such dispute or difference to be submitted to arbitration. The arbitrator or arbitrators shall be selected by agreement of the parties or, if they cannot agree on an arbitrator or arbitrators within 30 days after the Executive has notified the Company of Executive's desire to have the question settled by arbitration, then the arbitrator or arbitrators shall be selected by the American Arbitration Association (the "AAA") in Boston, Massachusetts upon the application of the Executive. The determination reached in such arbitration shall be final and binding on both parties without any right of appeal or further dispute. Execution of the determination by such arbitrator may be sought in any court of competent jurisdiction. The arbitrators shall not be bound by judicial formalities and may abstain from following the strict rules of evidence and shall interpret this Agreement as an honorable engagement and not merely as a legal obligation. Unless otherwise agreed by the parties, any such arbitration shall take place in Boston, Massachusetts, and shall be conducted in accordance with the Rules of the AAA. 8. INCOME TAX WITHHOLDING. The Company may withhold from any payments made under this Agreement all federal, state, or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 9. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any similar agreement between the Company and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of any kind elsewhere provided and not expressly provided for in this Agreement including, without limitation, any benefit or compensation under the Employment Agreement and/or the Fall River Gas Company Survivor Benefit Deferred Compensation Agreement. 10. SEVERABILILY. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with law continue in full force and effect. 11. CONSOLIDATION, MERGER. OR SALE OF ASSETS. If the Company consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity the term "the Company" as used herein shall mean such other entity and this Agreement shall continue in full force and effect. 12. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class as follows: a. to the Company; 22 Fall River Gas Company 155 North Main Street Fall River, Massachusetts 02722 Attention: ______________ b. to the Executive: ----------------------- ----------------------- ----------------------- or to such other address as either party shall have previously specified in writing to the other. 13. NO ATTACHMENT. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 14. BINDING AGREEMENT. This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors and assigns. 15. MODIFICATION AND WAIVER. Prior to the date of a Change in Control, this Agreement may be terminated, modified, amended or terminated by action of a majority of the members of the Board. After a Change in Control, this Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 16. HEADING OF NO EFFECT. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the choice of law provisions in the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Executive has signed this Agreement, all effective as of the date first above written. Witness: Fall River Gas Company: By: - --------------------------------- --------------------------- Title: ------------------------ Witness: By: - --------------------------------- --------------------------- Title: ------------------------ Witness: Executive: - --------------------------------- ------------------------------ 23 EX-10.(FF) 7 EXHIBIT 10(FF) Exhibit 10(ff) SEVERANCE AGREEMENT BETWEEN FALL RIVER GAS CONPANY AND JOHN F. FANNING THIS AGREEMENT, effective this first day of January, 1999, by and between Fall River Gas Company, a Massachusetts Corporation (the "Company") and John F. Fanning (the "Executive"). WITNESSETH: WHEREAS, the Executive is a valuable employee of Fall River Gas Company, an integral part of its management, and a key participant in the decision-making process relative to short-term and long-term planning and policy for the Company; and WHEREAS, the Company wishes to encourage the Executive to continue the Executive's career and services with the Company for the period during and after an actual or threatened Change in Control; and WHEREAS, the Board of Directors of the Company, at a meeting on February 10, 1998, determined that it would be in the best interests of the Company and its shareholders to better assure continuity in the management of the Company's administration and operations in the event of a Change in Control by entering into this Severance Agreement (the "Agreement") with the Executive; NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Definitions. (a) "Board" shall mean the Board of Directors of the Company. (b) "Cause" shall have the same meaning as is provided in the Executives Employment Agreement. (c) Change in Control" shall mean: (i) any person (as such term is used in Section 13(d) of the Securities Exchange Act of 1934 (the "Act"), excluding a corporation at least 90% of the ownership of which after acquiring its interest is owned directly by the holder of common shares of the Company immediately prior to such acquisition ("Person"), is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding common shares of the Company (other than the Savings Plan) requiring the filing of a report with the Securities and Exchange Commission under Section 13(d) of the 1934 Act; (ii) a purchase by any Person of shares pursuant to a tender or exchange offer to acquire any common shares of the Company (or securities convertible into common shares) for cash, securities, or any other consideration provided that, after consummation of the offer, such Person is the beneficial owner (as defined in Rule l3d-3 under the 1934 Act), directly or indirectly, of twenty (20) percent or more of the outstanding common shares of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to acquire common shares); (iii) approval by the shareholders of the Company of (a) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which common shares of the Company would be converted into cash, 24 securities, or other property, other than a consolidation or merger of the Company in which holders of its common shares immediately prior to the consolidation or merger own at least 90% of the common shares of the surviving corporation immediately after the consolidation or merger, or (b) any consolidation or merger in which the Company is the continuing or surviving corporation but in which the common shareholders of the Company immediately prior to the consolidation or merger do not hold at least 90% of the outstanding common shares of the continuing or surviving corporation (except where such holders of common stock hold at least 90% of the common shares of the corporation which owns all of the common shares of the Company), or (c) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (d) any merger or consolidation of the Company where, after the merger or consolidation, one Person owns 100% of the common shares of the Company (except where the common holders of the Company's common shares immediately prior to such merger or consolidation own at least 90% of the outstanding common shares of such Person immediately after such merger or consolidation) (upon the Board's determination that the transaction subject to shareholder approval hereunder will not be consummated, a Change in Control shall not be deemed to have occurred from such date forward and this Agreement shall continue in effect as if no Change in Control had occurred, except to the extent termination requiring Severance Benefits under paragraph 3 hereof has occurred prior to such Board's determination); or (iv) a change in the majority of the members of the Board within a 24-month period unless the election or nomination for election or nomination for election by the Company's common shareholders of each new director was approved by the vote of at least two-thirds of the Directors then still in office who were in office at the beginning of the 24-month period. (d) "Code" shall mean the Internal Revenue Code of 1986, as amended. (e) "Compensation" shall mean the sum of (i) the Executive's annual rate of base salary on the last day the Executive was an employee of the Company (or if higher, the annual rate in effect on the date of the Change in Control), including any elective contributions made by the Company on behalf of the Executive that are not includible in the gross income of the Executive under Sections 125 or 402(a)(8) of the Code or any successor provision thereto, and (ii) the average of the annual incentive payments paid to the Executive by the Company, if any, for the three consecutive calendar years immediately preceding employment termination (or a lesser period if the Executive was not eligible to receive annual incentive payments during such three year period). (f) "Coverage Period" means the period beginning on the Starting Date and ending on the Ending Date. (g) "Disability" means the Executive's incapacity due to physical or mental illness, which incapacity causes the Executive to be absent from his duties on a full time basis for 90 consecutive business days. (h) "Employment Agreement" shall mean the employment agreement between the Company and the Executive, entered into on October 7, 1991, together with any amendments thereto. (i) "Ending Date" means the earlier of (i) the date of the Board's determination that the transaction which was approved by the Company's shareholders, thus constituting a Change in Control pursuant to paragraph 1(c)(iii), will not be consummated, or (ii) the date which is 36 full calendar months following the date on which a Change in Control occurs or, if a Change in Control is based on shareholder approval pursuant to paragraph 1(c)(iii) hereof, the date which is 36 full calendar months following the date of the consummation of the transaction which was the subject of shareholder approval. 25 (j) "Good Reason" shall mean any of the following: (i) material change by the Company of the Executive's functions, duties or responsibilities which change would cause the Executive's position with the Company to become of less dignity, responsibility, importance, prestige or scope, including, without limitation, a change from being a senior officer of a publicly held company; (ii) assignment or reassignment by the Company of the Executive without the Executive's consent to another place of employment more than 50 miles from the Executive's current place of employment; or (iii) a reduction which is more than de minimis in the Executive's base pay or bonus opportunity except if such reduction is part of a reduction for all executive officers of the Company and any parent Company thereof. No such event described above shall constitute Good Reason unless the Executive gives written notice to the Company, specifying the event relied upon for such termination and given at any time within one year after the occurrence of such event and the Company has not remedied such within 30 days of the notice. The Company and Executive, upon mutual written agreement may waive any of the foregoing provisions which would otherwise constitute a Good Reason. (k) "Single Trigger Period" means the eighteen month period which (i) begins on the date on which a Change in Control occurs, or if a Change in Control is based on shareholder approval pursuant to paragraph 1(c)(iii) hereof, the date of the consummation of the termination which was the subject of shareholder approval, and (ii) ends eighteen months thereafter. (1) "Starting Date" means the date on which a Change in Control occurs. 2. TERM. This Agreement shall be effective as of the date above written and shall continue thereafter for 36 full calendar months following the date of an occurrence of a Change in Control or, if the Change in Control event is based on shareholder approval pursuant to paragraph 1(c)(iii), 36 full calendar months following the date of the consummation of the transaction which was the subject of shareholder approval. 3. SEVERANCE BENEFIT. If (i) at any time during the Coverage Period, the Executive's employment hereunder is terminated by the Company for any reason other than Cause, death or Disability, or by the Executive for Good Reason, or (ii) during the Single Trigger Period, the Executive terminates his employment for any reason, then, (a) within five business days after such termination, the Company shall pay to the Executive (or, if the Executive has died before receiving all payments to which the Executive has become entitled hereunder, to the estate of the Executive) (i) accrued but unpaid salary and accrued but unused vacation, if any, and (ii) severance pay in a lump sum cash amount equal to three (3) times the Executive's Compensation; (b) to the extent not paid or payable under such plans and/or arrangements, the Company shall pay to the Executive the present value of the benefits (calculated assuming the Executive will begin receiving benefits at the earliest retirement date under such plans and/or arrangements, or if later, at the end of the term of this Agreement, based on the actuarial assumptions used for purposes of the qualified defined benefit plan) that would have accrued, but did not accrue, under the Company's qualified defined benefit retirement plan, the Fall River Gas Company Survivor Benefit Deferred Compensation Agreement, and the excess pension benefit provision in the Employment Agreement and/or any successor or similar plan(s) or arrangements in place and operational on the date of termination and/or the Change in Control, as if (for vesting, benefit accrual, eligibility for early retirement, subsidized early retirement factors, actuarial equivalence, and any other purposes) the Executive had continued to be employed and had 26 continued to participate in such plans and arrangements through the end of the term of this Agreement; it being understood by all parties hereto that payments made under this Agreement and the deemed additional credited service shall not be considered for purposes of determining the actual benefit payable under the terms of such plans and arrangements and shall not be considered part of the relevant payroll records for purposes of such plans and arrangements; and (c) to the extent not already provided under the terms of the Employment Agreement, for a period commencing with the month in which termination of employment, as described in paragraph 3 hereof, shall have occurred, and ending the later of the date of the Executive's or the Executive's spouse's death, the Executive, his spouse and any dependents shall continue to be entitled to receive all health and dental care benefits under the Company's welfare benefit plans (within the meaning of Section 3(l) of the Employee Retirement Income Security Act of 1974, as amended), at no cost to the Executive and at the same level of benefits that the Executive, his spouse and his dependents were receiving or were entitled to receive at the time of termination of employment or, if it would result in greater benefits, at the date of the Change in Control (if and to the extent that such benefits shall not be payable or provided under any Company plan, the Company shall pay or provide equivalent benefits on an individual basis). 4. CERTAIN ADDITIONAL PAYMENTS. (a) If Independent Tax Counsel shall determine that the aggregate payments made to the Executive pursuant to this Agreement and any other payments to the Executive from the Company which constitute "parachute payments" as defined in Section 280G of the Code (or any successor provision thereto) ("Parachute Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount (determined by Independent Tax Counsel) such that after payment by the Executive of all taxes (including any Excise Tax) imposed upon the Gross-Up Payment and any interest or penalties imposed with respect to such taxes, the Executive retains from the Gross-Up Payment an amount equal to the Excise Tax imposed upon the payments. For purposes of this paragraph 4(a), "Independent Tax Counsel" shall mean a lawyer, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm, with expertise in the area of executive compensation tax law, who shall be selected by the Executive and shall be reasonably acceptable to the Company, and whose fees and disbursements shall be paid by the Company. (b) If Independent Tax Counsel shall determine that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that the Executive has substantial authority not to report any Excise Tax on the Executive's Federal income tax return. If the Executive is subsequently required to make a payment of any Excise Tax, then the Independent Tax Counsel shall determine the amount (the amount of such additional payments are referred herein as "Gross-Up Underpayment") of such payment and any such Gross-Up Underpayment shall be promptly paid by the Company to or for the benefit of the Employee. The fees and disbursements of the Independent Tax Counsel shall be paid by the Company. (c) The Executive shall notify the Company in writing within 15 days of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of a Gross-Up Payment. If the Company notifies the Executive in writing that it desires to contest such claim and that it will bear the costs and provide the indemnification as required by this sentence, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by 27 the Company, (iii) cooperate with the Company in good faith in order to effectively contest such claim, and (iv) permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax, including interest and penalties with respect thereto, imposed as a result of such representation and payment of costs and expenses. The Company shall control all proceedings taken in connection with such contest; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax, including interest or penalties with respect thereto, imposed with respect to such advance or with respect to any imputed income with respect to such advance. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to paragraph 4(c)(iv), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall, within 10 days, pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). 5. NO MITIGATION REQUIRED. In the event of any termination of the Executive's employment described in paragraph 3, the Executive shall be under no obligation to seek other employment, and there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment; provided, however, to the extent the Executive receives medical and health benefits from a subsequent employer, medical and health benefits under paragraph 3(c) shall be secondary to those received from the subsequent employer.. 6. SOURCE OF PAYMENTS. All payments provided for in this Agreement shall be paid in cash from the general funds of the Company; provided, however, such payments shall be reduced by the amount of any payments made to the Executive or the Executive's dependents, beneficiaries, or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title, or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company, such right shall be no greater than the right of an unsecured creditor of the Company. 7. LITIGATION EXPENSES: ARBITRATION. (a) Full Settlement, Litigation Expenses; Arbitration. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement. The Company agrees to pay, upon written demand therefor by the Executive, all legal fees and expenses which the Executive may reasonably incur as a result of any dispute or contest by or with the Company or others regarding the validity or enforceability of, or liability under, any 28 provision of this Agreement (except to the extent it is determined by a court of competent jurisdiction, mediator or arbitrator, as the case may be, that the Executive's material claim is, or claims are, frivolous or without merit in which case the Executive shall bear all such fees and expenses), together with interest on any delayed payments at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. In any such action brought by the Executive for damages or to enforce any provisions of this Agreement, the Executive, in his sole discretion, shall be entitled to seek both legal and equitable relief and remedies, including, without limitation, specific performance of the Company's obligations hereunder. If the parties hereto so agree in writing, any disputes under this Agreement may be settled by arbitration. The obligation of the Company under this paragraph 7 shall survive the termination for any reason of this Agreement (whether such termination is by the Company, by the Executive, upon the expiration of this Agreement or otherwise). (b) In the event of any dispute or difference between the Company and the Executive with respect to the subject matter of this Agreement and the enforcement of rights hereunder, the Executive may, in the Executive's sole discretion by written notice to the Company, require such dispute or difference to be submitted to arbitration. The arbitrator or arbitrators shall be selected by agreement of the parties or, if they cannot agree on an arbitrator or arbitrators within 30 days after the Executive has notified the Company of Executive's desire to have the question settled by arbitration, then the arbitrator or arbitrators shall be selected by the American Arbitration Association (the "AAA") in Boston, Massachusetts upon the application of the Executive. The determination reached in such arbitration shall be final and binding on both parties without any right of appeal or further dispute. Execution of the determination by such arbitrator may be sought in any court of competent jurisdiction. The arbitrators shall not be bound by judicial formalities and may abstain from following the strict rules of evidence and shall interpret this Agreement as an honorable engagement and not merely as a legal obligation. Unless otherwise agreed by the parties, any such arbitration shall take place in Boston, Massachusetts, and shall be conducted in accordance with the Rules of the AAA. 8. INCOME TAX WITHHOLDING. The Company may withhold from any payments made under this Agreement all federal, state, or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 9. ENTIRE UNDERSTANDING. This Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any similar agreement between the Company and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of any kind elsewhere provided and not expressly provided for in this Agreement including, without limitation, any benefit or compensation under the Employment Agreement and/or the Fall River Gas Company Survivor Benefit Deferred Compensation Agreement. 10. SEVERABILILY. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with law continue in full force and effect. 11. CONSOLIDATION, MERGER. OR SALE OF ASSETS. If the Company consolidates or merges into or with, or transfers all or substantially all of its assets to, another entity the term "the Company" as used herein shall mean such other entity and this Agreement shall continue in full force and effect. 12. NOTICES. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if delivered or mailed, postage prepaid, first class as follows: a. to the Company; 29 Fall River Gas Company 155 North Main Street Fall River, Massachusetts 02722 Attention: -------------- b. to the Executive: ----------------------- ----------------------- ----------------------- or to such other address as either party shall have previously specified in writing to the other. 13. NO ATTACHMENT. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 14. BINDING AGREEMENT. This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors and assigns. 15. MODIFICATION AND WAIVER. Prior to the date of a Change in Control, this Agreement may be terminated, modified, amended or terminated by action of a majority of the members of the Board. After a Change in Control, this Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement, except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 16. HEADING OF NO EFFECT. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 17. GOVERNING LAW. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the choice of law provisions in the Commonwealth of Massachusetts. IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its officers thereunto duly authorized, and the Executive has signed this Agreement, all effective as of the date first above written.
Witness: Fall River Gas Company: By: --------------------------------- ----------------------------------- Title: Witness: By: --------------------------------- ----------------------------------- Title: ----------------------------------- Witness: Executive:
30 EX-10.(GG) 8 EXHIBIT 10(GG) Exhibit 10(gg) AMENDMENT TO EMPLOYMENT AND SEVERANCE AGREEMENTS This Agreement dated October 4, 1999 between fall River Gas Company (the "Company") and Bradford J. Faxon (the "Executive") shall be effective upon the consummation of the merger (the "Merger") of the Company into Southern Union Company ("SUG"). RECITALS Whereas, the Executive and the Company are parties to an employment agreement entered into as of September 30, 1991 and amended as of January 1, 1999, (the "Employment Agreement") and a Severance Agreement dated as of January 1, 1999 (the "Severance Agreement"); and Whereas, the Company desires to assure the continued service of Executive following the Merger, and Executive is desirous of committing himself to such service; and Whereas, the Executive and the Company desire to amend certain provisions of the Employment Agreement and the Severance Agreement effective upon consummation of the Merger; AGREEMENTS NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is acknowledged by the Company and the Executive, the Company and the Executive hereby agree as follows: 1 .Section 2 of the Employment Agreement shall be amended to read in its entirety as follows: "Executive shall have decision making authority, subject to the control of the board of directors and chief operating officer of the Company, over the employees and operations that constitute the Fall River Gas Company business immediately prior to consummation of the Merger (as such business may be modified by SUG). The Executive shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and shall devote his full business time, energy, attention and skill to the business of the Company and to the promotion of its interests. Executive's title and duties shall be those of a division president of SUG. Executive agrees that his duties as described in this paragraph shall not constitute "Good Reason" under the Severance Agreement." 2. Section 3 of the Employment Agreement shall be amended to read in its entirety as follows: "The term of the Executive's employment hereunder shall be for a three-year period beginning on the date of consummation of the Merger." 3. Section 4 of the Employment Agreement shall be amended to read in its entirety as follows: "The Company agrees to pay and the Executive agrees to accept, in accordance with the provisions contained herein, as compensation for performance of his duties and obligations to the Company hereunder, a salary at an annual rate as established by the Executive Committee of the Board of Directors of the Company from time to time, but in no event less than the annual rate in effect for the then immediately preceding twelve-month period. 4. Section 5 of the Employment Agreement is amended by adding the following as a new paragraph (b) thereof: 31 "(b) In addition to the foregoing, the Executive shall be paid a cash bonus of $55,555.56 for each full month of the eighteen (18) months following consummation of the Merger ($1,000,000 in the aggregate) during which the Executive shall remain in the employment of the Company. In the event that Executive's employment is terminated by Executive or the Company for any reason during the 36-month period following consummation of the Merger, the Company may set off against any payments due Executive under the Severance Agreement one hundred percent (100%) of the cash bonuses received by Executive under this subsection. Amounts paid under this subsection or under the Severance Agreement shall not be taken into account (i) as wages for purposes of the Medicare Tax Reimbursement and related Gross-Up Payment under subsection 7(f) of the Employment Agreement, or (ii) as compensation for purposes of any pension or other benefit plan or program." 5. Subsection 7(a) of the Employment Agreement shall be amended by replacing the term "Company" with the term "Division" in each place it appears, and by adding the following to the end of such subsection: "For this purpose, the term 'Division' shall mean the Fall River Gas Company Division of SUG. In addition, the Executive shall be eligible to participate in the Southern Union Company Supplemental Deferred Compensation Plan and shall be eligible to be granted awards under the Southern Union 1992 Long Term Stock Incentive Plan, as amended, in the discretion of the committee administering such plan, in each case in accordance with the terms and conditions of the respective plan." 6. Subsection 7(h) of the Employment Agreement shall be amended to read in its entirety as follows: "For a period commencing with the month in which termination of employment for other than Cause shall have occurred, and ending upon the later of the date of the Executive's or the Executive's spouse's death, or such earlier date as the Executive becomes covered by another employer's group health plan, the Executive, his spouse, and any eligible dependents (to the extent they continue to be eligible) shall continue to be entitled to receive all health and dental care benefits provided from time to time to active employees of the Fall River Gas Company Division of SUG, at no cost to the Executive. Benefits under this subsection shall be provided either under this Agreement or the Severance Agreement, but not both." 7. Section 9 of the Employment Agreement shall be amended by adding the following to the end thereof: "Notwithstanding the foregoing provisions of this Section 9, in the event Executive's employment is terminated (by Executive or the Company) for any reason within 36 months following consummation of the Merger, Executive shall be entitled to receive either (but not both) of: (I) the benefits he is entitled to under the Severance Agreement (offset by the amount of the bonus payments received under subsection 5(b) of the Employment Agreement); or (ii) the benefits he is entitled to under Section 9 of the Employment Agreement. As a condition to receiving payments under the Severance Agreement or Section 9 of the Employment Agreement, the Executive shall execute SUG's standard form of waiver and release of all claims." 8. The last sentence of Section 15 of the Employment Agreement shall be amended to read as follows: "The Parties further agree that all arbitration costs and expenses, including attorneys' fees for counsel representing the Executive and counsel representing the Company, shall be paid by the Company, except that attorneys' fees for counsel representing the Executive shall not be paid by the Company in the event the Arbitrator determines that the employment of the Executive hereunder was properly terminated for Cause or that Executive's material claim is, or claims are, frivolous or without merit, in which event the Executive shall bear all such fees, costs, and expenses." 32 9. Section 3(c) of the Severance Agreement shall be amended to read in its entirety as follows: "For a period commencing with the month in which termination of employment as described in paragraph 3 hereof shall have occurred, and ending upon the later of the date of the Executive's or Executive's spouse's death, or such earlier date as the Executive becomes covered by another employer's group health plan, the Executive, his spouse, and any eligible dependents (to the extent they continue to be eligible) shall continue to be entitled to receive all health and dental care benefits provided from time to time to active employees of the Fall River Gas Company Division of SUG, at no cost to the Executive. Benefits under this subsection shall be provided either under this Agreement or the Employment Agreement, but not both." 10. Section 3 of the Severance Agreement shall be amended by adding a new subparagraph (d) to the end thereof, which shall read as follows: "(d) Any payments due to the Executive under this Severance Agreement shall be reduced by the amount of any bonus payments made to the Executive under subsection 5(b) of the Employment Agreement (as amended by the Amendment to Employment and Severance Agreements dated October 4, 1999). As a condition to receiving payments under this Severance Agreement, the Executive shall execute SUG's standard form of waiver and release of all claims. Amounts paid under this Severance Agreement shall not be taken into account (i) as wages for purposes of the Medicare Tax Reimbursement and related Gross-Up Payment under subsection 7(f) of the Employment Agreement, or (ii) as compensation for purposes of any pension or other benefit plan or program." 11. The first sentence of Section 7(a) of the Severance Agreement shall be amended to read as follows: "Except for the set-off provided for in subsection 5(b) of the Employment Agreement (as amended by the Amendment to Employment and Severance Agreements dated October 4, 1999), the Company's obligation to make the payments provided for in this Severance Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others." 12. Section 11 of the Severance Agreement shall be amended by adding the following to the end thereof: "Notwithstanding the foregoing, the definition of Change in Control shall only apply to the merger of Fall River Gas Company into SUG." 13. The provisions of this Amendment to Employment and Severance Agreements shall be effective only upon consummation of the Merger. Except as amended by this document, the provisions of the Employment Agreement and the Severance Agreement shall remain in effect. Dated: October 4, 1999 The Executive: _____________________________ Bradford J. Faxon President FALL RIVER GAS COMPANY By:_______________________ Peter H. Thanas Senior Vice President and Treasurer 33 EX-10.(HH) 9 EXHIBIT 10(HH) Exhibit 10(hh) AMENDMENT TO EMPLOYMENT AND SEVERANCE AGREEMENTS This Agreement dated October 4, 1999 between Fall River Gas Company (the "Company") and Peter H. Thanas (the "Executive") shall be effective upon the consummation of the merger (the "Merger") of the Company into Southern Union Company ("SUG"). RECITALS Whereas, the Executive and the Company are parties to an employment agreement entered into as of September 30, 1991 and amended as of January 1, 1999, (the "Employment Agreement") and a Severance Agreement dated as of January 1, 1999 (the "Severance Agreement"); and Whereas, the Company desires to assure the continued service of Executive following the Merger, and Executive is desirous of committing himself to such service; and Whereas, the Executive and the Company desire to amend certain provisions of the Employment Agreement and the Severance Agreement effective upon consummation of the Merger; AGREEMENTS NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is acknowledged by the Company and the Executive, the Company and the Executive hereby agree as follows: 1. Section 2 of the Employment Agreement shall be amended to read in its entirety as follows: "Executive's title and duties shall be those of a division chief financial officer of SUG. Executive agrees that his duties as described in this paragraph shall not constitute "Good Reason" under the Severance Agreement. The Executive shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and shall devote his full business time, energy, attention and skill to the business of the Company and to the promotion of its interests." 2. Section 3 of the Employment Agreement shall be amended to read in its entirety as follows: "The term of the Executive's employment hereunder shall be for a three-year period beginning on the date of consummation of the Merger." 3. Section 4 of the Employment Agreement shall be amended to read its entirety as follows: "The Company agrees to pay and the Executive agrees to accept, in accordance with the provisions contained herein, as compensation for performance of his duties and obligations to the Company hereunder, a salary at an annual rate as established by the Executive Committee of the Board of Directors of the Company from time to time, but in no event less than the annual rate in effect for the then immediately preceding twelve-month period." 4. Section 5 of the Employment Agreement is amended by adding the following as a new paragraph (b) thereof: 34 "(b) In addition to the foregoing, the Executive shall be paid a cash bonus of $38,888.89 for each full month of the eighteen months following consummation of the Merger ($700,000 in the aggregate) during which the Executive shall remain in the employment of the Company. In the event that Executive's employment is terminated by Executive or the Company for any reason during the 36-month period following consummation of the Merger, the Company may set off against any payments due Executive under the Severance Agreement one hundred percent (100%) of the cash bonuses received by Executive under this subsection. Amounts paid under this subsection or under the Severance Agreement shall not be taken into account (i) as wages for purposes of the Medicare Tax Reimbursement and related Gross-Up Payment under subsection 7(f) of the Employment Agreement, or (ii) as compensation for purposes of any pension or other benefit plan or program." 5. Subsection 7(a) of the Employment Agreement shall be amended by replacing the term "Company" with the term "Division' in each place it appears, and by adding the following to the end of such subsection: "For this purpose, the term 'Division' shall mean the Fall River Gas Company Division of SUG. In addition, the Executive shall be eligible to participate in the Southern Union Company Supplemental Deferred Compensation Plan and shall be eligible to be granted awards under the Southern Union 1992 Long Term Stock Incentive Plan, as amended, in the discretion of the committee administering such plan, in each case in accordance with the terms and conditions of the respective plan." 6. Subsection 7(f) of the Employment Agreement shall be amended to read in its entirety as follows: "For a period commencing with the month in which termination of employment for other than Cause shall have occurred, and ending upon the later of the date of the Executive's or the Executive's spouse's death, or such earlier date as the Executive becomes covered by another employer's group health plan, the Executive, his spouse, and any eligible dependents (to the extent they continue to be eligible) shall continue to be entitled to receive all health and dental care benefits provided from time to time to active employees of the Fall River Gas Company Division of SUG, at no cost to the Executive. Benefits under this subsection shall be provided either under this Agreement or the Severance Agreement, but not both." 7. Section 9 of the Employment Agreement shall be amended by adding the following to the end thereof: "Notwithstanding the foregoing provisions of this Section 9, in the event Executive's employment is terminated (by Executive or the company) for any reason within 36 months following consummation of the Merger, Executive shall be entitled to receive either (but not both) of: (i) the benefits he is entitled to under the Severance Agreement (offset by the amount of the bonus payments received under subsection 5(b) of the Employment Agreement); or (ii) the benefits he is entitled to under Section 9 of the Employment Agreement. As a condition to receiving payments under the Severance Agreement or Section 9 of the Employment Agreement, the Executive shall execute SUG's standard form of waiver and release of all claims." 8. The last sentence of Section 15 of the Employment Agreement shall be amended to read as 35 follows: "The Parties further agree that all arbitration costs and expenses, including attorneys'fees for counsel representing the Executive and counsel representing the Company, shall be paid by the Company, except that attorneys' fees for counsel representing the Executive shall not be paid by the Company in the event the Arbitrator determines that the employment of the Executive hereunder was properly terminated for Cause or that Executive's material claim is, or claims are, frivolous or without merit, in which event the Executive shall bear all such fees, costs and expenses." 9. Section 3(c) of the Severance Agreement shall be amended to read in its entirety as follows: "For a period commencing with the month in which termination of employment as described as described in paragraph 3 hereof shall have occurred, and ending upon the later of the date of the Executive's spouse's death, or such earlier date as the Executive becomes covered by another employer's group health plan, the Executive, his spouse, and any eligible dependents (to the extent they continue to be eligible) shall continue to be entitled to receive all health and dental care benefits provided from time to time to active employees of the Fall River Gas Company Division of SUG, at no cost to the Executive. Benefits under this subsection shall be provided either under this Agreement or the Employment Agreement, but not both." 10. Section 3 of the Severance Agreement shall be amended by adding a new subparagraph (d) to the end thereof, which shall read as follows: "(d) Any payments due to the Executive under this Severance Agreement shall be reduced by the amount of any bonus payments made to the Executive under subsection 5(b) of the Employment Agreement (as amended by the Amendment to Employment and Severance Agreements dated October 4, 1999). As a condition to receiving payments under this Severance Agreement, the Executive shall execute SUG's standard form of waiver and release of all claims. Amounts paid under this Severance Agreement shall not be taken into account (I) as wages for purposes of the Medicare Tax Reimbursement and related Gross-UP Payment under subsection 7(f) of the Employment Agreement, or (ii) as compensation for purposes of any pension or other benefit plan or program." 11. The first sentence of Section 7(a) of the Severance Agreement shall be amended to read as follows: "Except for the set-off provided for in subsection 5(b) of the Employment Agreement (as amended by the Amendment to Employment and Severance Agreements dated October 4, 1999), the Company's obligation to make the payments provided for in this Severance Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others." 12. Section 11 of the Severance Agreement shall be amended by adding the following to the end thereof: "Notwithstanding the foregoing, the definition of Change in Control shall only apply to the merger of Fall River Gas into SUG." 36 13. The provisions of this Amendment to Employment and severance Agreements shall be effective only upon consummation of the Merger. Except as amended by this document, the provisions of the Employment Agreement and the Severance Agreement shall remain in effect. Dated: October 4, 1999 The Executive: ---------------------------------- Peter H. Thanas Senior Vice President and Treasurer FALL RIVER GAS COMPANY By: ------------------------------- Bradford J. Faxon President 37 EX-10.(II) 10 EXHIBIT 10(II) Exhibit 10(ii) AMENDMENT TO EMPLOYMENT AND SEVERANCE AGREEMENTS This Agreement dated 9/30/99 between Fall River Gas Company (the "Company") and John F. Fanning (the "Executive") shall be effective upon the consummation of the merger (the "Merger") of the Company into Southern Union Company ("SUG"). RECITALS Whereas, the Executive and the Company are parties to an employment agreement entered into as of November 30, 1998 and amended as of January 1, 1999, (the "Employment Agreement") and a Severance Agreement dated as of January 1, 1999 (the "Severance Agreement"); and Whereas, the Company desires to assure the continued service of Executive following the Merger, and Executive is desirous of committing himself to such service; and Whereas, the Executive and the Company desire to amend certain provisions of the Employment Agreement and the Severance Agreement effective upon consummation of the Merger; AGREEMENTS NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of which is acknowledged by the Company and the Executive, the Company and the Executive hereby agree as follows: 1. Section 2 of the Employment Agreement shall be amended to read in its entirety as follows: "Executive's title and duties shall be those of a division vice president of SUG. Executive agrees that his duties as described in this paragraph shall not constitute "Good Reason" under the Severance Agreement. The Executive shall perform his duties hereunder faithfully and to the best of his abilities and in furtherance of the business of the Company and shall devote his full business time, energy, attention and skill to the business of the Company and to the promotion of its interests." 2. Section 3 of the Employment Agreement shall be amended to read in its entirety as follows: "The term of the Executive's employment hereunder shall be for a one- year period beginning on the date of consummation of the Merger." 3. Section 4 of the Employment Agreement shall be amended to read in its entirety as follows: "The Company agrees to pay and the Executive agrees to accept, in accordance with the provisions contained herein, as compensation for performance of his duties and obligations to the Company hereunder, a salary at an annual rate as established by the Executive Committee of the Board of Directors of the Company from time to time, but in no event less than the annual rate in effect for the then immediately preceding twelve-month period." 4. Section 5 of the Employment Agreement is amended by adding the following as a new paragraph (b) thereof: 38 "(b) In addition to the foregoing, the Executive shall be paid a cash bonus of $16,666.67 for each full month of the eighteen (18) months following consummation of the Merger ($300,000 in the aggregate) during which the Executive shall remain in the employment of the Company. In the event that Executive's employment is terminated by Executive or the Company for any reason during the 36-month period following consummation of the Merger, the Company may set off against any payments due Executive under the Severance Agreement one hundred percent (100%) of the cash bonuses received by Executive under this subsection. Amounts paid under this subsection or under the Severance Agreement shall not be taken into account as compensation for purposes of any pension or other benefit plan or program." 5. Subsection 7(a) of the Employment Agreement shall be amended by replacing the term "Company" with the term "Division" in each place it appears, and by adding the following to the end of such subsection: "For this purpose, the term `Division' shall mean the Fall River Gas Company Division of SUG. In addition, the Executive shall be eligible to participate in the Southern Union Company Supplemental Deferred Compensation Plan and shall be eligible to be granted awards under the Southern Union 1992 Long Term Stock Incentive Plan, as amended, in the discretion of the committee administering such plan, in each case in accordance with the terms and conditions of the respective plan." 6. Subsection 7(d) of the Employment Agreement shall be amended to read in its entirety as follows: "For a period commencing with the month in which termination of employment for other than Cause shall have occurred, and ending upon the later of the date of the Executive's or the Executive's spouse's death, or such earlier date as the Executive becomes covered by another employer's group health plan, the Executive, his spouse, and any eligible dependents (to the extent they continue to be eligible) shall continue to be entitled to receive all health and dental care benefits provided from time to time to active employees of the Fall River Gas Company Division of SUG, at no cost to the Executive. Benefits under this subsection shall be provided either under this Agreement or the Severance Agreement, but not both." 7. Section 9 of the Employment Agreement shall be amended by adding the following to the end thereof: "Notwithstanding the foregoing provisions of this Section 9, in the event Executive's employment is terminated (by Executive or the Company) for any reason within 36 months following consummation of the Merger, Executive shall be entitled to receive either (but not both) of: (I) the benefits he is entitled to under the Severance Agreement (offset by the amount of the bonus payments received under subsection 5(b) of the Employment Agreement); or (ii) the benefits he is entitled to under Section 9 of the Employment Agreement. 39 As a condition to receiving payments under the Severance Agreement or Section 9 of the Employment Agreement, the Executive shall execute SUG's standard form of waiver and release of all claims." 8. The last sentence of Section 15 of the Employment Agreement shall be amended to read as follows: "The Parties further agree that all arbitration costs and expenses, including attorneys' fees for counsel representing the Executive and counsel representing the Company, shall be paid by the Company, except that attorneys' fees for counsel representing the Executive shall not be paid by the Company in the event the Arbitrator determines that the employment of the Executive hereunder was properly terminated for Cause or that Executive's material claim is, or claims are, frivolous or without merit, in which event the Executive shall bear all such fees, costs, and expenses." 9. Section 3(c) of the Severance Agreement shall be amended to read in its entirety as follows: "For a period commencing with the month in which termination of employment as described in paragraph 3 hereof shall have occurred, and ending upon the later of the date of the Executive's or the Executive's spouse's death, or such earlier date as the Executive becomes covered by another employer's group health plan, the Executive, his spouse, and any eligible dependents (to the extent they continue to be eligible) shall continue to be entitled to receive all health and dental care benefits provided from time to time to active employees of the Fall River Gas Company Division of SUG, at no cost to the Executive. Benefits under this subsection shall be provided either under this Agreement or the Employment Agreement, but not both." 10. Section 3 of the Severance Agreement shall be amended by adding a new subparagraph (d) to the end thereof, which shall read as follows: "(d) Any payments due to the Executive under this Severance Agreement shall be reduced by the amount of any bonus payments made to the Executive under subsection 5(b) of the Employment Agreement (as amended by the Amendment to Employment and Severance Agreements dated 9/30/99). As a condition to receiving payments under this Severance Agreement, the Executive shall execute SUG's standard form of waiver and release of all claims. Amounts paid under this Severance Agreement shall not be taken into account as compensation for purposes of any pension or other benefit plan or program." 11. The first sentence of Section 7(a) of the Severance Agreement shall be amended to read as follows: "Except for the set-off provided for in subsection 5(b) of the Employment Agreement (as amended by the Amendment to Employment and Severance Agreements dated 9/30/99), the Company's obligation to make the payments provided for in this Severance Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others." 40 12. Section 11 of the Severance Agreement shall be amended by adding the following to the end thereof: "Notwithstanding the foregoing, the definition of Change in Control shall only apply to the merger of Fall River Gas Company into SUG." 13. The provisions of this Amendment to Employment and Severance Agreements shall be effective only upon consummation of the Merger. Except as amended by this document, the provisions of the Employment Agreement and the Severance Agreement shall remain in effect. Dated: FALL RIVER GAS COMPANY ------------------------ By --------------------------------- Title: The Executive ------------------------------------ John F. Fanning 41 EX-23 11 EXHIBIT 23 Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Fall River Gas Company As independent public accountants, we hereby consent to the incorporation by reference in the registration statement on Form S-3, File No. 333-13995 of our reports dated November 12, 1999, included in Fall River Gas company Form 10-K for the year ended September 30, 1999, and to all references to our firm included in this registration statement. /S/ARTHUR ANDERSEN LLP Boston, Massachusetts December 21, 1999 -----END PRIVACY-ENHANCED MESSAGE-----