Business Conduct Policy
(October 28, 2009)
 

This Business Conduct Policy applies to all employees, officers and, unless otherwise indicated, directors of Providence and Worcester Railroad Company.

Providence and Worcester Railroad Company views seriously its commitment to ethical business conduct.  The Company will take disciplinary action against those who violate its ethics standards.

The foundation on which Providence and Worcester Railroad Company’s ethical standards are built is obeying the law.

We respect and obey the laws of the cities, states and countries where we operate.  Although everyone is not expected to know the details of those laws, it is important for us to know enough to determine when we must get advice from higher authority.

We are fair and honest.  It is our intention to win business through excellent service, never through unethical or questionable business practices.  It is against Providence and Worcester Railroad Company policy to engage in unethical or illegal activity to win or keep business.  One customer should not get preferred treatment over another customer – such as unauthorized services or special contract terms – unless they are okayed in advance by management.  Don’t lie or mislead people.  All information we provide about products and services should be correct.  Basic honesty is the key to ethical behavior.

While only a few of us maintain accounting records, many Providence and Worcester Railroad Company employees help keep the company’s records.  For certain Providence and Worcester Railroad Company employees, the data from a time card may become the basis for charges to customers.  Specific rules apply.  Be accurate!  Only the true and actual number of hours worked must be reported.  Never shift costs to other customers or inappropriate work order numbers – this is strictly prohibited.

It is against Providence and Worcester Railroad Company policy to make entries that intentionally conceal or disguise the true nature of any transaction.  No funds or accounts should be kept for purposes not fully and accurately disclosed.  Unrecorded or “off the books” funds or assets should not be kept for any purpose.

Each of us must be certain that the records we keep are accurate and maintained according to all applicable laws and regulations.  If you have reason to believe that some aspect of Providence and Worcester Railroad Company record-keeping is not being conducted properly, talk to your supervisor.

We must comply with generally accepted accounting principles and procedures and with established internal corporate controls and procedures.  No false or misleading entries shall be made in books and records of Providence and Worcester Railroad Company for any purpose.  All items of income or expense must be appropriately recorded.

Each employee must perform his or her responsibilities with a view to assuring that Providence and Worcester Railroad Company’s periodic reports filed with the Securities and Exchange Commission and other public communications made by the Company contain information that is accurate, complete, fair, understandable and timely.

In deciding among competing suppliers, it’s important to be impartial.  The decision to place a supplier on a bidding list should be based on product or service quality, technology, level of service, price, financial stability and reliability.

We expect Providence and Worcester Railroad Company employees to avoid any association which might conflict with their loyalty to the company or compromise their judgment.  It’s extremely important to avoid actions that could even appear to be influenced by personal interests.  The best policy is to avoid any direct or indirect employment, or other business connection, with our competitors, suppliers or customers.  This is an extremely sensitive area.  Check carefully before acting.

In no event should company equipment be used for non-company business, although incidental personal use may be permitted at your facility.

Another area of potential conflict is “insider information”.  Employees who have access to confidential information as part of their job are not permitted to use or share that information for stock trading purposes.  To use such non-public information for financial benefit not only is unethical, it can also be illegal.

Proprietary information includes business, marketing and service plans, internal data bases, personnel records, salary information, and unpublished financial data and reports.  Any unauthorized use or disclosure of these types of information would violate Providence and Worcester Railroad Company standards.  It could also be illegal, and could bring civil and even criminal penalties.

We must take care to comply with the special laws, rules and regulations which govern contracts with government agencies.  Marketing, accounting, recordkeeping, purchasing and quality – among other areas – require special attention.  Some examples requiring absolute adherence to specific rules are accounting for costs, proposal and bidding procedures, pricing, discussing potential employment with U.S. Government procurement officials, maintenance of time records, and compliance with contract obligations.

We do not make illegal payments to government officials of any country.  The promise, offer or delivery to an official or employee of the U.S. government of a gift, favor or other gratuity in violation of these rules would not only violate Providence and Worcester Railroad Company policy; it also could be a criminal offense.

We do not offer or accept kickbacks or bribes, or gifts of substantial value.  They are strictly forbidden.  You have crossed the line into unethical behavior when your actions unduly influence recipients, make them feel obligated to pay Providence and Worcester Railroad Company back or violate their own standards of conduct.  It is your duty to exercise good judgment and to act with moderation in offering entertainment or gratuities. With most commercial and industrial customers, reasonable entertainment and gratuities are customary.  It is important, however, to observe a customer’s regulations regarding gratuities.  Never offer to anyone something that you know he or she is prohibited from receiving.  Consultation is critical.  Please discuss your plans and actions with supervisory personnel any time you have a question about what is appropriate.

Our policy prohibits company contributions to political candidates even where such contributions are lawful.  Company contributions to political parties in connection with elections also are prohibited.  We encourage individual employees to be involved in the political process, however, and to make personal contributions as they see fit.

Any questions regarding this Business Conduct Policy should, in the case of employees, be directed to a Vice President, Treasurer, Assistant Controller, General Counsel or Assistant General Counsel or, in the case of officers, to his/her immediate supervisor or the President.  All such requests and responses must be in writing and will be retained in employee personnel files.  Questions of the Directors, the President and/or the Chief Executive Officer should be directed to the General Counsel or the Chairman of the Audit Committee of the Company.

As a written code cannot answer all questions raised in the context of business relationships, each employee has primary responsibility to recognize and respond to specific situations as they arise.  Questions and concerns about doubtful situations, potential misconduct, conflicts of interest, standards and integrity of performance should be addressed as follows:

By Employees:    To the Company’s General Counsel;

By Directors:       To the Company’s General Counsel or the Audit Committee

Violation of this Business Conduct Policy may result in disciplinary action, up to and including termination and legal prosecution.  Employees must report any known or suspected violation of this Business Conduct Policy and failure to report a violation may have serious consequences.  In addition to being held personally liable for the legal or ethical violation, the employee may be subject to disciplinary proceedings, including termination.

If an employee becomes aware of a violation or suspected violation of this Business Conduct Policy, confidential disclosure of such matter must be directed to the General Counsel or President.  Providence and Worcester Railroad Company will attempt to protect employees from any retaliation as a result of reporting violations.  Any employee may contact:  the General Counsel by leaving a confidential voice mail message at (508) 755-4000, extension 318; or the Audit Committee by writing to it care of Providence and Worcester Railroad Company at 75 Hammond Street, Worcester, MA  01610.
 

AMENDED AND RESTATED Audit Committee Charter

PURPOSE

The primary function of the Providence and Worcester Railroad Company (hereinafter “Company”) Audit Committee is to report to and assist the Board of Directors (hereinafter “Board”) in fulfilling its oversight responsibilities by reviewing:  the financial reports provided by the Company to its stockholders and the general public; the Company’s systems of internal controls regarding finance and accounting; and the Company’s auditing, accounting and financial reporting process.  The Audit Committee’s primary duties and responsibilities are to:

1.      Serve as an independent and objective party to monitor and oversee the integrity of the Company’s financial reporting process and internal control system.

2.      Evaluate qualifications and independence of, appoint, oversee and, where appropriate, replace the external auditors who are accountable to the Audit Committee and the Board.

3.      Provide an open avenue of communication among the external auditors, financial and senior management, and the Board.

4.      Oversee the system of disclosure controls and system of internal controls regarding finance, accounting, legal compliance and ethics.

The Audit Committee is responsible for the duties set forth in this charter but is not responsible for either the preparation of the financial statements or the auditing of the financial statements.  Management has the responsibility of preparing the financial statements and implementing internal controls and the independent accountants have the responsibility of auditing the statements and monitoring the effectiveness of the internal controls.  The review of the financial statements by the Audit Committee is not of the same quality as the audit performed by the independent accountants.  In carrying out its responsibilities, the Audit Committee believes its policies and procedures should remain flexible in order to best react to a changing environment.

The Audit Committee, and each member of the Audit Committee in his or her capacity as such, shall be entitled to rely, in good faith, on information, opinions, reports or statements, or other information prepared or presented to them by officers and employees of the Company, whom such member believes to be reliable and competent in the matters presented and on counsel, public accountants or other persons as to matters which the member believes to be within the professional competence of such person.

ORGANIZATION

The Audit Committee shall be comprised of at least three directors as determined by the Board, each of whom shall satisfy the independence standards specified by the NASDAQ Marketplace Rules of The NASDAQ Stock Market (hereinafter “NASDAQ”) including Rule 4200(a)(15) and Rule 4350(d), and Rule 10A-3 under the Securities Exchange Act of 1934 and all other legal requirements.  Each member shall be free from any relationship that, in the opinion of the Board, would interfere with the exercise of his/her independent judgment as a member of the Audit Committee.  All members shall be financially literate and able to read and understand financial statements, including balance sheets, income statements, and cash flow statements.  The Audit Committee chairman shall, by reason of experience and background, demonstrate a reasonably high level of financial sophistication including, without limitation, being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities.

Determination of independence, Audit Committee financial expertise, financial literacy and accounting or related financial management expertise shall be made by the Board as the Board interprets such qualifications in its business judgment and in accordance with applicable law and the listing requirements of NASDAQ.

The Audit Committee shall have the power to adopt its own operating rules and procedures and to call upon assistance from officers and employees of the Company and outside counsel and consultants without the consent of management.

RESPONSIBILITIES AND DUTIES

1.        Be directly responsible for the appointment, compensation, retention and oversight of any independent auditor engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services.  The external auditors shall report directly to the Audit Committee.

2          Meet at least once each quarter and meet at least annually in executive session with the external auditors without management present.

3.         Meet with the external auditors and financial management to review the scope of the audit for the current year and the audit procedures to be utilized.  At the conclusion of the audit year, review the results of the audit, including any comments or recommendations of the external auditors.

4.         Appraise with the external auditors and management the adequacy and effectiveness of the accounting and financial controls of the Company and the appropriateness of the Company’s accounting principles.  In connection therewith:

·          Elicit any recommendations for the improvement of such internal controls and/or accounting principles; and

·        Review any deficiencies identified by management in the design and operation of internal controls for financial reporting and at least annually consider, in consultation with management and the independent auditors, the adequacy of the Company’s internal controls for financial reporting, including the resolution of identified material weaknesses and reportable conditions, if any.

5.         Prior to release of the Company’s Annual Report to the shareholders and the public, review the financial statements contained therein with management and the external auditors to determine that the disclosures and content of the financial statements are satisfactory and review and discuss: 

·         Changes in accounting standards or rules promulgated by the Financial Accounting Standards Board or the SEC that have an impact on the financial statements;

·         Estimates made by management having a material impact on the financial statements;

·         The effect of alternative assumptions, estimates or GAAP methods on the Company’s financial statements;

·         Any changes from prior years in accounting principles applied in the preparation of such financial statements; and

·         Any material written communications between the independent auditor and the Company’s management, including any management letter provided by the independent auditor and the Company’s response to that letter.

6.         Annually review with management and the independent auditors the basis for the disclosures made in the Annual Report to shareholders regarding the Company’s internal controls for financial reporting.

7.         Ensure that retention of the independent auditor to perform audit and nonaudit services is properly disclosed in the Company’s proxy statement and filings with the SEC.

8          Discuss with the external auditors and management, via telephone if appropriate, the quarterly financial statements of the Company before the results are released to the shareholders and the public.

9.         Inquire of management (including the General Counsel), and the external auditor, about significant risks or exposures that could financially impact the Company and assess the steps management has taken to minimize such risks.

10.       Investigate any matter brought to its attention within the scope of its duties, with the power to compensate and obtain advice and assistance from outside legal, accounting or other advisors for this purpose if, in its judgment, that is appropriate.  Resolve any disagreements between the external auditors and management.  Determine funding for the appropriate compensation of the independent auditors and other advisors that the Audit Committee chooses to engage, with such funding to be provided by the Company.

11.       Submit the minutes of all meetings of the Audit Committee to, or discuss the matters communicated at each meeting with, the full Board.

12.       Review, at least annually, with management and the independent auditor the qualifications, performance, independence and objectivity of the independent auditor.  In connection with such review and evaluation, the Audit Committee shall

·        Obtain and review a written report from the independent auditor at least annually regarding the auditor’s internal quality-control procedures and any material issues raised by the most recent quality-control review; 

·        Obtain an annual written statement from the independent auditor delineating all relationships, both direct and indirect, between the independent auditor and the Company, including each non-audit service provided to the Company and at least the matters set forth in Independence Standards Board No. 1;

·        Consider whether the provision of non-audit services is compatible with maintaining the auditor’s independence, taking into account the opinions of management;

·        Discuss any relationships that may impair the auditor’s independence and take such actions as it deems appropriate or make recommendations to the Board regarding actions to be taken to remedy such impairment; and

·        Ensure appropriate audit and concurring partner rotation as required by law.

13.       Review and approve any related-party transactions entered into by the Company.

14.       Review and pre-approve the engagement of independent accountants to perform permissible non-audit services in accordance with policies adopted by the Audit Committee and applicable laws and regulations.  Review any non-audit services performed on behalf of the Company by the independent accountants that meet the de minimis exception under applicable laws and regulations.

15.       Establish procedures for receipt and processing of complaints related to accounting, internal controls or auditing-related matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing practices.

16.       Administer the Company’s Code of Ethics for Chief Executive Officer and Senior Financial Officers, including consideration of any waivers and investigation of any alleged violations thereof.

ADOPTION AND EFFECTIVE DATE

This Amended and Restated Audit Committee Charter was adopted by the Board of the Company on October 28, 2008 and was made effective May 14, 2008.

ANNUAL REVIEW

At least annually, members of the Audit Committee shall review the terms and scope of the Audit Committee charter to determine the adequacy of the charter.  Such review and any recommendations which follow thereafter shall be reflected in the minutes of the meeting of the Audit Committee during which such review was undertaken.

Amended and Restated Charter of the Stock Option & Compensation Committee of the
 Board of Directors of
Providence and Worcester Railroad Company
 

The Board of Directors of Providence and Worcester Railroad Company (the “Company”) has constituted and established a Stock Option & Compensation Committee (the “Committee”) with authority, responsibility, and specific duties as described in this Charter (the “Charter”).

COMPOSITION

The Committee shall consist of directors who are independent of management in accordance with applicable Securities and Exchange Commission (“SEC”) rules and the listing standards of the NASDAQ Stock Market and free from any relationship that, in the opinion of the Board of Directors of the Company (the “Board”), as evidenced by its election of such Committee members, would interfere with the exercise of independent judgment as a Committee member.

Committee members shall be appointed by the Board.  One member shall serve as chairperson.  He/she shall be responsible for leadership of the Committee, including overseeing the agenda, presiding over the meetings and reporting to the Board.  If the Committee Chairperson is not present at a meeting, the members of the Committee may designate a chairperson.

RESOURCES and AUTHORITY

The Committee shall have the resources and authority it deems necessary and appropriate to discharge its responsibilities, at the Company’s expense.  The Committee shall have the power to adopt its own operating rules and procedures and to call upon assistance from officers and employees of the Company and outside counsel and other advisers without the consent of management.

The Committee, and each member of the Committee in his/her capacity as such, shall be entitled to rely, in good faith, on information, opinions, reports or statements, or other information prepared or presented to them by officers and employees of the Company, whom such member believes to be reliable and competent in the matters presented and on counsel, compensation consultants or other persons as to matters which the member believes to be within the professional competence of such person.

PRINCIPAL FUNCTIONS

            The Committee’s basic responsibility is to assure that the senior executives of the Company and its wholly owned affiliates are compensated effectively in a manner consistent with the stated compensation strategy of the Company and the requirements of appropriate regulatory bodies.  The Committee shall also communicate to shareholders the Company’s compensation policies and the reasoning behind such policies as required by the Securities and Exchange Commission.  More specifically, the Committee shall be responsible for the following:

• Reviews and approves with the Chairman of the Board, the Company’s compensation philosophy.
• Approves and reports to the Board, the executive compensation plans and the compensation (including incentive awards) of the Chairman of the Board and the President and any other officer who is a member of the Board.
• Reviews and approves with the Chairman of the Board and President, the executive compensation plans and compensation (including incentive awards) of the officers of the Company other than the Chairman of the Board and the President.
• Assures that the total compensation paid to the Company’s principal officers other than the Chairman of the Board and the President is reasonable as it relates to such officer’s responsibilities and length of service with the Company and taking into account any cost of living increases.
• Periodically reviews and approves stock ownership guidelines, including granting or making recommendations to the Board concerning employee stock options.
• Consults with the Chairman of the Board and makes recommendations to the Board for new or material changes to existing employee benefit plans.
• Reviews the status of and reports to the Board on the Company’s director compensation practices.  Any changes in director compensation should come upon the recommendation of the Committee but with full discussion and concurrence by the Board.
• Oversees the preparation and review of, and discusses with management, the Company’s Compensation Discussion & Analysis (“CD&A”) and related disclosures required by the SEC.
• Reviews and decides whether to recommend the final CD&A to the Board for inclusion in the Company’s annual proxy statement.
• Conducts an annual evaluation of the adequacy of this Charter and recommends any proposed amendments to the Board for approval.
• Reports to the Board on a regular basis so that the Board is informed of the Committee’s activities.
• Such other duties and responsibilities as may be assigned to the Committee, from time to time, by the Board and/or the Chairman of the Board, or as designated in plan documents.
  
   

MEETINGS

            The Committee shall meet sufficiently often to discharge its responsibilities hereunder, but at least as often as required by applicable SEC rules and NASDAQ listing requirements.  Meetings may be called by the Chairman of the Board, the President of the Company or the Chairperson of the Committee.  Appropriate members of management and staff will prepare draft agendas and related background information for each Committee meeting, which will be reviewed and approved by the Committee Chairperson in advance of distribution to the other Committee members.  The Company’s corporate Secretary or Assistant Secretary will be present at all meetings.  Any background materials, together with such agenda, should be distributed to the Committee members, the President and corporate Secretary in advance of the meeting for their review and discussion.  The corporate Secretary will maintain one set of all Committee minutes, agendas and background information, and the like, to be filed with the corporate records of the Company and will be provided a set of all Committee correspondence.  All meetings of the Committee shall be held pursuant to the By-laws of the Company with regard to notice and waiver thereof, and written minutes of each meeting shall be duly filed in the Company records.  Reports of meetings of the Committee shall be made to the Board at its next regularly-scheduled meeting following the Committee meeting accompanied by any recommendations to the Board approved by the Committee.  In addition, all Directors are to be furnished copies of each Committee meeting’s minutes

Adopted by the Board of Directors of the Company on October 29, 2008, and was made effective May 14, 2008.