FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-18595
E'TOWN CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2596330
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 654-1234
Securities reSecurities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Secrities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of regulation S-K is contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
On December 31, 1993, the aggregate market value of E'town Corporation's voting
stock held by non-affiliates was $177,643,368.
On December 31, 1993, there were 5,639,472 shares of Common Stock outstanding,
exclusive of treasury shares or shares held by subsidiaries of E'town
Corporation.
Note: All of the Common Stock of Elizabethtown Water Company is owned by E'town
Corporation.
Parts II and IV incorporate information by reference from the Annual Report to
Shareholders of E'town Corporation for the Year Ended December 31, 1993.
Part III incorporates information by reference from the definitive Proxy
Statement in connection with E'town Corporation's Annual Meeting of Shareholders
to be held on May 2, 1994.
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
1993 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
ITEM PAGE
---- ----
1. Business...................................................... 1
Organization............................................... 1
Service Area and Customers................................. 1
Water Supply............................................... 2
Water Quality Regulations and
Water Treatment Facilities................................ 3
Transmission and Distribution.............................. 7
Energy Supply.............................................. 7
Environmental Matters...................................... 8
Franchises................................................. 8
Employee Relations......................................... 8
Rate Matters............................................... 9
Real Estate Matters........................................ 10
2. Properties.................................................... 11
3. Legal Proceedings............................................. 11
4. Submission of Matters to a Vote of
Security Holders............................................. 11
PART II
ITEM
----
5. Market for the Corporation's Common Stock and
Related Stockholder Matters.................................. 13
6. Selected Financial Data....................................... 14
7. Management's Discussion and Analysis of
Consolidated Financial Condition and
Results of Operations......................................... 15
8. Financial Statements and Supplementary Data................... 21
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure....................... 21
PART III
ITEM PAGE
---- ----
10. Directors and Executive Officers of the Registrant............ 21
11. Executive Compensation........................................ 21
12. Security Ownership of Certain Beneficial
Owners and Management........................................ 21
13. Certain Relationships and Related
Transactions................................................. 21
PART IV
ITEM
----
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.......................................... 22
SIGNATURES............................................................. 24
APPENDIX I
Elizabethtown Water Company and Subsidiary
Consolidated Financial Statements for the Years
Ended December 31, 1993, 1992 and 1991 and
Independent Auditors' Report
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
Form 10-K
Annual Report
For the year ended December 31, 1993
PART I
ITEM 1. Business
Organization
E'town Corporation (E'town or Corporation) was incorporated under
the laws of the State of New Jersey in 1985 to serve as a holding
company for Elizabethtown Water Company, (Elizabethtown or Company) and
its wholly owned subsidiary The Mount Holly Water Company (Mount Holly).
Elizabethtown and Mount Holly are regulated water utilities which, as a
consolidated entity, are referred to herein as Elizabethtown Water
Company (Elizabethtown Water Company). E'town Properties, Inc.
(Properties) was incorporated in 1987 as a wholly owned and
non-regulated subsidiary of E'town to acquire, develop and sell real
estate holdings.
Elizabethtown and Mount Holly are engaged in the distribution of
water for domestic, commercial, industrial and fire protection purposes
and for resale by other water companies and public bodies.
Elizabethtown is a New Jersey corporation, one of whose
predecessors was first incorporated in 1854. The present corporation
was formed in 1961 as a result of a consolidation of Elizabethtown Water
Company Consolidated and Plainfield-Union Water Company. Princeton and
Somerville Water Companies were merged into Elizabethtown in 1973, and,
as of January 1, 1977, Bound Brook Water Company was also merged into
Elizabethtown. Elizabethtown owns all of the common stock of Mount
Holly which contributed approximately 3% of the Company's consolidated
operating revenues for 1993.
Service Area and Customers
At December 31, 1993 Elizabethtown and Mount Holly furnished water
service on a retail basis to general customers and to industrial
customers served through 188,677 meters in 54 municipalities in the
counties of Union, Middlesex, Somerset, Mercer, Hunterdon, Ocean, Morris
and Burlington in the central part of New Jersey, serving a population
of approximately 560,000. Elizabethtown also provides, on a wholesale
basis, a portion of the water requirements of eight additional
municipalities with their own retail water systems and of three other
-1-
investor-owned water companies. Water for fire protection service is
provided to 53 municipalities and also to commercial and industrial
establishments.
The Company's operating revenues by major classifications for the
twelve months ending December 31, 1993 are as follows:
General customers 63.1%
Sales to other systems 17.2%
Larger industrial customers 6.6%
Fire protection service/miscellaneous 13.1%
The systems are substantially all metered except for fire service.
Additional operating statistics appear on page 14.
Water Supply
The water supply systems of Elizabethtown and Mount Holly are
physically separate. During 1993, Elizabethtown's pumpage averaged
127.2 million gallons per day (MGD) and Mount Holly's pumpage averaged
3.4 MGD. Elizabethtown believes that it has sufficient water supply
sources to meet the needs of its retail service areas and wholesale
customers for the foreseeable future. Mount Holly plans to construct
additional facilities to augment its water supplies.
In 1993, surface water sources supplied about 88% of
Elizabethtown's supply with wells supplying the remaining 12%. All of
Mount Holly's water is produced from wells.
Substantially all of Elizabethtown's surface water is purchased
under a long-term contract with the New Jersey Water Supply Authority
(NJWSA) which requires Elizabethtown to purchase (i) 32 MGD from the
state-owned Delaware and Raritan Canal which transports water from the
Delaware River Basin plus (ii) an average of 70 MGD from the Raritan
River Basin which includes the state-owned Spruce Run-Round Valley
Reservoir System. The safe yield of the Raritan River Basin and the
Delaware and Raritan Canal is 225 MGD of which 151 MGD is presently
allocated to Elizabethtown and others. Elizabethtown has available and,
as needed to meet system demand, purchases water over and above its
minimum purchase obligation.
The Company is analyzing the potential effect of federal and state
regulations on the long-term capacity of Elizabethtown's wells. Since
1985, wells with an aggregate capacity of 11 MGD have been withdrawn
from service due to more stringent federal and state regulations and
increased groundwater contamination at certain well sites. Under state
and federal regulations now in effect, Elizabethtown owns and operates
wells with an aggregate safe daily yield of approximately 18 MGD. If
regulations governing radionuclides in drinking water proposed by the
United States Environmental Protection Agency (USEPA) are adopted,
Elizabethtown's well capacity will decrease to about 13 MGD.
-2-
All of Mount Holly's system delivery of 3.4 MGD in 1993 was
supplied from wells. To assure an adequate supply of quality water from
an aquifer serving parts of southern New Jersey, recent state
legislation will require Mount Holly, as well as other suppliers
obtaining water from designated portions of this aquifer, to reduce
pumpage from its wells by the earlier of: (i) the date a new regional
system planned by another purveyor is completed or (ii) the date Mount
Holly develops its own alternate sources. Mount Holly's pumpage for
1993 was 1,237 million gallons (MG) and, under the new legislation,
Mount Holly must reduce its pumpage to 538 MG from its existing wells.
Mount Holly has received preliminary approval from the New Jersey
Department of Environmental Protection and Energy (NJDEPE) for its
conceptual plan to develop wells, treatment and transmission facilities
necessary to obtain water outside the designated portion of the aquifer.
The preliminary estimate of the the cost of this project of $12.2
million has been included in Mount Holly's capital expenditure
projections. Mount Holly intends to request rate relief to recover the
financing and operating costs of these facilities.
Water Treatment Facilities and Water Quality Regulations
Elizabethtown owns and operates a treatment plant at the confluence
of the Raritan and Millstone Rivers adjacent to the Delaware and Raritan
Canal to treat surface waters purchased from the NJWSA. The plant can
withdraw water from any of these sources, which is an advantage in the
event that one source becomes contaminated. The plant was placed in
service in 1931 and has continually been upgraded since that time.
Elizabethtown also operates smaller treatment facilities to treat
groundwater produced by certain wells. Mount Holly operates similar
groundwater treatment facilities.
Both the USEPA and the NJDEPE regulate the operation of
Elizabethtown's and Mount Holly's water treatment and distribution
systems and the quality of the water Elizabethtown and Mount Holly
deliver to their customers. Elizabethtown and Mount Holly believe they
are currently in compliance with all present federal and state water
quality standards, including all regulations promulgated to date by the
USEPA pursuant to the Federal Safe Drinking Water Act, as amended
(SDWA), and by the NJDEPE pursuant to similar state legislation.
However, Elizabethtown has included certain capital projects in its
five-year capital budget which it anticipates will be necessary to
comply with regulations that have been proposed by the USEPA and NJDEPE.
Recovery of the financing and operating costs of such improvements, plus
those costs for any additional projects which cannot be foreseen at this
time, will be requested in rates.
-3-
Elizabethtown has responded to recent water quality regulations
promulgated by NJDEPE and the USEPA by replacing groundwater supplies
with increased withdrawals of surface water. Accordingly, the
proportion of supply produced from surface water has increased from 85%
in 1986 to 88% in 1993. The Company expects this trend to continue
because it is preferable from the standpoint of operational efficiency
and cost to modify treatment processes and facilities at one or two
large plants than to attempt to constantly upgrade treatment facilities
at multiple well sites.
New Surface Water Treatment Plant
As part of its ongoing planning process, Elizabethtown continually
evaluates the present and projected capacity of its facilities to
obtain, treat, and distribute water meeting water quality regulations in
amounts necessary to satisfy present and foreseeable maximum day
demands. In light of ongoing growth in demand by retail and wholesale
customers and the trend towards increased use of surface water, which
requires treatment, Elizabethtown commissioned a study by a consulting
firm specialized in water treatment plant design and operation. The
purpose of this study was to assess the capacity of Elizabethtown's
existing Raritan Millstone plant under present and likely water quality
regulations. The consultant concluded that the existing plant has a
sustainable capacity of 155 MGD which, when coupled with well capacity
of 13 MGD (adjusted for the effect of the proposed radionuclide
regulations), results in a systemwide production capacity, sustainable
over the long term, which is less than current and expected maximum day
demand.
After reviewing various options to increase treatment capacity,
such as expanding its existing Raritan Millstone Plant or purchasing
treated water from another supplier, Elizabethtown concluded that
constructing a new plant was the only feasible alternative.
Accordingly, the Company intends to construct a treatment plant (Plant),
with an initial capacity of 40 MGD, across the river from its existing
plant to increase Elizabethtown's sustainable production capacity. The
Plant has an estimated cost of approximately $100 million, excluding an
allowance for funds used during construction (AFUDC) and will take
approximately 2 1/2 years to construct.
-4-
The Plant has been designed by a joint venture of two engineering
firms, nationally recognized as experts in the field. The Company owns
the land where the Plant will be built and has obtained all material
permits to construct the Plant. Elizabethtown has solicited bids from
general contractors for the construction of the Plant. The Company
expects to execute a contract and commence construction in the spring of
1994. One of the partners of the joint venture which designed the Plant
will also manage its construction.
In August 1993, the New Jersey Board of Regulatory Commissioners
(BRC) approved a stipulation (1993 Plant Stipulation) signed by all
parties to the Company's petition filed in connection with the Plant
which states that the parties affirm that the Plant is necessary and
that its cost estimate, at that time of $87 million, and construction
schedule are reasonable. The 1993 Plant Stipulation also provides for a
rate setting mechanism for the Plant during the construction period.
The company has notified all parties to the 1993 Plant Stipulation that
the estimated cost of the Plant has increased. (See "Rate Matters").
Water Quality Regulations
As required by the SDWA, the USEPA has established maximum
contaminant levels (MCLs) for various substances found in drinking
water. As authorized by similar state legislation, the NJDEPE has set
MCLs for certain substances which are more restrictive than the MCLs set
by the USEPA. In certain cases, the USEPA and NJDEPE have also mandated
that certain treatment procedures be followed in addition to satisfying
MCLs established for specific contaminants. The NJDEPE is also the
USEPA's agent for enforcing the SDWA in New Jersey and, in that
capacity, monitors the activities of Elizabethtown and Mount Holly and
reviews the results of water quality tests performed by Elizabethtown
and Mount Holly for adherence to applicable regulations.
Regulations applicable to water utilities generally, including
Elizabethtown and Mount Holly, include the Lead and Copper Rule (LCR),
the MCLs established for various volatile organic compounds (VOCs), the
MCLs proposed for radionuclides and the Surface Water Treatment Rule
(SWTR).
Lead and Copper Rule
The LCR requires Elizabethtown and Mount Holly to test the quantity
of lead and copper in drinking water at the customer's tap and, if
certain contaminant levels (action levels) are exceeded, to notify
customers and initiate a public information campaign advising customers
how to minimize exposure to lead and copper. The LCR also requires
-5-
Elizabethtown to add corrosion inhibitors to water to minimize leaching
of lead from piping, faucets and soldered joints into water consumed at
the tap. Results from two separate tests completed during 1992 within
Elizabethtown and Mount Holly's systems do not indicate lead and copper
concentrations above the action levels. Accordingly, public
notification and a public information campaign have not been required.
Capital costs of corrosion inhibitor facilities of $2.6 million have
been included in Elizabethtown's five-year capital budget.
Elizabethtown will request that the costs of compliance be recovered in
rates.
Volatile Organic Compounds
VOCs include various substances (primarily synthetic organic
solvents) which have percolated into groundwater aquifers from surface
sources. Elizabethtown has found VOCs in excess of the applicable MCLs
in certain of its wells and has either suspended the use of such wells
or constructed aeration towers which remove such contaminants from the
water by venting them into the atmosphere. Because underground water
flows are difficult to map, it is difficult to predict when and where
contamination will occur in the future. To the extent that
contamination in excess of applicable MCLs occurs at wells lacking
aeration towers, Elizabethtown will consider building such facilities if
feasible and cost effective, or closing such wells, thereby increasing
its reliance on surface water. To date, Mount Holly has not been
affected by VOC contamination.
Radionuclides
Radionuclides are naturally occurring radioactive substances
(primarily radon) found in groundwater. Like VOCs, radon can be removed
from groundwater using aeration towers. If the MCLs proposed for all
radionuclides are finally adopted, Elizabethtown believes that it will
abandon wells with aggregate production capacity of approximately 5 MGD,
thereby further increasing Elizabethtown's reliance on surface water.
Surface Water Treatment Rule
The operation of Elizabethtown's existing Raritan-Millstone
treatment plant is subject to the SWTR. Elizabethtown has assessed the
plant's sustainable production capacity, assuming operation consistent
with the requirements of the SWTR, and determined that improvements to
the existing plant are necessary.
-6-
Specifically, Elizabethtown has installed additional pumps to
increase capacity and reliability at peak times. Also, Elizabethtown
will replace existing chlorine gas disinfection facilities with liquid
sodium hypoclorite to improve community and employee safety, will
install corrosion inhibitor facilities in conformance with the LCR, will
construct a new building to house offices and lab facilities and will
construct facilities to handle waste materials generated from the
treatment process. (See "Environmental Matters".) Elizabethtown has
included the capital costs of these facilities in its capital program
and will request that the financing and operating costs of these
facilities be recovered in rates. (See "Capital Expenditures Program"
at Item 7.)
Transmission and Distribution
As of December 31, 1993, the Company's transmission and
distribution system included 2,800 miles of transmission and
distribution mains. Mains range in size up to 60 inches, substantially
all of which are either ductile iron, cast iron or prestressed concrete
pipe. Elizabethtown conducts an ongoing program costing approximately
$1 million per year to clean and line its older cast iron mains. Such
costs are capitalized and have been included in rate base in
stipulations settling recent rate cases.
As of December 31, 1993, Elizabethtown also had in service pumping
equipment having capacities of 283 MGD for low lift pumping capacity, 577
MGD for system supply pumping capacity and 194 MGD for transfer booster
pumping capacity. Distribution storage facilities as of December 31,
1993 consisted of standpipes, elevated and ground storage tanks and
reservoirs with an aggregate capacity of 82 MG. Such pumping,
transmission and storage facilities are necessary to maintain adequate
water pressures throughout the service territory. Failure to maintain
pressures could adversely affect domestic service and impede local fire
departments' efforts to fight fires, particularly during peak summer
loads.
On an ongoing basis, Elizabethtown assesses the capacity of its
system to maintain adequate pressures under all load conditions and
initiates plans to construct pumping, transmission and storage
facilities as needed.
Energy Supply
Elizabethtown pumps substantially all of its water with electric
power purchased from two major electric utilities. Elizabethtown also
has diesel powered pumping and generating facilities at its major
treatment plants and at certain transfer stations to provide basic
service during possible electrical shortages. Elizabethtown has not, to
date, experienced any shortage of electric energy or diesel fuel to
operate its pumps and has cooperated with its electric suppliers during
their peak periods by operating non-electrical pumping facilities upon
request.
-7-
Environmental Matters
Elizabethtown and Mount Holly are also subject to regulation by the
NJDEPE with respect to water supply plans and specifications for the
construction, improvement, alteration and operation of public water
supply systems and with respect to the quality of any effluent from
treatment plants.
As a normal by-product of treating surface water, Elizabethtown's
existing surface water treatment plant generates silt removed from
untreated river water plus residue from chemicals used in the treatment
process. Historically, Elizabethtown has disposed of this material in
landfills. As a result of revised regulations governing landfills,
Elizabethtown has been reusing this material on site. Due to limited on
site storage capacity, Elizabethtown has developed plans and designed a
facility to dry the by-product for beneficial reuse. This project is
included in the Company's capital program.
During the late 1980's, Elizabethtown withdrew a well field from
service because of increased groundwater contamination and more
stringent water quality regulations. Subsequently, residents in the
area have claimed that Elizabethtown's decision to withdraw such wells
from service has caused the local water table to rise to the level where
basement flooding occurs during periods of heavy rain. Elizabethtown
has commissioned an engineering firm to determine whether it is feasible
and cost effective to install treatment facilities so that those wells
not presently complying with current regulations can be returned to
service. The study will also evaluate whether the resumption of pumping
would have any effect on the local water table. Preliminary estimates
of treatment facilities necessary to return certain wells in this area
to service are included in the Company's capital program.
Under New Jersey law, environmental matters are addressed by the
NJDEPE before diversion allowances or other water supply projects are
authorized. To date, Elizabethtown and Mount Holly have been able to
construct all plant facilities and obtain all diversion authorizations
necessary to maintain customer service.
Franchises
The property and franchises of Elizabethtown and Mount Holly are
subject to rights of eminent domain of the State of New Jersey. These
rights have been delegated by statutes now in effect to municipalities
or groups of municipalities and have been or may be delegated to various
public agencies. No such rights of eminent domain have been exercised
since 1931.
Employee Relations
As of December 31, 1993, the Corporation had a total of 384
full-time employees, of which 209 were covered by union contracts. The
contracts between the Company and the Utility Workers Union of America
(A.F.L.-C.I.O.), were renegotiated on February 1, 1993 and will expire
on January 31, 1996.
-8-
The Company considers relations with both union and non-union
employees to be satisfactory.
Rate Matters
Elizabethtown and Mount Holly are subject to regulation by the
BRC with respect to the issuance and sale of securities, rates and
service, classification of accounts, mergers, and other matters.
Elizabethtown and Mount Holly periodically seek rate relief to cover the
cost of increased operating expenses, increases in financing expenses
due to additional investments in utility plant, and other costs of doing
business. Assuming Elizabethtown's construction program proceeds as
planned, Elizabethtown anticipates filing for rate increases annually
for the next several years.
The BRC is required by New Jersey law to issue a ruling within nine
months of the filing of a petition to increase rates.
As mentioned previously, the 1993 Plant Stipulation, approved in
August 1993, states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, at that time of $87 million, and
construction period are reasonable. In addition, the 1993 Plant
Stipulation authorizes the Company to levy a rate surcharge if the
Company's pre-tax interest coverage ratio for any 12-month historical
period drops below 2.0 times. The surcharge would equal 20% of the
Company's gross interest expense for the prior 12 months, adjusted for
revenue taxes. The surcharge would go into effect at the same time as
the Company's next base rate increase after the coverage ratio falls
below 2.0 times, but in no event prior to January 1, 1995. Also, the
surcharge would remain in effect for 12 months and could be extended by
the BRC for up to six additional months. The 1993 Plant Stipulation
also provides that the rate of return on common stockholder's equity
used to calculate the rate for the equity component of the AFUDC for the
Plant will be 1.5% less than the rate of return on common stockholder's
equity established in the Company's most recent base rate case. The
authorized rate of return on common stockholder's equity is currently
11.5%.
Elizabethtown has solicited bids from general contractors for the
construction of the Plant. The estimated cost of the Plant, as of
March 23, 1994, is approximately $100 million, excluding AFUDC. The
Company has notified all parties to the 1993 Plant Stipulation that the
estimated cost of the Plant has increased. The Company expects to
execute a contract and commence construction in the spring of 1994.
On January 4, 1994, Elizabethtown filed with the BRC for a
Purchased Water Adjustment Clause, a procedure established by BRC Rules,
which would allow Elizabethtown to recover in rates approximately
$.5 million for the increase in the cost of purchased water from the
NJWSA without a complete rate case. The NJWSA has given notice that
effective July 1, 1994, it will increase charges for water from $220.47
to $232.65 per million gallons. The Company expects the BRC to render a
decision prior to July 1994.
-9-
On March 18, 1993, the BRC approved a stipulation (1993
Stipulation) for a rate increase of $5.0 million, effective as of that
date. The 1993 Stipulation contains a provision allowing for the
deferral of expenses, calculated under Statement of Financial Accounting
Standards 106, for postretirement benefits accrued that are in excess of
the cash benefits paid. Recovery of such deferrals will be considered
in future rate cases.
On March 18, 1992, the BRC approved a stipulation for a rate
increase of $4.0 million effective as of that date.
Real Estate Matters
Properties and E'town currently own several parcels of land
aggregating approximately 740 acres located in central New Jersey
having an original acquisition cost of approximately $8 million.
Approximately half of this acreage was purchased from a third party and
the balance was land formerly owned by Elizabethtown and no longer
needed for utility purposes. These holdings are owned in fee.
The Corporation has no plans to acquire additional real estate.
Over the next several years, the Corporation expects to work with local
and state officials to obtain various approvals to enhance the value and
development potential of its real estate holdings while minimizing
expenditures.
On August 24, 1993, E'town, Properties and Elizabethtown sold three
parcels of land totalling 260 acres to the Somerset County Park
Commission for $3.4 million. The sale produced an after-tax gain of
approximately $1.1 million or $.21 per share.
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Executive Officers of the Corporation and Elizabethtown
Robert W. Kean, Jr. 71 Chief Executive Officer of the
Corporation since 1985 and Elizabethtown
since 1973.
Henry S. Patterson, II 71 President of the Corporation since March
1985 and its subsidiary, E'town
Properties, Inc., since July 1987.
Thomas J. Cawley 63 President of Elizabethtown and its
subsidiary, The Mount Holly Water Company
since August 1992. Executive Vice
President of Elizabethtown since January
1987 and Vice President of its subsidiary,
The Mount Holly Water Company since 1973.
Previously, Vice President, Operations
since 1975.
Frank Critelli 64 Controller of the Corporation since 1985
and of Properties since 1987. Senior Vice
President - Accounting and Rates of
Elizabethtown since 1987.
Andrew M. Chapman 38 Chief Financial Officer and Treasurer of
the Corporation, and Properties since
December 1990 and Senior Vice President,
Chief Financial Officer and Treasurer of
Elizabethtown since May 1993. Treasurer
of Elizabethtown since August 1989.
Previously, Director, Office of Financial
Management, New Jersey Department of
Treasury, since June 1985.
Anne Evans Gibbons 49 Vice President of the Corporation since
September 1987. Owner of the Elberon
Development Co., (a real estate holding
company) since 1984 and President of
David O. Evans, Inc. (a construction
company) since 1983.
Walter M. Braswell 44 Secretary of the Corporation, Properties
and Elizabethtown since December 1990 and
Vice President and General Counsel and
Assistant Secretary of Elizabethtown since
August 1988. Previously, Assistant
Secretary and General Attorney of
Elizabethtown since May 1983.
-11-
Norbert Wagner 58 Senior Vice President-Operations since May
1992. Vice President-Operations since
March 1987, Chief Engineer since October
1978.
ITEM 2. Properties
All principal plants and other materially important units of
property of Elizabethtown and Mount Holly are owned in fee. The Company
considers that the properties of Elizabethtown and Mount Holly are in
good operating condition.
ITEM 3. Legal Proceedings
None expected to be material. See Note 8 to Elizabethtown's
Consolidated Financial Statements.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
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PART II
ITEM 5. Market for the Corporation's Common Stock and Related
Stockholder Matters
This information is included in Exhibit 13, filed herewith, and is
incorporated herein by reference. All of the common stock of
Elizabethtown Water Company is owned by E'town.
-13-
ITEM 6. Selected Financial Data
E'town Corporation
This information is included in Exhibit 13, filed herewith, and is
incorporated herein by reference.
<TABLE>
Elizabethtown Water Company
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Utility Plant (Thousands)
Utility Plant--net .......... $373,293 $347,253 $319,421 $297,577 $275,588
Construction Expenditures
(excluding AFUDC)........... 32,500 33,293 27,732 27,301 38,589
Total Assets (Thousands)...... $437,405 $386,880 $371,103 $350,487 $316,701
Capitalization (Thousands)
Shareholder's Equity ........ $125,765 $103,024 $ 85,877 $ 74,081 $ 72,215
Redeemable Preferred Stock .. 12,000 12,000 12,000 12,000 12,000
Debt (l) .................... 141,952 147,841 154,984 159,049 131,567
Total Capitalization ........ $279,717 $262,865 $252,861 $245,130 $215,782
Capitalization Ratios
Common Stock ................ 45% 39% 34% 30% 33%
Preferred Stock ............. 4% 5% 5% 5% 6%
Debt (1) .................... 51% 56% 61% 65% 61%
Earnings Applicable to
Common Stock (Thousands)..... $ 13,783 $ 11,099 $ 10,311 $ 6,929 $ 6,074
Operating Statistics
Revenues (Thousands)
General Customers .......... $ 63,100 $ 55,570 $ 54,071 $ 48,267 $ 45,088
Other Water Systems ........ 17,187 15,080 14,082 12,947 11,060
Industrial Wholesale ....... 6,652 6,044 5,846 5,515 5,183
Fire Service/Miscellaneous.. 13,057 12,473 12,087 11,386 9,906
Total Revenues ............. $ 99,996 $ 89,167 $ 86,086 $ 78,115 $ 71,237
Water Sales - Millions of
Gallons (mg)
General Customers .......... 23,883 22,062 22,659 21,686 21,119
Other Water Systems ........ 15,109 14,118 13,811 14,379 14,450
Industrial Wholesale ....... 3,213 3,145 3,155 3,313 3,757
System Use and Unaccounted For 5,453 5,843 6,368 5,854 6,297
Total Water Sales .......... 47,658 45,168 45,993 45,232 45,623
System Delivery by Source - mg
Surface .................... 40,742 38,558 39,222 40,343 38,937
Wells ...................... 6,776 6,480 6,658 4,805 6,587
Purchased .................. 140 130 113 84 99
Total System Delivery ...... 47,658 45,168 45,993 45,232 45,623
Millions of Gallons Pumped:
Average Day ................ 131 123 126 124 125
Maximum Day ................ 191 159 169 155 148
<FN>
__________________________________________________________________________________________
(1)Includes long-term debt, notes payable and long-term debt-current portion.
</TABLE>
-14-
ITEM 7. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations
E'town Corporation
This information is included in Exhibit 13, filed herewith, and is
incorporated herein by reference.
Elizabethtown Water Company and Subsidiary
The water utility operations of Elizabethtown Water Company
(Elizabethtown or Company) and its subsidiary The Mount Holly Water
Company (Mount Holly), the consolidated entity being referred to herein
as Elizabethtown Water Company (Elizabethtown Water Company), presently
constitute the major portion of E'town Corporation's (E'town) assets and
earnings. E'town, a New Jersey holding company, is the parent company
of Elizabethtown Water Company and E'town Properties, Inc. The
following analysis sets forth significant events affecting the financial
condition at December 31, 1993 and 1992, and the results of operations
for the years ended December 31, 1993, 1992 and 1991 for Elizabethtown
Water Company.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures were $32.5 million during 1993. Capital
expenditures for the three-year period ending December 31, 1996, are
estimated to be $196.5 million.
Elizabethtown's construction program includes additional mains and
storage facilities necessary to serve customers who were added during
the last several years. In addition, Elizabethtown anticipates
upgrading its existing surface water treatment plant by rehabilitating
certain components and adding facilities designed to maximize its
capacity. These projects are designed to ensure the plant's compliance
with proposed water quality and other environmental regulations.
Elizabethtown's estimated capital expenditures through 1996 include
$100.0 million, excluding an Allowance for Funds Used During
Construction (AFUDC), for construction of a new water treatment plant,
the Canal Road Water Treatment Plant (Plant), near its existing plant.
The Plant is scheduled to be completed in 1996. The Plant, which will
have a rated production capacity of 40 million gallons per day, is
necessary to meet existing and anticipated customer demands and to
replace groundwater supplies withdrawn from service as a result of more
restrictive water quality regulations and groundwater contamination.
In August 1993, the Board of Regulatory Commissioners (BRC)
approved a stipulation (1993 Plant Stipulation) signed by the parties to
the Company's petition relating to the Plant. The 1993 Plant
Stipulation states that the Plant is necessary and that the Company's
estimate regarding the Plant's cost, at that time of $87 million, and
construction period were reasonable. The 1993 Plant Stipulation
authorizes the Company to levy a rate surcharge if the Company's pre-tax
interest coverage ratio for any 12-month historical period drops below
-15-
2.0 times. The surcharge would equal 20% of the Company's gross
interest expense for the prior 12 months, adjusted for revenue taxes.
The surcharge would go into effect at the same time as the Company's
next base rate increase after the coverage ratio falls below 2.0 times,
but in no event prior to January 1, 1995. Also, the surcharge would
remain in effect for 12 months and could be extended by the BRC for up
to six additional months. The 1993 Plant Stipulation also provides that
the rate of return on common stockholder's equity used to calculate the
rate for the equity component of the AFUDC for the Plant will be 1.5%
less than the rate of return on common stockholder's equity established
in the Company's most recent base rate case. The authorized rate of
return on common stockholder's equity is currently 11.5%.
Elizabethtown has solicited bids from general contractors for the
construction of the Plant. The estimated cost of the Plant, as of
March 23, 1994, is approximately $100 million, excluding AFUDC. The
Company has notified all parties to the 1993 Plant Stipulation that the
estimated cost of the Plant has increased. The Company expects to
execute a contract and commence construction in the spring of 1994.
Also included in the capital program is $12.2 million for new
wells, treatment facilities and transmission lines to augment Mount
Holly's water supplies. Such projects are necessary for Mount Holly to
comply with recent state legislation requiring Mount Holly and other
water purveyors located in a particular area in southern New Jersey to
obtain additional sources of water to replace portions of their existing
supplies.
Capital Resources
During 1993, Elizabethtown Water Company financed 28.2% of its
capital expenditures from internally generated funds (after payment of
common stock dividends). The balance was funded from (i) capital
contributions from E'town from the sale of common stock, (ii) the
remaining proceeds of various New Jersey Economic Development Authority
(NJEDA) tax-exempt bond issues from prior years and (iii) short-term
bank debt on an interim basis.
For the three-year period ending December 31, 1996, Elizabethtown
Water Company estimates that 15% of its capital expenditures will be
financed with internally generated funds (after the payment of common
stock dividends). The balance will be financed with a combination of
capital contributions from E'town from the proceeds from the sale of
E'town common stock, long-term debentures, proceeds of tax-exempt NJEDA
bonds and short-term borrowings under a revolving credit agreement (see
below), on an interim basis. The NJEDA has granted preliminary approval
for the financing of almost all of Elizabethtown's major projects over
the next three years, including the Plant. Elizabethtown expects to
pursue tax-exempt financing to the extent that final allocations are
granted by the NJEDA.
-16-
On May 17, 1993, E'town issued 575,000 shares of common stock for
net proceeds of $16.6 million. The net proceeds were used to
fund equity contributions to Elizabethtown of $11.0 million in May 1993
and $2.8 million in September 1993. Elizabethtown used a portion of
such contributions to repay $7.0 million of short-term bank debt
incurred for construction expenditures and invested the balance on a
short-term basis until needed for construction expenditures.
During 1993, E'town raised $6.0 million from the sale of common
stock issued under its Dividend Reinvestment and Stock Purchase Plan
(DRP). Such proceeds were used to fund equity contributions to
Elizabethtown primarily for Elizabethtown's capital expenditures.
On November 9, 1993, Elizabethtown issued $50 million of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used to
redeem $30 million of the Company's 8 5/8% Debentures due 2007 and
$20 million of the Company's 10 1/8% Debentures due 2018. The aggregate
redemption premiums of $2.7 million were paid from general Company
funds.
During 1994, E'town Corporation expects to issue approximately
500,000 shares of common stock, through a public offering prior to
June 30, 1994, to finance additional equity contributions to
Elizabethtown. Proceeds from all stock issued under E'town's DRP will
continue to fund additional equity contributions to Elizabethtown.
Elizabethtown is negotiating a committed revolving credit
agreement, which is expected to be in place by April 1994, with an agent
bank and up to five additional participating banks to replace its
existing uncommitted lines of credit. The agreement will provide up to
$60 million in revolving short-term notes to provide sufficient
short-term financing for the Company to fund, together with other
monies, its $196.5 million capital program. The agreement will allow
the Company to borrow, repay and reborrow up to $60 million for the
first three years, after which time the Company may convert any
outstanding balances to a five-year fully amortizing term loan. The
agreement will further provide that among other covenants, the Company
must maintain a ratio of common and preferred equity to total
capitalization of not less than 35% and a pre-tax interest coverage
ratio of at least 1.5 to 1.
December 31, 1992 and 1991
In April 1992, E'town issued 500,000 shares of common stock for net
proceeds of $12.7 million. Proceeds of the issue funded an $11.0
million capital contribution to Elizabethtown. Also, E'town funded
-17-
additional equity contributions of $4.2 million to Elizabethtown from
E'town's DRP. During 1992, Elizabethtown issued $15 million of 8%
Debentures to repay short-term bank debt, of which, $9 million was
incurred to repay Elizabethtown's 4 7/8% Debentures due
February 1, 1992, and the remainder was incurred to finance construction
expenditures.
On February 14, 1991, E'town issued 523,700 shares of common stock
for net proceeds of $11.6 million. Proceeds of the issue funded an
$8 million capital contribution to Elizabethtown. Also, E'town funded
additional equity contributions of $1.8 million to Elizabethtown from
E'town's DRP. During 1991, Elizabethtown issued $27.5 million of 8 3/4%
Debentures to retire $25 million of 11 1/8% Debentures and, through the
NJEDA, issued a total of $25.5 million of tax-exempt debentures with
interest rates of 6.6% and 6.7% to refinance $10.5 million of tax-exempt
8.20% Debentures and $15 million of 6.20% NJEDA Notes.
RESULTS OF OPERATIONS
Earnings Applicable to Common Stock for 1993 were $13.8 million as
compared to $11.1 million for 1992. The increase in net income resulted
from higher levels of outdoor water use due to abnormally hot and dry
summer weather. Also, rate increases received in March of 1993 and
1992, enabled the Company to cover higher levels of operating and
financial expenses in 1993 without adversely affecting net income.
Summer water use in excess of what management believes to be normal
contributed approximately $1.8 million. Assuming a return to normal
weather patterns in 1994, the Company expects that earnings for 1994
will be less than earnings realized in 1993.
Earnings Applicable to Common Stock for 1992 were $11.1 million, as
compared to $10.3 million for 1991. The increased resulted primarily
because the Company realized $3.3 million from the rate increase granted
in March 1992, which was partially offset by increased expenses.
Operating Revenues increased $10.8 million or 12.1% in 1993. Of this
increase, $4.8 million relates to the combined effect of the rate
increases of $5.0 million and $4.0 million effective March 1993 and
1992, respectively. Also, sales to retail customers increased $3.8
million and sales to other water systems increased $1.2 million due to
hot, dry summer weather.
Operating Revenues increased $ $3.1 million or 3.6% in 1992 primarily
because of the rate increase effective March 1992. Retail water
consumption dropped by $1.5 million in 1992 due to relatively wet summer
weather. However, lower consumption by retail customers was partially
offset by an increase in sales to other water systems of $.4 million.
-18-
Operation Expenses increased by $3.5 million or 10.0% in 1993 primarily
due to increases in the quantity of power and raw water purchased to
meet higher than normal summer loads. Also, the unit costs of power and
purchased water increased, as did labor costs and the cost of medical
and other benefits.
Operation Expenses increased $1.6 million or 4.9% in 1992. Increases in
labor, the price of purchased water and worker's compensation premiums
were partially offset by a reduction in hospitalization premiums.
Maintenance Expenses increased less than $.1 million or .2% in 1993 and
$.3 million or 5.7% in 1992 due to fluctuations in routine maintenance
at various operating facilities.
Depreciation Expense increased $.6 million or 9.5% in 1993 and $.4 million
or 6.3% in 1992 due to additional depreciable plant being placed in
service during those periods.
Revenue Taxes increased $1.4 million or 12.8% in 1993 and $.4 million or
3.4% in 1992 due to additional taxes on the higher revenues explained
above.
Real Estate, Payroll and Other Taxes increased $.1 million in 1993 due
to increased payroll taxes resulting from labor cost increases. Real
Estate, Payroll and Other Taxes increased by $.1 million in 1992.
Federal Income Taxes increased $1.8 million or 31.2% in 1993 and
$.2 million or 3.6% in 1992 due to the changes in the components of
taxable income discussed herein. The increase in 1993 also includes
$.2 million due to the change in the federal statutory tax rate from 34%
to 35%.
Other Income increased in total by $.1 million in 1993. Other Income
increased due to a gain on the sale of land in August 1993, of
$.1 million. A decrease in the equity component of AFUDC of $.2 million
resulted from the timing of construction expenditures. Other increases
of $.2 million resulted from various miscellaneous items. Federal
income taxes, as a result of all of the above, increased $.1 million.
In 1992 Other Income increased in total by $.4 million. Other
Income in 1992 includes an equity component of AFUDC of $.6 million.
Federal income taxes, as a result of the above, increased $.2 million.
Total Interest Charges increased $.8 million or 7.7% in 1993, due
primarily to an increase in interest for long-term debt issued in
September 1992 and a reduction in earnings from NJEDA trust funds due to
reduced trust fund balances. These items were partially offset by lower
interest on short-term debt due to reduced borrowings.
-19-
Total Interest Charges decreased $.4 million or 3.6% in 1992 due to
the net effect of (i) new long-term debt issued in September 1992,
(ii) lower interest costs as a result of long-term debt refinancing and
(iii) lower levels of short-term debt balances and their related rates.
ECONOMIC OUTLOOK
Earnings for Elizabethtown Water Company for the next several years
will be primarily affected by weather and customer usage, the magnitude
and timing of capital expenditures, the rate of growth of revenues and
expenses and the adequacy and timeliness of regulatory relief.
Elizabethtown and Mount Holly believe that they have sufficient
surface and well water supplies to meet their customers' needs and that
they are, and will remain, in compliance with all water quality
standards. Nonetheless, governmental water quality and service
regulations will require Elizabethtown and Mount Holly to make
significant investments in water treatment, transmission and storage
facilities including, most significantly, the Plant. This capital
program will require regular external financing and rate relief for the
next several years.
Because Elizabethtown expects its rate base to grow more quickly
than pumpage over the next several years, Elizabethtown anticipates
filing for a rate increase in 1994, and regularly thereafter, so that it
may have the opportunity to realize satisfactory returns on equity.
Adequate equity returns will enable Elizabethtown to continue to attract
external capital to finance improvements necessary to maintain safe and
adequate service.
-20-
Item 8. Financial Statements and Supplementary Data
The information for E'town is included in Exhibit 13, filed
herewith, and is incorporated herein by reference.
The information for Elizabethtown Water Company is contained
on pages 2 through 20 of Appendix I included herein.
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of E'town and
Elizabethtown is included in E'town's Proxy Statement for the 1994
Annual Meeting of Stockholders, and is incorporated herein by
reference.
Information regarding the executive officers of both E'town
and Elizabethtown follows Item 1 in Part I of this Form 10-K.
Item 11. Executive Compensation
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1994 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1994 Annual Meeting of
Stockholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This information for E'town and Elizabethtown is included in
E'town's Proxy Statement for the 1994 Annual Meeting of
Stockholders, and is incorporated herein by reference.
-21- PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements:
E'town Corporation
Elizabethtown Water Company
Statements of Consolidated Income for the years ended
December 31, 1993, 1992 and 1991.
Statements of Consolidated Cash Flows for the years ended
December 31, 1993, 1992 and 1991.
Consolidated Balance Sheets as of December 31, 1993 and 1992.
Statements of Consolidated Capitalization as of December 31,
1993 and 1992.
Statement of Consolidated Shareholders' Equity for the years
ended December 31, 1993, 1992 and 1991.
Notes to Consolidated Financial Statements.
E'town Corporation
A portion of the 1993 Annual Report to Shareholders which
includes Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations, Consolidated
Financial Statements, Notes to Consolidated Financial Statements,
Independent Auditors' Report and Other Financial and Statistical
Data is filed herewith as Exhibit 13 and is herein incorporated by
reference.
Elizabethtown Water Company
Elizabethtown Water Company's consolidated financial
statements and notes thereto are included herein on pages 2 through
20 of Appendix I.
E'town and Elizabethtown Water Company
The Independent Auditors' Reports for E'town and Elizabethtown
Water Company appear on page 26 herein and page 1 of Appendix I,
respectively.
-22-
2. Financial Statement Schedules:
All financial schedules required to be filed contain the same
data and amounts for both E'town and Elizabethtown Water Company,
except for Schedule V, which includes property, plant and equipment
for each company.
Schedule V - Property, Plant and Equipment for the Years Ended
December 31, 1993, 1992 and 1991.
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant and Equipment for the Years Ended
December 31, 1993, 1992 and 1991.
Schedule VIII - Valuation and Qualifying Accounts for the
Years Ended December 31, 1993, 1992 and 1991.
Other schedules are omitted because of the absence of the
condition under which they are required or because the
required information is included in the financial statements
or the notes accompanying each company's financial statements.
3. Exhibits
(a) Exhibits for E'town and Elizabethtown Water Company
are listed in the Exhibit Index.
(b) Reports on Form 8-K: None
-23-
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.
March 30, 1994 E'TOWN CORPORATION
By: /s/ Robert W. Kean, Jr.
-------------------------
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 1994.
Chairman, Chief Executive Officer
and Director /s/ Robert W. Kean, Jr.
-------------------------
President and Director /s/ Henry S. Patterson II
-------------------------
Vice President and Director /s/ Ann Evans Gibbons
-------------------------
Chief Financial Officer and Treasurer /s/ Andrew M. Chapman
(Principal Financial Officer) -------------------------
Controller /s/ Frank Critelli
(Principal Accounting Officer) -------------------------
Director /s/ Brendan T. Byrne
-------------------------
Director /s/ Thomas J. Cawley
-------------------------
Director /s/ John Kean
-------------------------
Director
-------------------------
Director /s/ Arthur P. Morgan
-------------------------
Director /s/ Barry T. Parker
-------------------------
Director /s/ Hugo M. Pfaltz, Jr.
-------------------------
Director /s/ Chester A. Ring III
-------------------------
-24-
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.
March 30, 1994 ELIZABETHTOWN WATER COMPANY
By: /s/ Robert W. Kean, Jr.
--------------------------
Chairman, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 30, 1994.
Chairman, Chief Executive Officer
and Director /s/ Robert W. Kean, Jr.
--------------------------
President and Director /s/ Thomas J. Cawley
--------------------------
Chief Financial Officer and Treasurer /s/ Andrew M. Chapman
(Principal Financial Officer) --------------------------
Vice President-Controller /s/ Gail P. Brady
(Principal Accounting Officer) --------------------------
Director /s/ Brendan T. Byrne
--------------------------
Director /s/ Ann Evans Gibbons
--------------------------
Director /s/ John Kean
--------------------------
Director
--------------------------
Director /s/ Arthur P. Morgan
--------------------------
Director /s/ Barry T. Parker
--------------------------
Director /s/ Henry S. Patterson, II
--------------------------
Director /s/ Hugo M. Pfaltz, Jr.
--------------------------
Director /s/ Chester A. Ring III
--------------------------
-25-
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF E'TOWN CORPORATION:
We have audited the consolidated financial statements of E'town
Corporation and its subsidiaries as of December 31, 1993 and 1992, and
for each of the three years in the period ended December 31, 1993, and
have issued our report thereon dated February 15, 1994, except for the
subsequent events discussed in Notes 10 and 11, as to which the dates
are February 23, 1994 and March 23, 1994, respectively; such
consolidated financial statements and report are included in your 1993
Annual Report to Shareholders and are incorporated herein by reference.
Our audits also included the financial statement schedules of E'town
Corporation and its subsidiaries, listed in Item 14. These financial
statement schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on the financial statement
schedules based on our audits. In our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
/s/ Deloitte & Touche
Parsippany, New Jersey
February 15, 1994, except for the
subsequent events discussed in
Notes 10 and 11, as to which the
dates are February 23, 1994 and
March 23, 1994, respectively
<TABLE>
E'TOWN CORPORATION Schedule V
ELIZABETHTOWN WATER COMPANY Page 1 of 3
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1993
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
BALANCE AT OTHER BALANCE AT
BEGINNING ADDITIONS CHANGES END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD
-------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
ELIZABETHTOWN WATER COMPANY:
- - - - ----------------------------
UTILITY PLANT IN SERVICE:
Intangible Plant $ 252,688 (G) (1,922) $ 250,766
Source of Supply Plant 8,482,741 $ 421,211 $ 127,580 (G) (159,879) 8,616,493
Pumping Plant 36,108,450 5,843,997 240,456 (G) (141,603) 41,570,388
Water Treatment Plant 44,120,659 435,846 57,517 (G) (6,029) 44,492,959
Transmission & Distribution Plant 309,429,376 20,230,754 216,562 (G) (599,920) 328,843,648
General Plant 12,854,811 1,210,922 490,938 (G) (7,477) 13,567,318
Leasehold Improvements 69,264 69,264
Acquisition Adjustments (G,C) 767,988 767,988
------------ ----------- ---------- ------------ ------------
Utility Plant in Service 411,317,989 28,142,730 1,133,053 (148,842) 438,178,824
Construction Work in Progress 11,809,783 (D) 5,432,305 17,242,088
------------ ----------- ---------- ------------ ------------
Total Utility Plant 423,127,772 33,575,035 1,133,053 (148,842) 455,420,912
NON-UTILITY PROPERTY - net 96,785 (A) (2,201) (B) 94,584
(E) (7,002) (7,002)
------------ ----------- ---------- ----------- ------------
TOTAL $423,224,557 $33,575,035 $1,133,053 $ (158,045) $455,508,494
============ =========== ========== =========== ============
E'TOWN CORPORATION:
- - - - -------------------
UTILITY PLANT (as above) $423,127,772 $33,575,035 $1,133,053 $ (148,842) $455,420,912
NON-UTILITY PROPERTY - net 13,400,698 563,870 (E) (1,703,936) (B) 11,989,116
(F) (269,315)
(2,201)
------------ ----------- ---------- ----------- ------------
TOTAL $436,528,470 $34,138,905 $1,133,053 $(2,124,294) $467,410,028
============ =========== ========== =========== ============
<FN>
--------------------------------
(A) Amortization of non-utility property.
(B) Non-utility property net of accumulated amortization.
(C) Includes $148,842 of write-offs of fully amortized acquisition adjustments.
(D) Additions net of transfers of completed projects to utility plant in service.
(E) Book value of land sold.
(F) Write-down of non-utility property.
(G) Reclassification of utility plant acquisition adjustments.
</TABLE>
<TABLE>
E'TOWN CORPORATION Schedule V
ELIZABETHTOWN WATER COMPANY Page 2 of 3
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1992
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
BALANCE AT OTHER BALANCE AT
BEGINNING ADDITIONS CHANGES END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD
-------------- ----------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
ELIZABETHTOWN WATER COMPANY:
- - - - ----------------------------
UTILITY PLANT:
Utility Plant in Service:
Intangible Plant $ 252,688 $ 252,688
Source of Supply Plant 8,308,518 $ 186,251 $ 12,028 8,482,741
Pumping Plant 24,556,158 11,694,357 142,065 36,108,450
Water Treatment Plant 39,609,867 4,554,073 43,281 44,120,659
Transmission & Distribution
Plant 288,920,672 20,768,357 259,653 309,429,376
General Plant 12,441,440 1,040,266 626,895 12,854,811
Leasehold Improvements 459,674 (C)$ (390,410) 69,264
------------ ----------- ---------- ---------- ------------
Utility Plant in Service 374,549,017 38,243,304 1,083,922 (390,410) 411,317,989
Construction Work in Progress 15,490,846 (D) (3,681,063) 11,809,783
------------ ----------- ---------- ---------- ------------
Total Utility Plant 390,039,863 34,562,241 1,083,922 (390,410) 423,127,772
NON-UTILITY PROPERTY - net 98,986 (A) (2,201) (B) 96,785
------------ ----------- ---------- ---------- ------------
TOTAL $390,138,849 $34,562,241 $1,083,922 $ (392,611) $423,224,557
============ =========== ========== ========== ============
E'TOWN CORPORATION:
- - - - -------------------
UTILITY PLANT (as above) $390,039,863 $34,562,241 $1,083,922 $ (390,410) $423,127,772
NON-UTILITY PROPERTY - net 12,686,180 714,518 (B) 13,400,698
------------ ----------- ---------- ---------- ------------
TOTAL $402,726,043 $35,276,759 $1,083,922 $ (390,410) $436,528,470
============ =========== ========== ========== ============
<FN>
- - - - ---------------------------------
(A) Amortization of non-utility property.
(B) Non-utility property net of accumulated amortization.
(C) Write-off of fully amortized leasehold improvements.
(D) Additions net of transfers of completed projects to utility plant in service.
</TABLE>
<TABLE>
E'TOWN CORPORATION Schedule V
ELIZABETHTOWN WATER COMPANY Page 3 of 3
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED DECEMBER 31, 1991
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
BALANCE AT OTHER BALANCE AT
BEGINNING ADDITIONS CHANGES END
CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD
-------------- ----------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
ELIZABETHTOWN WATER COMPANY:
- - - - ----------------------------
UTILITY PLANT:
Utility Plant in Service:
Intangible Plant $ 252,688 $ 252,688
Source of Supply Plant 8,266,295 $ 52,725 $ 10,502 8,308,518
Pumping Plant 23,696,921 1,210,422 351,185 24,556,158
Water Treatment Plant 39,299,178 312,976 2,287 39,609,867
Transmission & Distribution
Plant 270,713,925 18,376,794 170,047 288,920,672
General Plant 11,516,415 1,064,382 139,357 12,441,440
Leasehold Improvements 459,674 459,674
------------ ----------- ---------- ------------
Utility Plant in Service 354,205,096 21,017,299 673,378 374,549,017
Construction Work in Progress 8,465,633 (C) 7,025,213 15,490,846
------------ ----------- ---------- ------------
Total Utility Plant 362,670,729 28,042,512 673,378 390,039,863
NON-UTILITY PROPERTY - net 101,189 (A)$ (2,203) (B) 98,986
------------ ----------- ---------- ---------- ------------
TOTAL $362,771,918 $28,042,512 $ 673,378 $ (2,203) $390,138,849
============ =========== ========== ========== ============
ETOWN CORPORATION:
- - - - ------------------
UTILITY PLANT (as above) $362,670,729 $28,042,512 $ 673,378 $390,039,863
NON-UTILITY PROPERTY - net 11,918,286 767,894 (B) 12,686,180
------------ ----------- ---------- ---------- ------------
TOTAL $374,589,015 $28,810,406 $ 673,378 $ -0- $402,726,043
============ =========== ========== ========== ============
<FN>
- - - - ---------------------------------
(A) Amortization of non-utility property.
(B) Non-utility property net of accumulated amortization.
(C) Additions net of transfers of completed projects to utility plant in service.
</TABLE>
<TABLE>
E'TOWN CORPORATION Schedule VI
ELIZABETHTOWN WATER COMPANY
ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- -------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND CHANGES END
DESCRIPTION OF PERIOD EXPENSES RETIREMENTS ADD OF PERIOD
(DEDUCT)
-------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1993 $75,874,538 $7,285,309 $1,133,053 (A) 85,544 $82,128,023
(B) 75,771
(D) (2,201)
(E) (148,843)
(F) 90,958
Year Ended December 31, 1992 $70,618,476 $6,654,986 $1,083,922 (A) (7,315) $75,874,538
(B) 84,924
(C) (390,410)
(D) (2,201)
Year Ended December 31, 1991 $65,093,698 $6,258,302 $673,378 (A) (142,867) $70,618,476
(B) 84,924
(D) (2,203)
<FN>
- - - - ----------------------------------
(A) Salvage value, net of cost of removal, for property disposed of during the year.
(B) Amortization of utility plant acquisition adjustments arising from acquisitions of
various water utility companies and charged to "Other Income-net".
(C) Write-off of fully amortized leasehold improvements and leased wells.
(D) Amortization of non-utility property included in depreciation expense (Column C) but
not included in accumulated depreciation. The amortization is included in non-utility property.
(E) Write-off of fully amortized acquisition adjustments.
(F) Accumulated depreciation acquired with purchase of water system from the Township of Cranbury.
</TABLE>
<TABLE>
E'TOWN CORPORATION Schedule VII
ELIZABETHTOWN WATER COMPANY
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD
-------------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Reserve for Uncollectible
Accounts:
Year Ended December 31, 1993 $377,000 $571,116 (A) $514,116 $434,000
Year Ended December 31, 1992 $281,800 $472,261 (A) $377,061 $377,000
Year Ended December 31, 1991 $180,000 $383,621 (A) $281,821 $281,800
<FN>
- - - - ---------------------------------
(A) Write-off of uncollectible accounts, net of recoveries.
</TABLE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an
asterisk(*), are filed herewith. The exhibits not so designated
have heretofore been filed with the Commission and are
incorporated herein by reference to the documents indicated in
brackets following the description of such exhibits.
E'town Corporation
Exhibit
No. Description
3(a) - Certificate of Incorporation of E'town Corp.
[Registration Statement No. 33-42509, Exhibit 4(a)]
3(b) - By-Laws of E'town Corp. [Form 10-K for the year ended
December 31, 1992 Exhibit 3(b)]
3(c) - Certificate of Incorporation of E'town Properties, Inc.
[Registration Statement No. 33-32143, Exhibit 4(j)]
3(d) - By-Laws of E'town Properties, Inc. [Registration
Statement No. 33-32143, Exhibit 4(n)]
4(a) - Rights Agreement dated as of February 4, 1991 between
E'town and the Rights Agent [Registration Statement
No. 33-38566, Exhibit 4(n)]
4(b) - Indenture dated as of January 1, 1987 from E'town
Corporation to Boatmen's Trust, Trustee, relating to
the 6 3/4% Convertible Subordinated Debentures due 2012
[Registration Statement No. 33-32143, Exhibit 4(a)]
10(a) - Incentive Stock Option Plan [Registration Statement
No. 2-99602, Exhibit 28(a)]
10(b) - Savings and Investment Plan [Registration Statement
No. 33-19600, Exhibit 28]
10(c) - Management Incentive Plan [Registration Statement
No. 33-38566, Exhibit 10(i)]
10(d) - E'town's 1987 Stock Option Plan [Registration Statement
No. 33-42509, Exhibit 28]
10(e) - E'town's 1990 Performance Stock Program [Registration
Statement No. 33-46532, Exhibit 10(k)]
10(f) - E'town's Dividend Reinvestment and Stock Purchase Plan
[Registration No. 33-45625, Exhibit 4(e)]
Exhibit
No. Description
*11 - Statement Regarding Computation of Per Share
Earnings
*13 - Portion of the 1993 Annual Report to Shareholders which
includes Management's Discussion and Analysis of
Consolidated Financial Condition and Results of
Operations, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Independent
Auditors' Report and Other Financial and Statistical
Data and is herein incorporated by reference.
*23 - Consent of Deloitte & Touche, Independent
Auditors
Elizabethtown Water Company
Exhibit
No. Description
*3(a) - Form of Restated Certificate of Incorporation of
Elizabethtown Water Company
3(b) - By-Laws of Elizabethtown Water Company [Registration
Statement No. 33-11320, Exhibit 4(b)(2)]
*4(a) - Indenture dated as of November 1, 1993 from
Elizabethtown Water Company to The Bank of New York,
Trustee, relating to the 7 1/4% Debentures due 2028.
4(b) - Indenture dated as of September 1, 1992 from
Elizabethtown Water Company to The Bank of New York,
Trustee, relating to the 8% Debentures due 2022
4(c) - Indenture dated as of October 1, 1991 from
Elizabethtown Water Company to The Bank of New York,
Trustee, relating to the 8 3/4% Debentures due 2021
[Registration Statement No. 33-46532, Exhibit 4(f)]
4(d) - Indenture dated as of August 1, 1991 from Elizabethtown
Water Company to The Bank of New York, Trustee,
relating to the 6.60% Debentures due 2021 [Registration
Statement No. 33-46532, Exhibit 4(g)]
4(e) - Indenture dated as of August 1, 1991 from Elizabethtown
Water Company to The Bank of New York, Trustee,
relating to the 6.70% Debentures due 2021 [Registration
Statement No. 33-46532, Exhibit 4(h)]
4(f) - Indenture dated as of October 1, 1990 from
Elizabethtown Water Company to Citibank, N.A., Trustee,
relating to the 7 1/2% Debentures due 2020
[Registration Statement No. 33-38566, Exhibit 4(e)]
Exhibit
No. Description
4(g) - Indenture dated as of December 1, 1989 from
Elizabethtown Water Company to Citibank, N.A., Trustee,
relating to the 7.20% Debentures due 2019 [Registration
Statement No. 33-38566, Exhibit 4(f)]
10(a) - Contract for service to Middlesex Water Company.
[Registration Statement No. 33-38566, Exhibit 10(a)]
10(b) - Contract for service to Edison Township. [Registration
Statement No. 2-58262, Exhibit 13(c)]
10(c) - Contract for service to New Jersey-American Water
Company. [Form 10-K for the year ended December 31,
1992 Exhibit 10(c)]
10(d) - Contract for service to City of Elizabeth. [Form 10-K
for the year ended December 31, 1992, Exhibit 10(d)]
10(e) - Contract for service to Franklin Township.
[Registration Statement No. 33-46532, Exhibit 10(e)]
10(f) - Contract with the New Jersey Water Supply Authority for
the purchase of water from the Raritan Basin.
[Registration Statement No. 33-32143, Exhibit 10(e)]
10(g) - Supplemental Executive Retirement Plan of Elizabethtown
Water Company [Form 10-K for the year ended
December 31, 1992 Exhibit 10(g)]
10(h) - Medical Reimbursement Plan of Elizabethtown
Water Company [Form 10-K for the year ended
December 31, 1992 Exhibit 10(h)]
*12(a) - Computation of Ratio of Earnings to Fixed Charges
*12(b) - Computation of Ratio of Earnings to Fixed Charges and
Preferred Dividends
APPENDIX I
ELIZABETHTOWN WATER COMPANY
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1993,
1992 AND 1991 AND
INDEPENDENT AUDITORS' REPORT
APPENDIX I
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
------------------------------------------
TABLE OF CONTENTS
---------------------------------------------------------------------------
PAGE
----
INDEPENDENT AUDITORS' REPORT 1
STATEMENTS OF CONSOLIDATED INCOME FOR THE YEARS ENDED
DECEMBER 31, 1993, 1992 AND 1991 2
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1992 3
STATEMENTS OF CONSOLIDATED CAPITALIZATION AS OF
DECEMBER 31, 1993 AND 1992 5
STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY FOR THE
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 6
STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE YEARS ENDED 7
DECEMBER 31, 1993, 1992 AND 1991
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
---------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ELIZABETHTOWN WATER COMPANY:
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of Elizabethtown Water Company
and its subsidiary as of December 31, 1993 and 1992, and the related
statements of consolidated income, shareholder's equity, and cash flows for
each of the three years in the period ended December 31, 1993. Our audits
also included the financial statement schedules listed in the Index at Item
14. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of Elizabethtown Water
Company and its subsidiary at December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted
accounting principles. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
As discussed in Notes 3 and 10 to the consolidated financial statements, in
1993 the Company changed its method of accounting for postretirement
benefit costs and income taxes to conform with Statements of Financial
Accounting Standards Numbers 106 and 109, respectively.
/s/ Deloitte & Touche
Parsippany, New Jersey
February 15, 1994, except for the
subsequent events discussed in
Notes 8 and 9, as to which the dates
are February 23, 1994 and March 23, 1994,
respectively
-1-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Income
Year Ended December 31,
--------------------------------------
1993 1992 1991
------------ ------------ ------------
Operating Revenues $99,996,120 $89,167,337 $86,086,103
----------- ----------- -----------
Operating Expenses:
Operation 38,529,149 35,041,222 33,416,310
Maintenance 5,716,157 5,704,843 5,399,139
Depreciation 7,285,309 6,654,986 6,258,302
Revenue taxes 12,501,804 11,086,349 10,717,838
Real estate, payroll and other taxes 2,513,891 2,429,446 2,281,272
Federal income taxes (Note 3) 7,658,770 5,836,464 5,632,135
----------- ----------- -----------
Total operating expenses 74,205,080 66,753,310 63,704,996
----------- ----------- -----------
Operating Income 25,791,040 22,414,027 22,381,107
----------- ----------- -----------
Other Income:
Gain on sale of land 122,400
Allowance for equity funds used
during construction (Note 2) 445,339 599,443
Federal income taxes (Note 3) (258,024) (185,000) 1,870
Other-net 169,474 (55,326) (5,500)
----------- ----------- -----------
Total other income 479,189 359,117 (3,630)
----------- ----------- -----------
----------- ----------- -----------
Total Operating and Other Income 26,270,229 22,773,144 22,377,477
----------- ----------- -----------
Interest Charges:
Interest on long-term debt 11,527,301 10,516,521 10,585,336
Other interest expense-net 77,921 514,122 535,834
Capitalized interest (Note 2) (391,895) (616,473) (391,936)
Amortization of debt discount-net 224,383 209,631 287,180
----------- ----------- -----------
Total interest charges 11,437,710 10,623,801 11,016,414
----------- ----------- -----------
Income Before Preferred Stock
Dividends 14,832,519 12,149,343 11,361,063
Preferred Stock Dividends 1,050,000 1,050,000 1,050,000
----------- ----------- -----------
Earnings Applicable to Common Stock $13,782,519 $11,099,343 $10,311,063
=========== =========== ===========
See Notes to Consolidated Financial Statements.
-2-
Elizabethtown Water Company and Subsidiary APPENDIX I
Consolidated Balance Sheets
December 31,
---------------------------
Assets 1993 1992
------------ ------------
Utility Plant-at Original Cost:
Utility plant in service $438,178,824 $411,317,989
Construction work in progress 17,242,088 11,809,783
------------ ------------
Total utility plant 455,420,912 423,127,772
Less accumulated depreciation and amortization 82,128,023 75,874,538
------------ ------------
Utility plant-net 373,292,889 347,253,234
------------ ------------
Non-utility Property 87,582 96,785
------------ ------------
Funds Held by Trustee for Construction
Expenditures (Note 2) 382,306 8,902,183
------------ ------------
Current Assets:
Cash and cash equivalents 3,263,456 2,309,751
Customer and other accounts receivable
(less reserve: 1993, $434,000; 1992, $377,000) 11,887,985 11,047,500
Unbilled revenues 7,248,322 6,559,721
Materials and supplies-at average cost 1,623,702 1,616,832
Prepaid insurance, taxes, other 1,603,955 1,606,276
------------ ------------
Total current assets 25,627,420 23,140,080
------------ ------------
Deferred Charges (Note 7):
Prepaid pension expense (Note 10) 1,003,145 808,135
Abandonments 152,097 228,146
Waste residual management 587,589 561,551
Emergency water projects 113,412 230,013
Unamortized debt expenses 8,025,677 4,886,106
Taxes recoverable through future rates (Note 3) 26,643,663
Postretirement benefit expense (Note 10) 1,004,556
Other unamortized expenses 484,767 773,765
------------ ------------
Total deferred charges 38,014,906 7,487,716
------------ ------------
Total $437,405,103 $386,879,998
============ ============
See Notes to Consolidated Financial Statements.
-3-
Elizabethtown Water Company and Subsidiary APPENDIX I
Consolidated Balance Sheets
December 31,
---------------------------
Capitalization and Liabilities 1993 1992
------------ ------------
Capitalization (Notes 4 and 5):
Common shareholder's equity $125,764,979 $103,023,524
Cumulative preferred stock-redeemable 12,000,000 12,000,000
Long-term debt-net 141,909,533 142,299,463
------------ ------------
Total capitalization 279,674,512 257,322,987
------------ ------------
Current Liabilities:
Notes payable-banks (Note 5) 5,500,000
Long-term debt-current portion (Note 4) 42,000 42,000
Accounts payable and other liabilities 9,589,716 8,923,897
Customers' deposits 276,497 273,238
Municipal and state taxes accrued 12,569,445 11,087,926
Federal income taxes accrued 704,771 1,466,188
Interest accrued 2,699,483 3,189,165
Preferred stock dividends accrued 89,178 89,178
------------ ------------
Total current liabilities 25,971,090 30,571,592
------------ ------------
Deferred Credits:
Customer advances for construction 45,149,522 45,292,966
Federal income taxes (Note 3) 55,955,366 25,785,513
Unamortized investment tax credits 8,852,487 9,046,119
Emergency water projects (Note 7) 127,704 244,304
Accumulated postretirement benefits (Note 10) 1,004,556
------------ ------------
Total deferred credits 111,089,635 80,368,902
------------ ------------
Contributions in Aid of Construction 20,669,866 18,616,517
------------ ------------
Commitments and Contingent Liabilities (Note 9)
------------ ------------
Total $437,405,103 $386,879,998
============ ============
See Notes to Consolidated Financial Statements.
-4-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Capitalization
December 31,
---------------------------
1993 1992
------------ -----------
Common Shareholder's Equity (Notes 4 and 5):
Common stock without par value, authorized,
10,000,000 shares; issued 1993 and 1992,
1,974,902 shares $ 15,740,602 $ 15,740,602
Paid-in capital 63,522,594 43,713,297
Capital stock expense (484,702) (484,702)
Retained earnings 46,986,485 44,054,327
------------ ------------
Total common shareholder's equity 125,764,979 103,023,524
------------ ------------
Cumulative Preferred Stock-Redeemable (Note 4):
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares 12,000,000 12,000,000
------------ ------------
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Elizabethtown Water Company:
8 5/8% Debentures, due 2007 30,000,000
10 1/8% Debentures, due 2018 20,000,000
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 186,300 228,300
------------ ------------
Total long-term debt 143,186,300 143,228,300
Unamortized discount-net (1,276,767) (928,837)
------------ ------------
Total long-term debt-net 141,909,533 142,299,463
------------ ------------
Total capitalization $279,674,512 $257,322,987
============ ============
See Notes to Consolidated Financial Statements.
-5-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Cash Flows
Year Ended December 31,
------------------------------------
1993 1992 1991
Cash Provided by Operating Activities: ---------- ---------- ----------
Income Before Preferred Stock Dividends $ 14,832,519 $ 12,149,343 $ 11,361,063
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 7,285,309 6,654,986 6,258,302
Gain on sale of land (122,400)
Amortization of deferred charges 1,354,404 1,939,272 3,610,811
Increase in deferred charges (4,233,375) (1,847,202) (7,502,504)
Deferred income taxes and investment
tax credits-net 3,332,558 2,685,426 4,129,615
Allowance for debt and equity funds
used during construction (AFUDC) (837,234) (1,215,916) (391,936)
Other operating activities-net (449,792) (182,669) (499,536)
Change in current assets and liabilities
excluding cash, short-term investments
and current portion of debt:
Customer and other accounts receivable (840,485) 1,308,263 (1,477,943)
Unbilled revenues (688,601) (164,241) (450,793)
Accounts payable and other liabilities 669,078 (934,312) 1,802,083
Accrued/prepaid interest and taxes 232,741 678,208 1,827,388
Other (6,870) 3,473 (34,699)
---------- ----------- -----------
Net cash provided by operating activities 20,527,852 21,074,631 18,631,851
Cash Provided by Financing Activities: ----------- ----------- -----------
Decrease in funds held by Trustee for
construction expenditures 8,519,877 12,390,518 6,650,299
Proceeds from issuance of debentures 50,000,000 15,000,000 53,000,000
Capital contributed by parent company 19,809,297 15,331,713 9,766,797
Repayment of short-term notes (15,000,000)
Repayment of long-term debt (50,042,000) (9,042,000) (35,639,500)
Contributions and advances for
construction-net 1,909,905 3,066,832 5,270,774
Net decrease in notes payable-banks (5,500,000) (13,000,000) (6,000,000)
Dividends paid on common and
preferred stock (11,900,361) (10,334,160) (9,332,142)
----------- ----------- -----------
Net cash provided by financing
activities 12,796,718 13,412,903 8,716,228
Cash Used for Investing Activities: ----------- ----------- -----------
Utility plant expenditures (excluding
AFUDC) (32,500,265) (33,292,602) (27,732,407)
Selling costs of land (1,600)
Proceeds from sale of land 131,000
----------- ----------- -----------
Net cash used for investing activities (32,370,865) (33,292,602) (27,732,407)
----------- ----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 953,705 1,194,932 (384,328)
Cash and Cash Equivalents at
Beginning of Year 2,309,751 1,114,819 1,499,147
----------- ----------- -----------
Cash and Cash Equivalents at End of Year$ 3,263,456 $ 2,309,751 $ 1,114,819
=========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 11,837,347 $ 10,970,625 $ 12,076,601
Income taxes 5,881,008 3,875,774 3,898,793
Preferred stock dividends $ 1,050,000 $ 1,050,000 $ 1,050,000
See Notes to Consolidated Financial Statements.
-6-
Elizabethtown Water Company and Subsidiary APPENDIX I
Statements of Consolidated Shareholder's Equity
Year Ended December 31,
---------------------------------------
1993 1992 1991
------------ ----------- ----------
Common Stock: $ 15,740,602 $ 15,740,602 $ 15,740,602
------------ ------------ ------------
Paid-in Capital:
Balance at Beginning of Year 43,713,297 28,381,584 18,614,787
Capital contributed by parent company 19,809,297 15,331,713 9,766,797
------------ ------------ ------------
Balance at End of Year 63,522,594 43,713,297 28,381,584
------------ ------------ ------------
Capital Stock Expense: (484,702) (484,702) (484,702)
------------ ------------ ------------
Retained Earnings:
Balance at Beginning of Year 44,054,327 42,239,144 40,210,223
Income Before Preferred Stock
Dividends 14,832,519 12,149,343 11,361,063
Dividends on Common Stock (10,850,361) (9,284,160) (8,282,142)
Preferred Stock Dividends (1,050,000) (1,050,000) (1,050,000)
------------ ------------ ------------
Balance at End of Year 46,986,485 44,054,327 42,239,144
------------ ------------ ------------
Total Common Shareholder's Equity $125,764,979 $103,023,524 $ 85,876,628
============ ============ ============
See Notes to Consolidated Financial Statements.
-7-
APPENDIX I
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Elizabethtown Water Company (Elizabethtown or Company) and its wholly
owned subsidiary, The Mount Holly Water Company (Mount Holly), the
consolidated entity referred to herein as Elizabethtown Water Company
(Elizabethtown Water Company), is a wholly owned subsidiary of E'town
Corporation (E'town or Corporation). E'town, a New Jersey holding
company, is the parent company of Elizabethtown Water Company and
E'town Properties, Inc.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include Elizabethtown and its
subsidiary, Mount Holly. Significant intercompany accounts and
transactions have been eliminated. Elizabethtown and Mount Holly are
regulated water utilities and follow the Uniform System of Accounts,
as adopted by the New Jersey Board of Regulatory Commissioners (BRC).
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements and in maintaining
the properties. Utility plant accounts are charged with the cost of
improvements and major replacements of property. When depreciable
property is retired or otherwise disposed of, the cost thereof, plus
the cost of removal net of salvage, is charged to accumulated
depreciation.
Depreciation generally is computed on a straight-line basis at
functional rates for various classes of assets. The provision for
depreciation, as a percentage of average depreciable property,
was 1.74% for 1993 and 1.72% for 1992 and 1991.
Allowance for Funds Used During Construction
Elizabethtown capitalizes, as an appropriate cost of utility plant, an
Allowance for Funds Used During Construction (AFUDC), which represents
the cost of financing major projects during construction. AFUDC is
added to the construction cost of the project and included in rate
base and then recovered in rates during the project's useful life.
AFUDC is comprised of a debt component, credited to Interest Charges,
and an equity component, credited to Other Income, in the Statements of
Consolidated Income. (See Note 8). The equity component considers the
increased reliance on equity contributions to Elizabethtown from E'town's
stock sales. Such equity contributions have become an integral part of
the financing of Elizabethtown's construction program. AFUDC totaled
$837,234, $1,215,916 and $391,936 for 1993, 1992 and 1991, respectively.
-8-
APPENDIX I
Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This includes an
accrual for unbilled revenues for water delivered from the time meters
were last read to the end of the respective accounting periods.
Federal Income Taxes
Elizabethtown Water Company files a consolidated federal tax return with
E'town and E'town Properties, Inc. Deferred income taxes are provided for
timing differences in the recognition of revenues and expenses for tax and
financial statement purposes to the extent permitted by the BRC.
Elizabethtown and Mount Holly account for prior years' investment tax
credits by the deferral method, which amortizes the credits over the
lives of the respective assets.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes." (See
Note 3).
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of Customer
Advances for Construction is refunded based upon the revenues that the
new developments generate. Contributions in Aid of Construction are
Customer Advances for Construction that are no longer subject to
refund.
Postretirement Benefits
Effective January 1, 1993, the Company adopted SFAS 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." (See
Note 10).
Funds Held by Trustee for Construction Expenditures
Proceeds from New Jersey Economic Development Authority financings are
held in trust until such time as qualified project expenditures are
incurred. Income received from the investment of the trust fund
assets is recorded as an offset to the related interest expense.
Cash Equivalents
Elizabethtown Water Company considers all highly liquid debt
instruments purchased with maturities of three months or less to be
cash equivalents for purposes of the Statements of Consolidated Cash
Flows.
-9-
APPENDIX I
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the
tax provision computed at the federal statutory rate (35% in 1993, 34%
in 1992 and 1991) with the amount reported in the Statements of
Consolidated Income follow:
1993 1992 1991
----------------------
(Thousands of Dollars)
Tax expense at statutory rate ....... $7,962 $6,178 $5,777
Items for which deferred taxes
are not provided:
Capitalized interest ............... (2) (3) 16
Difference between book and tax
depreciation ...................... 81 66 50
Investment tax credits.............. (208) (210) (210)
Other .............................. 84 (10) (3)
------ ------ ------
Provision for federal income taxes... $7,917 $6,021 $5,630
====== ====== ======
The provision for federal income taxes
is composed of the following:
Current ............................ $5,926 $5,318 $5,070
Tax collected on main extensions ... (1,341) (1,982) (3,127)
Deferred:
Tax depreciation................... 3,222 2,980 2,804
Alternative minimum tax............ (412) 600
Capitalized interest............... 72 118 (65)
Other.............................. 232 201 552
Investment tax credits-net.......... (194) (202) (204)
------ ------ ------
Total provision .................... $7,917 $6,021 $5,630
====== ====== ======
Effective January 1, 1993, Elizabethtown Water Company adopted SFAS
109, "Accounting for Income Taxes." SFAS 109 establishes new
accounting rules that change the manner in which income tax expense is
determined for accounting purposes. SFAS 109 utilizes a liability
method under which deferred taxes are provided at the enacted
statutory rate for all temporary differences between financial
statement earnings amounts and the tax basis of existing assets or
liabilities.
In connection with the adoption of SFAS 109, Elizabethtown Water
Company recorded additional deferred taxes for water utility temporary
-10-
APPENDIX I
differences not previously recognized. The increased deferred tax
liability was offset by a corresponding asset representing the future
revenue expected to be recovered through rates based on established
regulatory practice permitting such recovery. The increased deferred
tax liability totaled $25,352,412 at January 1, 1993 and $26,643,663
at December 31, 1993.
In accordance with SFAS 109, deferred tax balances have been reflected
at E'town's current consolidated federal income tax rate, which is
35%. The increase in the statutory tax rate, retroactive to
January 1, 1993, from 34% to 35%, is the result of the Omnibus Budget
Reconciliation Act of 1993, which was passed by Congress on
August 2, 1993. The increase in the statutory tax rate resulted in
the recognition of additional federal income tax expense of $168,798
and an additional deferred federal income tax liability of $100,744.
The net deferred income tax liability as of December 31, 1993 is
comprised of the following:
1993
----------------------
(Thousands of Dollars)
Deferred tax assets.......................... $ 3,804
Deferred tax liabilities..................... (59,759)
--------
Net deferred income tax liabilities.......... $(55,955)
========
The tax effect of significant temporary differences representing
deferred income tax assets and liabilities as of December 31, 1993
is as follows:
1993
----------------------
(Thousands of Dollars)
Water utility plant-net...................... $(49,582)
Taxes recoverable............................ (9,326)
Investment tax credit........................ 3,098
Pension expenditures......................... (351)
Other-net.................................... 206
--------
Net deferred income tax liabilities.......... $(55,955)
========
4. CAPITALIZATION
On May 17, 1993, E'town issued 575,000 shares of common stock for net
proceeds of $16,591,927. A portion of the net proceeds were used to
fund equity contributions to Elizabethtown of $11,000,000 in May 1993
and $2,800,000 in September 1993. Elizabethtown used a portion of
such contributions to repay $7,000,000 of short-term bank debt
incurred for construction expenditures and invested the balance on a
short-term basis until needed for construction expenditures.
-11-
APPENDIX I
Cumulative Preferred Stock - Redeemable
Elizabethtown's $8.75 Cumulative Preferred Stock has optional
redemption privileges beginning in 1994 at $108.75 per share, which
diminish annually until 2009, when redemption is at par ($100).
Beginning in December 1994, sinking fund payments of $600,000 are
required annually through 2018.
Elizabethtown proposes to issue 120,000 shares of $100 par value
Cumulative Preferred Stock in March 1994. The proceeds of the issue
will be used to redeem $12,000,000 of the Company's $8.75 Cumulative
Preferred Stock. The redemption premium of $1,050,000 will be paid
from general Company funds.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash dividends
(which is the primary source of funds available to the Corporation for
payment of dividends on its common stock) or acquire Elizabethtown's
common stock, all of which is held by E'town. At December 31, 1993,
$12,831,414 of Elizabethtown's retained earnings were restricted under
the most restrictive indenture provision. Therefore, $34,155,071 of
consolidated retained earnings were unrestricted.
On November 9, 1993, Elizabethtown issued $50,000,000 of
7 1/4% Debentures due November 1, 2028. The proceeds of the issue
were used to redeem $30,000,000 of the Company's 8 5/8% Debentures due
2007 and $20,000,000 of the Company's 10 1/8% Debentures due 2018.
The aggregate redemption premiums of $2,681,000 were paid from general
Company funds.
On September 16, 1992, Elizabethtown issued $15,000,000 of 8% Debentures
due September 1, 2022. The proceeds of this issue were used to repay
short-term bank debt, of which $9,000,000 was incurred to repay
Elizabethtown's 4 7/8% Debentures on their February 1, 1992 maturity date
and the remainder was incurred to finance construction expenditures.
5. LINES OF CREDIT
Elizabethtown has existing uncommitted lines of credit with several
banks aggregating $34,000,000 for which compensating balances are
-12-
APPENDIX I
maintained. Information relating to bank borrowings and compensating
balances is as follows:
1993 1992 1991
----------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $7,000 $27,500 $23,000
Average monthly amount outstanding.. 2,062 $15,457 $16,371
Average interest rate at year end... (A) 4.1% 5.6%
Compensating balances at year end... $ 195 $ 205 $ 230
Weighted average interest rate based
on average daily balances.......... 3.8% 4.6% 6.8%
(A) No outstanding bank borrowings at year end.
Elizabethtown is negotiating a committed revolving credit agreement,
which is expected to be in place by April 1994, with an agent bank and
up to five additional participating banks to replace its existing
uncommitted lines of credit discussed above. The agreement provides up
to $60,000,000 in revolving short-term notes to provide sufficient
short-term financing for the Company to fund, together with other
monies, its capital program, which is estimated to be $196,451,000
through 1996. The agreement will allow the Company to borrow, repay and
reborrow up to $60,000,000 for the first three years, after which
time the Company may convert any outstanding balances to a five-year,
fully amortizing term loan. The agreement will further provide that
among other covenants, the Company must maintain a ratio of common
and preferred equity to total capitalization of not less than 35%
and a pre-tax interest coverage ratio of at least 1.5 to 1.
6. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1993 and 1992 of financial instruments issued by
Elizabethtown Water Company, are as follows:
1993 1992
----------------------
(Thousands of Dollars)
Cash (1):
Carrying amount................... $ 3,263 $ 2,310
Estimated fair value.............. 3,263 2,310
Cumulative preferred stock (2):
Carrying amount................... $ 12,000 $ 12,000
Estimated fair value.............. 13,020 12,960
Long-term debt (2):
Carrying amount................... $141,910 $142,299
Estimated fair value.............. 155,097 148,179
(1) Fair value approximates the carrying amount.
(2) Estimated fair values are based upon quoted market prices for
similar securities.
-13-
APPENDIX I
7. DEFERRED CHARGES AND CREDITS
Abandonments
The abandonment cost of a small filter plant has been deferred and
is being amortized for ratemaking purposes over a 10-year period ending
in 1995.
Waste Residual Management
The costs of the waste residual management programs are being amortized
over three-year periods for ratemaking purposes.
No return is being earned on either of the above unamortized deferred
charge balances.
Emergency Water Projects
The 1984 assessment for Elizabethtown's proportionate share of the
cost of emergency water projects is being recovered through rates and
amortized over a 10-year period.
Unamortized Debt Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the lives
of the respective issues.
8. REGULATORY MATTERS
Rates
In August 1993, the BRC approved a stipulation (1993 Plant Stipulation)
signed by the parties to the Company's petition relating to the Canal
Road Water Treatment Plant (Plant). The 1993 Plant Stipulation states
that the Plant is necessary and that the Company's estimates regarding
the Plant's cost, at that time of $87,000,000, and construction period
are reasonable. The 1993 Plant Stipulation authorizes the Company to
levy a rate surcharge if the Company's pre-tax interest coverage ratio
for any 12 month historical period drops below 2.0 times. The surcharge
would equal 20% of the Company's gross interest expense for the prior
12 months, adjusted for revenue taxes. The surcharge would go into effect
at the same time as the Company's next base rate increase after the
coverage ratio falls below 2.0 times, but in no event prior to
January 1, 1995. Also, the surcharge would remain in effect for 12 months
and could be extended by the BRC for up to six additional months.
The 1993 Plant Stipulation also provides that the rate of return on common
stockholder's equity used to calculate the rate for the equity component
of the AFUDC for the Plant will be 1.5% less than the rate of return on
common stockholder's equity established in the Company's most recent base
rate case. The authorized rate of return on common stockholder's equity
is currently 11.5%.
-14-
APPENDIX I
On January 4, 1994, Elizabethtown filed with the BRC for a Purchased
Water Adjustment Clause, a procedure established by BRC Rules, which
would allow Elizabethtown to recover in rates $529,291 for the
increase in the cost of purchased water from the New Jersey Water
Supply Authority (NJWSA) without a complete rate case. The NJWSA has
given notice that effective July 1, 1994, it will increase charges for
water from $220.47 to $232.65 per million gallons. The Company
expects the BRC to render a decision prior to July 1994.
On March 18, 1993, the BRC approved a stipulation (1993 Stipulation)
for a rate increase of $5,000,000, effective as of that date. The
1993 Stipulation contains a provision allowing for the deferral of
expenses, calculated under SFAS 106, for postretirement benefits
accrued that are in excess of the cash benefits paid. Recovery of
such deferrals will be considered in future rate cases. (See
Note 10).
On March 18, 1992, the BRC approved a stipulation for a rate increase
of $4,050,000, effective as of that date.
Main Extension Refunds
In a case captioned Van Holten, et al v. Elizabethtown Water Company
(Van Holten), several developers petitioned the BRC in 1984 and 1985
seeking an Order which would require Elizabethtown to refund to the
developers all of their on-site and off-site customer advances for
construction. For on-site mains, Elizabethtown received a final BRC
decision in September 1987, requiring refunds in accordance with the
BRC's suggested refund formula, which was less than the amounts
requested by the developers. For the off-site mains, the developers
were denied any refund. The developers appealed the BRC decision to
the Appellate Division of the New Jersey Superior Court (Appellate
Division), which in October 1988 upheld the decision of the BRC.
Since 1986, additional petitions dealing with this issue have been
filed by other developers. In these additional proceedings, all
parties have agreed to abide by the final decision of the New Jersey
Supreme Court in the Van Holten case. For all customer advances,
Elizabethtown has and will continue to make the refunds in accordance
with the BRC's suggested refund formula.
In response to an appeal of the 1988 Appellate Division decision, in
August 1990, the New Jersey Supreme Court (Court) rendered a decision
upholding the BRC's authority to implement what the BRC had
established as an appropriate refund formula in the Van Holten case.
The BRC's suggested formula provides for a refund of 2 1/2 times the
annual revenues for each metered connection. Although the Court ruled
that the BRC has the jurisdiction to determine what is an appropriate
refund formula, it remanded the case to the BRC to further develop the
record on why the BRC deemed the 2 1/2 times formula to be appropriate
in the Van Holten case.
-15-
APPENDIX I
In June 1991, the BRC issued an Order on Remand reaffirming the 2 1/2
times annual revenue formula. Addressing the reasonableness of this
formula, the BRC indicated in its decision that the 2 1/2 times
formula fairly allocates the costs of the main extensions among the
developers, Elizabethtown and the rate payers. Again, developers
appealed the Order on Remand to the Appellate Division, and in
December 1992, the Appellate Division remanded the matter to the BRC
for more complete findings and statements of reasons in support of its
decision.
By Order dated January 19, 1994, the BRC again deemed the 2 1/2 times
formula to be appropriate in the Van Holten case. In addition to the
previous rationale it gave for employing this formula in this case,
the BRC indicated that on a per-customer basis, the initial cost of
the extension was, in most instances, far higher than Elizabethtown's
average cost of plant invested for existing customers at the time
petitions were filed in 1984. Therefore, a full refund would clearly
result in a significant subsidization of the developers by
Elizabethtown's existing customers. The BRC concluded that such a
subsidization would be unjust and unreasonable.
On February 23, 1994, the developers appealed the January 19, 1994
BRC Order on Remand to the Appelate Division.
The maximum potential refund for the Van Holten case, and all
subsequently filed cases, is approximately $3,000,000, which would be
capitalized and, therefore, would not have a material adverse effect
on earnings. Management believes the final outcome of this matter
will be favorable and no additional refunds will be necessary.
9. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water
annually. The Company purchases additional water from the NJWSA on an
as-needed basis. Effective July 1, 1994, the annual cost under the
contract will be $8,661,559. The total cost of water purchased from
the NJWSA, including additional water purchased on an as-needed basis,
was $8,819,212, $7,827,058 and $7,527,662 for 1993, 1992 and 1991,
respectively.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases with terms in excess of
one year at December 31, 1993:
1993
----------------------
(Thousands of Dollars)
1994........................................ $ 832
1995........................................ 785
1996........................................ 780
1997........................................ 720
1998........................................ -0-
------
Total....................................... $3,117
======
-16-
APPENDIX I
Rent expense totaled $789,636, $719,624 and $740,801 for 1993, 1992
and 1991, respectively.
Capital expenditures through 1996 are estimated to be $196,451,000 for
Elizabethtown's and Mount Holly's utility plant.
Elizabethtown has solicited bids from general contractors for the
construction of the Plant. The estimated cost of the Plant, as of
March 23, 1994, is approximately $100 million, excluding AFUDC. The
Company has notified all parties to the 1993 Plant Stipulation that
the estimated cost of the Plant has increased. The Company expects to
execute a contract and commence construction in the spring of 1994.
10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy,
Elizabethtown Water Company makes contributions that meet the minimum
funding requirements of the Employee Retirement Income Security Act of
1974. The components of the net pension credits are as follows:
1993 1992 1991
-----------------------
(Thousands of Dollars)
Service cost-benefits earned during the year $ 899 $ 843 $ 780
Interest cost on projected benefit obligation 1,973 1,836 1,715
Return on Plan assets ....................... (1,409) (970) (5,677)
Net amortization and deferral ............... (1,658) (2,235) 3,051
------ ------ ------
Net pension credit .......................... $ (195) $ (526) $ (131)
====== ====== ======
Plan assets are invested in publicly traded debt and equity securities.
The reconciliations of the funded status of the Plan to the amounts
recognized in the Consolidated Balance Sheets are presented below:
1993 1992
----------------------
(Thousands of Dollars)
Market value of Plan assets ..................... $33,032 $32,710
Actuarial present value of Plan benefits: ------- -------
Vested benefits ................................. 20,708 16,929
Non-vested benefits ............................. 227 98
------- -------
Accumulated benefit obligation .................. 20,935 17,027
Projected increases in compensation levels ...... 6,541 6,799
------- -------
Projected benefit obligation .................... 27,476 23,826
Excess of Plan assets over projected benefit ------- -------
obligation ..................................... 5,556 8,884
Unrecognized net gain ........................... (2,403) (5,748)
Unrecognized prior service cost ................. 539 627
Unrecognized transition asset ................... (2,689) (2,955)
------- -------
Prepaid pension expense.......................... $ 1,003 $ 808
======= =======
-17-
APPENDIX I
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1993 1992
---------------
Discount rate ................................... 7.00% 8.50%
Compensation increase ........................... 5.50% 7.50%
Rate of return on Plan assets ................... 8.50% 8.50%
Elizabethtown and Mount Holly provide certain health care and life
insurance benefits for substantially all of their retired employees.
Effective January 1, 1993, Elizabethtown Water Company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
Under SFAS 106, the costs of such benefits are accrued for each year the
employee renders service, based on the expected cost of providing such
benefits to the employee and the employee's beneficiaries and covered
dependents rather than expensing these benefits on a pay-as-you-go basis
for retired employees. Based upon an independent actuarial study, the
transition obligation, which Elizabethtown Water Company has not funded,
was $7,214,736 as of January 1, 1993. The transition obligation is being
amortized over 20 years. The following table details the unfunded
postretirement benefit obligation at December 31, 1993:
1993
----------------------
(Thousands of Dollars)
Retirees......................................... $3,133
Fully eligible plan participants................. 5,403
------
Accumulated postretirement benefit obligation.... 8,536
Unrecognized net gain............................ (677)
Unrecognized transition obligation............... (6,854)
------
Accumulated postretirement benefits.............. $1,005
======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1993, and for 1993,
was 12%. This rate decreases linearly each successive year until it
reaches 5% in 2003, after which the rate remains constant. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1993, and for 1993, was 7.0% and 8.5%,
respectively. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated
postretirement benefit obligation as of January 1, 1993, and net
postretirement service cost and interest cost by approximately $924,000
and $140,000, respectively.
-18-
APPENDIX I
Based upon an independent actuarial study, the annual postretirement cost
calculated under SFAS 106 for 1993 is as follows:
1993
----------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year.................................. $ 249
Interest cost on accumulated
postretirement benefit obligation................ 602
Amortization of transition obligation.............. 361
------
Total............................................ 1,212
Deferred amount for regulated
companies pending recovery....................... (1,005)
------
Net postretirement benefit expense................. $ 207
======
The Company recognized as an expense (on a pay-as-you-go basis)
$252,000 for both 1992 and 1991 for postretirement health care and life
insurance benefits.
The rate increase for the 1993 Stipulation includes as an allowable
expense, only the pay-as-you-go portion of postretirement benefits. The
1993 Stipulation allows Elizabethtown to defer the amount accrued in
excess of the pay-as-you-go portion, for consideration in future rate
cases. In addition, in a separate proceeding, Mount Holly had petitioned
the BRC for permission to defer the amount accrued in excess of the pay-
as-you-go portion of its expenses calculated under SFAS 106, and
consequently, has been granted such authority. Generally accepted
accounting principles permit this regulatory treatment, provided deferrals
are not accumulated for a period of more than five years. As of December
31, 1993, the amount that has been deferred is $1,004,556. Recovery of
deferred postretirement costs will be requested in Elizabethtown's and
Mount Holly's next base rate case. Management believes that Elizabethtown
and Mount Holly will recover the deferred postretirement costs in future
rates.
11. RELATED PARTY TRANSACTIONS
The Company enters into various transactions with E'town and E'town
Properties, Inc. Elizabethtown provides administrative and accounting
services to these affiliates which are billed on a monthly basis. These
amounts totaled $246,442, $236,839 and $227,665 for 1993, 1992 and 1991,
respectively. In addition, various expenditures are made to vendors which
are common to the entities. Each entity absorbs its proportionate share
of the costs. The most significant of these items is rent which totaled
$31,749, $33,600 and $31,608 for 1993, 1992 and 1991, respectively.
-19-
12. QUARTERLY FINANCIAL DATA (Unaudited) APPENDIX I
A summary of financial data for each quarter of 1993 and 1992 follows:
Income Before Earnings
Operating Operating Preferred Applicable to
Quarter Revenues Income Stock Dividends Common Stock
-------------------------------------------------------------------
(Thousands of Dollars)
1993
1st $22,136 $ 5,465 $ 2,637 $ 2,374
2nd 24,865 6,715 3,916 3,654
3rd 28,947 8,169 5,527 5,264
4th 24,048 5,442 2,753 2,491
------- ------- ------- -------
Total $99,996 $25,791 $14,833 $13,783
======= ======= ======= =======
1992
1st $20,803 $ 4,958 $ 2,422 $ 2,160
2nd 22,423 5,639 3,042 2,779
3rd 23,812 6,161 3,643 3,380
4th 22,129 5,656 3,042 2,780
------- ------- ------- -------
Total $89,167 $22,414 $12,149 $11,099
======= ======= ======= =======
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
-20-
<PAGE>
EXHIBIT 11
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
1993 1992 1991
-------- -------- --------
PRIMARY
-------
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 14,879,828 $11,281,012 $10,535,070
Deduct: Preferred Stock Dividends 1,050,000 1,050,000 1,050,000
----------- ----------- -----------
Net Income $13,829,828 $10,231,012 $ 9,485,070
=========== =========== ===========
SHARES
Weighted Average Number of
Common Shares Outstanding 5,330,641 4,624,310 4,078,233
Assuming Exercise of Options
Reduced by the Number of Shares
Which Could Have Been Purchased
With the Proceeds From Exercise
of Such Options 7,298 3,504 1,885
----------- ----------- -----------
Weighted Average Number of Common
Shares Outstanding as Adjusted 5,337,939 4,627,814 4,080,118
=========== =========== ===========
Primary Earnings
Per Share of Common Stock $ 2.59 $ 2.21 $ 2.32
=========== =========== ===========
ASSUMING FULL DILUTION
----------------------
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary 14,879,828 11,281,012 10,535,070
Deduct: Preferred Stock Dividends 1,050,000 1,050,000 1,050,000
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 550,843 577,082 593,513
----------- ----------- -----------
Adjusted Net Income $14,380,671 $10,808,094 $10,078,583
=========== =========== ===========
SHARES
Weighted Average Number of
Common Shares Outstanding 5,330,641 4,624,310 4,078,233
Assuming Exercise of Options Reduced
by the Number of Shares Which Could
Have Been Purchased With the
Proceeds From Exercise of Such Options 7,298 3,504 1,885
Assuming Conversion of 6 3/4%
Convertible Subordinated
Debentures (a) 313,869 322,954 333,060
----------- ----------- -----------
Weighted Average Number of Common
Shares Outstanding as Adjusted 5,651,808 4,950,768 4,413,178
=========== =========== ===========
Fully Diluted Earnings
Per Share of Common Stock $ 2.54 $ 2.18 $ 2.28
=========== =========== ===========
(a) Convertible at $40 per share.
Exhibit 12(a)
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
EARNINGS:
Income before
preferred stock
dividends $7,124,469 $7,978,778 $11,361,063 $12,149,343 $14,832,519
Federal income taxes 3,343,747 3,990,799 5,630,265 6,021,464 7,916,794
Interest charges 9,207,026 10,582,686 11,016,414 10,623,801 11,437,710
----------- ----------- ----------- ----------- -----------
Earnings available
to cover fixed
charges $19,675,242 $22,552,263 $28,007,742 $28,794,608 $34,187,023
=========== =========== =========== =========== ===========
FIXED CHARGES:
Interest on long
term debt 8,769,218 9,587,723 10,585,336 10,516,521 11,527,301
Other interest 864,984 1,187,500 535,834 514,122 77,921
Amortization of debt
discount - net 71,340 279,103 287,180 209,631 224,383
----------- ----------- ----------- ----------- -----------
Total fixed charges $9,705,542 $11,054,326 $11,408,350 $11,240,274 $11,829,605
=========== =========== =========== =========== ===========
Ratio of Earnings to
Fixed Charges 2.03 2.04 2.46 2.56 2.89
=========== =========== =========== =========== ===========
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and interest expenses (which is reduced by
capitalized interest), divided by fixed charges. Fixed Charges consist of
interest on long and short-term debt (which is not reduced by capitalized
interest), and amortization of debt discount.
Exhibit 12(b)
Elizabethtown Water Company & Subsidiary
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
1989 1990 1991 1992 1993
-------- -------- -------- -------- --------
EARNINGS:
Income before
preferred stock
dividends $7,124,469 $7,978,778 $11,361,063 $12,149,343 $14,832,519
Federal income taxes 3,343,747 3,990,799 5,630,265 6,021,464 7,916,794
Interest charges 9,207,026 10,582,686 11,016,414 10,623,801 11,437,710
----------- ----------- ----------- ----------- -----------
Earnings available
to cover fixed
charges $19,675,242 $22,552,263 $28,007,742 $28,794,608 $34,187,023
=========== =========== =========== =========== ===========
FIXED CHARGES AND
PREFERRED DIVIDENDS:
Interest on long
term debt 8,769,218 9,587,723 10,585,336 10,516,521 11,527,301
Preferred dividend
requirement (1) 1,543,097 1,575,158 1,570,446 1,570,446 1,610,429
Other interest 864,984 1,187,500 535,834 514,122 77,921
Amortization of debt
discount - net 71,340 279,103 287,180 209,631 224,383
----------- ----------- ----------- ----------- -----------
Total fixed charges $11,248,639 $12,629,484 $12,978,796 $12,810,720 $13,440,034
=========== =========== =========== =========== ===========
Ratio of Earnings to
Fixed Charges and
Preferred Dividends 1.75 1.79 2.16 2.25 2.54
=========== =========== =========== =========== ===========
(1) Preferred Dividend
Requirement:
Preferred dividends $1,050,232 $1,050,000 $1,050,000 $1,050,000 $1,050,000
Effective tax rate 31.94% 33.34% 33.14% 33.14% 34.80%
----------- ----------- ----------- ----------- -----------
Preferred dividend
requirement $1,543,097 $1,575,158 $1,570,446 $1,570,446 $1,610,429
=========== =========== =========== =========== ===========
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and interest
expenses (which is reduced by capitalized interest), divided by fixed charges.
Fixed Carges and Preferred Dividends consist of interest on long and short-term
debt (which is not reduced by capitalized interest), dividends on Preferred
Stock on a pre-tax basis and amortization of debt discount.
<PAGE>
Exhibit 13
E'TOWN CORPORATION
Portion of the 1993 Annual Report to Shareholder's which is
incorporated by reference into this filing on Form 10-K for
the year ended December 31, 1993.
INDEX
Page
----
Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 1
Consolidated Financial Statements 9
Notes to Consolidated Financial Statements 15
Independent Auditors' Report 42
Other Financial and Statistical Data 43
Stock Price and Dividend Data 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc. (Properties).
The Mount Holly Water Company (Mount Holly) is a wholly owned subsidiary
of Elizabethtown. The assets and operating results of Elizabethtown
constitute the predominant portions of E'town's assets and operating
results. The following analysis sets forth significant events affecting
the financial condition of E'town and Elizabethtown at December 31, 1993,
and the results of operations for the years ended December 31, 1993,
1992 and 1991.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Consolidated capital expenditures, primarily for water utility
plant, were $32.7 million during 1993. Capital expenditures for the
three-year period ending December 31, 1996, are estimated to be
$196.9 million, of which $196.5 million is for Elizabethtown's utility
plant and $.4 million is for real estate-related expenditures.
Elizabethtown's construction program includes additional mains and
storage facilities necessary to serve customers who were added during
the last several years. In addition, Elizabethtown anticipates
upgrading its existing surface water treatment plant by rehabilitating
certain components and adding facilities designed to maximize its
capacity. These projects are designed to ensure the plant's compliance
with proposed water quality and other environmental regulations.
Elizabethtown's estimated capital expenditures through 1996 include
$100.0 million, excluding an Allowance for Funds Used During
Construction (AFUDC), for construction of a new water treatment plant,
the Canal Road Water Treatment Plant (Plant), near its existing plant.
The Plant is scheduled to be completed in 1996. The Plant, which will
have a rated production capacity of 40 million gallons per day, is
necessary to meet existing and anticipated customer demands and to
replace groundwater supplies withdrawn from service as a result of more
restrictive water quality regulations and groundwater contamination.
In August 1993, the Board of Regulatory Commissioners (BRC)
approved a stipulation (1993 Plant Stipulation) signed by the parties to
the Company's petition relating to the Plant. The 1993 Plant
Stipulation states that the Plant is necessary and that the Company's
estimate regarding the Plant's cost, at that time of $87 million, and
construction period were reasonable. The 1993 Plant Stipulation
authorizes the Company to levy a rate surcharge if the Company's pre-tax
interest coverage ratio for any 12 month historical period drops below
2.0 times. The surcharge would equal 20% of the Company's gross
-1-
interest expense for the prior 12 months, adjusted for revenue taxes.
The surcharge would go into effect at the same time as the Company's
next base rate increase after the coverage ratio falls below 2.0 times,
but in no event prior to January 1, 1995. Also, the surcharge would
remain in effect for 12 months and could be extended by the BRC for up
to six additional months. The 1993 Plant Stipulation also provides that
the rate of return on common stockholder's equity used to calculate the
rate for the equity component of the AFUDC for the Plant will be 1.5%
less than the rate of return on common stockholder's equity established
in the Company's most recent base rate case. The authorized rate of
return on common stockholder's equity is currently 11.5%.
Elizabethtown has solicited bids from general contractors for the
construction of the Plant. The estimated cost of the Plant, as of
March 23, 1994, is approximately $100 million, excluding AFUDC. The
Company has notified all parties to the 1993 Plant Stipulation that the
estimated cost of the Plant has increased. The Company expects to
execute a contract and commence construction in the spring of 1994.
Also included in the Company's capital program is $12.2 million for
new wells, treatment facilities and transmission lines to augment Mount
Holly's water supplies. Such projects are necessary for Mount Holly to
comply with recent state legislation requiring Mount Holly and other
water purveyors located in a particular area in southern New Jersey to
obtain additional sources of water to replace portions of their existing
supplies.
CAPITAL RESOURCES
During 1993, Elizabethtown, including Mount Holly, financed 28.2%
of its capital expenditures from internally generated funds (after
payment of common stock dividends). The balance was funded from
(i) capital contributions from E'town from the sale of common stock,
(ii) the remaining proceeds of various New Jersey Economic Development
Authority (NJEDA) tax-exempt bond issues from prior years and
(iii) short-term bank debt on an interim basis.
For the three-year period ending December 31, 1996, Elizabethtown,
including Mount Holly, estimates that 15% of its capital expenditures
will be financed with internally generated funds (after the payment of
common stock dividends). The balance will be financed with a
combination of proceeds from the sale of E'town common stock, long-term
debentures, proceeds of tax-exempt NJEDA bonds and short-term borrowings
under a revolving credit agreement (see below), on an interim basis.
The NJEDA has granted preliminary approval for the financing of almost
all of Elizabethtown's major projects over the next three years,
including the Plant. Elizabethtown expects to pursue tax-exempt
financing to the extent that final allocations are granted by the NJEDA.
-2-
On May 17, 1993, E'town issued 575,000 shares of common stock for
net proceeds of $16.6 million. The net proceeds were used to
fund equity contributions to Elizabethtown of $11.0 million in May 1993
and $2.8 million in September 1993. Elizabethtown used a portion of
such contributions to repay $7.0 million of short-term bank debt
incurred for construction expenditures and invested the balance on a
short-term basis until needed for construction expenditures. E'town
used $1.0 million of the proceeds to repay short-term bank debt
previously incurred for working capital. The balance of the proceeds
has been invested on a short-term basis and is expected to be used to
fund working capital requirements of the Corporation.
During 1993, E'town raised $6.0 million from the sale of common
stock issued under its Dividend Reinvestment and Stock Purchase Plan
(DRP). Such proceeds were used to fund equity contributions to
Elizabethtown primarily for Elizabethtown's capital expenditures.
On August 24, 1993, E'town, Properties and Elizabethtown sold
three parcels of land totalling 260 acres to the Somerset County Park
Commission for $3.4 million. The cash generated by the sale has been
invested on a short-term basis and will be used to fund a $2.2 million
equity contribution to Elizabethtown when required by the Company for
construction expenditures. The remainder of the proceeds will be used
to fund working capital requirements of the Corporation.
On November 9, 1993, Elizabethtown issued $50 million of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used to
redeem $30 million of the Company's 8 5/8% Debentures due 2007 and
$20 million of the Company's 10 1/8% Debentures due 2018. The aggregate
redemption premiums of $2.7 million were paid from general Company
funds.
During 1994, E'town Corporation expects to issue approximately
500,000 shares of common stock, through a public offering prior to
June 30, 1994, to finance additional equity contributions to
Elizabethtown. Proceeds from all stock issued under E'town's DRP will
continue to fund additional equity contributions to Elizabethtown.
Elizabethtown is negotiating a committed revolving credit
agreement, which is expected to be in place by April 1994, with an agent
bank and up to five additional participating banks to replace its
existing uncommitted lines of credit. The agreement will provide up to
$60 million in revolving short-term notes to provide sufficient
short-term financing for the Company to fund, together with other
monies, its $196.5 million capital program. The agreement will allow
the Company to borrow, repay and reborrow up to $60 million for the
first three years, after which time the Company may convert any
outstanding balances to a five-year fully amortizing term loan. The
agreement will further provide that among other covenants, the Company
must maintain a ratio of common and preferred equity to total
capitalization of not less than 35% and a pre-tax interest coverage
ratio of at least 1.5 to 1.
-3-
December 31, 1992 and 1991
In April 1992, E'town issued 500,000 shares of common stock for net
proceeds of $12.7 million. Proceeds of the issue funded an $11.0
million capital contribution to Elizabethtown, and the balance was used
to repay E'town's short-term bank debt previously incurred to fund
working capital. Also, E'town funded additional equity contributions of
$4.2 million to Elizabethtown from E'town's DRP. During 1992,
Elizabethtown issued $15 million of 8% Debentures to repay short-term
bank debt, of which, $9 million was incurred to repay Elizabethtown's
4 7/8% Debentures due February 1, 1992, and the remainder was incurred
to finance construction expenditures.
On February 14, 1991, E'town issued 523,700 shares of common stock
for net proceeds of $11.6 million. Proceeds of the issue funded an
$8 million capital contribution to Elizabethtown, and the balance was
used to repay E'town's short-term bank debt previously incurred to fund
working capital. Also, E'town funded additional equity contributions of
$1.8 million to Elizabethtown from E'town's DRP. During 1991,
Elizabethtown issued $27.5 million of 8 3/4% Debentures to retire $25
million of 11 1/8% Debentures and, through the NJEDA, issued a total of
$25.5 million of tax-exempt debentures with interest rates of 6.6% and
6.7% to refinance $10.5 million of tax-exempt 8.20% Debentures and
$15 million of 6.20% NJEDA Notes.
RESULTS OF OPERATIONS
Net Income for 1993 was $13.8 million or $2.59 per share on a primary
basis as compared to $10.2 million or $2.21 per share for 1992. The
increase in net income resulted from higher levels of outdoor water use
due to abnormally hot and dry summer weather and the gain from the land
sale referred to above. Also, rate increases received in March of 1993
and 1992, enabled the Company to cover higher levels of operating and
financial expenses in 1993 without adversely affecting net income.
Summer water use in excess of what management believes to be normal
contributed approximately $1.8 million or $.34 per share. The land sale
produced an after-tax gain of $1.1 million or $.21 per share. The
average number of shares outstanding in 1993 increased 15.3% over 1992.
Assuming a return to normal weather patterns in 1994, the Company
expects that earnings for 1994 will be less than earnings realized in
1993.
Net Income for 1992 was $10.2 million or $2.21 per share on a
primary basis, as compared to $9.5 million or $2.32 per share for 1991.
Net income increased primarily because the Company realized $3.3 million
from the rate increase granted in March 1992, which was partially offset
by increased expenses. Earnings per share fell because the average
number of shares outstanding increased by 13.4%.
-4-
Operating Revenues increased $10.8 million or 12.1% in 1993. Of this
increase, $4.8 million relates to the combined effect of the rate
increases of $5.0 million and $4.0 million effective March 1993 and
1992, respectively. Also, sales to retail customers increased $3.8
million and sales to other water systems increased $1.2 million due to
hot, dry summer weather.
Operating Revenues increased $ $3.1 million or 3.6% in 1992 primarily
because of the rate increase effective March 1992. Retail water
consumption dropped by $1.5 million in 1992 due to relatively wet summer
weather. However, lower consumption by retail customers was partially
offset by an increase in sales to other water systems of $.4 million.
Operation Expenses increased by $3.5 million or 9.9% in 1993 primarily
due to increases in the quantity of power and raw water purchased to
meet higher than normal summer loads. Also, the unit costs of power and
purchased water increased, as did labor costs and the cost of medical
and other benefits.
Operation Expenses increased $1.5 million or 4.4% in 1992.
Increases in labor, the price of purchased water and worker's
compensation premiums were partially offset by a reduction in
hospitalization premiums.
Maintenance Expenses increased less than $.1 million or .2% in 1993 and
$.3 million or 5.7% in 1992 due to fluctuations in routine maintenance
at various operating facilities.
Depreciation Expense increased $.6 million or 9.5% in 1993 and $.4 million
or 6.3% in 1992 due to additional depreciable plant being placed in
service during those periods.
Revenue Taxes increased $1.4 million or 12.8% in 1993 and $.4 million or
3.4% in 1992 due to additional taxes on the higher revenues explained
above.
Real Estate, Payroll and Other Taxes increased $.2 million or 9.6% in
1993 due to increased payroll taxes resulting from labor cost increases
and state income taxes resulting from the adoption of SFAS 109. Real
Estate, Payroll and Other Taxes increased by $.1 million in 1992.
Federal Income Taxes increased $1.7 million or 31.4% in 1993 and
$.3 million or 5.0% in 1992 due to the changes in the components of
taxable income discussed herein. The increase in 1993 also includes
$.2 million due to the change in the federal statutory tax rate from 34%
to 35%.
-5-
Other Income increased in total by $1.2 million in 1993. Other Income
increased due to a gain on the sale of land in August 1993 of $1.7
million or $1.1 million, net of federal income taxes, discussed
previously. A decrease in the equity component of AFUDC of $.2 million
resulted from the timing of construction expenditures. Other Income
decreased because Properties adjusted the carrying values of certain
investments downward to their estimated net realizable values (see
"Economic Outlook - Properties"). This decrease is comprised of a
downward adjustment of $.1 million to the carrying value of the
Bordentown property and a similar adjustment of $.2 million to the
Mansfield property. These adjustments were compared to a downward
adjustment of $.2 million in 1992 to the investment in Solar Electric
Generating System V (SEGS). Other increases of $.5 million resulted
from various miscellaneous items. Federal income taxes, as a result of
all of the above, increased $.7 million.
In 1992 Other Income increased in total by $.2 million. Other
Income in 1992 includes an equity component of AFUDC of $.6 million,
which is offset by the $.2 million adjustment to SEGS discussed
previously. Other income also decreased by $.1 million due to various
other miscellaneous items. Federal income taxes, as a result of all of
the above, increased $.1 million.
Total Interest Charges increased $.9 million or 8.4% in 1993, due
primarily to an increase in interest for long-term debt issued in
September 1992 and a reduction in earnings from NJEDA trust funds due to
reduced trust fund balances. These items were partially offset by lower
interest on short-term debt due to reduced borrowings.
Total Interest Charges decreased $.4 million or 3.9% in 1992 due to
the net effect of (i) new long-term debt issued in September 1992,
(ii) lower interest costs as a result of long-term debt refinancing and
(iii) lower levels of short-term debt balances and their related rates.
ECONOMIC OUTLOOK
Consolidated earnings for E'town for the next several years will
be determined primarily by Elizabethtown's ability to generate adequate
earnings and, to a lesser degree, the ability of Properties and E'town
to generate adequate returns on their real estate investments.
-6-
Elizabethtown and Subsidiary
Elizabethtown believes that it has sufficient surface and well
water supplies to meet its customers' needs and that it is, and will
remain, in compliance with all water quality standards. Nonetheless,
governmental water quality and service regulations will require
Elizabethtown and Mount Holly to make significant investments in water
treatment, transmission and storage facilities including, most
significantly, the Plant. This capital program will require regular
external financing and rate relief for the next several years.
Because Elizabethtown expects its rate base to grow more quickly
than pumpage over the next several years, Elizabethtown anticipates
filing for a rate increase in 1994, and regularly thereafter, so that it
may have the opportunity to realize satisfactory returns on equity.
Adequate equity returns will enable Elizabethtown to continue to attract
external capital to finance improvements necessary to maintain safe and
adequate service. Future earnings of the Company will be primarily
affected by weather and customer usage, the magnitude and timing of
capital expenditures, the rate of growth of revenues and expenses, and
the adequacy and timeliness of regulatory relief.
Properties
Included in non-utility property and other investments at
December 31, 1993 and 1992 is $11.9 million and $13.3 million,
respectively, of investments in various parcels of undeveloped land in
New Jersey. The carrying value of each parcel includes the original
cost plus any real estate taxes, interest and, where applicable, direct
costs capitalized while rezoning or governmental approvals are or were
being sought. Based upon independent appraisals received at various
times prior to, and during 1993, the estimated net realizable value of
each property exceeds its respective carrying value as of December 31,
1993, after the adjustments to the Mansfield and Bordentown properties
discussed below.
After sewer capacity became available for its parcel in Bordentown, New
Jersey (which was purchased together with lands across the town line in
Mansfield), Properties determined that the Bordentown parcel was ready
for its intended use and has listed the parcel with a broker for sale.
Effective in 1993, the carrying charges on the Bordentown parcel were,
and will continue to be, expensed since this property is ready for its
intended use. Such carrying charges were approximately $.2 million in
1993.
-7-
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield property and, therefore, continues to
capitalize various carrying charges. During the second quarter of 1993,
the carrying value of the Mansfield property held by Properties exceeded
its estimated net realizable value and, as a result, carrying charges
incurred after that date were, and continue to be, adjusted monthly.
This is due to the fact that the Mansfield property is not yet ready for
its intended use and, therefore, various carrying charges continue to be
capitalized while, based upon recent appraisals, the market value of the
property has remained constant. An allowance of $.2 million for the
year ended December 31, 1993, to adjust the carrying value of the
Mansfield property, has been reflected in the Statements of Consolidated
Income and Consolidated Balance Sheets. As Properties expects to
continue capitalizing carrying charges on the Mansfield property until
it is ready for its intended use, further adjustments for these
capitalized carrying charges, reflecting management's estimate of the
net realizable value of the property, should be expected. Such carrying
costs were approximately $.3 million in 1993.
The Corporation will continue to monitor the relationship between
the carrying and net realizable values of its properties through updated
appraisals on a regular basis.
-8-
E'town Corporation and Subsidiaries
Statements of Consolidated Income Year Ended December 31,
--------------------------------------
1993 1992 1991
------------ ------------ ------------
Operating Revenues $99,996,120 $89,167,337 $86,086,103
----------- ----------- -----------
Operating Expenses:
Operation 39,280,920 35,744,262 34,246,828
Maintenance 5,716,157 5,704,843 5,399,139
Depreciation 7,285,309 6,654,986 6,258,302
Revenue taxes 12,501,804 11,086,349 10,717,838
Real estate, payroll and other taxes 2,706,447 2,469,066 2,322,425
Federal income taxes (Note 3) 7,170,406 5,455,022 5,193,665
----------- ----------- -----------
Total operating expenses 74,661,043 67,114,528 64,138,197
----------- ---------- ----------
Operating Income 25,335,077 22,052,809 21,947,906
----------- ---------- ----------
Other Income:
Gain on sale of land (Note 7) 1,685,521
Allowance for equity funds used
during construction (Note 2) 445,339 599,443
Write-down of non-utility property
and other investments (Note 7) (269,315) (180,000)
Federal income taxes (Note 3) (790,320) (117,623) (15,404)
Other--net 396,515 (73,493) 45,305
----------- ----------- -----------
Total other income 1,467,740 228,327 29,901
----------- ----------- -----------
Total Operating and Other Income 26,802,817 22,281,136 21,977,807
----------- ----------- -----------
Interest Charges:
Interest on long-term debt 12,374,224 11,389,341 11,488,492
Other interest expense--net 95,848 564,064 610,131
Capitalized interest (Note 2) (805,882) (1,197,328) (977,482)
Amortization of debt discount--net 258,799 244,047 321,596
----------- ----------- -----------
Total interest charges 11,922,989 11,000,124 11,442,737
----------- ----------- -----------
Income Before Preferred Stock
Dividends of Subsidiary 14,879,828 11,281,012 10,535,070
Preferred Stock Dividends 1,050,000 1,050,000 1,050,000
----------- ----------- -----------
Net Income $13,829,828 $10,231,012 $ 9,485,070
=========== =========== ===========
Earnings Per Share of Common Stock (Note 2):
Primary $ 2.59 $ 2.21 $ 2.32
=========== =========== ===========
Fully Diluted $ 2.54 $ 2.18 $ 2.28
Average Number of Shares Outstanding for =========== =========== ===========
the Calculation of Earnings Per Share:
Primary 5,337,939 4,627,814 4,080,118
=========== =========== ===========
Fully Diluted 5,651,808 4,950,768 4,413,178
=========== =========== ===========
Dividends Paid Per Common Share $ 2.01 $ 2.00 $ 2.00
=========== =========== ===========
See Notes to Consolidated Financial Statements.
-9-
E'town Corporation and Subsidiaries
Consolidated Balance Sheets
December 31,
---------------------------
Assets 1993 1992
------------ ------------
Utility Plant--At Original Cost:
Utility plant in service $438,178,824 $411,317,989
Construction work in progress 17,242,088 11,809,783
------------ ------------
Total utility plant 455,420,912 423,127,772
Less accumulated depreciation and amortization 82,128,023 75,874,538
------------ ------------
Utility plant--net 373,292,889 347,253,234
------------ ------------
Non-utility Property and Other Investments (Note 7) 13,545,589 15,005,380
------------ ------------
Funds Held by Trustee for Construction
Expenditures (Note 2) 382,306 8,902,183
------------ ------------
Current Assets:
Cash and cash equivalents 7,376,472 2,408,429
Short-term investments 30,622 30,622
Customer and other accounts receivable
(less reserve: 1993, $434,000; 1992, $377,000) 12,031,414 11,032,897
Unbilled revenues 7,248,322 6,559,721
Materials and supplies--at average cost 1,623,702 1,616,832
Prepaid insurance, taxes, other 1,603,955 1,606,276
------------ ------------
Total current assets 29,914,487 23,254,777
------------ ------------
Deferred Charges (Note 9):
Prepaid pension expense (Note 12) 962,595 778,176
Abandonments 152,097 228,146
Waste residual management 587,589 561,551
Emergency water projects 113,412 230,013
Unamortized debt expenses 8,648,030 5,542,874
Taxes recoverable through future rates (Note 3) 26,643,663
Postretirement benefit expense (Note 12) 1,004,556
Other unamortized expenses 484,767 773,765
------------ ------------
Total deferred charges 38,596,709 8,114,525
------------ ------------
Total $455,731,980 $402,530,099
============ ============
See Notes to Consolidated Financial Statements.
-10-
December 31,
---------------------------
Capitalization and Liabilities 1993 1992
------------ ------------
Capitalization (Notes 4 and 5):
Common shareholders' equity $128,374,207 $102,749,893
Cumulative preferred stock--redeemable 12,000,000 12,000,000
Long-term debt--net 154,406,533 154,999,463
------------ ------------
Total capitalization 294,780,740 269,749,356
------------ ------------
Current Liabilities:
Notes payable--banks (Note 6) 6,500,000
Long-term debt--current portion (Note 4) 42,000 42,000
Accounts payable and other liabilities 9,645,055 8,985,477
Customers' deposits 276,497 273,238
Municipal and state taxes accrued 12,569,445 11,087,926
Federal income taxes accrued 947,274 649,156
Interest accrued 3,052,160 3,550,163
Preferred stock dividends accrued 89,178 89,178
------------ ------------
Total current liabilities 26,621,609 31,177,138
------------ ------------
Deferred Credits:
Customer advances for construction 45,149,522 45,292,966
Federal income taxes (Note 3) 58,363,510 28,403,699
State income taxes (Note 3) 151,538
Unamortized investment tax credits 8,852,487 9,046,119
Emergency water projects (Note 9) 127,704 244,304
Accumulated postretirement benefits 1,015,004
------------ ------------
Total deferred credits 113,659,765 82,987,088
------------ ------------
Contributions in Aid of Construction 20,669,866 18,616,517
------------ ------------
Commitments and Contingent Liabilities (Note 11)
------------ ------------
Total $455,731,980 $402,530,099
============ ============
See Notes to Consolidated Financial Statements.
-11-
E'town Corporation and Subsidiaries
Statements of Consolidated Capitalization
December 31,
----------------------------
1993 1992
------------ ------------
E'town Corporation:
Common Shareholders' Equity (Notes 4 and 5):
Common stock without par value, authorized,
15,000,000 shares; issued 1993, 5,661,504
shares; 1992, 4,881,576 shares $ 87,842,657 $ 64,261,763
Paid-in capital 1,315,025 1,315,025
Capital stock expense (3,357,165) (2,479,987)
Retained earnings 43,207,666 40,228,199
Less cost of treasury stock; 1993, 22,032
shares; 1992, 20,356 shares (633,976) (575,107)
------------ ------------
Total common shareholders' equity 128,374,207 102,749,893
------------ ------------
Elizabethtown Water Company:
Cumulative Preferred Stock - Redeemable (Note 4):
$100 par value, authorized, 200,000
shares; $8.75 series, issued and
outstanding, 120,000 shares 12,000,000 12,000,000
------------ ------------
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares;
none issued
Long-Term Debt (Note 4):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 12,497,000 12,700,000
Elizabethtown Water Company:
8 5/8% Debentures, due 2007 30,000,000
10 1/8% Debentures, due 2018 20,000,000
7.20% Debentures, due 2019 10,000,000 10,000,000
7 1/2% Debentures, due 2020 15,000,000 15,000,000
6.60% Debentures, due 2021 10,500,000 10,500,000
6.70% Debentures, due 2021 15,000,000 15,000,000
8 3/4% Debentures, due 2021 27,500,000 27,500,000
8% Debentures, due 2022 15,000,000 15,000,000
7 1/4% Debentures, due 2028 50,000,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 186,300 228,300
------------ ------------
Total long-term debt 155,683,300 155,928,300
Unamortized discount--net (1,276,767) (928,837)
------------ ------------
Total long-term debt--net 154,406,533 154,999,463
------------ ------------
Total capitalization $294,780,740 $269,749,356
============ ============
See Notes to Consolidated Financial Statements.
-12-
E'town Corporation and Subsidiaries
Statements of Consolidated Cash Flows Year Ended December 31,
---------------------------------------
1993 1992 1991
Cash Flows from Operating Activities: ------------ ----------- -----------
Net Income $13,829,828 $10,231,012 $ 9,485,070
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 7,285,309 6,654,986 6,258,302
Write-down of non-utility property
and other investments 269,315 180,000
Gain on sale of land (1,685,521)
Amortization of deferred charges 1,399,410 1,981,701 3,654,031
Increase in deferred charges (4,233,375) (1,847,202) (7,502,304)
Deferred income taxes and investment
tax credits--net 3,274,054 3,385,483 4,040,331
Capitalized interest and AFUDC 1,251,221) (1,796,771) (977,482)
Other operating activities--net (390,231) (2,669) (499,536)
Change in current assets and liabilities
excluding cash, short-term investments
and current portion of debt:
Customer and other accounts receivable (998,517) 807,763 (880,062)
Unbilled revenues (688,601) (164,241) (450,793)
Accounts payable and other liabilities 662,837 (964,663) 1,780,657
Accrued/prepaid interest and taxes 1,283,955 407,304 1,961,431
Other (6,870) 3,473 (34,699)
------------ ------------ ------------
Net cash provided by operating activities 18,750,372 18,876,176 16,834,946
Cash Provided by Financing Activities: ------------ ------------ ------------
Decrease in funds held by Trustee for
construction expenditures 8,519,877 12,390,518 6,650,299
Proceeds from issuance of debentures 50,000,000 15,000,000 53,000,000
Proceeds from issuance of common stock 22,644,847 17,258,786 13,499,761
Repayment of short-term notes (15,000,000)
Repayment of long-term debt (50,245,000) (9,503,000) (36,007,500)
Contributions and advances for
construction--net 1,909,905 3,066,832 5,270,774
Net decrease in notes payable--banks (6,500,000) (13,500,000) (8,000,000)
Dividends paid on common stock (10,850,361) (9,284,160) (8,282,142)
------------ ------------ ------------
Net cash provided by
financing activities 15,479,268 15,428,976 11,131,192
Cash Used for Investing Activities: ------------ ------------ -----------
Utility plant expenditures (excluding
AFUDC) (32,516,755) (33,292,602) (27,732,407)
Development costs of land (excluding
capitalized interest) (194,842) (286,885) (169,438)
Proceeds from sale of land 3,450,000
------------ ------------ ------------
Cash used for investing activities (29,261,597) (33,579,487) (27,901,845)
------------ ------------ ------------
Net Increase in Cash and Cash Equivalents 4,968,043 725,665 64,293
Cash and Cash Equivalents at
Beginning of Year 2,408,429 1,682,764 1,618,471
------------ ------------ ------------
Cash and Cash Equivalents at End of Year $ 7,376,472 $ 2,408,429 $ 1,682,764
============ ============ ============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 12,296,508 $ 11,332,836 $ 12,496,837
Income taxes 5,881,008 3,875,774 3,898,793
Preferred stock dividends of subsidiary $ 1,050,000 $ 1,050,000 $ 1,050,000
See Notes to Consolidated Financial Statements.
-13-
E'town Corporation and Subsidiaries
Statements of Consolidated Shareholders' Equity
Year Ended December 31,
---------------------------------------
1993 1992 1991
------------ ----------- ----------
Common Stock:
Balance at Beginning of Year $ 64,261,763 $ 45,952,195 $ 31,761,854
Public sale of common stock (1993,
575,000 shares; 1992, 500,000
shares; 1991, 523,700 shares) 17,465,625 13,437,500 12,294,631
Common stock issued under Dividend
Reinvestment and Stock Purchase
Plan (1993, 200,878 shares; 1992,
161,802 shares; 1991, 72,552 shares) 6,009,298 4,197,938 1,766,832
Exercise of stock options (1993,
4,050 shares; 1992, 21,900 shares;
1991, 5,250 shares) 105,971 540,356 123,878
Issuance of restricted stock
(1992, 5,072 shares) 133,774
Conversion of E'town Corporation
6 3/4% Convertible Subordinated
Debentures to common stock
(1991, 125 shares) 5,000
------------ ------------ ------------
Balance at End of Year 87,842,657 64,261,763 45,952,195
------------ ------------ ------------
Paid-in Capital: 1,315,025 1,315,025 1,315,025
------------ ------------ ------------
Capital Stock Expense:
Balance at Beginning of Year (2,479,987) (1,698,001) (1,007,421)
Expenses incurred for the issuance
and sale of common stock (877,178) (781,986) (690,580)
------------ ------------ ------------
Balance at End of Year (3,357,165) (2,479,987) (1,698,001)
------------ ------------ ------------
Retained Earnings:
Balance at Beginning of Year 40,228,199 39,281,347 38,078,419
Net income 13,829,828 10,231,012 9,485,070
Dividends on Common Stock (1993,
$2.01, 1992 and 1991, $2.00) (10,850,361) (9,284,160) (8,282,142)
------------ ------------ ------------
Balance at End of Year 43,207,666 40,228,199 39,281,347
------------ ------------ ------------
Treasury Stock:
Balance at Beginning of Year (575,107) (306,311) (306,311)
Cost of shares redeemed to exercise
stock options (1993, 1,676 shares;
1992, 9,850 shares) (58,869) (268,796)
------------ ------------ ------------
Balance, End of Year (633,976) (575,107) (306,311)
------------ ------------ ------------
Total Common Shareholders' Equity $128,374,207 $102,749,893 $ 84,544,255
============ ============ ============
See Notes to Consolidated Financial Statements.
-14-
E'TOWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding
company, is the parent company of Elizabethtown Water Company
(Elizabethtown or Company) and E'town Properties, Inc. (Properties).
The Mount Holly Water Company (Mount Holly) is a wholly owned
subsidiary of Elizabethtown.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The consolidated financial statements include E'town and its
subsidiaries. Significant intercompany accounts and transactions have
been eliminated. Elizabethtown and Mount Holly are regulated water
utilities and follow the Uniform System of Accounts, as adopted by the
New Jersey Board of Regulatory Commissioners (BRC).
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements and in maintaining
the properties. Utility plant accounts are charged with the cost of
improvements and major replacements of property. When depreciable
property is retired or otherwise disposed of, the cost thereof, plus
the cost of removal net of salvage, is charged to accumulated
depreciation.
-15-
Depreciation generally is computed on a straight-line basis at
functional rates for various classes of assets. The provision for
depreciation, as a percentage of average depreciable property,
was 1.74% percent for 1993 and 1.72% for 1992 and 1991.
Allowance for Funds Used During Construction
Elizabethtown capitalizes, as an appropriate cost of utility plant, an
Allowance for Funds Used During Construction (AFUDC), which represents
the cost of financing major projects during construction. AFUDC is
added to the construction cost of the project and included in rate
base and then recovered in rates during the project's useful life.
AFUDC is comprised of a debt component (credited to Interest Charges),
and an equity component (credited to Other Income) in the Statements
of Consolidated Income. (See Note 10). The equity component considers
the increased reliance on equity contributions to Elizabethtown from
E'town's stock sales. Such equity contributions have become an
integral part of the financing of Elizabethtown's construction
program. AFUDC totaled $837,234, $1,215,916 and $391,936 for 1993,
1992 and 1991, respectively.
Non-utility Property
Properties capitalizes direct costs, real estate taxes and interest
costs associated with real estate properties that are being developed.
These costs are expensed on properties ready for their intended use.
The amount of interest capitalized for 1993, 1992 and 1991 totaled
$413,987, $580,855 and $585,546, respectively. (See Note 7).
-16-
Revenues
Revenues are recorded based on the amounts of water delivered to
customers through the end of each accounting period. This includes an
accrual for unbilled revenues for water delivered from the time meters
were last read to the end of the respective accounting periods.
Federal Income Taxes
E'town files a consolidated federal tax return. Deferred income taxes
are provided for timing differences in the recognition of revenues and
expenses for tax and financial statement purposes for E'town and
Properties. Deferred income taxes are also provided for each
regulated water utility to the extent permitted by the BRC.
The regulated water utilities account for prior years' investment tax
credits by the deferral method, which amortizes the credits over the
lives of the respective assets. The non-regulated companies utilize
the flow-through method to account for investment tax credits. This
method treats the credits as a reduction of federal income taxes in
the year the credits arise.
Effective January 1, 1993, the Corporation adopted Statement of
Financial Accounting Standards (SFAS) 109, "Accounting for Income
Taxes." (See Note 3).
-17-
Customer Advances for Construction and Contributions in Aid of
Construction
Customer Advances for Construction and Contributions in Aid of
Construction represent capital provided by developers for main
extensions to new real estate developments. Some portion of Customer
Advances for Construction is refunded based upon the revenues that the
new developments generate. Contributions in Aid of Construction are
Customer Advances for Construction that are no longer subject to
refund.
Short-term Investments
Short-term investments are stated at cost, which approximates market
value.
Earnings Per Share of Common Stock
Primary earnings per share are computed on the basis of the weighted
average number of shares outstanding, plus common stock equivalents,
assuming all stock options are exercised. Fully diluted earnings per
share assumes both the conversion of the 6 3/4% Convertible
Subordinated Debentures and the common stock equivalents referred to
above.
-18-
Postretirement Benefits
Effective January 1, 1993, the Corporation adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." (See Note 12).
Funds Held by Trustee for Construction Expenditures
Proceeds from New Jersey Economic Development Authority financings are
held in trust until such time as qualified project expenditures are
incurred. Income received from the investment of the trust fund
assets is recorded as an offset to the related interest expense.
Cash Equivalents
The Corporation considers all highly liquid debt instruments purchased
with maturities of three months or less to be cash equivalents for
purposes of the Statements of Consolidated Cash Flows.
Reclassification
Certain prior year amounts have been reclassified to conform to the
current year presentation.
-19-
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the
tax provision computed at the federal statutory rate (35% in 1993, 34%
in 1992 and 1991) with the amount reported in the Statements of
Consolidated Income follow:
1993 1992 1991
----------------------
(Thousands of Dollars)
Tax expense at statutory rate ........ $7,994 $5,730 $5,353
Items for which deferred taxes
are not provided:
Capitalized interest ............... (2) (3) 16
Difference between book and tax
depreciation ...................... 81 66 50
Investment tax credits................ (208) (210) (210)
Other ................................ 96 (10)
------ ------ ------
Provision for federal income taxes..... $7,961 $5,573 $5,209
====== ====== ======
The provision for federal income taxes
is composed of the following:
Current ............................... $6,180 $4,170 $4,261
Tax collected on main extensions ...... (1,341) (1,982) (3,127)
Deferred:
Tax depreciation .................... 3,183 3,052 3,003
Alternative minimum tax.............. 82 600
Capitalized interest................. 217 315 134
Other ............................... (84) 38 542
Investment tax credits-net............. (194) (202) (204)
------ ------ ------
Total provision ....................... $7,961 $5,573 $5,209
====== ====== ======
Effective January 1, 1993, the Corporation adopted SFAS 109,
"Accounting for Income Taxes." SFAS 109 establishes new accounting
rules that change the manner in which income tax expense is determined
for accounting purposes. SFAS 109 utilizes a liability method under
which deferred taxes are provided at the enacted statutory rate for all
temporary differences between financial statement earnings amounts and
the tax basis of existing assets or liabilities.
-20-
In connection with the adoption of SFAS 109, the Corporation recorded
additional deferred taxes for water utility temporary differences not
previously recognized. The increased deferred tax liability was
offset by a corresponding asset representing the future revenue
expected to be recovered through rates based on established regulatory
practice permitting such recovery. The increased deferred tax
liability totaled $25,352,412 at January 1, 1993 and $26,643,663 at
December 31, 1993.
In addition, the adoption of SFAS 109 resulted in a credit to Federal
Income Tax Expense of $63,271 and a charge to Real Estate, Payroll and
Other Tax Expense of $141,068 to record the changes in deferred income
taxes payable by the non-regulated companies.
In accordance with SFAS 109, deferred tax balances of the Corporation
have been reflected at the Corporation's current federal income tax
rate, which is 35%. The increase in the statutory tax rate,
retroactive to January 1, 1993, from 34% to 35%, is the result of the
Omnibus Budget Reconciliation Act of 1993, which was passed by
Congress on August 2, 1993. The increase in the statutory tax rate
resulted in the recognition of additional federal income tax expense
of $176,048 and an additional deferred federal income tax liability of
$94,402.
-21-
The net deferred income tax liability as of December 31, 1993 is
comprised of the following:
1993
----------------------
(Thousands of Dollars)
Deferred tax assets $ 3,804
Deferred tax liabilities (62,168)
--------
Net deferred income tax liabilities $(58,364)
========
The tax effect of significant temporary differences representing
deferred income tax assets and liabilities as of December 31, 1993
is as follows:
1993
----------------------
(Thousands of Dollars)
Water utility plant--net $(49,582)
Non-utility property (1,378)
Other investments (1,046)
Taxes recoverable (9,326)
Investment tax credit 3,098
Pension expenditures (335)
Other--net 205
--------
Net deferred income tax liabilities $(58,364)
========
4. CAPITALIZATION
On May 17, 1993, E'town issued 575,000 shares of common stock for net
proceeds of $16,591,927. The net proceeds were used to fund equity
contributions to Elizabethtown of $11,000,000 in May 1993 and
$2,800,000 in September 1993. Elizabethtown used a portion of such
contributions to repay $7,000,000 of short-term bank debt incurred for
construction expenditures and invested the balance on a short-term
basis until needed for construction expenditures. E'town used
$1,000,000 of the proceeds to repay short-term bank debt previously
incurred for working capital. The balance of the proceeds have been
invested on a short-term basis and are expected to be used to fund
working capital requirements of the Corporation.
-22-
During 1993, E'town issued 200,878 shares for $6,009,297 under the
Company's Dividend Reinvestment and Stock Purchase Plan (DRP). The
proceeds of the DRP were used to fund equity contributions to
Elizabethtown primarily for capital expenditures.
In January 1991, the Board of Directors of E'town adopted a
Shareholders' Rights Plan (Rights Plan). Generally, under the Rights
Plan, if a person or group acquires 10% or more of the Corporation's
common stock or announces a tender offer for the Corporation's common
stock, non-acquiring shareholders may, under certain circumstances,
exercise rights (Rights) to purchase additional shares of common stock
on terms which allow them to significantly increase their percentage
ownership of the Corporation's common stock. Such Rights may be
redeemed by the Board of Directors.
Cumulative Preferred Stock - Redeemable
Elizabethtown's $8.75 Cumulative Preferred Stock has optional
redemption privileges beginning in 1994 at $108.75 per share, which
diminish annually until 2009, when redemption is at par ($100).
Beginning in December 1994, sinking fund payments of $600,000 are
required annually through 2018.
Elizabethtown proposes to issue 120,000 shares of $100 par value
Cumulative Preferred Stock in March 1994. The proceeds of the issue
will be used to redeem $12,000,000 of the Company's $8.75 Cumulative
Preferred Stock. The redemption premium of $1,050,000 will be paid
from general Company funds.
-23-
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of
retained earnings available to Elizabethtown to pay cash dividends
(which is the primary source of funds available to the Corporation for
payment of dividends on its common stock) or acquire Elizabethtown's
common stock, all of which is held by E'town. At December 31, 1993,
$12,831,414 of Elizabethtown's retained earnings were restricted under
the most restrictive indenture provision. Therefore, $30,376,252 of
E'town's consolidated retained earnings were unrestricted.
On November 9, 1993, Elizabethtown issued $50,000,000 of 7 1/4%
Debentures due November 1, 2028. The proceeds of the issue were used
to redeem $30,000,000 of the Company's 8 5/8% Debentures due 2007 and
$20,000,000 of the Company's 10 1/8% Debentures due 2018. The
aggregate redemption premiums of $2,681,000 were paid from general
Company funds.
On September 16, 1992, Elizabethtown issued $15,000,000 of 8%
Debentures due September 1, 2022. The proceeds of this issue were
used to repay short-term bank debt, of which $9,000,000 was incurred
to repay Elizabethtown's 4 7/8% Debentures on their February 1, 1992
maturity date and the remainder was incurred to finance construction
expenditures.
E'town's 6 3/4% Convertible Subordinated Debentures are convertible to
E'town common stock at $40 per share. At December 31, 1993, 312,425
shares of common stock were reserved for issuance upon exercise of the
conversion rights.
-24-
5. STOCK OPTION PLAN
E'town has a qualified non-compensatory incentive stock option plan under
which options to purchase shares of E'town's common stock have been
granted to certain officers and other key employees at prices not less
than the fair market value at the date of grant. The plan provides
that any options granted may be exercised at any time up to an
expiration date, not to exceed 10 years from the date of each grant.
A summary of the details of stock option grants and outstanding
balances is presented below:
Year Shares Option Shares Outstanding
Granted Granted Price Exercised or Expired 12/31/92 12/31/93
------- ------- ------ -------------------- ---------- ----------
1983 10,500 $18.42 6,000 (1986)
600 (1988)
1,500 (1991)
2,400 (1992) -0- -0-
1985 26,369 26.17 2,250 (1991) (A)
3,300 (1992) 20,819
4,050 (1993) 16,769
1987 36,000 25.67 4,050 (1989)
3,750 (1990)
3,750 (1991)
4,500 (1991) (A)
11,700 (1992) 8,250 8,250
1989 7,500 24.67 7,500 7,500
1990 7,500 26.67 7,500 7,500
------ ------ ------ ------
Total 87,869 47,850 44,069 40,019
====== ====== ====== ======
(A) Expired Options
6. LINES OF CREDIT
E'town has existing uncommitted lines of credit with several banks
aggregating $41,000,000 for which compensating balances are
maintained. Information relating to bank borrowings and compensating
balances is as follows:
-25-
1993 1992 1991
-------------------------------
(Thousands of Dollars)
Maximum amount outstanding.......... $8,000 $29,750 $26,500
Average monthly amount outstanding.. 2,514 $16,544 $16,882
Average interest rate at year end... (A) 4.1% 5.6%
Compensating balances at year end... $ 195 $ 205 $ 230
Weighted average interest rate based
on average daily balances.......... 3.8% 4.6% 6.5%
(A) No outstanding bank borrowings at year end.
Elizabethtown is negotiating a committed revolving credit agreement,
which is expected to be in place by April 1994, with an agent bank and
up to five additional participating banks to replace its existing
uncommitted lines of credit discussed above. The agreement will provide
up to $60,000,000 in revolving short-term notes to provide sufficient
short-term financing for the Company to fund, together with other
monies, its capital program, which is estimated to be $196,451,000
through 1996. The agreement will allow the Company to borrow, repay and
reborrow up to $60,000,000 for the first three years, after which
time the Company may convert any outstanding balances to a five-year,
fully amortizing term loan. The agreement will further provide that
among other covenants, the Company must maintain a ratio of common
and preferred equity to total capitalization of not less than 35%
and a pre-tax interest coverage ratio of at least 1.5 to 1.
-26-
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
On August 24, 1993, E'town, Properties and Elizabethtown sold three
parcels of land totalling 260 acres to the Somerset County Park
Commission for $3,450,000. The sale produced an after-tax gain of
approximately $1,100,000 or $.21 per share. The cash generated by the
sale has been invested on a short-term basis and will be used to fund
a $2,200,000 equity contribution to Elizabethtown when required by the
Company for construction expenditures. The remainder of the proceeds
will be used to fund working capital requirements of the Corporation.
Included in Non-utility Property and Other Investments at December 31,
1993 and 1992, is an investment of $1.6 million, or $.5 million, net
of related deferred taxes, in a limited partnership that owns Solar
Electric Generating System V (SEGS), located in California. In 1992,
E'town reduced the carrying value of the investment by $180,000 in
order to present the investment at management's estimate of its
approximate net realizable value. No such reduction in carrying value
was made in 1993 as management believes that the net realizable value
of the investment in SEGS at December 31, 1993 exceeds its carrying
value.
-27-
Also included in Non-utility Property and Other Investments at
December 31, 1993 and 1992 is $11.9 million and $13.3 million,
respectively, of investments in various parcels of undeveloped land in
New Jersey. The carrying value of each parcel includes the original
cost plus any real estate taxes, interest and, where applicable,
direct costs capitalized while rezoning or governmental approvals are,
or were, being sought.
Based upon independent appraisals received at various times prior to
and during, 1993, the estimated net realizable value of each property
exceeds its respective carrying value as of December 31, 1993, after
the adjustments to the Mansfield and Bordentown properties discussed
below.
After sewer capacity became available for its parcel in Bordentown,
New Jersey (which was purchased together with lands across the town
line in Mansfield), Properties determined that the Bordentown parcel
was ready for its intended use and has listed the parcel with a broker
for sale. Accordingly, the original acquisition has been divided, for
investment purposes, into a Bordentown parcel and a Mansfield parcel.
As a result of allocating the recorded costs between the two parcels,
the carrying value of the Bordentown portion exceeded its estimated
-28-
net realizable value by $85,526 in the first quarter of 1993. An
allowance for this amount has been reflected in the Statements of
Consolidated Income and Consolidated Balance Sheets as a reduction of
Other Income and Non-utility Property and Other Investments,
respectively. Effective in 1993, the carrying charges on the
Bordentown parcel were, and will continue to be, expensed since this
property is ready for its intended use. Such carrying charges were
approximately $.2 million in 1993.
Properties continues to seek permits and more favorable zoning
treatment for its Mansfield property and, therefore, continues to
capitalize various carrying charges. During the second quarter of
1993 the carrying value of the Mansfield property held by Properties
exceeded its estimated net realizable value. This is due to the fact
that the Mansfield property is not yet ready for its intended use and
therefore, various carrying charges continue to be capitalized while,
based upon recent appraisals, the market value of the property has
remained constant. An allowance of $183,789 for the year ended
December 31, 1993, to adjust the carrying value of the Mansfield
property, has been reflected in the Statements of Consolidated Income
and Consolidated Balance Sheets. As Properties expects to continue
capitalizing carrying charges on the Mansfield property until it is
ready for its intended use, further adjustments for these capitalized
carrying charges, reflecting management's estimate of the net
realizable value of the property, should be expected. Such carrying
charges were approximately $.3 million in 1993.
-29-
The Corporation will continue to monitor the relationship between the
carrying and net realizable values of its properties through updated
appraisals and its investment in SEGS through cash flow analyses.
8. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of
December 31, 1993 and 1992 of financial instruments issued by the
Corporation, are as follows:
1993 1992
---------------------------
(Thousands of Dollars)
Cash (1):
Carrying amount $ 7,376 $ 2,408
Estimated fair value 7,376 2,408
Short-term investments (2):
Carrying amount $ 31 $ 31
Estimated fair value 41 37
Cumulative preferred stock (2):
Carrying amount $ 12,000 $ 12,000
Estimated fair value 13,020 12,960
Long-term debt (2):
Carrying amount $154,407 $154,999
Estimated fair value 167,094 160,190
(1) Fair value approximates the carrying amount.
(2) Estimated fair values are based upon quoted market prices for
these or similar securities.
-30-
9. DEFERRED CHARGES AND CREDITS
Abandonments
The abandonment cost of a small filter plant has been deferred and
is being amortized for ratemaking purposes over a 10-year period ending
in 1995.
Waste Residual Management
The costs of the waste residual management programs are being amortized
over three-year periods for ratemaking purposes.
No return is being earned on either of the above unamortized deferred
charge balances.
Emergency Water Projects
The 1984 assessment for Elizabethtown's proportionate share of the
cost of emergency water projects is being recovered through rates and
amortized over a 10-year period.
Unamortized Debt Expenses
Costs incurred in connection with the issuance or redemption of
long-term debt have been deferred and are being amortized over the lives
of the respective issues.
-31-
10. REGULATORY MATTERS
Rates
In August 1993, the BRC approved a stipulation (1993 Plant
Stipulation) signed by the parties to the Company's petition relating
to the Canal Road Water Treatment Plant (Plant). The 1993 Plant
Stipulation states that the Plant is necessary and that the Company's
estimates regarding the Plant's cost, at that time of $87,000,000, and
construction period are reasonable. The 1993 Plant Stipulation
authorizes the Company to levy a rate surcharge if the Company's
pre-tax interest coverage ratio for any 12-month historical period
drops below 2.0 times. The surcharge would equal 20% of the Company's
gross interest expense for the prior 12 months, adjusted for revenue
taxes. The surcharge would go into effect at the same time as the
Company's next base rate increase after the coverage ratio falls below
2.0 times, but in no event prior to January 1, 1995. Also, the
surcharge would remain in effect for 12 months and could be extended
by the BRC for up to six additional months. The 1993 Plant
Stipulation also provides that the rate of return on common
stockholder's equity used to calculate the rate for the equity
component of the AFUDC for the Plant will be 1.5% less than the rate
of return on common stockholder's equity established in the Company's
most recent base rate case. The authorized rate of return on common
stockholder's equity is currently 11.5%.
On January 4, 1994, Elizabethtown filed with the BRC for a Purchased
Water Adjustment Clause, a procedure established by BRC Rules, which
would allow Elizabethtown to recover in rates $529,291 for the
increase in the cost of purchased water from the New Jersey Water
-32-
Supply Authority (NJWSA) without a complete rate case. The NJWSA has
given notice that effective July 1, 1994, it will increase charges for
water from $220.47 to $232.65 per million gallons. The Company
expects the BRC to render a decision prior to July 1994.
On March 18, 1993, the BRC approved a stipulation (1993 Stipulation)
for a rate increase of $5,000,000, effective as of that date. The
1993 Stipulation contains a provision allowing for the deferral of
expenses, calculated under SFAS 106, for postretirement benefits
accrued that are in excess of the cash benefits paid. Recovery of
such deferrals will be considered in future rate cases. (See
Note 12).
On March 18, 1992, the BRC approved a stipulation for a rate increase
of $4,050,000, effective as of that date.
Main Extension Refunds
In a case captioned Van Holten, et al v. Elizabethtown Water Company,
(Van Holten) several developers petitioned the BRC in 1984 and 1985
seeking an Order which would require Elizabethtown to refund to the
developers all of their on-site and off-site customer advances for
construction. For on-site mains, Elizabethtown received a final BRC
decision in September 1987, requiring refunds in accordance with the
BRC's suggested refund formula, which was less than the amounts
requested by the developers. For the off-site mains, the developers
were denied any refund. The developers appealed the BRC decision to
the Appellate Division of the New Jersey Superior Court (Appellate
Division), which in October 1988 upheld the decision of the BRC.
-33-
Since 1986, additional petitions dealing with this issue have been
filed by other developers. In these additional proceedings, all
parties have agreed to abide by the final decision of the New Jersey
Supreme Court in the Van Holten case. For all customer advances,
Elizabethtown has and will continue to make the refunds in accordance
with the BRC's suggested refund formula.
In response to an appeal of the 1988 Appellate Division decision, in
August 1990, the New Jersey Supreme Court (Court) rendered a decision
upholding the BRC's authority to implement what the BRC had
established as an appropriate refund formula in the Van Holten case.
The BRC's suggested formula provides for a refund of 2 1/2 times the
annual revenues for each metered connection. Although the Court ruled
that the BRC has the jurisdiction to determine what is an appropriate
refund formula, it remanded the case to the BRC to further develop the
record on why the BRC deemed the 2 1/2 times formula to be appropriate
in the Van Holten case.
In June 1991, the BRC issued an Order on Remand reaffirming the 2 1/2
times annual revenue formula. Addressing the reasonableness of this
formula, the BRC indicated in its decision that the 2 1/2 times
formula fairly allocates the costs of the main extensions among the
developers, Elizabethtown and the rate payers. Again, developers
appealed the Order on Remand to the Appellate Division, and in
December 1992, the Appellate Division remanded the matter to the BRC
for more complete findings and statements of reasons in support of its
decision.
-34-
By Order on Remand dated January 19, 1994, the BRC again deemed the
2 1/2 times formula to be appropriate in the Van Holten case. In
addition to the previous rationale it gave for employing this formula
in this case, the BRC indicated that on a per-customer basis, the
initial cost of the extension was, in most instances, far higher than
Elizabethtown's average cost of plant invested for existing customers
at the time petitions were filed in 1984. Therefore, a full refund
would clearly result in a significant subsidization of the developers
by Elizabethtown's existing customers. The BRC concluded that such a
subsidization would be unjust and unreasonable.
On February 23, 1994, the developers appealed the January 19, 1994 BRC
Order on Remand to the Appellate Division.
The maximum potential refund for the Van Holten case, and all
subsequently filed cases, is approximately $3,000,000, which would be
capitalized and, therefore, would not have a material adverse effect
on earnings. Management believes the final outcome of this matter
will be favorable and no additional refunds will be necessary.
11. COMMITMENTS
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water
annually. The Company purchases additional water from the NJWSA on an
as-needed basis. Effective July 1, 1994, the annual cost under the
-35-
contract will be $8,661,559. The total cost of water purchased from
the NJWSA, including additional water purchased on an as-needed basis,
was $8,819,212, $7,827,058 and $7,527,662 for 1993, 1992 and 1991,
respectively.
The following is a schedule by years of future minimum rental payments
required under noncancelable operating leases with terms in excess of
one year at December 31, 1993:
1993
----------------------
(Thousands of Dollars)
1994 $ 832
1995 785
1996 780
1997 720
1998 -0-
------
Total $3,117
======
Rent expense totaled $789,636, $719,624 and $740,801 for 1993, 1992
and 1991, respectively.
Capital expenditures through 1996 are estimated to be $196,850,000 of
which $196,451,000 is for Elizabethtown's and Mount Holly's utility plant
and $399,000 is for real estate-related expenditures.
Elizabethtown has solicited bids from general contractors for the
construction of the Plant. The estimated cost of the Plant, as of
March 23, 1994, is approximately $100 million, excluding AFUDC. The
Company has notified all parties to the 1993 Plant Stipulation that the
estimated cost of the Plant has increased. The Company expects to
execute a contract and commence construction in the spring of 1994.
-36-
The Company has recorded $6,825,354 as construction costs on the Plant as
of December 31, 1993.
12. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan),
which covers most employees. Under the Company's funding policy, the
Corporation makes contributions that meet the minimum funding require-
ments of the Employee Retirement Income Security Act of 1974. The
components of the net pension credits are as follows:
1993 1992 1991
-----------------------
(Thousands of Dollars)
Service cost-benefits earned during the year . $ 913 $ 857 $ 793
Interest cost on projected benefit obligation 1,986 1,846 1,724
Return on Plan assets ........................ (1,417) (975) (5,705)
Net amortization and deferral ................ (1,666) (2,246) 3,066
------ ------ ------
Net pension credit .................... $ (184) $ (518) $ (122)
====== ====== ======
Plan assets are invested in publicly traded debt and equity securities.
The reconciliations of the funded status of the Plan to the amounts
recognized in the Consolidated Balance Sheets are presented below:
-37-
1993 1992
----------------------
(Thousands of Dollars)
Market value of Plan assets ..................... $33,208 $32,879
------- -------
Actuarial present value of Plan benefits:
Vested benefits ............................... 20,793 16,972
Non-vested benefits ........................... 226 104
------- -------
Accumulated benefit obligation ................ 21,019 17,076
Projected increases in compensation levels .... 6,641 6,901
------- -------
Projected benefit obligation .................... 27,660 23,977
------- -------
Excess of Plan assets over projected benefit
obligation ..................................... 5,548 8,902
Unrecognized net gain ........................... (2,425) (5,784)
Unrecognized prior service cost ................. 541 630
Unrecognized transition asset ................... (2,701) (2,970)
------- -------
Prepaid pension expense.......................... $ 963 $ 778
======= =======
The assumed rates used in determining the actuarial present value of the
projected benefit obligations were as follows:
1993 1992
----------------
Discount rate ................................... 7.00% 8.50%
Compensation increase ........................... 5.50% 7.50%
Rate of return on Plan assets ................... 8.50% 8.50%
The Corporation provides certain health care and life insurance benefits for
substantially all of its retired employees. Effective January 1, 1993, the
Corporation adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions." Under SFAS 106, the costs of such benefits
are accrued for each year the employee renders service, based on the expected
cost of providing such benefits to the employee and the employee's
-38-
beneficiaries and covered dependents rather than expensing these benefits on a
pay-as-you-go basis for retired employees. Based upon an independent actuarial
study, the transition obligation, which the Corporation has not funded, was
$7,255,745 as of January 1, 1993. The transition obligation is being amortized
over 20 years. The following table details the unfunded postretirement benefit
obligation at December 31, 1993:
1993
----------------------
(Thousands of Dollars)
Retirees $3,133
Fully eligible plan participants 5,458
Accumulated postretirement benefit ------
obligation 8,591
Unrecognized net gain (683)
Unrecognized transition obligation (6,893)
------
Accumulated postretirement benefits $1,015
======
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1993, and for 1993,
was 12%. This rate decreases linearly each successive year until it
reaches 5% in 2003, after which the rate remains constant. The assumed
discount rate used in determining the accumulated postretirement benefit
obligation at December 31, 1993, and for 1993, was 7.0% and 8.5%, res-
pectively. A one-percentage-point increase in the assumed health care
cost trend rate for each year would increase the accumulated post-
retirement benefit obligation as of January 1, 1993, and net postre-
tirement service cost and interest cost by approximately $924,000 and
$140,000, respectively.
Based upon an independent actuarial study, the annual postretirement cost
calculated under SFAS 106 for 1993 is as follows:
-39-
1993
----------------------
(Thousands of Dollars)
Service cost - benefits earned
during the year $ 254
Interest cost on accumulated
postretirement benefit obligation 605
Amortization of transition obligation 363
------
Total 1,222
Deferred amount for regulated
companies pending recovery (1,005)
------
Net postretirement benefit expense $ 217
======
The Corporation recognized as an expense (on a pay-as-you-go basis) $252,000
for both 1992 and 1991 for postretirement health care and life insurance
benefits.
The rate increase for the 1993 Stipulation includes as an allowable expense,
only the pay-as-you-go portion of postretirement benefits. The 1993 Stipula-
tion allows Elizabethtown to defer the amount accrued in excess of the pay-as-
you-go portion, for consideration in future rate cases. In addition, in a
separate proceeding, Mount Holly had petitioned the BRC for permission to defer
the amount accrued in excess of the pay-as-you-go portion of its expenses calc-
ulated under SFAS 106, and consequently, has been granted such authority.
Generally accepted accounting principles permit this regulatory treatment,
provided deferrals are not accumulated for a period of more than five years.
As of December 31, 1993, the amount that has been deferred is $1,004,556.
Recovery of deferred postretirement costs will be requested in Elizabethtown
and Mount Holly's next base rate case. Management believes that Elizabethtown
and Mount Holly will recover the deferred postretirement costs in future rates.
-40-
13. QUARTERLY FINANCIAL DATA (Unaudited)
A summary of financial data for each quarter of 1993 and 1992 follows:
Primary Fully Diluted
Operating Operating Net Earnings Per Earnings Per
Quarter Revenues Income Income Share Share
--------------------------------------------------------------------------
(Thousands of Dollars Except Per Share Amounts)
1993
1st $22,136 $ 5,357 $ 2,080 $ .42 $ .42
2nd 24,865 6,618 3,437 .66 .64
3rd 28,947 8,067 6,054 1.09 1.05
4th 24,048 5,293 2,259 .42 .43
------- ------- ------- ----- -----
Total $99,996 $25,335 $13,830 $2.59 $2.54
======= ======= ======= ===== =====
1992
1st $20,803 $ 4,880 $ 1,967 $ .47 $ .47
2nd 22,423 5,519 2,570 .55 .54
3rd 23,812 6,091 3,236 .67 .66
4th 22,129 5,563 2,458 .52 .51
------- ------- ------- ----- -----
Total $89,167 $22,053 $10,231 $2.21 $2.18
======= ======= ======= ===== =====
Water utility revenues are subject to a seasonal fluctuation due to
normal increased consumption during the third quarter of each year.
The gain on the sale of land to the Somerset County Park Commission
(see Note 7) was recorded in the third quarter of 1993.
-41-
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF E'TOWN CORPORATION:
We have audited the accompanying consolidated balance sheets and
statements of consolidated capitalization of E'town Corporation and its
subsidiaries as of December 31, 1993 and 1992, and the related
statements of consolidated income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly,
in all material respects, the financial position of E'town Corporation
and its subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As discussed in Notes 3 and 12 to the consolidated financial statements,
in 1993 the Company changed its method of accounting for postretirement
benefit costs and income taxes to conform with Statements of Financial
Accounting Standards Numbers 106 and 109, respectively.
/s/ Deloitte & Touche
Parsippany, New Jersey
February 15, 1994, except for the subsequent
events discussed in Notes 10 and 11, as to
which the dates are February 23, 1994 and
March 23, 1994, respectively
-42-
<TABLE>
Other Financial and Statistical Data
<CAPTION>
1993 1992 1991 1990 1989
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Utility Plant (Thousands)
Utility Plant--net .......... $ 373,293 $ 347,253 $ 319,421 $ 297,577 $ 275,588
Construction Expenditures
(excluding AFUDC)........... 32,517 33,293 27,732 27,301 38,589
Capitalization (Thousands)
Shareholders' Equity ........ 128,374 102,750 84,544 69,842 68,690
Redeemable Preferred Stock .. 12,000 12,000 12,000 12,000 12,000
Debt (l) .................... 154,448 161,541 169,648 176,078 147,851
Total Capitalization ........ $ 294,822 $ 276,291 $ 266,192 $ 257,920 $ 228,541
Capitalization Ratios
Common Stock ................ 44% 37% 32% 27% 30%
Preferred Stock ............. 4% 4% 4% 5% 5%
Debt (1) .................... 52% 59% 64% 68% 65%
Common Stock Data
Earnings Per Share:
Primary..................... $ 2.59 $ 2.21 $ 2.32 $ 1.73 $ 1.63
Fully Diluted............... 2.54 2.18 2.28 1.73 1.63
Dividends Per Share.......... 2.01 2.00 2.00 1.98 1.95
Book Value Per Share......... $ 22.76 $ 21.14 $ 20.21 $ 19.50 $ 19.67
Average Shares Outstanding:
Primary..................... 5,337,939 4,627,814 4,080,118 3,547,328 3,170,912
Fully Diluted............... 5,651,808 4,950,768 4,413,178 3,547,328 3,170,912
Number of Common Shareholders 5,240 4,832 3,965 3,491 3,480
Operating Statistics
Revenues (Thousands)
General Customers .......... $ 63,100 $ 55,570 $ 54,071 $ 48,267 $ 45,088
Other Water Systems ........ 17,187 15,080 14,082 12,947 11,060
Industrial Wholesale ....... 6,652 6,044 5,846 5,515 5,183
Fire Service/Miscellaneous.. 13,057 12,473 12,087 11,386 9,906
Total Revenues ............. $ 99,996 $ 89,167 $ 86,086 $ 78,115 $ 71,237
Net Income .................. $ 13,830 $ 10,231 $ 9,485 $ 6,139 $ 5,163
Water Sales - Millions of
Gallons (mg)
General Customers .......... 23,883 22,062 22,659 21,686 21,119
Other Water Systems ........ 15,109 14,118 13,811 14,379 14,450
Industrial Wholesale ....... 3,213 3,145 3,155 3,313 3,757
System Use and Unaccounted For 5,453 5,843 6,368 5,854 6,297
Total Water Sales .......... 47,658 45,168 45,993 45,232 45,623
System Delivery by Source - mg
Surface .................... 40,742 38,558 39,222 40,343 38,937
Wells ...................... 6,776 6,480 6,658 4,805 6,587
Purchased .................. 140 130 113 84 99
Total System Delivery ...... 47,658 45,168 45,993 45,232 45,623
Millions of Gallons Pumped:
Average Day ................ 131 123 126 124 125
Maximum Day ................ 191 159 169 155 148
General Information
Meters in Service ........... 188,677 185,028 182,019 179,700 176,393
Miles of Main ............... 2,800 2,738 2,694 2,647 2,617
Fire Hydrants Served ........ 14,909 14,400 13,987 13,555 13,289
Total Employees ............. 385 379 374 376 360
<FN>
_________________________________________________________________________________________________
(1)Includes long-term debt, notes payable and long-term debt-current portion.
</TABLE>
-43-
STOCK PRICE AND DIVIDEND DATA - E'town's Common Stock is traded on the New York
Stock Exchange under the symbol ETW.
1993
Quarter 1st 2nd 3rd 4th
Closing Price
Low: $27.63 $29.50 $29.88 $30.25
High: $30.88 $31.13 $35.75 $34.75
Dividend Paid $.50 $.50 $.50 $.51
1992
Quarter 1st 2nd 3rd 4th
Closing Price
Low: $27.75 $25.63 $26.13 $26.88
High: $29.25 $27.63 $29.13 $29.00
Dividend Paid $.50 $.50 $.50 $.50
-44-
<PAGE>
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in E'town Corporation's
Registration Statement No. 33-67992 on Form S-3 and Nos. 33-19600,
33-49812 and 33-42509 on Forms S-8 of our report dated February 15,
1994, except for the subsequent events discussed in Notes 10 and 11, as
to which the dates are February 23, 1994 and March 23, 1994,
respectively, and to the incorporation by reference in Elizabethtown
Water Company's Registration Statement Nos. 33-51917 and
33-68578 on Forms S-3 of our report dated February 15, 1994, except for
the subsequent events discussed in Notes 8 and 9, as to which the dates
are February 23, 1994 and March 23, 1994, respectively, appearing in and
incorporated by reference in this Annual Report on Form 10-K of E'town
Corporation and Elizabethtown Water Company for the year ended
December 31, 1993.
/s/ Deloitte & Touche
Parsippany, New Jersey
March 31, 1994
<PAGE>
DRAFT
3/28/94
RESTATED CERTIFICATE OF INCORPORATION
OF
ELIZABETHTOWN WATER COMPANY
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-5, Corporations,
General, of the New Jersey Statutes, the undersigned corporation executes the
following Restated Certificate of Incorporation:
ARTICLE I
Name and Duration of Corporation
The name of the corporation is ELIZABETHTOWN WATER COMPANY
(hereinafter sometimes called the Corporation).
The duration of the Corporation is perpetual.
ARTICLE II
Registered Office and Registered Agent of the Corporation
The address of the Corporation's current registered office is: 600
South Avenue, Westfield, New Jersey 07090, and the name of its current
registered agent at such address upon whom process against the Corporation
may be served within the State of New Jersey is Walter M. Braswell. Said
office and agent may be changed from time to time as permitted by law.
ARTICLE III
Nature of Business, Objects, Purposes, Powers
and Franchises of the Corporation
All corporate powers shall be exercised by the Board of Directors,
except as otherwise required by statute or by this Restated Certificate of
Incorporation. The nature of the business or objects or purposes to be
transacted, promoted or carried on by the Corporation and the franchises
thereof shall include the following:
1. To construct, maintain and operate works, systems, conduits,
conductors, lines, equipment and facilities for the collection, transmission,
distribution and supplying of water and the furnishing of such service for
profit to the public within the State of New Jersey, including the following
municipalities:
Cities of Elizabeth, Linden, Plainfield and Summit; Townships of
Berkeley Heights, Clark, Cranford, Hillside, Mountainside, Scotch
Plains, Springfield, Union and Winfield; Boroughs of Fanwood, Garwood,
Kenilworth, New Providence, Roselle and Roselle Park; Town of Westfield
in the County of Union;
Townships of Edison, Piscataway; Boroughs of Dunellen, Middlesex,
South Plainfield and Metuchen in the County of Middlesex; and
Townships of Green Brook and Warren; Boroughs of North Plainfield
and Watchung in the County of Somerset;
And in such other places as may be permitted by law.
2. To construct, cause to be constructed, purchase, invest in,
lease, sublease, or otherwise acquire, control, operate, maintain, repair,
enlarge, improve, remove, develop, and to own, sell, mortgage, lease,
sublease, hypothecate or otherwise dispose of, works, systems, plants, water
tanks, stand pipes, water ways, settling basins, filtering, purifying,
distilling and pumping plants, reservoirs, dams, water rights and water
supplies, pipes, conduits, conductors, lines, hydrants, fire plugs, equipment
and other facilities and appurtenances, as may be permitted by law.
3. To take and divert such springs, streams and other bodies of
water and to survey, excavate and bore for water and to use such lands,
streets, alleys, lanes, roads, highways and public places within the State of
New Jersey, as the purposes of the Corporation may require.
4. To purchase or otherwise acquire personal property, goods and
merchandise of every class, and to hold, own, mortgage, sell or otherwise
dispose of, trade and deal in and with the same, as the purposes of the
Corporation may require.
5. To purchase, take by devise or bequest, hold, invest in,
lease, sublease or otherwise acquire, improved and unimproved real property
and any interest of any kind therein, and to own, improve, develop, manage,
mortgage, lease, sublease, sell or otherwise dispose of any real property or
interest therein now owned or hereafter acquired by the Corporation, and to
build, rebuild, alter, improve and remove any buildings or other structures
on any real property now or hereafter owned by the Corporation, or in which
the Corporation holds or shall hereafter hold any interest, as the purposes
of the Corporation may require or which shall be conveyed to the Corporation
by way of security or in satisfaction of debts or purchased at sales upon
judgment or decree duly obtained.
6. To acquire by purchase, merger, consolidation, lease, sublease
or otherwise, and to pay for in cash, stocks, bonds or other securities of
the Corporation or otherwise, the whole or any part of the franchises, good
will, rights, assets and property, and to undertake or assume the whole or
any part of the obligations or liabilities of, any water company, or other
person, firm, association, corporation, joint stock company, syndicate,
trust, government or body politic or any department, agency or authority
thereof, or other entity, as the purposes of the Corporation may require.
7. To purchase, invest in, lease, sublease or otherwise acquire,
and to own, mortgage, lease, sublease, sell or otherwise dispose of,
franchises, rights-of-way, easements, permits and other rights and privileges
of every type, whether granted by the United States, the State of New Jersey,
any county, any municipality, any other body politic, or any subdivision,
department, agency or authority of any of the foregoing, or of any person,
firm, association, corporation, joint stock company, syndicate, trust, or
other entity, and to exercise, in so far as may be permitted by any general
or special law of the United States, the State of New Jersey or any body
politic, the right of condemnation and eminent domain, as the purposes of the
Corporation may require.
8. To purchase, subscribe for, lease, sublease or otherwise
acquire, and to own, hold for investment, mortgage, pledge, lease, sublease
or otherwise dispose of the stocks, bonds, debentures, notes, bank
acceptances and other evidences of indebtedness or other securities of any
person, firm, association, corporation, joint stock company, syndicate,
trust, government or body politic or any department, agency or authority
thereof, or other entity, and to loan and advance money upon mortgages on
real property and pledges of personal property or upon either of them,
whether the objective of any of the foregoing be current income or gain in
capital or principal or acquisition of interests useful in the business of
the Corporation, subject, however, to the laws of the State of New Jersey,
and while the owner thereof, to exercise all the rights, powers and
privileges of ownership, including the right to vote thereon.
9. To promote, finance, aid or assist, financially or otherwise,
in any manner, whether by loan, subsidy, guarantee or otherwise, those
issuing or having power to issue, create, or be responsible for any
securities referred to in the foregoing paragraph 8, or those in whose
business or affairs the Corporation shall have an interest and in connection
therewith to guarantee or become surety for the performance of any
undertaking or obligation for the payment of dividends on stock.
10. To enter into, make, perform and carry out contracts of every
kind and description and for every lawful purpose with any person,
partnership, firm, association, corporation, state, county, municipality, or
any department, agency or authority thereof, joint stock company, syndicate,
trust, body politic or other entity.
11. To borrow or raise money from time to time without limit as to
amount, and to draw, make, accept, endorse, execute and issue bonds,
debentures, promissory notes, bills of exchange, drafts, warrants or other
evidences of indebtedness, including bonds, debentures, promissory notes, or
other evidences of indebtedness convertible into stock of any class, or
bearing warrants or other evidences of optional rights to purchase or
subscribe, or both, to stock of any class, for moneys borrowed or in payment
of property acquired or for any other objects or purposes of the Corporation
or its business, and to secure the payment of any of the foregoing and
interest thereon by mortgage, pledge, deed, indenture, agreement, or other
instrument of trust or by other lien upon, assignment of, or agreement with
regard to, all or any part of the property, real or personal, or rights or
privileges of the Corporation, wherever situated, whether now owned or
hereafter to be acquired, or to draw, make, accept, endorse, execute and
issue any such bonds, debentures, promissory notes, bills of exchange,
drafts, warrants, or other evidences of indebtedness, without any such
security, and to sell, pledge or otherwise dispose of any of the same, as the
purposes of the Corporation may require.
12. To apply for, obtain, register, purchase, invest in, lease,
sublease or otherwise acquire, and to own, grant licenses in respect of,
mortgage, lease, sublease, sell, assign or otherwise dispose of, any
trademarks, trade names, copyrights, letters patent, inventions, improvements
and processes relating to or useful in connection with any business of the
Corporation.
13. To purchase, lease, sublease or otherwise acquire, and to own,
mortgage, pledge, lease, sublease, sell or otherwise dispose of and deal in
and with, shares of its own capital stock and its bonds, debentures and other
evidences of indebtedness and its other securities to the extent permitted by
the laws of the State of New Jersey, provided that any thereof which carry
voting rights shall not be voted upon directly or indirectly by the
Corporation.
14. To conduct and carry on all or any of its operations and
business in any of the states, territories, districts, possessions or
dependencies of the United States and in any and all foreign countries, and
to have one or more offices therein and to hold, purchase, mortgage and
convey real and personal property therein without limit as to amount, subject
in each case to the laws of the State of New Jersey and other applicable law.
15. In general to carry on or engage in any other lawful business
in connection with the foregoing and to have and exercise all the powers
conferred by Title 14A, Corporations, General and by Title 48, Public
Utilities, Revised Statutes of New Jersey, and to do any and all of the
things hereinbefore set forth to the same extent as any natural person might
or could do, and to exercise any of the foregoing powers, directly or through
one or more subsidiaries, itself or in collaboration with others.
The foregoing clauses shall be construed as both objects, purposes
and powers, and except as where otherwise expressed, such objects, purposes
and powers shall be in no wise restricted by reference to or inference from
the terms of any other clause in this Restated Certificate of Incorporation,
but the objects, purposes and powers so specified shall be regarded as
independent objects, purposes and powers, and it is hereby expressly provided
that the foregoing enumeration of specific powers shall not be held to limit
or restrict in any manner the powers of the Corporation.
IN FURTHERANCE AND NOT IN LIMITATION of the powers conferred by
statute, the Board of Directors of the Corporation is expressly authorized:
(a) To make and alter the By-Laws of the Corporation, but the
By-Laws so made by the Directors may be altered or repealed by the
Directors or the stockholders;
(b) To fix and determine and to vary the amount of working
capital of the Corporation; to determine whether any, and if any, what
part of any, surplus or net profits shall be declared and paid as
dividends; to determine the date or dates for the declaration of payment
of dividends; and to direct and determine the use and disposition of any
surplus or net profits over and above the capital stock paid in;
(c) From time to time to determine whether and to what extent
and at what times and places and under what conditions and regulations
the accounts and books of the Corporation (other than the stock ledger)
or any of them, shall be open to the inspection of the stockholders, and
no stockholder shall have any right to inspect any account or book or
document of the Corporation except as conferred by statute or authorized
by the Directors or by a resolution of the stockholders;
(d) To authorize the payment of compensation to the Directors
for services to the Corporation, including fees for attendance at
meetings of the Board of Directors, of the Executive Committee and all
other committees, and to determine the amount of such compensation and
fees;
(e) To designate by resolution passed by a majority of the
whole Board, three or more of their number to constitute an Executive
Committee, who to the extent provided in said resolution or in the By-
Laws of the Corporation, shall have and may exercise the powers of the
Board of Directors in the management of the business, affairs and
property of the Corporation during the intervals between the meetings of
the Board, including power to authorize the seal of the Corporation to
be affixed to all papers which may require it, and when the seal has
been so affixed pursuant to such authority, it shall be deemed to have
been affixed by order of the Board of Directors;
(f) To remove at any time any officer elected or appointed by
the Board of Directors by such vote of the Board of Directors as may be
provided for in the By-Laws. Any other officer of the Corporation may
be removed at any time by a vote of the Board of Directors, or by any
committee or superior officer upon whom such power of removal may be
conferred by the By-Laws or by a vote of the Board of Directors;
(g) To establish, amend, alter, revise, change, recall,
abolish or repeal any bonus, profit sharing, stock option, stock
purchase, pension, retirement, disability, unemployment, or other types
of incentive, compensation, relief or welfare plans for the employees
(including officers and directors) of the Corporation and any of its
subsidiaries, and to fix the terms of such plans, including the creation
and maintenance of one or more separate trust funds of the money,
securities or other property at any time held or contributed by the
Corporation or its subsidiaries, and to determine, or prescribe the
method for determining, the persons to participate in any such plans and
the amount of their respective participations.
ARTICLE IV
Directors of the Corporation
The number of the current Directors of the Corporation, who shall
hold office until their successors are chosen or appointed either according
to law or to the By-Laws of the Corporation shall be eleven (until changed by
amendment to the By-Laws), and their respective names and addresses are as
follows:
Names Addresses (including zip code)
----- ------------------------------
Brendan T. Byrne . . 600 South Avenue, Westfield, New
Jersey 07090
Thomas J. Cawley . . 600 South Avenue, Westfield, New
Jersey 07090
Anne Evans Gibbons . 600 South Avenue, Westfield, New
Jersey 07090
John Kean . . . . . . 600 South Avenue, Westfield, New
Jersey 07090
Robert W. Kean, III . 600 South Avenue, Westfield, New
Jersey 07090
Robert W. Kean, Jr. . 600 South Avenue, Westfield, New
Jersey 07090
Arthur P. Morgan . . 600 South Avenue, Westfield, New
Jersey 07090
Barry T. Parker . . . 600 South Avenue, Westfield, New
Jersey 07090
Henry S. Patterson, II
600 South Avenue, Westfield, New
Jersey 07090
Chester A. Ring, 3rd 600 South Avenue, Westfield, New
Jersey 07090
Hugo M. Pfaltz, Jr. . 600 South Avenue, Westfield, New
Jersey 07090
ARTICLE V
Capital Stock of the Corporation
The capital stock of the Corporation shall be 10,000,000 shares of
Common Stock without par value (hereinafter called Common Stock) and 500,000
shares of Junior Preferred Stock of the par value of $20 per share
(hereinafter called Junior Preferred Stock), 200,000 shares of Cumulative
Preferred Stock of the par value of $100 per share, (hereinafter called
Cumulative Preferred Stock), and 500,000 shares of Cumulative Preferred
Stock--$25 Par of the par value of $25 per share (hereinafter called
Cumulative Preferred Stock--$25 Par; together with the Junior Preferred Stock
and the Cumulative Preferred Stock, hereinafter collectively called Preferred
Stock) all of which may be issued by the Corporation from time to time for
such consideration as may be fixed from time to time by the Board of
Directors thereof.
1. Common Stock
At all times each holder of Common Stock of the Corporation shall
be entitled to one vote for each share of such stock standing in the name of
such holder on the books of the Corporation.
No holder of Common Stock, as such, shall have any preemptive or
other right to subscribe for, purchase or receive any part of the unissued
stock of the Corporation, or any security convertible into such stock, or any
part of any new or additional issue of any stock of the Corporation, whether
of the same class or of any other class, or to subscribe for, purchase or
receive any rights or options to purchase any such stock, or to have any
other preemptive rights as now or hereafter defined by the laws of the State
of New Jersey.
2. Preferred Stock
The voting powers, designations, preferences, relative,
participating, optional or other special rights, qualifications, limitations
or restrictions of the Preferred Stock, and the power of the Board of
Directors to cause the Preferred Stock to be issued in series, and the
designation, description and term shall be subject to and in accordance with
the provisions of this paragraph and the following paragraphs hereof. The
Board of Directors is hereby empowered to cause the Preferred Stock to be
issued in different series. The shares of different series may vary, as may
be determined by the Board of Directors prior to the issue thereof, as to:
(a) The distinctive serial designation and number of shares
of such series;
(b) The rate of dividends (within such limits as shall be
permitted by law) payable on the shares of the particular series;
(c) The prices (not less than the amount limited by law) and
the terms upon which the shares of the particular series may be
redeemed;
(d) The amount or amounts which shall be paid to the holders
on voluntary or involuntary dissolution or any distribution of assets;
(e) The terms and amount of sinking fund requirements (if
any) for the purchase or redemption of the shares of the particular
series; and
(f) The terms upon which the holders thereof may convert the
same into Common Stock.
The shares of all series of either Junior Preferred Stock,
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par shall in
all other respects be equal.
A. Junior Preferred Stock
(a) Dividends. The holders of the shares of each series of Junior
Preferred Stock shall be entitled to receive, in preference to the holders of
Common Stock, but only when and as declared by the Board of Directors out of
funds of the Corporation legally available for the payment of dividends,
cumulative cash dividends, cumulative from the date on which shares of said
Junior Preferred Stock are originally issued or such earlier date as the
Board of Directors may determine and no more, payable quarter-yearly on dates
to be fixed by the Board of Directors, to stockholders of record on the
respective dates not exceeding thirty (30) days and not less than ten (10)
days preceding such dividend payment dates (such days being herein called
"dividend payment dates" and the quarterly periods ending on such days being
herein called "dividend periods"), to be fixed by the Board of Directors. No
dividends shall be declared on any series of the Junior Preferred Stock in
respect of any quarter-yearly dividend period unless there shall likewise be
declared on all shares of all series of Junior Preferred Stock at the time
outstanding, like proportionate dividends, ratably in proportion to the
respective annual dividend rates fixed there for in respect of the all
quarter-yearly dividend periods terminating on the same date or earlier. The
dividends on shares of all series of the Junior Preferred Stock shall be
cumulative. The holders of shares of Junior Preferred Stock are not to be
entitled to any dividends thereon other than the dividends referred to in
this paragraph (a). So long as any shares of any series of Junior Preferred
Stock shall be outstanding, the Corporation shall not declare or pay any
dividend on its Common Stock or other stock ranking junior in priority as to
dividends or on dissolution to the Junior Preferred Stock (the Common Stock
and any such other junior ranking stock being hereinafter called "junior
stock"), other than dividends payable solely in junior stock, or make any
other distribution of any sort, either directly or indirectly in respect of
any junior stock unless at the date of such declaration in the case of a
dividend or the date of such distribution or other payment all cumulative
dividends on the then outstanding shares of any series of said Junior
Preferred Stock shall have been paid or declared and a sum sufficient for
payment thereof set aside. Accruals of dividends shall not bear interest.
(b) Voting Rights. At all times each holder of Junior Preferred
Stock of the Corporation shall be entitled to one vote for each share of such
stock standing in the name of such holder on the books of the Corporation,
except that in the event there shall be proposed a change in the preference,
relative rights or limitations of the Junior Preferred Stock which shall
adversely affect the dividend rate or preference, the conversion rights or
liquidation preference of the Junior Preferred Stock, then any such change
shall be approved by the holders of at least two-thirds of the shares of such
Junior Preferred Stock at the time outstanding, voting as a class.
(c) Redemption. The Corporation at the option of the Board of
Directors may at any time redeem any outstanding shares of any series of
Junior Preferred Stock, either as a whole or in part from time to time, upon
giving notice as hereinafter specified at the applicable redemption price,
provided for such series. Notice of every such redemption of shares of the
Junior Preferred Stock, in form approved by the Board of Directors, shall be
given not less than 30 nor more than 60 days prior to the date fixed for
redemption to each holder of record of shares so to be redeemed at his
address as the same shall appear on the books of the Corporation. Notice of
redemption having been so given, then, from and after the date fixed in such
notice as the redemption date (unless default be made in providing funds for
the payment of the redemption price and accrued and unpaid dividends to the
date fixed for redemption), notwithstanding that any certificate for shares
of the Junior Preferred Stock so called for redemption shall not have been
surrendered for cancellation, all such shares so called for redemption shall
no longer be deemed outstanding on and after such redemption date and the
right to receive dividends thereon and all other rights with respect to such
shares shall forthwith on such redemption date cease and terminate, except
only the right of the holders of such shares to receive the amount payable on
the redemption thereof, without interest. In case of a redemption of part
only of the outstanding shares of any series of the Junior Preferred Stock,
the redemption may be either pro rata or by lot as determined by the Board of
Directors. Subject to the foregoing the Board of Directors shall have full
power and authority to describe the manner by which the drawings by lot or
the pro rata redemption shall be conducted and the terms and conditions upon
which the shares shall be redeemed from time to time.
At any time if any such notice of redemption shall have been duly
given or if the Corporation shall have given to the bank or trust company
hereinafter referred to irrevocable written authorization promptly to give or
complete such notice, the Corporation may deposit with a bank or trust
company having its principal once in the State of New Jersey or in the
Borough of Manhattan, City and State of New York, and having, according to
its last published statement, capital, surplus and undivided profits
aggregating at least $5,000,000 and which bank or trust company shall have
been named in such notice as the place of redemption, funds necessary for
such redemption in trust for the pro rata benefit of the holders of the
shares of the Junior Preferred Stock so called for redemption, to be payable
on or after the date of such deposit for redemption, and from and after the
date of such deposit all such shares so called for redemption shall no longer
be deemed outstanding and all right with respect to such shares shall cease
and terminate, except only the right of the holders thereof to receive from
such bank or trust company at any time after the date of such deposit, upon
surrender of the certificates for such shares for cancellation duly endorsed
to the Corporation or otherwise, as may be required, the funds so deposited,
without interest, and the right to exercise, prior to the date fixed for
redemption, all privileges of conversion or exchange, if any, not theretofore
expired. Any interest accrued on such funds shall be paid to the Corporation
from time to time. Any funds so deposited and unclaimed at the end of six
years from such redemption date shall be repaid to the Corporation, after
which time the holders of the shares so called for redemption shall look only
to the Corporation for payment thereof; provided that any funds so deposited
which shall not be required for redemption because of the exercise of any
privilege of conversion or exchange subsequent to the date of deposit shall
be repaid to the Corporation forthwith.
(d) Dissolution, Liquidation, or Winding-up. Upon any
dissolution, liquidation, or winding-up of the Corporation, whether voluntary
or involuntary, the holders of each class of the Junior Preferred Stock then
outstanding shall be entitled to receive out of the assets of the Corporation
legally available for distribution to stockholders that sum per share in
respect of each series as shall have been determined for such series by the
Board of Directors, plus, in the case of each share, an amount equal to the
dividends accrued and unpaid thereon to the date fixed for final
distribution, whether or not earned or declared, before any distribution of
or out of assets of the Corporation shall, be made to the holders of any
junior stock as such. If the assets distributable upon such dissolution,
liquidation or winding-up of the Corporation shall be insufficient to permit
the payment to holders of the Junior Preferred Stock of the full amounts to
which they are entitled as aforesaid, then said assets shall be distributed
ratably among the holders of such shares of the Junior Preferred Stock in
proportion to the sums which would be payable on such dissolution,
liquidation or winding-up if all such sums were paid in full. Neither the
consolidation nor merger of the Corporation with or into any other
corporation, nor any sale, lease or conveyance of all or any part of the
property or business of the Corporation, shall be deemed to be a liquidation,
dissolution or winding-up of the Corporation within the meaning of this
subsection (d).
After payment to the holders of the Junior Preferred Stock of the
full amounts to which they respectively are entitled as aforesaid, such
holders, as such, shall have no right or claim to any of the remaining assets
of the Corporation.
(e) Purchase or Other Acquisition. Nothing herein contained shall
limit any legal right of the Corporation to purchase or otherwise acquire any
shares of the Junior Preferred Stock.
(f) No Preemptive Rights. No holder of Junior Preferred Stock, as
such, shall have any preemptive or other right to subscribe for, purchase or
receive any part of the unissued stock of the Corporation, or any security
convertible into such stock, or any part of any new or additional issue of
any stock of the Corporation, whether of the same class or of any other
class, or to subscribe for, purchase or receive any rights or options to
purchase any such stock, or to have any other preemptive rights as now or
hereafter defined by the laws of the State of New Jersey. If the Board of
Directors shall determine to offer any new or additional shares of Common
Stock or any other security of the Corporation with respect to which the
holders of Common Stock shall have any preemptive or other right to subscribe
or purchase, then in each such case the Corporation shall give or cause to be
given to each holder of Junior Preferred Stock then outstanding at his
address, as the same shall appear on the books of the Corporation, notice of
such preemptive or other right, not less than 20 nor more than 60 days prior
to the record day fixed to establish the holders of Common Stock entitled to
exercise such preemptive or other right.
B. Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par
(a) Dividends. The holders of the shares of each series of
Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be
entitled to receive, in preference to the holders of Common Stock and to the
holders of Junior Preferred Stock, but only when and as declared by the Board
of Directors out of funds of the Corporation legally available for the
payment of dividends, cumulative cash dividends, cumulative from the date on
which shares of said Cumulative Preferred Stock and Cumulative Preferred
Stock--$25 Par are originally issued or such other earlier date as the Board
of Directors may determine and no more, payable quarter-yearly on dates to be
fixed by the Board of Directors to stockholders of record on the respective
dates not exceeding thirty (30) days and not less than ten (10) days
preceding such dividend payment dates (such days being herein called
"dividend payment dates" and the quarterly periods ending on such days being
herein called "dividend periods") to be fixed by the Board of Directors. No
dividends shall be declared on any series of the Cumulative Preferred Stock
and Cumulative Preferred Stock--$25 Par in respect of any quarter-yearly
dividend period unless there shall likewise be declared on all shares of all
series of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par
at the time outstanding, like proportionate dividends, ratably in proportion
to respective annual dividend rates fixed therefor in respect of all quarter-
yearly dividend periods terminating on the same date or earlier. The
dividends on shares of all series of the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par shall be cumulative. The holders of
shares of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par
are not to be entitled to any dividends thereon other than the dividends
referred to in this paragraph (a). So long as any shares of any series of
Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be
outstanding, the Corporation shall not declare or pay any dividend on its
Common Stock or Junior Preferred Stock or other stock ranking junior in
priority as to dividends or on dissolution to the Cumulative Preferred Stock
and Cumulative Preferred Stock--$25 Par (the Common Stock, Junior Preferred
Stock and any such other junior ranking stock being hereinafter called
"junior stock"), other than dividends payable solely in junior stock or make
any other distribution of any sort, either directly or indirectly in respect
of any junior stock unless at the date of such declaration in the case of a
dividend or the date of such distribution or other all cumulative dividends
on the then outstanding shares of said Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par shall have been paid or declared and a
sum sufficient for payment thereof set aside. Accruals of dividends shall
not bear interest.
(b) Voting Rights. No holder of the Cumulative Preferred Stock
and Cumulative Preferred Stock--$25 Par shall be entitled to vote at any
meeting of stockholders or at any election of the Corporation or otherwise to
participate in any action taken by the Corporation or the stockholders
thereof, except for those purposes, if any, for which said right to vote or
otherwise to participate cannot be denied or waived under the laws of the
State of New Jersey and except as otherwise provided in paragraph (b) hereof.
However, at any meeting of the stockholders of the Corporation at which the
holders of the Cumulative Preferred Stock and the Cumulative Preferred Stock-
- - - - -$25 Par shall be entitled to vote as a single class, the holders of
Cumulative Preferred Stock shall be entitled to cast one vote for each share
of Cumulative Preferred Stock held and the holders of Cumulative Preferred
Stock--$25 Par shall be entitled to cast 1/4 vote for each share of
Cumulative Preferred Stock--$25 Par held.
(1) If and when dividends payable on the Cumulative Preferred
Stock--$25 Par shall be in default in an amount equivalent to four (4)
full quarter-yearly dividends on all shares of all series of the
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par at the
time outstanding, and until all dividends in default on the Cumulative
Preferred Stock or Cumulative Preferred Stock--$25 Par shall have been
paid, the holders of all shares of the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par, voting separately as one class,
shall be entitled to elect the smallest number of Directors necessary to
constitute a majority of the full Board of Directors, and the holders of
the Common Stock and Junior Preferred Stock, voting separately as a
class, shall be entitled to elect the remaining Directors of the
Corporation. The terms of office of all persons who may be Directors of
the Corporation at the time shall terminate upon the election of a
majority of the Board of Directors by the holders of the Cumulative
Preferred Stock or Cumulative Preferred Stock--$25 Par, whether or not
the holders of the Common Stock shall then have elected the remaining
Directors of the Corporation.
(2) If and when all dividends then in default on the Cumulative
Preferred Stock and Cumulative Preferred Stock--$25 Par at the time
outstanding shall be paid, the Cumulative Preferred Stock and Cumulative
Preferred Stock--$25 Par shall thereupon be divested of any special
right with respect to the election of Directors provided in sub-
paragraph (1) hereof, and the voting power of the Common Stock and
Junior Preferred Stock shall revert to the status existing before the
occurrence of such default; but always subject to the same provisions
for vesting such special rights in the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par in case of further like default or
defaults in dividends thereon. Upon the termination of any such special
right the terms of office of all persons who may have been elected
Directors of the Corporation by vote of the holders of the Cumulative
Preferred Stock and Cumulative Preferred Stock--$25 Par, as a class,
pursuant to such special right shall forthwith terminate.
(3) In case of any vacancy in the Board of Directors occurring
among the Directors elected by the holders of the Cumulative Preferred
Stock and Cumulative Preferred Stock--$25 Par, as a class, pursuant to
sub-paragraph (1) above, the holders of the Cumulative Preferred Stock
and Cumulative Preferred Stock--$25 Par, then outstanding and entitled
to vote may elect a successor to hold office for the unexpired term of
the Director whose place shall be vacant. In case of a vacancy in the
Board of Directors occurring among the Directors elected by the holders
of the Common Stock and Junior Preferred Stock, as a class, pursuant to
sub-paragraph (1) above, the holders of the Common Stock and Junior
Preferred Stock, then outstanding and entitled to vote may elect a
successor to hold office for the unexpired term of the Director whose
place shall be vacant. In all other cases, any vacancy occurring among
the Directors shall be filled by the vote of a majority of the remaining
Directors.
(4) Whenever the holders of the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par, as a class, become entitled to
elect Directors of the Corporation pursuant to either sub-paragraphs (1)
or (3) above, or whenever the holders of the Common Stock and Junior
Preferred Stock, as a class, become entitled to elect Directors of the
Corporation pursuant to either sub-paragraphs (1) or (3) above, a
meeting of the holders of the Cumulative Preferred Stock and Cumulative
Preferred Stock--$25 Par or of the Common Stock and Junior Preferred
Stock, as the case may be, shall be held at any time thereafter upon
call by the holders of not less than 1,000 shares of the Cumulative
Preferred Stock and Cumulative Preferred Stock--$25 Par or of the Common
Stock and Junior Preferred Stock, as the case may be, or upon call by
the Secretary of the Corporation at the request in writing of any
stockholder addressed to him at the principal office of the Corporation.
At all meetings of stockholders held for the purpose of electing
directors during such times as the holders of shares of the Cumulative
Preferred Stock and Cumulative Preferred Stock--$25 Par shall have the
special right, voting separately as one class, to elect directors
pursuant to either sub-paragraphs (1) or (3) above, the presence in
person or by proxy of the holders of a majority of the outstanding
shares of the Common Stock and Junior Preferred Stock, shall be required
to constitute a quorum of such class for the election of directors, and
the presence in person or by proxy of the holders of a majority of the
outstanding shares of the Cumulative Preferred Stock and Cumulative
Preferred Stock--$25 Par shall be required to constitute a quorum of
such class for the election of directors; provided, however, that the
absence of a quorum of the holders of stock of either such class shall
not prevent the election at any such meeting or adjournment thereof of
directors by the other such class if the necessary quorum of the holders
of stock of such other class is present in person or by proxy at such
meeting; and provided further that in the absence of a quorum of the
holders of stock of either such class, a majority of those holders of
the stock of such class who are present in person or by proxy shall have
power to adjourn the election of the directors to be elected by such
class from time to time without notice other than announcement at the
meeting until the holders of the requisite number of shares of such
class shall be present in person or by proxy.
(5) Except as some mandatory provision of law may be controlling
and except as otherwise provided herein, whenever shares of two or more
series of the Cumulative Preferred Stock or Cumulative Preferred Stock--
$25 Par are outstanding, no particular series of the Cumulative
Preferred Stock or Cumulative Preferred Stock--$25 Par shall be entitled
to vote as a separate series on any matter and all shares of the
Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par of
all series shall be deemed to constitute but one class for any purpose
for which a vote of the stockholders of the Corporation by classes may
now or hereafter be required.
(6) So long as any shares of Cumulative Preferred Stock or
Cumulative Preferred -$25 Par are outstanding, the Corporation shall
not, without the consent (given by a vote at a meeting called for that
purpose) of the holders of at least two-thirds of the total number of
shares of Cumulative Preferred Stock and Cumulative Preferred Stock--$25
Par then outstanding:
(i) create or authorize any new stock ranking prior to the
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par
as to dividends or assets, or create or authorize any security
convertible into shares of any such stock; or
(ii) amend, alter or repeal any of the rights, preferences or
powers of the Cumulative Preferred Stock or Cumulative Preferred
Stock--$25 Par so as to affect adversely any such rights,
preferences or powers; provided, however, that if such amendment,
alteration or repeal affects adversely the rights, preferences or
powers of one or more, but not all, series of Cumulative Preferred
Stock or Cumulative Preferred Stock--$25 Par at the time
outstanding, only the consent of the holders of at least two-thirds
of the total number of outstanding shares of each series so
affected shall be required; and provided, further, that an
amendment to increase or decrease the authorized number of shares
of Cumulative Preferred Stock or to create or authorize or increase
or decrease the amount of any class of stock ranking on a parity
with the outstanding shares of Cumulative Preferred Stock or
Cumulative Preferred Stock--$25 Par as to dividends or assets shall
not be deemed to affect adversely the rights, preferences or powers
of the holders of the Cumulative Preferred Stock or Cumulative
Preferred Stock--$25 Par or any series thereof.
(7) So long as any shares of the Cumulative Preferred Stock or
Cumulative Preferred Stock--$25 Par are outstanding, the Corporation
shall not, without the consent (given by vote at a meeting called for
that purpose) of the holders of a majority of the total number of shares
of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25
Par then outstanding:
(i) issue, sell or otherwise dispose of any shares of the
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par
or of any other class of stock ranking prior to, or on a parity
with, the Cumulative Preferred Stock or Cumulative Preferred Stock-
-$25 Par as to dividends or assets, unless the gross income of the
Corporation determined, after provision for depreciation and all
taxes and in accordance with generally accepted accounting
principles, for a period of twelve (12) consecutive calendar months
within the fifteen (15) calendar months immediately preceding the
issuance, sale or disposition of such stock, to be available for
the payment of interest, shall have been at least one and one-half
times the sum of (x) the annual interest charges on all interest
bearing indebtedness of the Corporation having a maturity at date
of issuance of more than one year and (y) the annual dividend
requirements on all outstanding shares of the Cumulative Preferred
Stock and Cumulative Preferred Stock--$25 Par and all other classes
of stock ranking prior to, or on a parity with, the Cumulative
Preferred Stock and Cumulative Preferred Stock--$25 Par as to
dividends or assets, including the shares proposed to be issued;
provided, that there shall be excluded from the foregoing
computation interest charges on all indebtedness and dividends on
all shares of stock which are to be retired in connection with the
issue of such additional shares of Cumulative Preferred Stock or
Cumulative Preferred Stock--$25 Par or other class of stock ranking
prior to, or on a parity with, the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par as to dividends or assets; and
provided, further, that in any case where such additional shares of
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par
or other class of stock ranking prior to, or on a parity with, the
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par
as to dividends or assets, are to be issued in connection with the
acquisition of new property, the net earnings of the property to be
so acquired may be included on a pro forma basis in the foregoing
computation, computed on the same basis as the net earnings of the
Corporation; or
(ii) issue, sell or otherwise dispose of any shares of the
Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par
or of any other class of stock ranking prior to, or on a parity
with, the Cumulative Preferred Stock or Cumulative Preferred Stock-
-$25 Par as to dividends or assets, unless the Junior Stock Equity
of the Corporation shall be not less than the aggregate amount
payable on the involuntary dissolution, liquidation or winding-up
of the Corporation, in respect of all shares of the Cumulative
Preferred Stock and Cumulative Preferred Stock--$25 Par and all
shares of stock, if any, ranking prior thereto, or on a parity
therewith, as to dividends or assets, which will be outstanding
after the issue of the shares proposed to be issued; provided, that
if, for the purposes of meeting the requirements of this
subparagraph (ii), it becomes necessary to take into consideration
any earned surplus of the Corporation, the Corporation shall not
thereafter pay any dividends on shares of the Common Stock which
would result in reducing the Corporation's Junior Stock Equity to
an amount less than the aggregate amount payable, on dissolution,
winding-up or involuntary liquidation of the Corporation, on all
shares of the Cumulative Preferred Stock and Cumulative Preferred
Stock--$25 Par and of any stock ranking prior to, or on a parity
with, the Cumulative Preferred Stock and Cumulative Preferred
Stock--$25 Par as to dividends or assets, at the time outstanding.
As used herein, "Junior Stock Equity of the Corporation" shall mean
the aggregate of the par value, or stated capital represented by,
all stock (including the Junior Preferred Stock and the Common
Stock) ranking junior to the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par as to dividends and assets, all
earned surplus, capital or paid-in surplus, and any premiums on any
such junior stock.
(c) Redemption. The Corporation, at the option of the Board of
Directors, may at any time redeem any outstanding shares of Cumulative
Preferred Stock or Cumulative Preferred Stock--$25 Par, either as a whole or
in part from time to time, upon giving notice as hereinafter specified at the
applicable redemption price provided for such series. Notice of every such
redemption of shares of the Cumulative Preferred Stock or Cumulative
Preferred Stock--$25 Par, in form approved by the Board of Directors, shall
be given not less than 30 nor more than 60 days prior to the date fixed for
redemption to each holder of record of shares so to be redeemed at his
address as the same shall appear on the books of the Corporation. Notice of
redemption having been so given, then from and after the date fixed in such
notice as the redemption date (unless default be made in providing funds for
the payment of the redemption price and accrued and unpaid dividends to the
date fixed for redemption), notwithstanding that any certificate for shares
of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par so
called for redemption shall not have been surrendered for cancellation, all
such shares so called for redemption shall no longer be deemed outstanding on
and after such redemption date and the right to receive dividends thereon and
all other rights with respect to such shares shall forthwith on such
redemption date cease and terminate, except only the right of the holders of
such shares to receive the amount payable on the redemption thereof, without
interest. In case of a redemption of only part of the outstanding shares of
any series of the Cumulative Preferred Stock or Cumulative Preferred Stock--
$25 Par, the redemption may be either pro rata or by lot as determined by the
Board of Directors. Subject to the foregoing the Board of Directors shall
have full power and authority to describe the manner by which the drawings by
lot or the pro rata redemption shall be conducted and the terms and
conditions upon which the shares shall be redeemed from time to time.
At any time if any such notice of redemption shall have been duly
given or if the Corporation shall have given to the bank or trust company
hereinafter referred to irrevocable written authorization promptly to give or
complete such notice, the Corporation may deposit with a bank or trust
company having its principal office in the State of New Jersey or in the
Borough of Manhattan, City and State of New York, and having, according to
its last published statement, capital, surplus and undivided profits
aggregating at least $5,000,000 and which bank or trust company shall have
been named in such notice as the place of redemption, funds necessary for
such redemption in trust for the pro rata benefit of the holders of the
shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25
Par so called for redemption, to be payable on or after the date of such
deposit for redemption, and from and after the date of such deposit all such
shares so called for redemption shall no longer be deemed outstanding and all
rights with respect to such shares shall cease and terminate, except only the
right of the holders thereof to receive from such bank or trust company at
any time after the date of such deposit, upon surrender of the certificates
for such shares for cancellation duly endorsed to the Corporation or
otherwise, as may be required the funds so deposited, without interest, and
the right to exercise, prior to the date fixed for redemption, all privileges
of conversion or exchange, if any, not heretofore expired. Any interest
accrued on such funds shall be paid to the Corporation from time to time.
Any funds so deposited and unclaimed at the end of six years from such
redemption date shall be repaid to the Corporation, after which time the
holders of the shares so called for redemption shall look only to the
Corporation for payment thereof; provided that any funds so deposited which
shall not be required for redemption because of the exercise of any privilege
of conversion or exchange subsequent to the date of deposit shall be repaid
to the Corporation forthwith.
(d) Dissolution, Liquidation, or Winding-up. Upon any
dissolution, liquidation or winding-up of the Corporation, whether voluntary
or involuntary, the holders of the Cumulative Preferred Stock and Cumulative
Preferred Stock--$25 Par then outstanding shall be entitled to receive out of
the assets of the Corporation legally available for distribution to
stockholders that sum per share in respect of each series as shall have been
determined for such series by the Board of Directors, plus, in the case of
each share, an amount equal to the dividends accrued and unpaid thereon to
the date fixed for final distribution, whether or not earned or declared,
before any distribution of or out of assets of the Corporation shall be made
to the holders of any junior stock, as such. If the assets distributable
upon such dissolution, liquidation or winding-up of the Corporation shall be
insufficient to permit the payment to holders of the Cumulative Preferred
Stock and Cumulative Preferred Stock--$25 Par of the full amounts to which
they are entitled as aforesaid, then said assets shall be distributed ratably
among the holders of such shares of the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par in proportion to the sums which would be
payable on such dissolution, liquidation or winding-up if all such sums were
paid in full. Neither the consolidation nor merger of the Corporation with
or into any other corporation, nor any sale, lease or conveyance of all or
any part of the property or business of the Corporation, shall be deemed to
be a liquidation, dissolution or winding-up of the Corporation within the
meaning of this subsection (d).
After payment to the holders of the Cumulative Preferred Stock and
Cumulative Preferred Stock--$25 Par of the full amounts to which they
respectively are entitled as aforesaid, such holders, as such, shall have no
right or claim to any of the remaining assets of the Corporation.
(e) Purchase or Other Acquisition. Nothing herein contained shall
limit any legal right of the Corporation to purchase or otherwise acquire any
shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25
Par; provided, however, that the Corporation shall not purchase or otherwise
acquire any shares of the Cumulative Preferred Stock or Cumulative Preferred
Stock--$25 Par if at the time of such purchase or other acquisition dividends
payable on the Cumulative Preferred Stock or Cumulative Preferred Stock--$25
Par shall be in default in whole or in part.
(f) No Preemptive Rights. No holder of Cumulative Preferred Stock
or Cumulative Preferred Stock--$25 Par, as such, shall have any preemptive or
other right to subscribe for, purchase or receive any part of the unissued
stock of the Corporation, or any security convertible into such stock, or any
part of any new or additional issue of any stock of the Corporation, whether
of the same class or of any other class, or to subscribe for, purchase or
receive any rights or options to purchase any such stock, or to have any
other preemptive rights as now or hereafter defined by the laws of the State
of New Jersey. If the Board of Directors shall determine to offer any new or
additional shares of Common Stock or any other security of the Corporation
with respect to which the holders of Common Stock shall have any preemptive
or other right to subscribe or purchase, then in each such case the
Corporation shall give or cause to be given to each holder of Cumulative
Preferred Stock or Cumulative Preferred Stock--$25 Par then outstanding at
his address, as the same shall appear on the books of the Corporation, notice
of such preemptive or other right, not less than 20 nor more than 60 days
prior to the record day fixed to establish the holder of Common Stock
entitled to exercise such preemptive or other right.
C. Series of Preferred Stock
(1) $5.90 Cumulative Preferred Stock. Without limitation of any
authority conferred upon the Board of Directors in this Restated Certificate
of Incorporation, there shall be a series of Cumulative Preferred Stock, $100
par value, to consist of 120,000 shares and designated as "$5.90 Cumulative
Preferred Stock"; and the rights and preferences of the $5.90 Cumulative
Preferred Stock in those respects in which the shares thereof may vary from
the shares of other series shall be as follows:
(a) Dividends. The rate of dividend on the $5.90 Cumulative
Preferred Stock shall be $5.90 per annum. Dividends shall be payable on
each outstanding share of such series on the first days of March, June,
September and December in each year for the quarterly dividend periods
immediately preceding such dividend payment dates, and dividends shall
be cumulative from the first day of the quarterly dividend period in
which such share is issued; provided, however, that with respect to the
dividends payable on June 1, 1994, the first day of the dividend period
with respect to which such dividend is paid on any share of the $5.90
Cumulative Preferred Stock originally issued during the quarterly
dividend period preceding such dividend payment date shall be the day of
the actual issuance of such share.
(b) Redemption.
(i) Optional. Shares of the $5.90 Cumulative Preferred Stock
shall not be redeemable at the option of the Corporation at any time.
(ii) Mandatory. The Corporation shall call for redemption and
redeem out of funds legally available therefor on March 1, 2004, at a
mandatory redemption price of $100 per share, plus accrued and unpaid
dividends to the date fixed for redemption, all the shares of the $5.90
Cumulative Preferred Stock then outstanding; provided, however, that if
on March 1, 2004 funds legally available therefor are insufficient to
permit the Corporation to redeem the full number of shares of $5.90
Cumulative Preferred Stock and all other shares of the Corporation's
Cumulative Preferred Stock required to be redeemed on or prior to such
date, the Corporation shall redeem on such date that number of shares of
$5.90 Cumulative Preferred Stock and such other shares of Cumulative
Preferred Stock, pro rata, for which sufficient funds are legally
available, and thereafter, promptly after the receipt by the Corporation
of sufficient funds legally available to permit the redemption of all of
the remaining shares of $5.90 Cumulative Preferred Stock and such other
shares of Cumulative Preferred Stock, the Corporation shall call for
redemption and redeem such shares out of funds legally available
therefor on a date selected by the Corporation therefor at, with respect
to the shares of $5.90 Cumulative Preferred Stock, a mandatory
redemption price of $100 per share, plus accrued and unpaid dividends to
the date fixed for redemption. Any redemption pursuant to the
provisions hereof shall be made in the manner, and upon notice given,
pursuant to Article V, subparagraph 2.B(c) of this Restated Certificate
of Incorporation of the Corporation; provided, however, that such notice
shall state that redemption is being made to satisfy the mandatory
redemption requirements for the $5.90 Cumulative Preferred Stock.
The Corporation may credit shares of the $5.90 Cumulative Preferred
Stock purchased by or on behalf of the Corporation against its
obligation to make such mandatory redemption.
(c) Involuntary Liquidation, Dissolution or Winding-up. The
amount payable in respect of the $5.90 Cumulative Preferred Stock in the
event of involuntary liquidation, dissolution or winding-up of the
Corporation shall be $100 per share, plus accrued dividends.
(d) Voluntary Liquidation, Dissolution or Winding-up. The amount
payable in respect of the $5.90 Cumulative Preferred Stock in event of
voluntary liquidation, dissolution or winding-up of the Corporation
shall be $100 per share, plus accrued dividends.
Neither the merger nor consolidation of the Corporation into or
with any other Corporation, nor the merger or consolidation of any other
corporation into or with the Corporation, nor any sale, lease, or
conveyance of all or any part of the property or business of the
Corporation, shall be deemed to be a liquidation, dissolution or
winding-up of the Corporation for purposes of clauses (c) and (d) above.
(e) No Conversion Rights. The shares of $5.90 Cumulative
Preferred Stock shall not be, by their terms, convertible or
exchangeable.
ARTICLE VI
Directors' Meetings and Books Outside of New Jersey
The Directors of the Corporation may hold meetings and keep the
books of the Corporation outside of the State of New Jersey, except as
otherwise provided by law.
ARTICLE VII
Interested Directors
No material contract or other transaction between the Corporation
and any other corporation shall be affected by the fact that Directors of the
Corporation are interested in, or are directors or officers of, such other
corporation. The Board of Directors of the Corporation in its discretion may
submit any contract or act for approval or ratification at any annual meeting
of the stockholders, or at any meeting of the stockholders called for the
purpose of considering any such act or contract; and any contract or act that
shall be approved or be ratified by the vote of the holders of a majority of
the Common Stock of the Corporation which is represented in person or by
proxy at such meeting (provided that a lawful quorum of stockholders be there
represented in person or by proxy) shall be valid and as binding upon the
Corporation and upon all the stockholders as though it had been approved or
ratified by every stockholder of the Corporation.
ARTICLE VIII
Indemnification of Officers and Directors
The Corporation shall indemnify any present or future director or
officer of the Corporation and any present or future director, trustee or
officer of any corporation serving as such at the request of the Corporation
because of the Corporation's interest in such other corporation, or the legal
representative of any such director, trustee or officer, against reasonable
costs, expenses (exclusive of any amount paid to the Corporation in
settlement) and counsel fees paid or incurred in connection with any action,
suit or proceeding to which any such director, trustee or officer or his
legal representative may be made a party by reason of his being or having
been such director, trustee or officer, provided: (1) said action, suit or
proceeding shall be prosecuted against such director, trustee or officer or
against his legal representative to final determination, and it shall not be
finally adjudged in said action, suit or proceeding that he had been derelict
in the performance of his duties as such director, trustee or officer; or (2)
said action, suit or proceeding shall be settled or otherwise terminated as
against such director, trustee or officer or his legal representative without
a final determination on the merits, and it shall be determined by the Board
of Directors that such director, trustee or officer had not in any
substantial way been derelict in the performance of his duties as charged in
such action, suit or proceeding.
The right of indemnification hereinabove provided shall not be
deemed exclusive of any other rights to which any such person may now or
hereafter be otherwise entitled and specifically, without limiting the
generality of the foregoing, shall not be deemed exclusive of any rights,
pursuant to statute or otherwise, of any such person in any such action, suit
or proceeding, to have assessed or allowed in his favor, against the
Corporation or otherwise, his costs and expenses incurred therein or in
connection therewith or any part thereof.
ARTICLE IX
Stockholder Action
Any action which, at any meeting of stockholders, requires the
vote, assent or consent of two-thirds in interest of all of the stockholders,
or of two-thirds in interest of each class of stockholders having voting
powers, or which requires such assent or consent in writing to be filed, may
be taken upon the assent of and the assent given and filed, as the case may
be, by two-thirds in interest of the stockholders present and voting at such
meeting in person or by proxy, but where assent by classes is required such
assent shall be given by two-thirds in interest of each class so present and
voting.
Dated this 30th day of March, 1994.
ELIZABETHTOWN WATER COMPANY
By: /s/ Gail P. Brady
------------------------------
Name: Gail P. Brady
Title: Vice President-Controller
___________________________________________________________
ELIZABETHTOWN WATER COMPANY
TO
THE BANK OF NEW YORK, TRUSTEE
___________
INDENTURE
Dated as of November 1, 1993
______________
7-1/4% Debentures due 2028
__________________________________________________________
TABLE OF CONTENTS*
* This Table of Contents does not constitute any part of the Indenture and
is not to have any bearing upon the interpretation of any of its terms
or provisions.
Page
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Purpose of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 1
Form of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Compliance with legal requirements . . . . . . . . . . . . . . . . . . 6
ARTICLE ONE.
Definitions.
SECTION 1.01 Certain terms; other terms defined in Trust
Indenture Act of 1939 or by reference therein
in Securities Act of 1933, as amended, to have
meanings therein assigned . . . . . . . . . . . . . . . . 6
Board of Directors . . . . . . . . . . . . . . . . . . . . . . 7
Board Resolution . . . . . . . . . . . . . . . . . . . . . . . 7
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Debenture or Debentures . . . . . . . . . . . . . . . . . . . . 7
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Debentureholder . . . . . . . . . . . . . . . . . . . . . . . . 7
Event of Default . . . . . . . . . . . . . . . . . . . . . . . 8
Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Officers' Certificate . . . . . . . . . . . . . . . . . . . . . 8
Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . 8
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Principal Corporate Trust Office . . . . . . . . . . . . . . . 8
Responsible Officer . . . . . . . . . . . . . . . . . . . . . . 8
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . . 9
ARTICLE TWO.
Description, Execution and Exchange of Debentures.
SECTION 2.01 Maturity of Debentures . . . . . . . . . . . . . . . . . . 9
SECTION 2.02 Form of Debentures . . . . . . . . . . . . . . . . . . . . 9
SECTION 2.03 Date of Debentures and denominations . . . . . . . . . . . 9
SECTION 2.04 Execution and authentication of
Debentures . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.05 Exchange, registration and transfer
of Debentures . . . . . . . . . . . . . . . . . . . . . 10
SECTION 2.06 Mutilated, destroyed, lost or stolen
Debentures . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.07 Cancellation of surrendered
Debentures . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 2.08 Provisions of Indenture and
Debentures for sole benefit of
parties and Debentureholders . . . . . . . . . . . . . 12
SECTION 2.09 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE THREE.
Issue of Debentures.
SECTION 3.01 Amount, authentication and delivery of
Debentures . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE FOUR.
Redemption of Debentures.
SECTION 4.01. Redemption of Debentures . . . . . . . . . . . . . . . . . 14
SECTION 4.02. Redemption of part only of
Debentures . . . . . . . . . . . . . . . . . . . . . . . 14
Notice of intention to redeem . . . . . . . . . . . . . . 14
SECTION 4.03. When called Debentures become due
and payable . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.04. When interest ceases on called
Debentures . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE FIVE.
Particular Covenants of the Company.
SECTION 5.01. Payment of principal of and interest
on Debentures . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.02. Maintenance and designation of office
or agency for registration of
transfer, exchange and payment
of Debentures . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.03. Appointment to fill vacancy in office
of Trustee . . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.04. Appointment of paying agent other
than Trustee . . . . . . . . . . . . . . . . . . . . . . 16
SECTION 5.05. Company not to incur debt, with
certain exceptions . . . . . . . . . . . . . . . . . . . 17
Definition of "Property Additions" . . . . . . . . . . . . 19
SECTION 5.06. Company covenants it will not mortgage,
pledge or permit any other lien,
with certain exceptions, upon any
of its property now owned or here-
after acquired without securing the
Debentures . . . . . . . . . . . . . . . . . . . . . . . 21
Covenants of the Company in the event
of merger, consolidation or sale . . . . . . . . . . . . 21
Definition of "Excepted Property" . . . . . . . . . . . . 23
SECTION 5.07. Limitations on dividends . . . . . . . . . . . . . . . . . 24
SECTION 5.08. Special provision for retirement of
Debentures . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.09. Company to file Compliance Certificate
with Trustee annually . . . . . . . . . . . . . . . . . 26
ARTICLE SIX.
Debentureholders' Lists and Reports by the
Company and the Trustee.
SECTION 6.01. Company to furnish Trustee information
as to names and addresses of
Debentureholders . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.02. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.03. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 6.04. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE SEVEN.
Remedies of the Trustee and Debentureholders
on Event of Default.
SECTION 7.01. Events of Default defined . . . . . . . . . . . . . . . . 27
Acceleration of maturity upon
Event of Default . . . . . . . . . . . . . . . . . . . . 28
Waiver of default and rescission of
declaration of maturity . . . . . . . . . . . . . . . . 29
SECTION 7.02. Covenant of Company to pay to Trustee
whole amount due on Debentures on
default in payment of interest or
principal . . . . . . . . . . . . . . . . . . . . . . . 29
Trustee may remove judgment for whole
amount due on Debentures on failure
of Company to pay . . . . . . . . . . . . . . . . . . . 30
Filing of proof of claim by Trustee
in bankruptcy, reorganization,
receivership, or other judicial
proceedings . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 7.03. Application of moneys collected by
Trustee . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 7.04. Limitation on suits by holders of
Debentures . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 7.05. Delay or omission in exercise of
rights not waiver of default . . . . . . . . . . . . . . 33
SECTION 7.06. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.07. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 7.08. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ARTICLE EIGHT.
Concerning the Trustee.
SECTION 8.01. Duties of Trustee prior to and after
Event of Default . . . . . . . . . . . . . . . . . . . . 33
SECTION 8.02. Except as otherwise provided in
Section 8.01:. . . . . . . . . . . . . . . . . . . . . . 33
(a) Trustee may rely on documents
believed genuine and properly
signed or presented . . . . . . . . . . . . . . . . 33
(b) Sufficient evidence by certain
instruments provided for . . . . . . . . . . . . . 33
(c) Trustee may act on Opinion of
Counsel . . . . . . . . . . . . . . . . . . . . . . 34
(d) Trustee may require indemnity from
Debentureholders . . . . . . . . . . . . . . . . . 34
(e) Trustee not liable for actions in
good faith believed to be
authorized . . . . . . . . . . . . . . . . . . . . 34
(f) Investigation of facts by Trustee . . . . . . . . . . 34
(g) Trustee may act through agents . . . . . . . . . . . 34
(h) Trustee not required to risk own
funds . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 8.03. Trustee not liable for recitals in
Indenture or in Debentures . . . . . . . . . . . . . . . 35
Trustee not accountable for use of
Debentures or proceeds . . . . . . . . . . . . . . . . . 35
SECTION 8.04. Trustee, paying agent or Debenture
registrar may own Debentures . . . . . . . . . . . . . . 35
SECTION 8.05. Moneys received by Trustee to be
held in trust . . . . . . . . . . . . . . . . . . . . . 35
SECTION 8.06. Trustee entitled to compensation,
reimbursement and indemnity . . . . . . . . . . . . . . 35
Obligations to Trustee to be secured
by lien prior to Debentures . . . . . . . . . . . . . . 35
SECTION 8.07. Right of Trustee to rely on Officers'
Certificate where no other evidence
specifically prescribed . . . . . . . . . . . . . . . . 36
SECTION 8.08. Calculation of percentages of
securities . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.09. Requirements for eligibility of
Trustee . . . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 8.10. (a) Resignation of Trustee . . . . . . . . . . . . . . . 37
(b) Removal of Trustee by Company or
by court on Debentureholder's
application . . . . . . . . . . . . . . . . . . . . 37
(c) Removal of Trustee by holders of
majority in principal amount of
Debentures . . . . . . . . . . . . . . . . . . . . 38
(d) Time when resignation or removal
of Trustee effective . . . . . . . . . . . . . . . 38
SECTION 8.11. Acceptance by successor to Trustee . . . . . . . . . . . . 38
SECTION 8.12. Successor to Trustee by merger,
consolidation or succession to
business . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE NINE.
Concerning the Debentureholders.
SECTION 9.01. Evidence of action by Debenture-
holders . . . . . . . . . . . . . . . . . . . . . . . . 39
SECTION 9.02. Proof of execution of instruments
and holding of Debentures . . . . . . . . . . . . . . . 40
SECTION 9.03. Who may be deemed owners of
Debentures . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 9.04. Debentures owned by Company or
controlled or controlling companies
disregarded for certain purposes . . . . . . . . . . . . 40
SECTION 9.05. Action by Debentureholders bind
future holders . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE TEN.
Debentureholders' Meetings.
SECTION 10.01 Purposes for which meetings may be
called . . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 10.02. Manner of calling meetings . . . . . . . . . . . . . . . . 41
SECTION 10.03. Call of meetings by Company or
Debentureholders . . . . . . . . . . . . . . . . . . . . 42
SECTION 10.04. Who may attend and vote at meetings . . . . . . . . . . . 42
SECTION 10.05. Regulations may be made by Trustee . . . . . . . . . . . . 42
SECTION 10.06. Manner of voting at meetings and
record to be kept . . . . . . . . . . . . . . . . . . . 43
SECTION 10.07. Exercise of rights of Trustee or
Debentureholders may not be hindered
or delayed by call of meeting of
Debentureholders . . . . . . . . . . . . . . . . . . . . 44
ARTICLE ELEVEN.
Supplemental Indentures.
SECTION 11.01 Purposes for which supplemental
indentures may be entered into with-
out consent of Debentureholders . . . . . . . . . . . . 44
SECTION 11.02 Modification of Indenture with consent
of holders of more than 50% in
principal amount of Debentures . . . . . . . . . . . . . 45
SECTION 11.03. Effect of supplemental indentures . . . . . . . . . . . . 45
SECTION 11.04. Debentures may bear notation of
changes . . . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 11.05. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . 46
ARTICLE TWELVE.
Consolidation, Merger and Sale.
SECTION 12.01. Consolidation or merger of Company
and sale or conveyances of property
of Company permitted . . . . . . . . . . . . . . . . . . 46
Assumption of obligations of Company
by successor company or transferee . . . . . . . . . . . 47
SECTION 12.02. Rights and duties of successor
corporation . . . . . . . . . . . . . . . . . . . . . . 47
Appropriate changes may be made in
phraseology and form of Debentures . . . . . . . . . . . 47
Company may consolidate or merge into
itself or acquire properties of
other corporations . . . . . . . . . . . . . . . . . . . 47
SECTION 12.03. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . 47
ARTICLE THIRTEEN.
Satisfaction and Discharge of Indenture;
Deposited Moneys.
SECTION 13.01. Satisfaction and discharge of
Indenture . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 13.02 Application by Trustee of funds
deposited for payment of
Debentures . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 13.03. Repayment of moneys held by paying
agent . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 13.04. Payment of deposited money to
Company after lapse of time . . . . . . . . . . . . . . 49
ARTICLE FOURTEEN.
Immunity of Incorporators, Stockholders,
Officers, Trustees and Directors.
SECTION 14.01. Incorporators, stockholders, officers,
trustees and directors of Company
exempt from individual liability . . . . . . . . . . . . 50
ARTICLE FIFTEEN.
Miscellaneous Provisions.
SECTION 15.01. Successors and assigns of Company
bound by Indenture . . . . . . . . . . . . . . . . . . . 50
SECTION 15.02. Acts of board, committee or officer
of successor corporation valid . . . . . . . . . . . . . 51
SECTION 15.03. Surrender of powers by Company . . . . . . . . . . . . . . 51
SECTION 15.04. Required notices or demands may be
served by mail . . . . . . . . . . . . . . . . . . . . . 51
SECTION 15.05. Indenture and Debentures to be
construed in accordance with laws
of State of New York . . . . . . . . . . . . . . . . . . 51
SECTION 15.06. Officers' Certificate and Opinion
of Counsel to be furnished upon
applications or demands by Company . . . . . . . . . . . 51
SECTION 15.07. Payments due on Sundays or holidays . . . . . . . . . . . 52
SECTION 15.08. Provisions required by Trust
Indenture Act of 1939 to control . . . . . . . . . . . . 52
SECTION 15.09. Effect of invalidity of provisions . . . . . . . . . . . . 52
SECTION 15.10. Indenture may be executed in counter-
parts . . . . . . . . . . . . . . . . . . . . . . . . . 53
ACCEPTANCE OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
INDENTURE, dated as of November 1, 1993, between ELIZABETHTOWN
WATER COMPANY, a corporation duly organized and existing under and by virtue
of the laws of the State of New Jersey (hereinafter sometimes called the
"Company"), party of the first part, and THE BANK OF NEW YORK, a New York
banking corporation (hereinafter sometimes called the "Trustee"), party of
the second part.
WHEREAS, the Company is empowered to issue debentures for any of
the objects and purposes of the Company;
WHEREAS, for its lawful corporate purposes, the Company has duly
authorized an issue of debentures designated 7-1/4% Debentures due 2028
(hereinafter referred to as the "Debentures"), in an aggregate principal
amount of $50,000,000, to be issued under and pursuant to the provisions
hereof; and
WHEREAS, the Debentures and the Trustee's certificate of
authentication to be borne by the Debentures are to be substantially in the
following forms, respectively:
[FORM OF DEBENTURE]
[FACE]
$___________________ No. _________
ELIZABETHTOWN WATER COMPANY
7-1/4% Debenture due 2028
ELIZABETHTOWN WATER COMPANY, a corporation duly organized and
existing under the laws of the State of New Jersey (herein referred to as the
"Company"), for value received, hereby promises to pay to
______________________, or registered assigns, on November 1, 2028 or upon
the earlier redemption hereof as hereinafter provided, the principal sum of
_________________ _______________________ Dollars in such coin or currency
of the United States of America as at the time of payment shall be legal
tender for the payment of public and private debts, and to pay interest
thereon at the rate per annum specified in the title of this Debenture, in
like coin or currency, semi-annually on May 1 and November 1 in each year,
until payment of said principal sum has been made or duly provided for, from
the most recent interest payment date to which interest has been paid or duly
provided for (unless the date hereof is the date to which interest on the
Debentures has been paid or duly provided for in which case from the date of
this Debenture) or if no interest has been paid or duly provided for on the
Debentures from November 1, 1993. Principal and interest shall be paid at
the principal corporate trust office of The Bank of New York, New York, New
York or at the office of the Company, Westfield, New Jersey, or at the duly
designated office of any duly appointed alternate or successor paying agent;
provided, however, that at the option of the Company interest on this
Debenture may be paid by check mailed to the registered holder thereof at
such holder's address as it shall appear on the register of the Company.
Reference is hereby made to the further provisions of this
Debenture set forth on the reverse hereof, and such further provisions shall
for all purposes have the same effect as though fully set forth at this
place.
This Debenture shall not be valid or become obligatory for any
purpose until the certificate of authentication hereon shall have been signed
by the Trustee under the Indenture.
IN WITNESS WHEREOF, ELIZABETHTOWN WATER COMPANY has caused this
Debenture to be signed in its corporate name by its President or one of its
Vice Presidents by his signature or a facsimile thereof and by its Secretary
or one of its Assistant Secretaries by his signature or a facsimile thereof,
and its corporate seal, or a facsimile thereof, to be impressed or imprinted
hereon.
ELIZABETHTOWN WATER COMPANY
By___________________________
President.
By___________________________
Secretary.
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
Dated: _______________
This is one of the Debentures described in
the within-mentioned Indenture.
THE BANK OF NEW YORK,
as Trustee,
By_________________________________
Authorized Signatory.
[REVERSE]
ELIZABETHTOWN WATER COMPANY
7-1/4% Debenture due 2028
This Debenture is one of a duly authorized issue of Debentures of
the Company (herein referred to as the "Debentures"), limited to the
aggregate principal amount of $50,000,000, except as otherwise provided in
the Indenture referred to below, all issued or to be issued under and
pursuant to an indenture dated as of November 1, 1993 (herein referred to as
the "Indenture"), duly executed and delivered by the Company to The Bank of
New York, Trustee (herein referred to as the "Trustee"), to which Indenture
and all indentures supplemental thereto reference is hereby made for a
description of the rights of the holders of the Debentures, the rights,
duties and immunities of the Trustee and the rights and obligations of the
Company thereunder.
In case an Event of Default, as defined in the Indenture, shall
have occurred and be continuing, the principal of all of the Debentures may
be declared, and upon such declaration shall become, due and payable, in the
manner, with the effect and subject to the conditions provided in the
Indenture.
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of more than 50% in the aggregate
principal amount of the Debentures at the time outstanding, evidenced as in
the Indenture provided, to execute supplemental indentures adding any
provisions to or changing in any manner or eliminating any of the provisions
of the Indenture or of any indenture supplemental thereto or modifying in any
manner the rights and obligations of the holders of the Debentures and of the
Company; provided, however, that no such supplemental indenture shall (i)
extend the fixed maturity of any Debenture, or reduce the principal amount
thereof, or reduce the rate or extend the time of payment of interest
thereon, without the consent of the holder of each Debenture so affected, or
(ii) reduce the aforesaid percentage of Debentures, the holders of which are
required to consent to any such supplemental indenture, without the consent
of the holders of all Debentures then outstanding. It is also provided in
the Indenture that prior to any declaration of the maturity of the Debentures
the holders of a majority in the aggregate principal amount of the Debentures
at the time outstanding may on behalf of the holders of all of the Debentures
waive any past default under the Indenture and its consequences, except a
default in the payment of interest on or the principal of any of the
Debentures. Any such consent or waiver by the registered holder of this
Debenture shall be conclusive and binding upon such holder and upon all
future holders and owners of this Debenture and of any Debenture issued in
exchange herefor or in place hereof, irrespective of whether or not any
notation of such consent or waiver is made upon this Debenture.
No reference herein to the Indenture and no provision of this
Debenture or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Debenture at the time and place and at the rate and in the
coin or currency herein prescribed.
The Debentures are issuable as registered Debentures without
coupons, in denominations of $1,000 and any multiple thereof. This Debenture
is transferable in the manner authorized by law. Upon due presentment of
this Debenture for registration of transfer at the office or agency to be
maintained by the Company in the Borough of Manhattan, City and State of New
York, a new Debenture or Debentures, of authorized denominations, for a like
aggregate principal amount, will be issued to the transferee as provided, and
subject to the limitations, in the Indenture. No service charge will be made
for any such registration of transfer, but the Company may require payment of
a sum sufficient to reimburse it for any tax or other governmental charge
that may be imposed in relation thereto. This Debenture may in like manner
be exchanged without service charge for one or more new Debentures of other
authorized denominations but of the same aggregate principal amount, all
subject to the terms and conditions set forth in the Indenture.
As more fully provided in the Indenture, the Debentures are not
redeemable at the option of the Company prior to November 1, 1998.
Thereafter, the Debentures are redeemable at the option of the Company in
whole at any time, or in part from time to time, prior to maturity, by the
payment of the principal amount thereof and accrued interest to the date
fixed for redemption, together with a premium equal to a percentage of the
principal amount thereof determined as set forth in the tabulation below
under the heading "Redemption Premium":
Redemption Period
(12-month period ending Redemption
October 31st of the year stated) Premium
-------------------------------- ----------
1999 . . . . . . . . . . 5.44%
2000 . . . . . . . . . . 5.08
2001 . . . . . . . . . . 4.72
2002 . . . . . . . . . . 4.35
2003 . . . . . . . . . . 3.99
2004 . . . . . . . . . . 3.63
2005 . . . . . . . . . . 3.27
2006 . . . . . . . . . . 2.90
2007 . . . . . . . . . . 2.54
2008 . . . . . . . . . . 2.18
2009 . . . . . . . . . . 1.82
2010 . . . . . . . . . . 1.45
2011 . . . . . . . . . . 1.09
2012 . . . . . . . . . . 0.73
2013 . . . . . . . . . . 0.37
and without premium if redeemed on or after November 1, 2013.
The Indenture provides that the Debentures may be redeemed in
certain circumstances through the use of Proceeds of Released Property at a
special redemption price equal to the principal amount thereof and accrued
interest to the date fixed for redemption; provided, however, that none of
the Debentures shall be so redeemed prior to November 1, 1998.
The Indenture provides that under the circumstances specified
therein funds or certain securities may be deposited with the Trustee in
advance of the maturity or redemption date of any of the Debentures, in trust
for the payment or redemption of such Debentures, and the interest due or to
become due thereon, and that thereupon all obligations of the Company in
respect of such Debentures shall cease and be discharged and the holders
thereof shall thereafter be restricted exclusively to such funds or
securities for any and all other claims on their part under the Indenture or
with respect to such Debentures.
The Company, the Trustee, any paying agent and any Debenture
registrar may deem and treat the registered holder hereof as the absolute
owner hereof (whether or not this Debenture shall be overdue and
notwithstanding any notice of ownership or writing hereon) for the purpose of
receiving payment of or on account of the principal hereof and interest due
hereon and for all other purposes, and neither the Company nor the Trustee
nor any paying agent nor any Debenture registrar shall be affected by any
notice to the contrary.
No recourse shall be had for the payment of the principal of or the
interest on this Debenture, or for any claim based hereon, or otherwise in
respect hereof, or based on or in respect of the Indenture or any indenture
supplemental thereto, against any incorporator, stockholder, officer, trustee
or director, past, present or future, as such, of the Company or of any
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law or equity, or by the enforcement of any assessment or
penalty or otherwise, all such liability being, by the acceptance hereof and
as part of the consideration for the issue hereof, expressly waived and
released by every holder hereof, as more fully provided in the Indenture.
______________________
AND WHEREAS, all acts and things necessary to make the Debentures,
when executed by the Company and authenticated and delivered by the Trustee
as in this Indenture provided, the valid, binding and legal obligations of
the Company, and to constitute these presents a valid indenture and
agreement, have been done and performed, and the execution of this Indenture
and the issue hereunder of the Debentures have in all respects been duly
authorized, and the Company, in the exercise of the legal right and power in
it vested, executes this Indenture and proposes to make, execute, issue and
deliver the Debentures;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
That in order to declare the terms and conditions upon which the
Debentures are and are to be authenticated, issued and delivered, and in
consideration of the premises, of the purchase and acceptance of the
Debentures by the holders thereof and of the sum of one dollar to it duly
paid by the Trustee at the execution of these presents, the receipt whereof
is hereby acknowledged, the Company covenants and agrees with the Trustee for
the equal and proportionate benefit of the respective holders from time to
time of the Debentures, as follows:
ARTICLE ONE.
Definitions.
Section 1.01. The terms defined in this Section (except as in this
Indenture otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Indenture and of any indenture
supplemental hereto shall have the respective meanings specified in this
Section. All other terms used in this Indenture which are defined in the
Trust Indenture Act of 1939 or which are by reference in such act defined in
the Securities Act of 1933, as amended (except as herein otherwise expressly
provided or unless the context otherwise requires), shall have the meanings
assigned to such terms in said Trust Indenture Act and in said Securities Act
as in force at the date of the execution of this Indenture.
"Board of Directors" shall mean the Board of Directors of the
Company or any committee thereof duly authorized by the Board of Directors to
act hereunder.
"Board Resolution" or "Resolution of the Board of Directors" shall
mean a copy of a resolution certified by the Secretary or an Assistant
Secretary of the Company to have been duly adopted by the Board of Directors
and to be in full force and effect on the date of such certification.
"Company" shall mean Elizabethtown Water Company, and, subject to
the provisions of Article Twelve, shall also include its successors and
assigns.
"Debenture" or "Debentures" shall mean any Debenture or Debentures,
as the case may be, authenticated and delivered under this Indenture.
The term "outstanding", when used with reference to Debentures,
shall, subject to the provisions of Section 9.04 and Article Thirteen, mean,
as of any particular time, all Debentures authenticated and delivered by the
Trustee under this Indenture, except
(a) Debentures theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Debentures or portions thereof for the payment or redemption
of which moneys in the necessary amount shall have been deposited in
trust with the Trustee, provided that if such Debentures or portions are
to be redeemed prior to the maturity thereof, notice of such redemption
shall have been given as in Article Four provided, or provision
satisfactory to the Trustee shall have been made for giving such notice;
and
(c) Debentures which have been paid pursuant to Section 2.06 or in
lieu of or in substitution for which other Debentures shall have been
authenticated and delivered pursuant to the terms of Section 2.06,
unless proof satisfactory to the Trustee is presented that any such
Debentures are held by holders for value without notice of any defense.
"Debentureholder", "holder of Debentures", "holder", or other
similar terms, shall mean the registered holder of any Debenture. The term
"registered holder" shall mean the person or persons in whose name or names a
particular Debenture shall be registered on the register kept for that
purpose in accordance with the terms of this Indenture.
"Event of Default" shall mean any event specified in Section 7.01
continued for the period of time, if any, therein designated.
"Indenture" shall mean this instrument as originally executed, or,
if amended or supplemented, as so amended or supplemented.
"Officers' Certificate" shall mean a certificate signed by the
President or a Vice President and by the Treasurer or an Assistant Treasurer
or the Secretary or an Assistant Secretary of the Company. Each such
certificate shall include the statements provided for in Section 15.06, if
and to the extent required by the provisions thereof.
"Opinion of Counsel" shall mean an opinion in writing signed by
legal counsel who shall be satisfactory to the Trustee, and who may be an
employee of or counsel to the Company. Each such opinion shall include the
statements provided for in Section 15.06, if and to the extent required by
the provisions thereof.
"Person" shall mean an individual, partnership, corporation,
association, joint venture, trust or unincorporated association and shall
include a government or political subdivision thereof and any governmental
agency or public benefit corporation.
"Principal Corporate Trust Office" means the office of the Trustee
in New York, New York at which any particular time its corporate trust
business shall be principally administered, which office at the date hereof
is located at 101 Barclay Street, 21st Floor, New York, New York 10286,
Attention: Corporate Trust Trustee Administration, except that, with respect
to presentation of Securities for payment or registration of transfers and
exchanges and the location of the Security Registrar, such term means the
office or agency of the Trustee in said city at which at any particular time
its corporate agency business shall be conducted, which at the date hereof is
located at 101 Barclay Street, New York, New York 10286, Attention:
Corporate Trust Services Window.
"Responsible Officer" when used with respect to the Trustee shall
mean the chairman or vice chairman of the board of directors, the chairman of
the executive committee, the president, any vice president, the secretary,
the treasurer, any senior trust officer, any trust officer, any second or
assistant vice president, any assistant secretary, any assistant treasurer,
any assistant cashier, or any other officer or assistant officer of the
Trustee customarily performing functions similar to those performed by the
persons who at the time shall be such officers, respectively, or to whom any
corporate trust matter is referred because of his knowledge of and
familiarity with the particular subject.
"Trustee" shall mean the Trustee under this Indenture for the time
being, whether original or successor.
"Trust Indenture Act of 1939", subject to the provisions of
Sections 11.01 and 11.02, shall mean the Trust Indenture Act of 1939 as in
force at the date of execution of this Indenture.
Certain other terms are defined in Articles Two, Five, Seven and
Eight.
ARTICLE TWO.
Description, Execution and Exchange of Debentures.
Section 2.01. The Debentures shall mature on November 1, 2028.
Section 2.02. The Debentures and the Trustee's certificate of
authentication to be borne by the Debentures shall be substantially of the
tenor and purport as in this Indenture above recited, and may have such
letters, numbers or other marks of identification and such legends or
endorsements printed, lithographed or engraved thereon as the Company may
deem appropriate and as are not inconsistent with the provisions of this
Indenture, or as may be required to comply with any law or with any rule or
regulation made pursuant thereto or with any law or regulation of any stock
exchange on which the Debentures may be listed, or to conform to usage.
Section 2.03. The Debentures shall be issuable as registered
Debentures without coupons in denominations of $1,000 and multiples thereof.
Each Debenture shall be dated the date of its authentication and
shall bear interest, payable semi-annually on May 1 and November 1 of each
year from the most recent interest payment date to which interest has been
paid or duly provided for (unless the date of such Debenture is the date to
which interest on the Debentures has been paid or duly provided for, in which
case from the date of such Debenture), or, if no interest has been paid or
duly provided for on the Debentures, from November 1, 1993.
The persons in whose names Debentures are registered at the close
of business on the record date with respect to a semi-annual interest payment
date shall be entitled to receive the interest payable on such interest
payment date notwithstanding the cancellation of any Debenture upon any
registration of transfer or exchange thereof subsequent to such record and
prior to such interest payment date; provided, however, that if and to the
extent the Company shall default in the payment of the interest due on such
interest payment date, such defaulted interest shall be paid to the persons
in whose names the Debentures are registered at the close of business on the
day preceding the date such defaulted interest is paid, unless a record date
shall be fixed by the Company for the payment of such defaulted interest by
notice given by mail by or on behalf of the Company to the holders of
Debentures not less than 15 days preceding such record date, which record
date shall not be more than 15 days before the date for such payment, then to
the persons in whose names outstanding Debentures are registered on such
record date. The term "record date" as used with respect to a semi-annual
interest payment date shall mean the close of business on April 15 or
October 15, as the case may be, next preceding such interest payment date, or
if such April 15 or October 15 is not a business day, the business day next
preceding such April 15 or October 15, the term "business day" meaning for
this purpose a day which in The City of New York is not a day on which
banking institutions are authorized by law to close.
Section 2.04. The Debentures shall be signed on behalf of the
Company by its President or a Vice President, and by its Secretary or an
Assistant Secretary, and its corporate seal, or a facsimile thereof, shall be
thereon impressed or imprinted. The signature of any such President, Vice
President, Secretary or Assistant Secretary may be facsimile. The Company
may use the signature or facsimile signature or any person who shall be any
such officer of the Company at the time of the execution of Debentures,
irrespective of the date as of which the same shall be authenticated, or of
any person who shall have been any such officer of the Company,
notwithstanding the fact that at the time the Debentures shall be
authenticated and delivered or disposed of, he shall have ceased to be such
officer of the Company.
The Company may deliver Debentures executed by the Company to the
Trustee for authentication. The Trustee shall thereupon authenticate and
make available for delivery said Debentures to or upon the written orders of
the Company. Only such Debentures as shall bear thereon a certificate of
authentication substantially in the form herein before recited, executed by
the Trustee, shall be entitled to the benefits of this Indenture or be valid
or obligatory for any purpose. Such certificate by the Trustee upon any
Debenture executed by the Company shall be conclusive evidence that the
Debenture so authenticated has been duly authenticated and delivered
hereunder and that the holder is entitled to the benefits of this Indenture.
Section 2.05. The Company shall keep at the office or agency to be
maintained by the Company as provided in Section 5.02 a register or registers
in which, subject to such reasonable regulations as it may prescribe, it will
register all Debentures, and upon due presentment for registration or
transfer of any Debenture at such office or agency, the Company shall execute
and register and the Trustee shall authenticate and deliver in the name of
the transferee or transferees a new Debenture or Debentures for a like
aggregate principal amount of Debentures of any authorized denominations,
bearing numbers not contemporaneously outstanding.
The several authorized denominations of Debentures shall be
interchangeable in equal aggregate principal amounts. Debentures to be
exchanged shall be surrendered at the office or agency to be maintained by
the Company for the purpose as provided in Section 5.02 and the Company shall
execute and register and the Trustee shall authenticate and deliver in
exchange therefor the Debenture or Debentures which the Debenture holder
making the exchange shall be entitled to receive, bearing numbers not
contemporaneously outstanding.
All Debentures presented or surrendered for registration of
transfer, exchange, redemption or payment shall (if so required by the
Company or the Trustee) be duly endorsed by, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to the Company and
the Trustee duly executed by, the registered holder or his attorney duly
authorized in writing.
For any exchange or registration of transfer of Debentures, the
Company, at its option, may require the payment of a sum sufficient to
reimburse it for any tax or other governmental charge that may be imposed in
relation thereto. No service shall be made for any such transaction.
The Company shall not be required to make registration of transfers
or exchanges of Debentures for a period of fifteen days next preceding any
selection of Debentures to be redeemed, nor shall it be required to make
registration of transfers or exchange of any Debentures or portions thereof
called or being called for redemption, except, in the case of any Debenture
to be redeemed in part only, the portion thereof not being redeemed.
Section 2.06. In case any Debenture shall become mutilated or be
destroyed, lost or stolen, the Company in its discretion may issue a new
Debenture of like tenor bearing a number not contemporaneously outstanding,
in exchange and substitution for the mutilated Debenture or in lieu of and
substitution for the Debenture so destroyed, lost or stolen. In every case
the applicant for a substituted Debenture shall furnish to the Company and to
the Trustee such security or indemnity as may be required by them to save
each of them, and, if requested, any paying agents and Debenture registrars
of the Company, harmless from all risk, however remote, and the applicant
shall also furnish to the Company and to the Trustee evidence to their
satisfaction of the mutilation, destruction, loss or theft of the applicant's
Debenture and of the ownership thereof. The Trustee shall authenticate any
such substituted Debenture and deliver the same upon the written request or
authorization of any officer of the Company. Upon the issue of any
substituted Debenture, the Company may require the payment of a sum
sufficient to cover any stamp tax or other governmental charge that may be
imposed incident thereto and any other expenses, including counsel fees and
expenses, of the Company, the Trustee and any paying agent or Debenture
registrar, connected therewith. In case any Debenture which has matured or
is about to mature shall become mutilated or be destroyed, lost or stolen,
the Company may, instead of issuing a substitute Debenture, pay or authorize
the payment of the same (without surrender thereof except in the case of a
mutilated Debenture) if the applicant for such payment shall furnish to the
Company and to the Trustee such security or indemnity as may be required by
them to save each of them harmless, and evidence to the satisfaction of the
Company and the Trustee of the mutilation, destruction, loss or theft of such
Debenture and of the ownership thereof.
Every Debenture issued pursuant to the provisions of this Section
in substitution for any Debenture which is destroyed, lost or stolen shall
constitute an additional contractual obligation of the Company, whether or
not the destroyed, lost or stolen Debenture shall be found at any time, or be
enforceable by anyone, and shall be entitled to all the benefits of this
Indenture equally and proportionately with any and all other Debentures duly
issued hereunder. All Debentures shall be held and owned upon the express
condition that the foregoing provisions are exclusive with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Debentures and
shall preclude any and all other rights or remedies, notwithstanding any law
or statute existing or hereinafter enacted to the contrary with respect to
the replacement or payment of negotiable instruments or other securities
without their surrender.
Section 2.07. All Debentures surrendered for the purpose of
payment, redemption, exchange or registration of transfer shall be delivered
to the Trustee and canceled by it, and no Debentures shall be issued in lieu
of any thereof except as expressly required or permitted by any of the
provisions of this Indenture. With the consent of the Company, the Trustee
may, but shall not be required to, destroy canceled Debentures and deliver a
certificate thereof to the Company. If the Company shall acquire any of the
Debentures, however, such acquisition shall not operate as a redemption or
satisfaction of the indebtedness represented by such Debentures unless and
until the same are delivered to the Trustee, or surrendered to the Trustee,
for cancellation.
Section 2.08. Nothing in this Indenture or in the Debentures,
expressed or implied, shall give or be construed to give to any person, firm
or corporation, other than the parties hereto and the holders of the
Debentures, any legal or equitable right, remedy or claim under or in respect
of this Indenture, or under any covenant, condition or provision herein
contained, all of the covenants, conditions and provisions herein being for
the sole benefit of the parties hereto and of the holders of the Debentures.
Section 2.09. The Company in issuing the Debentures may use
"CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use
"CUSIP" numbers in notices of redemption as a convenience to holders of
Debentures; provided that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the
Debentures or as contained in any notice of a redemption and that reliance
may be placed only on the other identification numbers printed on the
Debentures, and any such redemption shall not be affected by any defect in or
omission of such numbers.
ARTICLE THREE.
Issue of Debentures.
Section 3.01. Debentures not to exceed the aggregate principal
amount of $50,000,000, except as provided in Section 2.06, may, upon the
execution of this Indenture or from time to time thereafter, be executed by
the Company and delivered to the Trustee for authentication, and the Trustee
shall thereupon authenticate and deliver said Debentures to or upon the
written order of the Company signed by its President or a Vice President and
by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant
Secretary, without further action by the Company.
The Debentures are to be issued initially under a book-entry only
system and, except as hereinafter provided, registered in the name of The
Depository Trust Company, New York, New York ("DTC") or its nominee, which
shall be considered to be the holder of all of the Debentures for all
purposes of the Indenture, including, without limitation, payment by the
Company of principal of and interest on such Debentures and receipt of
notices and exercise of rights of holders of such Debentures. There shall be
a single global security which shall be immobilized in the custody of DTC
with the owners of book-entry interests in the Debentures ("Book-Entry
Interests") having no right to receive Debentures in the form of physical
securities or certificates. Ownership of Book-Entry Interests shall be shown
by book-entry on the system maintained and operated by DTC, its participants
(the "Participants") and certain persons acting through the Participants.
Transfers of ownership of Book-Entry Interests are to be made only by DTC and
the Participants by that book-entry system, the Company and the Trustee
having no responsibility therefor so long as the Debentures are registered in
the name of DTC or its nominee. DTC is to maintain records of the positions
of Participants in the Debentures, and the Participants and persons acting
through Participants are to maintain records of the purchasers and owners of
Book-Entry Interests. If DTC or its nominee determines not to continue to
act as a depository for the Debentures in connection with a book-entry only
system, another depository, if available, may act instead and the single
global security will be transferred into the name of such other depository or
its nominee, in which case the above provisions will continue to apply but to
the new depository. If the book-entry only system for the Debentures is
discontinued by the Company for any reason, upon surrender and cancellation
of the single global security registered in the name of the then depository
or its nominee, new registered Debentures will be issued in authorized
denominations to the holders of Book-Entry Interests in principal amounts
coinciding with the amounts of such Book-Entry Interests shown on the book-
entry system immediately prior to the discontinuance thereof. Neither the
Trustee nor the Company shall be responsible for the accuracy of the
interests shown on that system.
ARTICLE FOUR.
Redemption of Debentures.
Section 4.01. The Debentures are not redeemable for any purpose
prior to November 1, 1998. Thereafter, the Debentures are redeemable prior
to maturity, in accordance with the provisions of this Article Four, at the
principal amount thereof and accrued interest to the date fixed for
redemption (but if the date fixed for redemption is a semi-annual interest
payment date, the interest installment payable on such date shall be paid to
the holder at the close of business on the record date for such interest
payment date), together, in certain cases, with a premium, as set forth in
the form of Debenture provided for herein. The Trustee, upon the request of
the Company (evidenced by a copy of a Board Resolution, delivered to the
Trustee at least 60 days prior to the redemption date), shall, for and on
behalf of and in the name of the Company, mail or cause to be mailed a notice
of redemption with respect to the principal amount of Debentures specified in
such request.
Section 4.02. In case of a redemption of a part only of the
Debentures, the Trustee shall select the particular Debentures or parts
thereof, which shall be $1,000 or multiples thereof, so to be redeemed
according to such method as the Trustee shall deem proper in its discretion.
Notice of redemption to the holder of any Debenture which is to be
redeemed in whole or in part shall be mailed by or on behalf of the Company,
not less than 30 days prior to the date fixed for redemption, to him at his
last address appearing upon the registry books.
Failure duly to give such notice by mailing to the holder of any
Debenture designated for redemption in whole or in part shall not affect the
validity of the proceedings for the redemption of any other Debenture.
The notice of redemption to each holder of Debentures to be
redeemed shall specify the Debentures or parts thereof held by such holder to
be redeemed, which shall be $1,000 or multiples thereof, the date fixed for
redemption, the CUSIP numbers (if any) of such Debentures, the redemption
price at which Debentures are to be redeemed and the place where payment of
the redemption price is to be made upon surrender of the Debentures, and
shall state that interest accrued to the date fixed for redemption will be
paid in the manner specified in said notice, that from said date interest
thereon will cease to accrue, and, in the case of any Debenture which is to
be redeemed in part only, that on and after the redemption date, upon
surrender of such Debenture, a new Debenture or Debentures of authorized
denominations in aggregate principal amount equal to the unremedied portion
of such Debenture will be issued. Such notice shall also state that it is
subject to the receipt of the redemption moneys by the Trustee prior to the
date fixed for redemption, and that such notice, and the Company's request to
the Trustee to mail such notice, shall be of no effect unless such moneys are
received prior to such date.
Section 4.03. Notice of redemption having been mailed, and the
Trustee having prior to the date fixed for redemption specified in the notice
of redemption received for the purpose an amount in cash sufficient to redeem
all of the Debentures called for redemption, the Debentures called for
redemption shall become due and payable on such date fixed for redemption.
Section 4.04. On and after the date fixed for redemption, if the
moneys for the redemption of the Debentures to be redeemed shall have been
received by the Trustee, such Debentures shall cease to bear interest. All
moneys on deposit with the Trustee for the redemption of Debentures shall,
subject to the provisions of Section 13.04 hereof, be held in trust for
account of the holders of the Debentures so to be redeemed, and shall be paid
to them, respectively, upon presentation and surrender of said Debentures.
If any Debenture of a denomination larger than $1,000 shall be
called for redemption in part only, upon presentation of any such Debenture
so called for redemption, the payment with respect to said Debenture shall be
made and Debentures for the unpaid balance of the principal amount of the
Debenture so presented shall be authenticated and delivered by the Trustee
without charge therefor to the holder thereof. On and after the date fixed
for such redemption, interest shall be payable only on the portion of such
Debenture not so called for redemption and only such portion shall be deemed
outstanding and continue to be entitled to the benefits of this Indenture.
Anything in this Indenture contained to the contrary
notwithstanding, if the giving of the notice of redemption shall have been
completed as provided in Section 4.02, or if provision satisfactory to the
Trustee for the giving of such notice shall have been made, and if the
Company shall have deposited in trust with the Trustee funds sufficient to
redeem the Debentures (or parts thereof) to be redeemed on the date fixed for
redemption, together with interest accrued to the date fixed for redemption,
then all obligations of the Company in respect of such Debentures (or parts
thereof) shall cease and be discharged and the holders of such Debentures or
parts thereof) shall thereafter be restricted exclusively to such funds for
any and all claims of whatsoever nature on their part under this Indenture or
in respect to such Debentures (or parts thereof).
ARTICLE FIVE.
Particular Covenants of the Company.
The Company covenants as follows:
Section 5.01. The Company will duly and punctually pay or cause to
be paid the principal of and interest on each of the Debentures at the time
and place and in the manner provided herein and in the Debentures.
Section 5.02. As long as any of the Debentures remain outstanding,
the Company will maintain an office or agency or offices or agencies in the
Borough of Manhattan, City and State of New York, where the Debentures may be
presented for registration of transfer and exchange as in this Indenture
provided, and where notices and demands to or upon the Company in respect of
the Debentures or of this Indenture may be served, and where the Debentures
may be presented for payment. Until otherwise designated by the Company in a
notice to the Trustee, such office or agency for all of the above purposes
shall be the principal corporate trust office of the Trustee in the Borough
of Manhattan, City and State of New York.
Section 5.03. The Company, whenever necessary to avoid or fill a
vacancy in the office of Trustee, will appoint, in the manner provided in
Section 8.10, a Trustee, so that there shall at all times be a Trustee
hereunder.
Section 5.04. (a) If the Company shall appoint a paying agent
other than the Trustee, it will cause such paying agent to execute and
deliver to the Trustee an instrument in which such agent shall agree with the
Trustee, subject to the provisions of this Section,
(1) that it will hold all sums held by it as such agent for the
payment of the principal of, premium, if any, or interest on the
Debentures (whether such sums have been paid to it by the Company or by
any other obligor on the Debentures) in trust for the benefit of the
holders of the Debentures, or of the Trustee, as the case may be,
(2) that it will give the Trustee notice of any failure by the
Company (or by any other obligor on the Debentures) to make any payment
of the principal of or interest on the Debentures when the same shall be
due and payable, and
(3) that at any time during the continuance of any Event of
Default upon the written request of the Trustee, it will forthwith pay
to the Trustee all sums so held by such paying agent.
(b) If the Company shall act as its own paying agent, it will, on
or before each due date of the principal of, premium, if any, or interest on,
the Debentures, set aside, segregate and hold in trust for the benefit of the
holders of the Debentures, a sum sufficient to pay such principal, premium,
if any, or interest so becoming due and payable and will notify the Trustee
of any failure (by it or any other obligor on the Debentures) to take such
action.
(c) Whenever the Company shall have one or more paying agents, it
will, prior to each due date of the principal of, premium, if any, or
interest on, the Debentures, deposit with a paying agent a sum sufficient to
pay the principal, premium, if any, or interest, so becoming due, such sum to
be held in trust for the benefit of the persons entitled to such principal,
premium, if any, or interest, and (unless such paying agent is the Trustee)
the Company will promptly notify the Trustee of its action or failure so to
act.
(d) Anything in this Section to the contrary notwithstanding, the
Company may, at any time, for the purpose of obtaining a satisfaction and
discharge of this Indenture, or for any other reason, pay or cause to be paid
to the Trustee all sums held in trust by it, or any paying agent hereunder,
as required by this Section, such sums to be held by the Trustee upon the
trusts herein contained.
(e) Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section is subject to the
provisions of Section 13.04 hereof.
Section 5.05. The Company covenants that, so long as any
Debentures shall be outstanding under this Indenture, it will not create,
assume or incur, or in any other manner become directly or indirectly liable
in respect of, any indebtedness, in addition to its 8 5/8% Debentures due
2007, its 10 1/8% Debentures due 2018, its 7.20% Debentures due 2019, its
7 1/2% Debentures due 2020, its 6.60% Debentures due 2021, its 6.70%
Debentures due 2021, its 8 3/4% Debentures due 2021, its 8% Debentures due
2022 and the Debentures, except the following:
(a) current operating liabilities and current or other obligations
(other than for borrowed money) incurred in the ordinary course of
business;
(b) Current Indebtedness;
(c) indebtedness (in addition to that referred to in subdivisions
(a) and (b) above and (d) below) in an aggregate amount not in excess of
$10,000,000 at any one time outstanding; and
(d) indebtedness (in addition to that referred to in subdivisions
(a), (b) and (c) above) in an aggregate amount not in excess of the sum
of $20,000,000 plus 65% of the Amount of Net Property Additions at the
time the Company first becomes liable in respect of any such
indebtedness.
The Company covenants that, so long as any Debentures shall be
outstanding under this Indenture, it will not create, assume or incur, or in
any manner become directly or indirectly liable in respect of, any
indebtedness (in addition to its 8 5/8% Debentures due 2007, its 10 1/8%
Debentures due 2018, its 7.20% Debentures due 2019, its 7 1/2% Debentures due
2020, its 6.60% Debentures due 2021, its 6.70% Debentures due 2021, its 8
3/4% Debentures due 2021, its 8% Debentures due 2022, the Debentures and that
referred to in subdivisions (a), (b) and (c) above), unless the Gross Income
of the Company, for a period of 12 consecutive calendar months within the 15
calendar months immediately preceding the incurring by the Company of such
indebtedness, shall have been at least equal to twice the Annual Interest
Charges.
The term "Current Indebtedness" as used herein shall mean
indebtedness in an aggregate amount not in excess of 20% of the total
capitalization of the Company at the time and which is expressed to be
payable on demand or to mature less than one year after the date of creation
or issuance thereof. The total capitalization of the Company shall be deemed
to consist of the sum of (i) the principal amount of all outstanding
indebtedness of the Company represented by bonds, debentures, notes or other
evidences of indebtedness (other than Current Indebtedness), (ii) the
aggregate of the par or stated value represented by all issued and
outstanding capital stock of all classes of the Company, including premiums
received on the issue of such capital stock, and (iii) the surplus of the
Company, including earned, capital, paid-in and other surplus.
The term "Amount of Net Property Additions" as used herein shall
mean the balance, if any, remaining after deducting the Retirements from the
Amount of Property Additions, as of any particular time.
The term "Amount of Property Additions" as used herein shall mean
the Cost or, if less, the fair value to the Company at the time of the actual
acquisition by the Company, of Property Additions.
The term "Property Additions" as used herein shall mean all
tangible property owned by the Company and made, constructed or otherwise
acquired by it subsequent to December 31, 1975, which the Company is
authorized to acquire, own and operate and which is used or useful in the
business of impounding, storing, transmitting, producing, manufacturing,
transporting, distribution or supplying water for any and all purposes.
Permanent improvements, extensions, additions or replacements in the process
or construction or erection, shall be included as Property Additions as of
any particular time, insofar as actually constructed or erected after
December 31, 1975, and before such particular time. There shall not be
included as Property Additions (a) Excepted Property, (b) going value or good
will, as such, (c) any item of property retired the retirement of which has
not been credited to utility plant account, (d) any item of property acquired
to replace a similar item of property whose retirement has not been credited
to utility plant account, or any item of property whose cost has been charged
or is properly chargeable to repairs, maintenance or other operating expense
account or whose cost has been charged or is not properly chargeable to
utility plant account, or (e) any property not located in the State of New
Jersey or in a State contiguous thereto.
The term "Retirements" as used herein shall mean the Cost of
Fundable Property which, subsequent to December 31, 1975, shall have become
worn out or permanently unserviceable, or shall have been lost, sold,
destroyed, abandoned, surrendered on lapse of title, taken by eminent domain,
purchased by any governmental or public body pursuant to any right reserved
to or vested in it, or otherwise disposed of by the Company or retired from
service for any reason, or shall have permanently ceased to be used or useful
in the business of the Company. Accounting adjustments of utility plant
accounts or reclassification of utility plant accounts or amortization of any
plant account to comply with any order of any regulatory body and which do
not represent or reflect the permanent retirement from a plant account
subsequent to December 31, 1975 of any Fundable Property shall not be
included in Retirements.
The term "Fundable Property" as used herein shall mean (a) all
property owned by the Company on December 31, 1975 (except such property as
would not be included in Property Additions if acquired subsequent to
December 31, 1975) and (b) Property Additions.
The term "Cost" as used herein, when used with respect to any
particular property, shall mean the cost (or, if not known, estimated cost)
thereof to the person first devoting it to public service, without deducting
therefrom applicable reserves for depreciation and/or retirements and/or
depletion and/or obsolescence. In determining Cost in cases in which
property, part of which constitutes Fundable Property and part does not, is
or has been acquired for a consideration not divided between such parts, or,
in cases where the consideration given for property is not allocated to the
various items of property acquired, the consideration may be allocated to the
various parts and items of property acquired in any reasonable manner which
is in accordance with the requirements of any systems of accounting with
which the Company is compelled to comply by any provision of law, or, if
there be no such requirements, in accordance with good accounting practice.
The term "Gross Income" as used herein shall mean gross operating
revenues from all sources (whether or not subject to refund) after deducting
therefrom operating expenses. In computing gross operating revenues, there
shall be included net non-operating revenues, if any (including income from
securities, whether of subsidiaries or not), in an amount not more than 20%
of Gross Income after deducting therefrom net non-operating revenues. In
computing operating expenses, there shall be included all operating expenses,
including accruals for taxes (except that taxes on undistributed earnings,
income and excess profits and any like taxes measured by income and charges
in lieu of any thereof made because of the deferment in payment of any such
tax shall be excluded from operating expenses, and any credit to income
subsequently made on account of any such prior charge shall be excluded from
gross operating revenues), rentals, insurance, actual charges for current
repairs and maintenance and charges to expense or income to provide for
depreciation, renewals, replacements, depletion or retirement of property and
for property loss (but excluding interest, charges deducted in computing net
non-operating revenues and charges to income for the amortization (i) of debt
discount and expense and (ii) of utility plant account or amounts transferred
therefrom). If any of the property owned by the Company at the time any
computation of Gross Income is made shall have been acquired during or after
any period for which Gross Income is to be computed, the Gross Income of such
property (computed in the manner in this Section provided for the computation
of the Gross Income of the Company) during such period or such part of such
period as shall have preceded the acquisition thereof, to the extent that the
same have not otherwise been included and can be determined, shall be
included in the Gross Income of the Company for all purposes of this
Indenture, and the Gross Income which can be determined of any property
disposed of by the Company during or after such period shall not be treated
as Gross Income of the Company.
The term "Annual Interest Charges" as used herein shall mean the
interest requirements for twelve months upon all indebtedness of the Company
(including any indebtedness, whether or not created or assumed by the
Company, on which the Company customarily pays interest charges or which is
secured by a lien on any property of the Company, but excluding (a)
indebtedness represented by customers' deposits, (b) current operating
liabilities and current or other obligations (other than for borrowed money)
incurred in the ordinary course of business, (c) indebtedness for the
purchase, payment or redemption of which money in the necessary amount shall
have been deposited in trust, and (d) Current Indebtedness) to be outstanding
upon the incurring by the Company of the indebtedness in connection with
which the computation is made.
Section 5.06. The Company covenants that, so long as any
Debentures shall be outstanding under the Indenture, it will not at any time
mortgage or pledge, or permit any other lien (other than Excepted
Encumbrances) to become a lien on, any property owned by the Company just
prior to such time, to secure any other indebtedness, without making
effective provision whereby the Debentures shall (so long as any such other
indebtedness shall be so secured) be secured (along with any other
indebtedness similarly entitled to be equally and ratably secured) by a
direct lien (on all the property, other than Excepted Property, owned by the
Company just prior to the time such other lien shall have become a lien on
any of the property of the Company) prior to the lien or liens securing any
and all such other indebtedness; provided, however, that this restriction
shall not be applicable to nor prevent
(a) the pledging by the Company of its assets as security for the
payment of any tax, assessment or other similar charge demanded of the
Company by any governmental authority or public body so long as the
Company in good faith contests its liability to pay the same, or as
security to be deposited with any governmental authority or public body
for any purpose at any time required by law or governmental regulation
as a condition to the transaction of any business or the exercise of any
privilege, license or right; or
(b) the pledging by the Company of any assets for the purpose of
securing a stay or discharge or for any other purpose in the course of
any legal proceeding in which the Company is a party; or
(c) making good faith deposits in connection with tenders,
contracts or leases to which the Company is a party.
The Company covenants that, so long as any Debentures shall be
outstanding under this Indenture, if, upon any consolidation or merger of the
Company with or into any other corporation, or upon any sale or conveyance of
all or substantially all of the property of the Company as an entirety, or
upon any acquisition by the Company of the property of another corporation
substantially as an entirety or upon any merger of any other corporation into
the Company, any of the property (other than Excepted Property) owned by the
Company just prior thereto, would thereupon become subject to any lien (other
than Excepted Encumbrances), the Company, prior to such consolidation,
merger, sale, conveyance or acquisition, will take appropriate action whereby
the Debentures shall (so long as such property shall be subject to such lien)
be secured (along with any other indebtedness similarly entitled to be
equally and ratably secured) by a direct lien on such portion of the property
of the Company prior to all other liens, other than Excepted Encumbrances and
other than any liens existing thereon just prior to such consolidation,
merger, sale, conveyance or acquisition.
Any instrument creating a lien pursuant to the requirements of this
Section shall contain reasonable and customary provisions for the enforcement
of such lien and for the release of, or substitution for, the property
subjected to such lien. Such direct lien shall be evidenced by an
appropriate instrument or instruments executed and delivered to the Trustee
(or to the extent legally necessary, to another trustee as additional or
separate trustee). The Trustee, subject to the provisions of Section 8.01
hereof, may receive an Opinion of Counsel as conclusive evidence that any
such instrument is in customary form and complies with the foregoing
provisions of this paragraph; and the Trustee shall not be under any duty or
responsibility to any holder of any Debenture with respect to the form,
validity or enforceability of any such instrument which it may accept in
reliance in good faith upon any such opinion.
If the Company shall fail to create a direct lien to secure the
Debentures, as required by the foregoing provisions of this Section, an
equitable lien shall exist to the same extent and on the same property as
though the Company had created such direct lien.
The term "Excepted Encumbrances" as used herein shall mean as of
any particular time any of the following:
(i) liens for taxes, assessments or governmental charges not
delinquent and liens for workmen's compensation awards and similar
obligations not delinquent and liens for taxes, assessments or
governmental charges delinquent but the validity of which is being
contested at the time by the Company in good faith by appropriate
proceedings diligently conducted;
(ii) any liens securing indebtedness neither assumed nor
guaranteed by the Company nor on which it customarily pays interest,
existing in or relating to real estate acquired by the Company for
transmission, distribution or right-of-way purposes, or in connection
with its usual operations;
(iii) easements or reservations in any property of the Company
created for the purpose of roads, railroads, railroadside tracks,
electric lines, pipe lines, sewers, water and gas transmission and
distribution mains, conduits, water rights of the State of New Jersey or
others, building and use restrictions and defects of title to, or leases
of, any parts of the property of the Company which do not in the opinion
of the Company's counsel materially impair the use of the property as an
entirety in the operation of the business of the Company;
(iv) undetermined liens and charges incidental to current
construction, including mechanics', laborers', materialmen's and similar
liens not delinquent;
(v) any obligations or duties affecting the property of the
Company to any municipality or public authority with respect to any
franchise, grant, license, permit or certificate;
(vi) rights reserved to or vested in any municipality or
public authority to control or regulate any property of the Company or
to use such property in a manner which does not materially impair the
use of such property for the purposes for which it is held by the
Company;
(vii) judgments in course of appeal or otherwise in contest and
secured by sufficient bond or security;
(viii) any irregularities in or deficiencies of title to any
rights of way for mains or pipes and/or appurtenances thereto or other
improvements thereon and to any real estate used or to be used primarily
for right of way purposes, provided that the Company shall have obtained
from the apparent owner of the lands or estates covered by any such
right of way an instrument purporting by its terms to grant the use
thereof for the construction, operation or maintenance of such main,
pipe, appurtenance or improvement for which the same are used or are to
be used, or provided that the Company has power, under eminent domain or
similar statutes, to remove such irregularities or deficiencies; or
(ix) any other lien on any property owned by the Company to
secure any indebtedness so long as the aggregate principal amount of all
such indebtedness is not in excess of $10,000,000.
The term "Excepted Property" as used herein shall mean (a) cash,
bonds, stocks, obligations and other securities; (b) choses in action,
accounts and bills receivable, judgments and other evidences of indebtedness
and contracts, leases and operating agreements; (c) stock in trade,
merchandise, equipment, apparatus, materials or supplies manufactured or
acquired for the purpose of sale and/or resale in the usual course of
business or consumable in the operation of any of the properties of the
Company or held for the purpose of repairing or replacing (in whole or in
part) any rolling stock, buses, motor coaches, trucks, automobiles or other
vehicles or aircraft; (d) timber, gas, oil, minerals (including developed and
undeveloped natural gas reserves and natural gas in underground storage or
otherwise), mineral rights and royalties; (e) materials or products
generated, manufactured, produced or purchased by the Company for sale,
distribution or use in the ordinary course of its business; (f) office
furniture and equipment, tools, rolling stock, buses, motor coaches, trucks,
automobiles and other vehicles and aircraft; and (g) the Company's franchise
to be a corporation.
Section 5.07. The Company covenants that, so long as any
Debentures shall be outstanding under this Indenture, it will not declare or
pay any dividends or make any other distribution (except dividends payable or
distributions made in shares of capital stock of the Company) on or in
respect of any of its Common Stock, or purchase or otherwise acquire for a
consideration any shares of its Common Stock (except out of the proceeds
derived from the sale of additional shares of its Common Stock subsequent to
August 31, 1992), if the aggregate of such dividends and distributions and
such consideration for purchase or other acquisition of shares of its Common
Stock made by the Company after December 31, 1975 would exceed the sum of (a)
the earned surplus of the Company accumulated after December 31, 1975 and
determined without any deduction on account of such dividends, distributions
or acquisitions and (b) $10,000,000. The term "consideration" as used in
this Section shall mean cash or fair value if the consideration be other than
cash. Charges to earned surplus with corresponding credits to utility plant
acquisition adjustment account or utility plant adjustment account or any
similar account or to any reserve for the purpose of ultimately disposing
thereof and any provisions for amortization of any amounts included in
utility plant acquisition account or utility plant adjustment account or in
any similar account shall be disregarded in determining earned surplus
accumulated after December 31, 1975.
Section 5.08. The Company covenants that, so long as any
Debentures shall be outstanding under this Indenture, if the Proceeds of
Released Property in any period of 12 consecutive calendar months shall
amount to $5,000,000 or more, and if, immediately subsequent to the receipt
of such $5,000,000 (or the part thereof making the total thereof $5,000,000
or more), the ratio of the aggregate principal amount of all outstanding
indebtedness of the Company represented by bonds, debentures, notes or other
evidences of indebtedness (other than Current Indebtedness) to the net book
value of the Company's utility plant accounts exceeds 60%, then the Company
will use such Proceeds of Released Property to redeem Debentures or to redeem
8 5/8% Debentures due 2007 issued by the Company (herein called the "8 5/8%
Debentures due 2007") or to redeem 10 1/8% Debentures due 2018 issued by the
Company (herein called the "10 1/8% Debentures due 2018") or to redeem 7.20%
Debentures due 2019 issued by the Company (herein called the "7.20%
Debentures due 2019") or to redeem 7 1/2% Debentures due 2020 issued by the
Company (herein called the "7 1/2% Debentures due 2020") or to redeem 6.60%
Debentures due 2021 issued by the Company (herein called the "6.60%
Debentures due 2021") or to redeem 6.70% Debentures due 2021 issued by the
Company (herein called the "6.70% Debentures due 2021") or to redeem 8 3/4%
Debentures due 2021 issued by the Company (herein called the "8 3/4%
Debentures due 2021") or to redeem 8% Debentures due 2022 issued by the
Company (herein called the "8% Debentures due 2022") or to redeem other
debentures issued by the Company under indentures having a provision
substantially similar to this Section 5.08 ("Subsequent Debentures") at the
earliest practicable date at a redemption price equal to the principal amount
thereof plus accrued interest to the date of redemption; provided, however,
that the Company shall not be required so to use any part of such Proceeds of
Released Property as to which the Company shall have given to the Trustee
(within 30 days after such receipt) an Officers' Certificate stating that the
Company intends, within a period of one year thereafter, to apply such part
to the making, constructing or otherwise acquiring of Property Additions. If
any such Officers' Certificate shall so state, the Company covenants so to
apply such part within such one year as stated in such Officers' Certificate
or, to the extent that it does not so apply such part, to use such part
within such one year to redeem Debentures or to redeem 8 5/8% Debentures due
2007 or to redeem 10 1/8% Debentures due 2018 or to redeem 7.20% Debentures
due 2019 or to redeem 7 1/2% Debentures due 2020 or to redeem 6.60%
Debentures due 2021 or to redeem 6.70% Debentures due 2021 or to redeem
8 3/4% Debentures due 2021 or to redeem 8% Debentures due 2022 or to redeem
Subsequent Debentures. Notwithstanding the foregoing, the Debentures may not
be redeemed with the Proceeds of Released Property prior to November 1, 1998.
In lieu of using any such Proceeds of Released Property for
redemption as aforesaid, the Company may deliver to the Trustee for
cancellation Debentures or may deliver for cancellation to the Trustee under
the indenture pursuant to which the 8 5/8% Debentures due 2007 were issued
8 5/8% Debentures due 2007, or may deliver for cancellation to the trustee
under the indenture pursuant to which the 10 1/8% Debentures due 2018 were
issued 10 1/8% Debentures due 2018, or may deliver for cancellation to the
trustee under the indenture pursuant to which the 7.20% Debentures due 2019
were issued 7.20% Debentures due 2019, or may deliver for cancellation to the
trustee under the indenture pursuant to which the 7 1/2% Debentures due 2020
were issued 7 1/2% Debentures due 2020, or may deliver for cancellation to
the trustee under the indenture pursuant to which the 6.60% Debentures due
2021 were issued 6.60% Debentures due 2021, or may deliver for cancellation
to the trustee under the indenture pursuant to which the 6.70% Debentures due
2021 were issued 6.70% Debentures due 2021, or may deliver for cancellation
to the trustee under the indenture pursuant to which the 8 3/4% Debentures
due 2021 were issued 8 3/4% Debentures due 2021 or may deliver for
cancellation to the trustee under the indenture pursuant to which the 8%
Debentures due 2022 were issued 8% Debentures due 2022 or may deliver for
cancellation to the trustee under the indenture pursuant to which any
Subsequent Debentures were issued such Subsequent Debentures, in each case
with all unmatured coupons, if any, appertaining thereto, theretofore
reacquired by the Company and not theretofore so delivered, and in any such
case the obligation of the Company to use such Proceeds of Released Property
for redemption shall be reduced to the extent of the aggregate principal
amount of Debentures or 8 5/8% Debentures due 2007 or 10 1/8% Debentures due
2018 or 7.20% Debentures due 2019 or 7 1/2% Debentures due 2020 or 6.60%
Debentures due 2021 or 6.70% Debentures due 2021 or 8 3/4% Debentures due
2021 or 8% Debentures due 2022 or Subsequent Debentures so delivered. All
Debentures so delivered to the Trustee shall be cancelled by the Trustee.
The term "Proceeds of Released Property" as used herein and in the
Debentures shall mean the aggregate amount of the consideration received or
to be received by the Company on the actual sale or other actual disposition
(subsequent to the execution of this Indenture) of any property included in
utility plant accounts (including therein an amount equivalent to any part of
such consideration consisting of other than cash at the fair value thereof to
the Company at the time of such sale or other disposition, as determined in
good faith by the Board of Directors of the Company, and excluding therefrom
an amount equivalent to any consideration received or to be received by the
Company on the sale or other disposition of any property (i) which property
shall have become worn out or permanently unserviceable and the book value of
which shall have been credited to utility plant accounts upon the retirement
thereof or (ii) to the extent that the consideration so received or to be
received shall constitute Property Additions) after deducting from such
amount, to the extent paid or payable by the Company, all expenses and all
taxes (including income taxes, if any) upon or in respect of any such sale or
other disposition.
Section 5.09. The Company will deliver to the Trustee within 120
days after the end of each fiscal year of the Company the Officers'
Certificate required by Section 314(a)(4) of the Trust Indenture Act. See
Section 314(a)(4) of the Trust Indenture Act.
ARTICLE SIX.
Debentureholders' Lists and Reports by
the Company and the Trustee.
Section 6.01. The Company shall deliver to the Trustee, semi-
annually, not more than 15 days after each record date, the information
required by Section 312(a) of the Trust Indenture Act. See Section 312 of
the Trust Indenture Act.
Section 6.02. See Section 312 of the Trust Indenture Act.
Section 6.03. See Section 314(a) of the Trust Indenture Act.
Section 6.04. On or before February 1 in each year beginning
January 1, 1994, so long as any Debentures are outstanding hereunder, the
Trustee shall transmit by mail to the Debentureholders the report, if any,
required by Section 313(a) of the Trust Indenture Act. See Trust Indenture
Act Sections 311(b) and 313.
ARTICLE SEVEN.
Remedies of the Trustee and
Debentureholders on Event of Default.
Section 7.01. In case one or more of the following Events of
Default shall have occurred and be continuing, that is to say:
(a) default in the due and punctual payment of any installment of
interest upon any of the Debentures as and when the same shall become
due and payable, and continuance of such default for a period of thirty
days; or
(b) default in the due and punctual payment of the principal of
any of the Debentures as and when the same shall become due and payable
either at maturity, by declaration as authorized by this Indenture, or
otherwise; or
(c) failure on the part of the Company duly to observe or perform
any other of the covenants, conditions or agreements on the part of the
Company in the Debentures or in this Indenture contained for a period of
sixty days after the date on which written notice of such failure,
requiring the same to be remedied, shall have been given to the Company
by the Trustee, or to the Company and the Trustee by the holders of at
least 25% in aggregate principal amount of the Debentures at the time
outstanding; or
(d) a decree or order by a court having jurisdiction in the
premises shall have been entered adjudging the Company a bankrupt or
insolvent, or approving a petition seeking reorganization of the Company
under Title 11, United States Code or any other similar applicable
Federal or State law, and such decree or order shall have continued
undischarged and unstayed for a period of sixty days; or a decree or
order of a court having jurisdiction in the premises for the appointment
of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company or of all or substantially all of its
property, or for the winding up or liquidation of its affairs shall have
been entered, and such decree or order shall have remained in force
undischarged and unstayed for a period of sixty days; or
(e) the Company shall institute proceedings to be adjudicated a
voluntary bankrupt, or shall consent to the filing of a bankruptcy
proceeding against it, or shall file a petition or answer or consent
seeking reorganization under Title 11, United States Code or any other
similar applicable Federal or State law, or shall consent to the filing
of any such petition, or shall consent to the appointment of a receiver
or liquidator or trustee or assignee in bankruptcy or insolvency of it
or of all or substantially all of its property, or shall make an
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts generally as they become due; or
(f) an event of default, as defined in any indenture or trust
agreement securing or protecting any debt of the Company now or
hereafter outstanding aggregating more than $10,000,000, shall happen
and be then continuing and such debt shall be or become due and payable,
prior to the date on which the same would otherwise become due and
payable, provided that such acceleration shall not be rescinded or
annulled within ten days after written notice thereof to the Company
from the Trustee or to the Company and the Trustee from the holders of
not less than 25% in principal amount of the Debentures then outstanding
hereunder;
then and in each and every such case, so long as such Event of Default shall
not have been remedied, unless the principal of all the Debentures shall have
already become due and payable, either the Trustee or the holders of not less
than 25% in aggregate principal amount of the Debentures then outstanding
hereunder, by notice in writing to the Company (and to the Trustee if given
by the Debentureholders), may declare the principal of all the Debentures
then outstanding to be due and payable immediately, and upon any such
declaration the same shall become and shall be immediately due payable,
anything in this Indenture or in the said Debentures contained to the
contrary notwithstanding. This provision, however, is subject to the
condition that if, at any time after the principal of the Debentures shall
have been so declared due and payable, but before the Debentures shall have
become due by their terms and before any judgment or decree for the payment
of the monies due shall have been obtained or entered as hereinafter
provided, the Company shall pay or shall deposit with the Trustee a sum
sufficient to pay all matured installments of interest upon all the
Debentures then outstanding and the principal of any and all Debentures then
outstanding which shall have become due otherwise than by acceleration (with
interest upon such principal and, to the extent that payment of such interest
is enforceable under applicable law, upon overdue installments of interest,
at the rate per annum expressed in the Debentures to the date of such payment
or deposit) and the amount payable to the Trustee under Section 8.06, and any
and all defaults under the Indenture, other than the nonpayment of principal
on Debentures then outstanding which shall not have become due by their
terms, shall have been remedied or provisions shall have been made therefor
to the satisfaction of the Trustee -- then and in every such case the holders
of a majority in aggregate principal amount of the Debentures then
outstanding, by written notice to the Company and to the Trustee, may waive
all defaults and rescind and annul such declaration and its consequences; but
no such waiver or rescission and annulment shall extend to or shall affect
any subsequent default, or shall impair any right consequent thereon.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
because of such rescission or annulment or for any other reason or shall have
been determined adversely to the Trustee, then and in every such case the
Company and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the
Company and the Trustee shall continue as though no such proceedings had been
taken, subject to any applicable order or ruling in a court of competent
jurisdiction.
Section 7.02. The Company covenants that (1) in case default shall
be made in the payment of any installment of interest on any of the
Debentures, as and when the same shall become due and payable, and such
default shall have continued for a period of thirty days, or (2) in case
default shall be made in the payment of the principal of any of the
Debentures when the same shall have become due and payable, whether upon
maturity of the Debentures or upon declaration as authorized by this
Indenture or otherwise -- then, upon demand of the Trustee, the Company will
pay to the Trustee, for the benefit of the holders of the Debentures then
outstanding, the whole amount that then shall have become due and payable on
all such Debentures for principal or interest, as the case may be, with
interest upon the overdue principal and (to the extent that payment of such
interest is enforceable under applicable law) upon overdue installments of
interest at the rate per annum expressed in the Debentures; and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, and the amount payable to the Trustee under Section
8.06.
In case the Company shall fail forthwith to pay such amounts upon
such demand, the Trustee, in its own name and as trustee of an express trust,
shall be entitled and empowered to institute any action or proceedings at law
or in equity for the collection of the sums so due and unpaid, and may
prosecute any such action or proceeding to judgment or final decree, and may
enforce any such judgment or final decree against the Company or other
obligor upon the Debentures and collect in the manner provided and to the
extent permitted by law out of the property of the Company or other obligor
upon the Debentures wherever situated the monies adjudged or decreed to be
payable.
The Trustee shall be entitled and empowered, either in its own name
or as trustee of an express trust, or as attorney-in-fact for the holders of
the Debentures, or in any one or more of such capacities, to file such proof
of debt, amendment of proof of debt, claim, petition or other document as may
be necessary or advisable in order to have the claims of the Trustee and of
the holders of the Debentures allowed in any equity receivership, insolvency,
bankruptcy, liquidation, readjustment, reorganization or other judicial
proceedings relative to the Company or any other obligor on the Debentures or
their creditors, or affecting their property. The Trustee is hereby
irrevocably appointed (and the successive respective holders of the
Debentures by taking and holding the same shall be conclusively deemed to
have so appointed the Trustee) the true and lawful attorney-in-fact of the
respective holders of the Debentures, with authority to make and file in the
respective names of the holders of the Debentures or on behalf of the holders
of the Debentures as a class, subject to deduction from any such claims of
the amounts of any claims filed by any of the holders of the Debentures
themselves, any proof of debt, amendment of proof of debt, claim, petition or
other document in any such proceedings and to receive payment of any sums
becoming distributable on account thereof, and to execute any such other
papers and documents and to do and perform any and all such acts and things
for and on behalf of such holders of the Debentures as may be necessary or
advisable in the opinion of the Trustee in order to have the respective
claims of the Trustee and of the holders of the Debentures against the
Company or its property allowed in any such proceeding, and to receive
payment of or on account of such claims; provided, however, that nothing
contained in this Indenture shall be deemed to give to the Trustee any right
to accept or consent to any plan of reorganization or otherwise by action of
any character in any such proceeding to waive or change in any way any right
of any Debentureholder.
All rights of action and of asserting claims under this Indenture,
or under any of the Debentures, may be enforced by the Trustee without the
possession of any of the Debentures, or the production thereof on any trial
or other proceeding relative thereto, and any such suit or proceeding
instituted by the Trustee shall be brought in its own name as trustee of an
express trust, and any recovery of judgment shall be for the ratable benefit
of the holders of the Debentures, subject to the provisions of this
Indenture.
In case of an Event of Default hereunder the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the
exercise of any power granted in this Indenture, or to enforce any other
legal or equitable right vested in the Trustee by this Indenture or by law.
Section 7.03. Any monies collected by the Trustee pursuant to
Section 7.02, shall be applied in the order following, at the date or dates
fixed by the Trustee, upon presentation of the several Debentures, and
stamping thereon the payment, if only partially paid, and upon surrender
thereof if fully paid:
First: To the payment of costs and expenses of collection and of
all amounts payable to the Trustee under Section 8.06;
Second: In case the principal of the outstanding Debentures shall
not have become due and be unpaid, to the payment of interest on the
Debentures, in the order of the maturity of the installments of such
interest, with interest (so far as may be lawful and if such interest
has been collected by the Trustee) upon the overdue installments of
interest at the rate per annum expressed in the Debentures, such
payments to be made ratably to the persons entitled thereto, without
discrimination or preference;
Third: In case the principal of the outstanding Debentures shall
have become due, by declaration as authorized by this Indenture or
otherwise, to the payment of the whole amount then owing and unpaid upon
the Debentures for principal and interest, with interest on the overdue
principal and (so far as may be lawful and if such interest has been
collected by the Trustee) upon overdue installments of interest at the
rate per annum expressed in the Debentures; and in case such monies
shall be insufficient to pay in full the whole amount so due and unpaid
upon the Debentures, then to the payment of such principal and interest,
without preference or priority of principal over interest, or of
interest over principal, or of any installment of interest over any
other installment of interest, or of any Debenture over any other
Debenture, ratably to the aggregate of such principal and accrued and
unpaid interest; and
Fourth: To the payment of the remainder, if any, to the Company,
its successors or assigns, or to whomsoever may be lawfully entitled to
receive the same, or as a court of competent jurisdiction may direct.
Section 7.04. Except as otherwise expressly provided in this
Section, no holder of any Debenture shall have any right by virtue or by
availing of any provision in this Indenture or otherwise to institute any
suit, action or proceeding in equity or at law upon or under or with respect
to this Indenture, for the appointment of a receiver or trustee, for the
execution of any trust or power hereof, or for any other remedy hereunder,
unless such holder previously shall have given to the Trustee written notice
of default and of the continuance thereof, as hereinbefore provided, and
unless also the holders of not less than 25% in aggregate principal amount of
the Debentures then outstanding shall have made written request upon the
Trustee either to proceed to exercise the powers hereinbefore granted or to
institute such action, suit or proceeding in its own name as trustee
hereunder and shall have offered to the Trustee such reasonable indemnity as
it may require against the costs, expenses and liabilities to be incurred
therein or thereby, and the Trustee within a reasonable time (which in no
event shall be less than sixty days) after its receipt of such notice,
request and offer of indemnity, shall have failed to proceed to exercise such
powers or to institute any such action, suit or proceeding; it being
understood and intended, and being expressly covenanted by the taker and
holder of every Debenture with every other taker and holder and the Trustee,
that no one or more holders of Debentures shall have any right in any manner
whatever by virtue or by availing of any provision of this Indenture to
affect, disturb or prejudice the rights of the holders of any other of such
Debentures, or to obtain or seek to obtain priority over or preference to any
other such holder, or to enforce any right under this Indenture, except in
the manner herein provided and for the equal, ratable and common benefit of
all holders of Debentures. For the protection and enforcement of the
provisions of this Section, each and every Debentureholder and the Trustee
shall be entitled to such relief as can be given either at law or in equity.
Nothing herein contained shall, however, affect or impair the
right, which is absolute and unconditional, of any Debentureholder to receive
and to institute suit to enforce the payment of the principal of and interest
on his Debentures at and after the respective due dates (including, subject
to the provisions of Section 7.01, maturity by declaration pursuant to this
Indenture or otherwise) of such principal or interest, or the obligation of
the Company, which is also absolute and unconditional, to pay the principal
of and interest on each of the Debentures to the respective holders thereof
at the times and places in the Debentures expressed.
Section 7.05. No delay or omission of the Trustee or of any holder
of any of the Debentures to exercise any right or power accruing upon any
Event of Default shall impair any such right or power or shall be construed
to be a waiver of any such default or an acquiescence therein; and, subject
to the provisions of Section 7.04, every power and remedy given by this
Article or by law to the Trustee or to the Debentureholders may be exercised
from time to time, and as often as shall be deemed expedient, by the Trustee
or by the Debentureholders.
Section 7.06. See Section 316(a)(1) of the Trust Indenture Act.
Section 7.07. See Section 315(b) of the Trust Indenture Act.
Section 7.08. See Section 315(e) of the Trust Indenture Act.
ARTICLE EIGHT.
Concerning the Trustee.
Section 8.01. See Trust Indenture Act, including Section 315(a),
(b), (c) and (d) thereof.
Section 8.02. Except as otherwise provided in Section 8.01:
(a) The Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officers' Certificate,
certificate of auditors, or any other certificate, statement,
instrument, opinion, report, notice, request, consent, order, appraisal,
bond, debenture or other paper or document, including without limitation
documents delivered to it pursuant to Section 5.10 (which documents the
Trustee may rely on as not being amended or supplemented other than to
the extent any amendments or supplements have been delivered to it)
believed by it to be genuine and to have been signed or presented by the
proper party or parties;
(b) Any request, direction, order or demand of the Company
mentioned herein shall be sufficiently evidenced by an Officers'
Certificate (unless other evidence in respect thereof be herein
specifically prescribed); and any resolution of the Board of Directors
may be evidenced to the Trustee by a copy thereof certified by the
Secretary or an Assistant Secretary of the Company;
(c) The Trustee may consult with counsel of its selection and any
Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken or suffered or omitted by it
hereunder in good faith and in accordance with such Opinion of Counsel;
(d) The Trustee shall be under no obligation to exercise any of
the trusts or powers vested in it by this Indenture at the request,
order or direction of any of the Debentureholders, pursuant to the
provisions of this Indenture, unless such Debentureholders shall have
offered to the Trustee reasonable security or indemnity against the
costs, expenses and liabilities which may be incurred therein or
thereby;
(e) The Trustee shall not be personally liable for any action
taken or omitted by it in good faith and believed by it to be authorized
or within the discretion or rights or powers conferred upon it by this
Indenture;
(f) Prior to the occurrence of an Event of Default hereunder and
after the curing or waiving of all Events of Default, the Trustee shall
not be bound to make any investigation into the facts or matters stated
in any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order, approval, bond, debenture or other
paper or document unless requested in writing so to do by the holders of
not less than a majority in principal amount of the Debentures then
outstanding; provided, however, that if the payment within a reasonable
time to the Trustee of the costs, expenses or liabilities likely to be
incurred by it in the making of such investigation is, in the opinion of
the Trustee, not reasonably assured to the Trustee by the security
afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expense or liability as a condition to
so proceeding. The reasonable expense of every such investigation shall
be paid by the Company or, if paid by the Trustee, shall be repaid by
the Company upon demand;
(g) The Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents
or attorneys and the Trustee shall not be responsible for any misconduct
or negligence on the part of any agent or attorney appointed by it
hereunder; and
(h) None of the provisions of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any personal
financial liability in the performance of any of its duties hereunder,
or in the exercise of any of its rights or powers, if it shall have
reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably
assured to it.
Section 8.03. The recitals contained herein and in the Debentures
(other than the certificate of authentication on the Debentures) shall be
taken as the statements of the Company, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representations as to the validity or sufficiency of this Indenture or of the
Debentures. The Trustee shall not be accountable for the use or application
by the Company of any of the Debentures or of the proceeds of such
Debentures, or for the use or application of any moneys paid over by the
Trustee in accordance with any provision of this Indenture, or for the use or
application of any moneys received by any paying agent.
Section 8.04. The Trustee or any paying agent or any Debenture
registrar, in its individual or any other capacity, may become the owner or
pledgee of Debentures with the same rights it would have if it were not
Trustee, paying agent or Debenture registrar.
Section 8.05. Subject to the provisions of Section 13.04, all
moneys received by the Trustee shall, until used or applied as herein
provided, be held in trust for the purposes for which they were received, but
need not be segregated from other funds except to the extent required by law.
The Trustee shall be under no liability for interest on any moneys received
by it hereunder except such as it may agree in writing with the Company to
pay thereon. So long as no Event of Default shall have occurred and be
continuing, all interest allowed on any such moneys shall be paid from time
to time upon the written order of the Company, signed by its President, a
Vice President, its Treasurer or an Assistant Treasurer.
Section 8.06. The Company covenants and agrees to pay to the
Trustee from time to time, and the Trustee shall be entitled to, such
compensation as the Company and the Trustee shall from time to time agree to
in writing (which shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust) for all services rendered
by it in the execution of the trusts hereby created and in the exercise and
performance of any of the powers and duties hereunder of the Trustee, and the
Company will pay or reimburse the Trustee upon its request for all reasonable
expenses, disbursements and advances incurred or made by the Trustee in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and
of all persons not regularly in its employ) except any such expense,
disbursement or advance as may arise from its negligence or bad faith. The
Company also covenants to indemnify the Trustee for, and to hold it harmless
against, any and all loss, damage, claims, liability or expense incurred
without negligence or bad faith on the part of the Trustee, and arising out
of or in connection with the acceptance or administration of this trust,
including the costs and expenses of defending itself against any claim of
liability in the premises. The obligations of the Company under this Section
to compensate the Trustee, to pay or reimburse the Trustee for expenses,
disbursements and advances and to indemnify the Trustee shall constitute
additional indebtedness hereunder. Such additional indebtedness shall be
secured by a lien prior to that of the Debentures upon all property and funds
held or collected by the Trustee as such, except funds held in trust for the
benefit of the holders of particular Debentures.
Section 8.07. Except as otherwise provided in Section 8.01,
whenever in the administration of the trusts of this Indenture the Trustee
shall deem it necessary or desirable that a matter be proved or established
prior to taking or suffering or omitting any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed)
may be deemed to be conclusively proved and established by an Officers'
Certificate, and such certificate shall be full warrant to the Trustee for
any action taken, suffered or omitted by it under the provisions of this
Indenture upon the faith thereof.
Section 8.08. See Section 310(b) of the Trust Indenture Act. In
addition, excluded from the operation of Section 310(b)(1) of the Trust
Indenture Act are the following: the Indenture dated as of April 1, 1977
between the Company and Citibank, N.A., Trustee, pursuant to which the
Company's 8 5/8% Debentures due 2007 are outstanding, the Indenture dated as
of October 15, 1988 between the Company and Citibank, N.A., Trustee, pursuant
to which the Company's 10 1/8% Debentures due 2018 are outstanding, the
Indenture dated as of December 1, 1989 between the Company and Citibank,
N.A., Trustee, pursuant to which the Company's 7.20% Debentures due 2019 are
outstanding, the Indenture dated as of October 1, 1990 between the Company
and Citibank, N.A., Trustee, pursuant to which the Company's 7 1/2%
Debentures due 2020 are outstanding, the Indenture dated as of August 1, 1991
between the Company and The Bank of New York, Trustee, pursuant to which the
Company's 6.60% Debentures due 2021 are outstanding, the Indenture dated as
of August 1, 1991 between the Company and The Bank of New York, Trustee,
pursuant to which the Company's 6.70% Debentures due 2021 are outstanding,
the Indenture dated as of October 1, 1991 between the Company and The Bank of
New York, Trustee, pursuant to which the Company's 8 3/4% Debentures due 2021
are outstanding and the Indenture dated as of September 1, 1992 between the
Company and The Bank of New York, Trustee, pursuant to which the Company's 8%
Debentures due 2022 are outstanding.
Section 8.09. The Trustee hereunder shall at all times be a
corporation organized and doing business under the laws of the United States
or any State or Territory or of the District of Columbia authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $5,000,000, subject to supervision or examination by
Federal, State, Territorial, or District of Columbia authority. If such
corporation publishes reports of condition at least annually, pursuant to law
or to the requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of
such corporation shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. In case at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the
manner and with the effect specified in Section 8.10.
Section 8.10. (a) The Trustee, or any successor hereafter
appointed, may at any time resign and be discharged from the trust hereby
created by mailing notice thereof to the Company and to the Debentureholders
whose names and addresses appear in the information preserved at the time by
the Trustee in accordance with the provisions of Section 6.02(a) hereof.
Upon receiving such notice of resignation, the Company shall promptly appoint
a successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors of the Company, one copy of which instrument shall be
delivered to the resigning Trustee and one copy to the successor trustee. If
no successor trustee shall have been so appointed and have accepted
appointment within thirty days after the mailing of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor trustee, or any
Debentureholder who has been a bona fide holder of a Debenture or Debentures
for at least six months may, subject to the provisions of Section 7.08, on
behalf of himself and all others similarly situated, petition any such court
for the appointment of a successor trustee. Such court may thereupon after
such notice, if any, as it may deem proper and prescribe, appoint a successor
trustee.
(b) In case at any time any of the following shall occur--
(1) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act after written request therefor
by the Company or by any Debentureholder who has been a bona fide holder
of a Debenture or Debentures for at least six months, or
(2) the Trustee shall cease to be eligible in accordance with
the provisions of Section 8.09 and shall fail to resign after written
request therefor by the Company or by any such Debentureholder, or
(3) the Trustee shall become incapable of acting, or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its
property shall be appointed, or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, the Company may remove the Trustee and appoint a
successor trustee by written instrument, in duplicate, executed by order of
the Board of Directors of the Company, one copy of which instrument shall be
delivered to the Trustee so removed and one copy to the successor trustee,
or, subject to the provisions of Section 7.08, any Debentureholder who has
been a bona fide holder of a Debenture or Debentures for at least six months
may, on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee. Such court may thereupon after such
notice, if any, as it may deem proper and prescribe, remove the Trustee and
appoint a successor trustee.
(c) The holders of a majority in aggregate principal amount of the
Debentures at the time outstanding may at any time remove the Trustee and
appoint a successor trustee.
(d) Any resignation or removal of the Trustee and any appointment
of a successor trustee pursuant to any of the provisions of this Section
shall become effective upon acceptance of appointment by the successor
trustee as provided in Section 8.11.
Section 8.11. Any successor trustee appointed as provided in
Section 8.10 shall execute, acknowledge and deliver to the Company and to its
predecessor trustee an instrument accepting such appointment hereunder, and
thereupon the resignation or removal of the predecessor trustee shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become fully vested with all the rights, powers, duties and
obligations of its predecessor hereunder, with like effect as if originally
named as trustee herein. The predecessor trustee shall, nevertheless, at the
written request of the successor trustee, and upon payment of any amount then
due it pursuant to Section 8.06, pay over to the successor trustee all moneys
at the time held by it hereunder; and the Company and the predecessor trustee
shall execute and deliver such instruments and do such other things as may
reasonably be required for more fully and certainly vesting and confirming in
the successor trustee all such rights, powers, duties and obligations. Any
Trustee ceasing to act shall nevertheless retain a lien on all funds held or
collected by such Trustee to secure any amount due it pursuant to Section
8.06.
No successor trustee shall accept appointment as provided in this
Section unless at the time of such acceptance such successor trustee shall be
qualified under the provisions of Section 8.08 and eligible under the
provisions of Section 8.09.
Upon acceptance of appointment by a successor trustee as provided
in this Section, the Company shall mail notice of the succession of such
trustee hereunder to all Debentureholders at their last addresses appearing
upon the register. If the Company fails to mail such notice in the
prescribed manner within 10 days after the acceptance of appointment by the
successor trustee, the successor trustee shall cause such notice to be mailed
at the expense of the Company.
Section 8.12. Any corporation into which the Trustee may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Trustee shall be a party, or any
corporation succeeding to the business of the Trustee, shall be the successor
of the Trustee hereunder, provided such corporation shall be qualified under
the provisions of Section 8.08 and eligible under the provisions of Section
8.09, without the execution or filing of any paper or any further act on the
part of any of the parties hereto, anything herein to the contrary
notwithstanding.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any of the Debentures shall have been
authenticated but not delivered, any such successor to the Trustee may adopt
the certificate of authentication of any predecessor trustee, and deliver
such Debentures so authenticated; and in case at that time any of the
Debentures shall not have been authenticated, any successor to the Trustee
may authenticate such Debentures either in the name of any predecessor
hereunder or in the name of the successor trustee; and in all such cases such
certificates shall have the full force which it is anywhere in the Debentures
or in this Indenture provided that the certificate of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication
of any predecessor trustee or authenticate Debentures in the name of any
predecessor trustee shall apply only to its successor or successors by
merger, conversion or consolidation.
Section 8.13. See Section 311 of the Trust Indenture Act.
ARTICLE NINE.
Concerning the Debentureholders.
Section 9.01. Whenever in this Indenture it is provided that the
holders of a specified percentage in aggregate principal amount of the
Debentures may take any action (including the making of any demand or
request, the giving of any notice, consent or waiver or the taking of any
other action), the fact that at the time of taking any such action the
holders of such specified percentage have joined therein may be evidenced (a)
by any instrument or any number of instruments of similar tenor executed by
Debentureholders in person or by attorney or proxy appointed in writing, or
(b) by the record of the holders of Debentures voting in favor thereof at any
meeting of Debentureholders duly called and held in accordance with the
provisions of Article Ten, or (c) by a combination of such instrument or
instruments and any such record of such a meeting of Debentureholders.
Section 9.02. Subject to the provisions of Section 8.01, proof of
the execution of any instrument by a Debentureholder or his attorney or proxy
and proof of the holding by any person of any of the Debentures shall be
sufficient for any purpose of this Indenture if made in accordance with such
reasonable rules and regulations as may be prescribed by the Trustee or in
such manner as shall be satisfactory to the Trustee. The ownership of
Debentures shall be proved by the register of such Debentures or by a
certificate of the Debenture registrar.
The record of any Debentureholders' meeting shall be proved in the
manner provided in Section 10.06.
Section 9.03. The Company, the Trustee, any paying agent and any
Debenture registrar may deem and treat the person in whose name any Debenture
shall be registered upon the register as the absolute owner of such Debenture
(whether or not such Debenture shall be overdue and notwithstanding any
notice of ownership or writing thereon), for the purpose of receiving payment
of or on account of the principal of and interest and premium, if any, on
such Debenture and for all other purposes, and neither the Company nor the
Trustee nor any paying agent nor any Debenture registrar shall be affected by
any notice to the contrary. All such payments so made to any such registered
holder, for the time being or upon his order, shall be valid, and, to the
extent of the sum or sums so paid, effectual to satisfy and discharge the
liability for moneys payable upon any such Debenture.
Section 9.04. In determining whether the holders of the requisite
aggregate principal amount of Debentures have concurred in any direction,
consent or waiver under this Indenture, Debentures which are owned by the
Company or any other obligor on the Debentures or by any person directly or
indirectly controlling or controlled by or under direct or indirect common
control with the Company or any other obligor on the Debentures shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination, except that for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, consent or waiver only
Debentures which the Trustee knows are so owned shall be so disregarded.
Debentures so owned which have been pledged in good faith may be regarded as
outstanding for the purposes of this Section, if the pledgee shall establish
to the satisfaction of the Trustee the pledgee's right to vote such
Debentures and that the pledgee is not a person directly or indirectly
controlling or controlled by or under direct or indirect common control with
the Company or any such other obligor. In case of a dispute as to such
right, any decision by the Trustee taken upon the advice of counsel shall be
full protection to the Trustee.
Section 9.05. Any demand, request, waiver, consent or vote of the
holder of any Debenture shall be conclusive and binding upon such holder and
upon all future holders and owners of such Debenture, and of any Debenture
issued in exchange therefor or in place thereof, irrespective of whether or
not any notation in regard thereto is made upon such Debenture. Any action
taken by the holders of the majority or percentage in aggregate principal
amount of the Debentures specified in this Indenture in connection with such
action shall be conclusively binding upon the Company, the Trustee and the
holders of all the Debentures.
ARTICLE TEN.
Debentureholders' Meetings.
Section 10.01. A meeting of Debentureholders may be called at any
time and from time to time pursuant to the provisions of this Article Ten for
any of the following purposes:
(1) to give any notice to the Company or to the Trustee, or to
give any directions to the Trustee, or to consent to the waiving of any
default hereunder and its consequences, or to take any other action
authorized to be taken by Debentureholders pursuant to any of the
provisions of Article Seven;
(2) to remove the Trustee and appoint a successor trustee pursuant
to the provisions of Article Eight;
(3) to consent to the execution of an indenture or indentures
supplemental hereto pursuant to the provisions of Section 11.02; or
(4) to take any other action authorized to be taken by or on
behalf of the holders of any specified aggregate principal amount of the
Debentures under any other provision of this Indenture, or authorized or
permitted by law.
Section 10.02. The Trustee may at any time call a meeting of
Debentureholders to take any action specified in Section 10.01, to be held at
such time and at such place in the Borough of Manhattan, City and State of
New York, as the Trustee shall determine. Notice of every meeting of the
Debentureholders, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
mailed not less than fifteen days prior to the date fixed for the meeting to
the Debentureholders whose names and addresses appear in the information
preserved at the time by the Trustee in accordance with the provisions of
Section 6.02(a) hereof or obtained in accordance with the provisions of
Section 6.01 hereof.
Any meeting of Debentureholders shall be valid without notice if
the holders of all Debentures then outstanding are present in person or by
proxy or if notice is waived before or after the meeting by the holders of
all Debentures outstanding, and if the Company and the Trustee are either
present by duly authorized representatives or have, before or after the
meeting, waived notice.
Section 10.03. In case at any time the Company, pursuant to a
resolution of its Board of Directors or the holders of at least 20% in
aggregate principal amount of the Debentures then outstanding, shall request
the Trustee to call a meeting of Debentureholders to take any action
specified in Section 10.01, by written request setting forth in reasonable
detail the action proposed to be taken at the meeting and the time and place
in the Borough of Manhattan, City and State of New York, for such meeting,
the Trustee shall mail notice of such meeting as provided in Section 10.02
within twenty days after receipt of such request.
Section 10.04. To be entitled to vote at any meeting of
Debentureholders a person shall (a) be a holder of one or more Debentures or
(b) be a person appointed by an instrument in writing as proxy for the holder
or holders of Debentures by a holder of one or more Debentures. The only
persons who shall be entitled to be present or to speak at any meeting of
Debentureholders shall be the persons entitled to vote at such meeting and
their counsel and any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
Section 10.05. Notwithstanding any other provision of this
Indenture, the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Debentureholders, in regard to proof of the
holding of Debentures and of the appointment of proxies, and in regard to the
appointment and duties of inspectors of votes, the submission and examination
of proxies, certificates and other evidence of the right to vote, and such
other matters concerning the conduct of the meeting as it shall think fit.
Except as otherwise permitted or required by any such regulations, the
holding of Debentures shall be proved in the manner specified in Section 9.02
and the appointment of any proxy shall be proved in the manner specified in
Section 9.02. Pursuant to the foregoing authority the Trustee may fix, in
advance, a date as a record date for determining the Debentureholders
entitled to notice of, or to vote at, any meeting, such date to be not less
than fifteen nor more than forty-five days prior to the date fixed for such
meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by request
of the Company or Debentureholders as provided in Section 10.03, in which
case the Company or such Debentureholders, as the case may be, shall in like
manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the holders of a
majority in principal amount of the Debentures represented at the meeting and
entitled to vote.
Subject to the provisions of Section 9.04, at any meeting each
Debentureholder or proxy shall be entitled to one vote for each $1,000
principal amount of Debentures, provided, however, that no vote shall be cast
or counted at any meeting in respect of any Debentures challenged as not
outstanding and ruled by the chairman of the meeting to be not outstanding.
The chairman of the meeting shall have no right to vote other than by virtue
of Debentures held by him or instruments in writing as aforesaid duly
designating him as the person to vote on behalf of other Debentureholders.
Any meeting of Debentureholders duly called pursuant to the provisions of
Section 10.02 or 10.03 may be adjourned from time to time, and the meeting
may be held as so adjourned without further notice.
Section 10.06. The vote upon any resolution submitted to any
meeting of Debentureholders shall be by written ballots on which shall be
subscribed the signatures of the holders of Debentures or of their
representatives by proxy. The permanent chairman of the meeting shall
appoint two inspectors of votes, who shall count all votes cast at the
meeting for or against any resolution and who shall make and file with the
secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Debentureholders shall be prepared by the secretary of the meeting
and there shall be attached to said record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one
or more person having knowledge of the facts, setting forth a copy of the
notice of the meeting and showing that said notice was mailed as provided in
Section 10.02. The record shall be signed and verified by the affidavits of
the permanent chairman and secretary of the meeting and one of the duplicates
shall be delivered to the Company and the other to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots
voted at the meeting.
Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
Section 10.07. Nothing in this Article Ten contained shall be
deemed or construed to authorize or permit, by reason of any call of a
meeting of Debentureholders or any rights expressly or impliedly conferred
hereunder to make such call, any hindrance or delay in the exercise of any
right or rights conferred upon or reserved to the Trustee or to the
Debentureholders under any of the provisions of this Indenture or of the
Debentures.
ARTICLE ELEVEN.
Supplemental Indentures.
Section 11.01. The Company, when authorized by a resolution of its
Board of Directors, and the Trustee, subject to the conditions and
restrictions of this Indenture contained, may from time to time and at any
time enter into an indenture or indentures supplemental hereto (which shall
conform to the provisions of the Trust Indenture Act of 1939 as then in
effect) for one or more of the following purposes:
(a) to evidence the succession of another corporation to the
Company, or successive successions, and the assumption by the successor
corporation of the covenants, agreements and obligations of the Company
pursuant to Article Twelve;
(b) to add to the covenants and agreements of the Company in this
Indenture contained such further covenants and agreements thereafter to
be observed, and to surrender any right or power herein reserved to or
conferred upon the Company; and
(c) to cure any ambiguity, to correct or supplement any provisions
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, provided such action or other
provisions shall not adversely affect the interests of the holders of
Debentures in any material respect.
The Trustee is hereby authorized to join with the Company in the
execution of any supplemental indenture authorized or permitted by the terms
of this Indenture and to make any further appropriate agreements and
stipulations which may be therein contained, but the Trustee shall not be
obligated to enter into any such supplemental indenture which affects the
Trustee's own rights, duties or immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section may be executed by the Company and the Trustee without the consent of
the holders of any of the Debentures at the time outstanding, notwithstanding
any of the provisions of Section 11.02.
Section 11.02. With the consent (evidenced as provided in Section
9.01) of the holders (or persons entitled to vote, or to give consents
respecting the same) of more than 50% in aggregate principal amount of the
Debentures at the time outstanding, the Company, when authorized by a
resolution of its Board of Directors, and the Trustee may from time to time
and at any time enter into an indenture or indentures supplemental hereto
(which shall conform to the provisions of the Trust Indenture Act of 1939 as
then in effect) for the purpose of adding any provisions to or changing in
any manner or eliminating any of the provisions of this Indenture or of any
supplemental indenture or of modifying in any manner the rights and
obligations of the holders of the Debentures and of the Company; provided,
however, that no such supplemental indenture shall (i) extend the fixed
maturity of any Debenture, or reduce the principal amount thereof, or reduce
the rate or extend the time of payment of interest thereon, without the
consent of the holder of each Debenture so affected, or (ii) reduce the
aforesaid percentage of Debentures, the holders of which are required to
consent to any such supplemental indenture, without the consent of the
holders of all Debentures then outstanding.
Upon the request of the Company, accompanied by a copy of a
resolution of its Board of Directors certified by the secretary or an
assistant secretary of the Company authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of
the consent of Debentureholders as aforesaid, the Trustee shall join with the
Company in the execution of such supplemental indenture unless such
supplemental indenture affects the Trustee's own rights, duties or immunities
under this Indenture or otherwise, in which case the Trustee may in its
discretion but shall not be obligated to enter into such supplemental
indenture.
It shall not be necessary for the consent of the Debentureholders
under this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such consent shall
approve the substance thereof.
Promptly after the execution by the Company and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the
Company shall mail a notice, setting forth in general terms the substance of
such supplemental indenture, to all Debentureholders at their last addresses
appearing upon the register. Any failure of the Company to mail such notice,
or any defect therein, shall not, however, in any way impair or affect the
validity of any such supplemental indenture.
Section 11.03. Upon the execution of any supplemental indenture
pursuant to the provisions of this Article, this Indenture shall be and be
deemed to be modified and amended in accordance therewith and the respective
rights, limitation of rights, obligations, duties and immunities under this
Indenture of the Trustee, the Company and the holders of Debentures shall
thereafter be determined, exercised and enforced hereunder subject in all
respects to such modifications and amendments, and all the terms and
conditions of any such supplemental indenture shall be and be deemed to be
part of the terms and conditions of this Indenture for any and all purposes.
Section 11.04. Debentures authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article, or after any action taken at a Debentureholders' meeting pursuant to
Article Ten, may bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture or as to any action taken
at any such meeting; and, in such case, suitable notation may be made upon
outstanding Debentures after proper presentation and demand. If the Company
or the Trustee shall so determine, new Debentures so modified as to conform,
in the opinion of the Trustee and the Board of Directors of the Company, to
any modification of this Indenture contained in any such supplemental
indenture, or to any action taken at any such meeting, may be prepared by the
Company, authenticated by the Trustee and delivered in exchange for the
Debentures then outstanding, upon demand of, and without cost to, the holders
thereof, upon surrender of such Debentures.
Section 11.05. The Trustee, subject to the provisions of Section
8.01, may receive an Opinion of Counsel as conclusive evidence that any
supplemental indenture executed pursuant to this Article Eleven is authorized
or permitted by the terms of this Indenture and that it is not inconsistent
therewith.
ARTICLE TWELVE.
Consolidation, Merger and Sale.
Section 12.01. Nothing contained in this Indenture or in any of
the Debentures shall prevent any consolidation or merger of the Company with
or into any other corporation or corporations (whether or not affiliated with
the Company), or successive consolidations or mergers in which the Company or
its successor or successors shall be a party or parties, or shall prevent any
sale or conveyance (or successive sales or conveyances) of the property and
assets of the Company (or of its successor or successors) as an entirety or
substantially as an entirety, to any other corporation (whether or not
affiliated with the Company) authorized to acquire the same; provided,
however, and the Company hereby covenants and agrees that, upon any such
consolidation, merger, sale or conveyance, the due and punctual payment of
the principal of and interest on all the Debentures, according to their
tenor, and the due and punctual performance and observance of all the terms,
covenants and conditions of this Indenture to be kept or performed by the
Company, shall be expressly assumed, by indenture supplemental hereto,
satisfactory in form to the Trustee, executed and delivered to the Trustee by
the corporation formed by such consolidation, or into which the Company shall
have been merged, or by the corporation which shall have acquired such
property and assets. In the event of any such sale or conveyance the
predecessor Company may be dissolved, wound up and liquidated at any time
thereafter.
Section 12.02. In case of any such consolidation, merger, sale or
conveyance and upon the execution by the successor corporation of an
indenture supplemental hereto, as provided in Section 12.01, such successor
corporation shall succeed to and be substituted for the Company, with the
same effect as if it had been named herein as the party of the first part.
Such successor corporation thereupon may issue either in its own name or in
the name of the Company, with such suitable reference, if any, to such
consolidation, merger, sale or conveyance as may be required by the Trustee,
any or all of the Debentures issuable hereunder which theretofore shall not
have been issued by the Company and delivered to the Trustee; and, upon the
written order of such successor corporation, instead of the Company, and
subject to all the terms, conditions and limitations in this Indenture
prescribed, the Trustee shall authenticate and shall deliver any Debentures
which previously shall have been executed by the Company and any Debentures
which such successor corporation thereafter shall cause to be executed in
accordance with the provisions of this Indenture and delivered to the Trustee
for that purpose. All the Debentures so issued shall in all respects have
the same legal rank and benefit under this Indenture as the Debentures
theretofore or thereafter issued in accordance with the terms of this
Indenture as though all of such Debentures had been issued at the date of the
execution hereof.
In case of any such consolidation, merger, sale or conveyance such
changes in phraseology and form (but not in substance) may be made in the
Debentures thereafter to be issued as may be appropriate).
Nothing contained in this Indenture or in any of the Debentures
shall prevent the Company from consolidating with, or merging into itself, or
acquiring by purchase or otherwise all or any part of the property of, any
other corporation (whether or not affiliated with the Company).
Section 12.03. The Trustee, subject to the provisions of Section
8.01, may receive an Opinion of Counsel as conclusive evidence that any such
consolidation, merger, sale or conveyance, and any such assumption, complies
with the provisions of this Article.
ARTICLE THIRTEEN.
Satisfaction and Discharge of Indenture; Deposited Moneys.
Section 13.01. If:
(1) Either (i) the Company shall deliver to the Trustee for
cancellation all Debentures (other than Debentures deemed not to be
outstanding under clause (c) of the definition thereof) not theretofore
canceled or delivered to the Trustee for cancellation, or (ii) the Company
shall have deposited in trust with the Trustee cash sufficient to pay at
maturity or upon redemption (after notice of redemption has been duly given
or provided for) all of the Debentures (other than Debentures deemed not to
be outstanding under clause (c) of the definition thereof) not theretofore
canceled or delivered to the Trustee for cancellation, including principal,
premium, if any, and interest due or to become due to such date of maturity
or redemption date, as the case may be, or (iii) the Company shall have
deposited in trust with the Trustee direct obligations of the United States
or obligations the principal of and interest on which are fully guaranteed by
the United States, and which are not subject to prepayment, redemption or
call prior to their stated maturity, in such amounts and maturing at such
times that the proceeds of said obligations, together with the income that
can be predetermined will accrue thereon by reference to the terms thereof
(without consideration of any reinvestment thereof), to be received upon
their respective maturities and interest payment dates will provide funds
sufficient to pay the principal, premium, if any, and interest due or to
become due to the date of maturity or to the redemption date, as the case may
be, with respect to all of the Debentures (other than Debentures deemed not
to be outstanding under clause (c) of the definition thereof) not theretofore
canceled or delivered to the Trustee for cancellation, provided that the
Trustee shall have been irrevocably instructed to apply the proceeds of said
obligations to the payment of such principal, premium and interest with
respect to such Debentures, or (iv) the Company shall have deposited in trust
with the Trustee any combination of cash or obligations referred to in (ii)
and (iii),
(2) the Company shall pay or cause to be paid all other sums
payable with respect to the Debentures, and
(3) the Company shall deliver to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
the entire indebtedness on the Debentures have been complied with, then
(a) this Indenture shall cease to be of further effect (except as
otherwise provided herein) and on or after such maturity date or
redemption date, as the case may be, the Trustee, on demand of, and at
the expense of, the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture; and
(b) all obligations of the Company in respect of the Debentures
shall cease and be discharged and the holders of such Debentures shall
thereafter be restricted exclusively to such funds for any and all
claims of whatever nature on their part under this Indenture or with
respect to such Debentures; provided, however, that, in no event shall
the Company be discharged from (i) any payment obligation in respect of
Debentures deemed not to be outstanding under clause (c) of the
definition thereof if such obligations continue to be valid obligations
under applicable law, (ii) any obligations under Sections 2.05 and 2.06
(except that Debentures issued upon registration of transfer or exchange
or in lieu of mutilated, lost, destroyed or stolen Debentures shall not
be deemed to be such obligations) or (iii) any obligations under
Sections 6.01, 8.06, 13.02, 13.03 and 13.04; further provided, however,
that the rights and privileges of the Trustee under this Indenture shall
survive any such discharge.
The Company hereby agrees to reimburse the Trustee for any costs or
expenses thereafter reasonably and properly incurred by the Trustee in
connection with this Indenture or the Debentures, and without bad faith or
negligence.
Section 13.02. All moneys deposited with the Trustee pursuant to
Section 13.01 shall be held in trust and applied by it to the payment, to the
holders of the particular Debentures for the payment or redemption of which
such moneys have been deposited with the Trustee, of all sums due and to
become due thereon for principal, premium, if any, and interest.
Section 13.03. In connection with the satisfaction and discharge
of this Indenture all moneys then held by any paying agent under the
provisions of this Indenture shall, upon demand of the Company or Trustee, be
paid to the Trustee and thereupon such paying agent shall be released from
all further liability with respect to such moneys.
Section 13.04. In case the holder of any Debenture entitled to
payment hereunder at any time outstanding hereunder shall not, within two
years after the maturity date of such Debenture or the date fixed for the
redemption of any such Debenture, claim the amount on deposit with the
Trustee or other depositary for the payment of such Debenture, the Trustee or
other depositary shall pay over to or upon the written order of the Company
the amount so deposited, upon receipt of a request signed by the President or
a Vice President of the Company, and thereupon the Trustee or other
depositary shall be released from any and all further liability with respect
to the payment of such Debenture and the holder of said Debenture shall be
entitled (subject to any applicable statute of limitations) to look only to
the Company as an unsecured creditor for the payment thereof.
ARTICLE FOURTEEN.
Immunity of Incorporators, Stockholders, Officers,
Trustees and Directors.
Section 14.01. No recourse under or upon any obligation, covenant
or agreement of this Indenture, or of any Debenture, or for any claim based
thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer, trustee or director, as such, past,
present or future, of the Company or of any predecessor or successor
corporation, either directly through the Company or any such predecessor or
successor corporation, whether by virtue of any constitution, statute or rule
of law or equity, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no
such personal liability whatever shall attach to, or is or shall be incurred
by, the incorporators, stockholders, officers, trustees or directors of the
Company, as such, or of any predecessor or successor corporation, or any of
them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Debentures or implied therefrom; and that any and
all such liability is hereby expressly waived and released by every holder of
Debentures as a condition of, and as a consideration for, the execution of
this Indenture and the issue of such Debentures.
ARTICLE FIFTEEN.
Miscellaneous Provisions.
The provisions of the Trust Indenture Act which impose duties on
any person (including provisions automatically deemed included in an
indenture by the Trust Indenture Act unless the indenture provides that such
provisions are excluded which provision is hereby expressly excluded other
than Section 316(a)(2) of the Trust Indenture Act) are a part of and govern
this Indenture. If any provision hereof limits, qualifies or conflicts with
any of the duties imposed by operation of the Trust Indenture Act, the Trust
Indenture Act shall control.
Section 15.01. All the covenants, stipulations, promises and
agreements in this Indenture contained by or in behalf of the Company shall
bind its successors and assigns, whether so expressed or not.
Section 15.02. Any act or proceeding by any provision of this
Indenture authorized or required to be done or performed by any board,
committee or officer of the Company shall and may be done and performed with
like force and effect by the like board, committee or officer of any
corporation that shall at the time be the lawful successor of the Company.
Section 15.03. The Company by instruments in writing executed by
authority of its Board of Directors and delivered to the Trustee may
surrender any of the powers reserved to the Company and thereupon such power
so surrendered shall terminate both as to the Company and as to any successor
corporation.
Section 15.04. Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the Trustee or by
the holders of Debentures to or on the Company may be given or served by
being deposited postage prepaid in a post-office letterbox addressed (until
another address is filed in writing by the Company with the Trustee), as
follows: Elizabethtown Water Company, 600 South Avenue, Westfield, NJ 07091-
0788. Any notice, election, request or demand by any Debentureholder to or
upon the Trustee shall be deemed to have been sufficiently given or made, for
all purposes, if given or made at the principal corporate trust office of the
Trustee in the Borough of Manhattan, City and State of New York.
Section 15.05. This Indenture and each Debenture shall be deemed
to be a contract made under the laws of the State of New York, and for all
purposes shall be construed in accordance with the laws of said state.
Section 15.06. Upon any application or demand by the Company to
the Trustee to take any action under any of the provisions of this Indenture,
the Company shall furnish to the Trustee an Officers' Certificate stating
that all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with and an Opinion of
Counsel stating that in the opinion of such counsel all such conditions
precedent have been complied with.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or
covenant provided for in this Indenture shall include (1) a statement that
the person making such certificate or opinion has read such covenant or
condition; (2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained
in such certificate or opinion are based; (3) a statement that, in the
opinion of such person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or not
such covenant or condition has been complied with; and (4) a statement as to
whether or not, in the opinion of such person, such condition or covenant has
been complied with.
Any certificate, statement or opinion of an officer of the Company
may be based, in so far as it relates to legal matters, upon a certificate or
opinion of or representations by counsel, unless such officer knows that the
certificate or opinion or representations with respect to the matters upon
which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same
are erroneous. Any certificate, statement or opinion of counsel may be based
(in so far as it relates to factual matters information with respect to which
is in the possession of the Company) upon the certificate, statement or
opinion of or representations by an officer or officers of the Company,
unless such counsel knows that the certificate, statement or opinion or
representations with respect to the matters upon which his certificate,
statement or opinion may be based as aforesaid are erroneous, or in the
exercise of reasonable care should know that the same are erroneous.
Any certificate, statement or opinion of an officer of the Company
or of counsel may be based, in so far as it relates to accounting matters,
upon a certificate or opinion of or representations by an accountant or firm
of accountants in the employ of the Company, unless such officer or counsel,
as the case may be, knows that the certificate or opinion or representations
with respect to the accounting matters upon which his certificate, statement
or opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Section 15.07. In any case where the date of maturity of interest
on or principal of the Debentures or the date fixed for redemption of any
Debenture shall be a Sunday or legal holiday or a date on which banking
institutions in the city of payment are authorized by law to close, then
payment of interest, principal or premium may be made on the next succeeding
day not a Sunday or a legal holiday or a date on which banking institutions
in the city of payment are authorized by law to close with the same force and
effect as if made on the nominal date and no interest shall accrue for the
period after such nominal date.
Section 15.08. If and to the extent that any provision of this
Indenture limits, qualifies or conflicts with another provision included in
this Indenture which is required to be included in this Indenture by any of
Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such
required provision shall control.
Section 15.09. In case any one or more of the provisions contained
in this Indenture or in the Debentures shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provisions of this Indenture
or of such Debentures, but this Indenture and such Debentures shall be
construed as if such invalid or illegal or unenforceable provision had never
been contained herein or therein.
Section 15.10. This Indenture may be executed in any number of
counterparts, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
The Bank of New York, the party of the second part, hereby accepts
the trusts in this Indenture declared and provided, upon the terms and
conditions hereinabove set forth.
IN WITNESS WHEREOF, Elizabethtown Water Company, the party of the
first part, has caused this Indenture to be signed in its corporate name and
acknowledged by its President, or one of its Vice Presidents, and its
corporate seal to be affixed hereunto, duly attested by its Secretary or an
Assistant Secretary; and The Bank of New York, the party of the second part,
has caused this Indenture to be signed and acknowledged by one of its
Assistant Vice Presidents, and its corporate seal to be affixed hereunto,
duly attested by one of its Assistant Treasurers, all as of the day and year
first above written.
ELIZABETHTOWN WATER COMPANY,
(Seal)
By /s/ Gail P. Brady
____________________________
Vice President
Attest:
/s/ Walter M. Braswell
_______________________
Secretary
THE BANK OF NEW YORK, as Trustee
(Seal)
By /s/ Robert F. McIntyre
______________________________
Assistant Vice President
Attest:
/s/ Lucille Firrincieli
_______________________
Assistant Treasurer
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 2nd day of November, 1993, before me, the subscriber, a
Notary Public within and for the County of New York, in the State of New
York, personally appeared Gail P. Brady, to me personally known, who, being
by me duly sworn, did say that she resides at 49 Howell Drive, Verona, N.J.
07044 and is a Vice President of Elizabethtown Water Company, one of the
corporations described in and which executed the foregoing instrument; that
she knows the corporate seal of the said corporation and that the seal
affixed to said instrument is the corporate seal of said corporation; and
that said instrument was signed and sealed on behalf of said corporation by
authority of its Board of Directors and that she subscribed her name thereto
by like authority; and said Walter M. Braswell, acknowledged said instrument
to be the free act and deed of said corporation.
My commission as Notary Public as aforesaid expires
/s/ Jason D. Craven
_______________________________
Notary Public, State of
New York
No. 31-4989968
Qualified in New York County
Commission Expires
December 23, 1993
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On this 9th day of November, 1993, before me, the subscriber, a
Notary Public within and for the County of New York, in the State of New
York, personally appeared Robert F. McIntyre, to me personally known,
who, being by me duly sworn, did say that he resides at
1108 Hudson St. Hoboken, N.J. 07030, and is an Assistant Vice President of The
Bank of New York, one of the corporations described in and which executed the
foregoing instrument; that he knows the corporate seal of the said
corporation and that the seal affixed to said instrument is the corporate
seal of said corporation; and that said instrument was signed and sealed in
behalf of said corporation by authority of its Board of Directors and that he
subscribed his name thereto by like authority; and said
Lucille firrincieli acknowledged said instrument to be the free act and
deed of said corporation.
My commission as Notary Public as aforesaid expires
/s/ Marion Papadogonas
_______________________________
Notary Public, State of
New York
No. 31-4842989
Qualified in New York County
Commission Expires
May 31, 1995
