SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-11023
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
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
Title of each class Name of each exchange on which registered
None 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 Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No_____
Indicate the number of shares outstanding of each of the Registrant's classes of
Common Stock as of the latest practicable date
Outstanding at
Class of Common Stock: September 30, 1998
E'town Corporation (without par value) 8,407,507
Elizabethtown Water Company (without par value)* 1,974,902
* All shares are owned by E'town Corporation
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
INDEX
- -------------------------------------------------------------------------------
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
E'TOWN CORPORATION AND SUBSIDIARIES
- Statements of Consolidated Income 1
- Consolidated Balance Sheets 2-3
- Statements of Consolidated Capitalization 4
- Statements of Consolidated Shareholders' Equity 5
- Statements of Consolidated Cash Flows 6
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Statements of Consolidated Income 7
- Consolidated Balance Sheets 8-9
- Statements of Consolidated Capitalization 10
- Statements of Consolidated Shareholder's Equity 11
- Statements of Consolidated Cash Flows 12
E'TOWN CORPORATION AND SUBSIDIARIES AND
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
- Notes to Consolidated Financial Statements 13
Item 2. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 18
PART II - OTHER INFORMATION 24
Items 1 - 5
Item 6 (a) - Exhibits 24
(b) - Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands Except Per Share Amounts)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $43,907 $38,643 $108,783 $101,227 $141,382 $130,439
- ---------------------------------------------------------------------------------------------------
Operating Expenses:
Operation 16,171 12,627 39,192 35,399 51,775 47,101
Maintenance 1,647 1,521 4,881 4,744 6,743 6,222
Depreciation 3,204 3,118 9,537 9,175 12,758 11,972
Revenue taxes 4,887 4,794 12,815 12,637 16,728 16,233
Real estate, payroll and other taxes 599 773 2,215 2,430 2,937 2,955
Federal income taxes 4,482 4,034 9,395 8,270 11,612 9,997
- ---------------------------------------------------------------------------------------------------
Total operating expenses 30,990 26,867 78,035 72,655 102,553 94,480
- ---------------------------------------------------------------------------------------------------
Operating Income 12,917 11,776 30,748 28,572 38,829 35,959
- ---------------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 239 65 518 163 570 518
Federal income taxes (191) (44) (427) (176) (659) (398)
Other - net 306 60 697 342 1,308 621
- ---------------------------------------------------------------------------------------------------
Total other income (expense) 354 81 788 329 1,219 741
- ---------------------------------------------------------------------------------------------------
Total Operating and Other Income 13,271 11,857 31,536 28,901 40,048 36,700
- ---------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 4,049 3,861 12,082 10,896 15,993 14,342
Other interest expense - net 538 372 1,038 2,144 1,453 3,069
Capitalized interest (181) (131) (397) (371) (464) (778)
Amortization of debt discount and expense-net 107 98 324 294 441 399
- ---------------------------------------------------------------------------------------------------
Total interest charges 4,513 4,200 13,047 12,963 17,423 17,032
- ---------------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 8,758 7,657 18,489 15,938 22,625 19,668
Preferred Stock Dividends 203 203 609 609 813 813
- ---------------------------------------------------------------------------------------------------
Net Income $ 8,555 $ 7,454 $ 17,880 $ 15,329 $ 21,812 $ 18,855
===================================================================================================
Earnings Per Share of Common Stock:
- ---------------------------------------------------------------------------------------------------
Basic $ 1.02 $ 0.94 $ 2.18 $ 1.95 $ 2.68 $ 2.41
Diluted $ 1.00 $ 0.92 $ 2.15 $ 1.92 $ 2.64 $ 2.37
- --------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- ---------------------------------------------------------------------------------------------------
Basic 8,381 7,945 8,201 7,854 8,151 7,831
Diluted 8,690 8,267 8,508 8,195 8,458 8,161
- ---------------------------------------------------------------------------------------------------
Dividends Paid Per Common Share $ 0.51 $ 0.51 $ 1.53 $ 1.53 $ 2.04 $ 2.04
===================================================================================================
</FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-1-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30, December 31,
1998 1997
Assets (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant-At Original Cost:
Utility plant in service $ 683,209 $ 678,590
Construction work in progress 36,196 9,336
- ---------------------------------------------------------------------------------------------------
Total utility plant 719,405 687,926
Less accumulated depreciation and amortization 124,095 114,587
- ---------------------------------------------------------------------------------------------------
Utility plant-net 595,310 573,339
- ---------------------------------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net 74,726 20,016
- ---------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 5,717 6,233
Short-term investments 39 31
Customer and other accounts receivable
(less reserve: 1998, $670, 1997, $612) 21,286 17,539
Unbilled revenues 16,705 10,412
Materials and supplies-at average cost 2,708 1,966
Prepaid insurance, taxes, other 1,900 3,733
- ---------------------------------------------------------------------------------------------------
Total current assets 48,355 39,914
- ---------------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 573 936
Unamortized debt and preferred stock expenses 9,890 10,263
Taxes recoverable through future rates 21,439 21,439
Postretirement benefit expense 3,473 3,738
Other unamortized expenses 4,133 1,259
- ---------------------------------------------------------------------------------------------------
Total deferred charges 39,508 37,635
- ---------------------------------------------------------------------------------------------------
Total $ 757,899 $ 670,904
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-2-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30,
1998 December 31,
(Unaudited) 1997
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization (Notes 3 and 7):
Common shareholders' equity $ 212,850 $ 193,923
Cumulative preferred stock 12,000 12,000
Redeemable preferred stock 227
Long-term debt - net 274,295 247,298
- ---------------------------------------------------------------------------------------------------
Total capitalization 499,372 453,221
- ---------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks (Note 5) 40,694 23,000
Long-term debt - current portion (Note 7) 12,030 30
Accounts payable and other liabilities 16,395 11,569
Customers' deposits 253 272
Municipal and state taxes accrued 12,407 16,817
Federal income taxes accrued 1,210
Interest accrued 5,387 3,456
Preferred stock dividends accrued 59 59
- ---------------------------------------------------------------------------------------------------
Total current liabilities 88,435 55,203
- ---------------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 42,099 39,131
Federal income taxes 72,098 69,916
State income taxes 196 196
Unamortized investment tax credits 8,008 8,042
Accumulated postretirement benefits 4,475 4,332
- ---------------------------------------------------------------------------------------------------
Total deferred credits 126,876 121,617
- ---------------------------------------------------------------------------------------------------
Contributions in Aid of Construction 43,216 40,863
- ---------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ---------------------------------------------------------------------------------------------------
Total $ 757,899 $ 670,904
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-3-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts)
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholders' Equity:
E'town Corporation:
Common stock without par value, authorized,
15,000,000 shares, issued 1998, 8,440,061
shares; 1997, 8,054,461 shares $ 166,762 $ 153,162
Paid-in capital 1,397 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 50,819 45,560
Less cost of treasury stock; 1998, 32,554 shares;
1997, 32,208 shares (968) (954)
- ---------------------------------------------------------------------------------------------------
Total common shareholders' equity 212,850 193,923
- ---------------------------------------------------------------------------------------------------
Preferred Shareholders' Equity
Elizabethtown Water Company:
Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares; $5.90
series, issued and outstanding, 120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares; none issued
Applied Wastewater Management, Inc:
Redeemable Preferred Stock (Note 7):
No par value, non-cumulative, issued and
outstanding, 227 shares 227
- ---------------------------------------------------------------------------------------------------
Long-Term Debt (Notes 4 and 7):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures, due 2012 11,124 11,354
6.79% Senior Notes, due 2007 12,000 4,000
Liberty Water Company, Inc:
Contract Obligations Payable 19,000
Applied Wastewater Management, Inc:
Notes Payable 216
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
Variable Rate Debentures, due 2027 50,000 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 38 57
- ---------------------------------------------------------------------------------------------------
Total long-term debt 275,378 248,411
Unamortized discount-net (1,083) (1,113)
- ---------------------------------------------------------------------------------------------------
Total long-term debt-net 274,295 247,298
- ---------------------------------------------------------------------------------------------------
Total Capitalization $ 499,372 $ 453,221
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-4-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands Except Share Amounts) YeareEndedhs Ended
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock:
Balance at Beginning of Period $ 153,162 $ 145,661
Common stock issued under Dividend Reinvestment
and Stock Purchase Plan (1998, 167,849 shares;
1997, 227,992 shares 6,003 6,980
Redemption of Convertible Debentures 137
Issuance of restricted stock under compensation programs
(1998, 9,579 shares; 1997, 4,033 shares) 333 123
Issuance of restricted stock for purchase of acquisitions
(1998, 186,310 shares) (Note 7) 6,654
Exercise of stock options (1998, 17,815 shares;
1997, 14,685 shares) 473 398
- ---------------------------------------------------------------------------------------------------
Balance at End of Period 166,762 153,162
- ---------------------------------------------------------------------------------------------------
Paid-in Capital: 1,397 1,315
- ---------------------------------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160)
- ---------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 45,560 42,434
Net Income 17,880 19,260
Dividends on common stock (1998, $1.53, 1997, $2.04) (12,621) (16,134)
- ---------------------------------------------------------------------------------------------------
Balance at End of Period 50,819 45,560
- ---------------------------------------------------------------------------------------------------
Treasury Stock:
Balance at Beginning of Period (954) (737)
Cost of shares redeemed to exercise stock
options (1998, 346 shares; 1997, 6,332 shares) (14) (217)
- ---------------------------------------------------------------------------------------------------
Balance at End of Period (968) (954)
- ---------------------------------------------------------------------------------------------------
Total Common Shareholders' Equity $ 212,850 $ 193,923
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-5-
<PAGE>
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 17,880 $ 15,329
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,537 9,175
Increase in deferred charges (2,486) (1,007)
Deferred income taxes and investment tax
credits-net 2,148 1,884
Capitalized interest and AFUDC (915) (534)
Other operating activities-net 1,665 473
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (7,309) (4,155)
Unbilled revenues (349) (2,739)
Accounts payable and other liabilities 8,343 (3,987)
Accrued/prepaid interest and taxes 85 2,362
Other (742) 104
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 27,857 16,905
- ---------------------------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 6,464 5,388
Proceed from issuance of debentures 50,000
Debt and preferred stock issuance and
amortization costs 373 (700)
Issuance of long-term debt 8,000
Repayment of long-term debt (708) (213)
Contributions and advances for construction-net 343 2,857
Net increase (decrease) in notes payable - banks 17,584 (41,000)
Dividends paid on common stock (12,621) (12,053)
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 19,435 4,279
- ---------------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant and other capital expenditures (excluding
allowance for funds used during construction) (29,643) (15,825)
Purchase of privatization contracts (19,865) (5,701)
Proceeds from sale of land 1,700 461
Development costs of land (excluding
capitalized interest) (201)
- ---------------------------------------------------------------------------------------------------
Cash used for investing activities (47,808) (21,266)
- ---------------------------------------------------------------------------------------------------
Net Decrease in Cash and
Cash Equivalents (516) (82)
Cash and Cash Equivalents at
Beginning of Period 6,233 3,228
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 5,717 $ 3,146
===================================================================================================
<FN>
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 10,505 $ 11,639
Income taxes $ 5,250 $ 2,825
Preferred stock dividends $ 531 $ 531
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-6-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues $38,821 $37,815 $102,067 $100,161 $133,694 $129,324
- ---------------------------------------------------------------------------------------------------
Operating Expenses:
Operation 12,161 11,575 33,690 33,589 45,402 44,944
Maintenance 1,446 1,498 4,305 4,721 6,132 6,199
Depreciation 3,158 3,046 9,474 9,103 12,604 11,900
Revenue taxes 4,872 4,794 12,800 12,637 16,713 16,233
Real estate, payroll and other taxes 465 756 2,038 2,373 2,729 2,867
Federal income taxes 4,493 4,220 9,798 8,739 12,085 10,619
- ---------------------------------------------------------------------------------------------------
Total operating expenses 26,595 25,889 72,105 71,162 95,665 92,762
- ---------------------------------------------------------------------------------------------------
Operating Income 12,226 11,926 29,962 28,999 38,029 36,562
- ---------------------------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 239 65 518 163 570 518
Federal income taxes (140) (33) (308) (134) (422) (281)
Other - net 161 27 360 219 635 284
- ---------------------------------------------------------------------------------------------------
Total other income (expense) 260 59 570 248 783 521
- ---------------------------------------------------------------------------------------------------
Total Operating and Other Income 12,486 11,985 30,532 29,247 38,812 37,083
- ---------------------------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,651 3,671 10,988 10,318 14,700 13,570
Other interest expense - net 229 293 627 2,060 949 2,986
Allowance for funds used during construction (181) (50) (397) (127) (436) (452)
Amortization of debt discount and expense-net 98 89 293 267 402 365
- ---------------------------------------------------------------------------------------------------
Total interest charges 3,797 4,003 11,511 12,518 15,615 16,469
- ---------------------------------------------------------------------------------------------------
Income Before Preferred Stock Dividends 8,689 7,982 19,021 16,729 23,197 20,614
Preferred Stock Dividends 203 203 609 609 813 813
- ---------------------------------------------------------------------------------------------------
Earnings Applicable To Common Stock $ 8,486 $ 7,779 $ 18,412 $16,120 $ 22,384 $ 19,801
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-7-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30, December 31,
1998 1997
Assets (Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant-At Original Cost:
Utility plant in service $ 681,232 $ 677,909
Construction work in progress 34,631 9,300
- ---------------------------------------------------------------------------------------------------
Total utility plant 715,863 687,209
Less accumulated depreciation and amortization 124,012 114,424
- ---------------------------------------------------------------------------------------------------
Utility plant-net 591,851 572,785
- ---------------------------------------------------------------------------------------------------
Non-utility Property 80 79
- ---------------------------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,560 4,226
Customer and other accounts receivable
(less reserve: 1998, $670, 1997, $612) 17,973 17,283
Unbilled revenues 12,313 9,663
Materials and supplies-at average cost 2,708 1,966
Prepaid insurance, taxes, other 983 3,461
- ---------------------------------------------------------------------------------------------------
Total current assets 37,537 36,599
- ---------------------------------------------------------------------------------------------------
Deferred Charges:
Waste residual management 573 936
Unamortized debt and preferred stock expenses 9,317 9,656
Taxes recoverable through future rates 21,439 21,439
Postretirement benefit expense 3,473 3,738
Other unamortized expenses 3,663 1,086
- ---------------------------------------------------------------------------------------------------
Total deferred charges 38,465 36,855
- ---------------------------------------------------------------------------------------------------
Total $ 667,933 $ 646,318
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-8-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
Capitalization and Liabilities
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Capitalization (Note 3):
Common shareholder's equity $ 205,360 $ 193,354
Cumulative preferred stock 12,000 12,000
Long-term debt - net 231,955 231,944
- ---------------------------------------------------------------------------------------------------
Total capitalization 449,315 437,298
- ---------------------------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 21,000 18,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 11,777 10,626
Customers' deposits 253 272
Municipal and state taxes accrued 12,422 16,817
Federal income taxes accrued 884
Interest accrued 4,883 3,120
Preferred stock dividends accrued 59 59
- ---------------------------------------------------------------------------------------------------
Total current liabilities 51,308 48,924
- ---------------------------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 41,741 39,131
Federal income taxes 69,994 67,851
Unamortized investment tax credits 8,008 8,042
Accumulated postretirement benefits 4,351 4,209
- ---------------------------------------------------------------------------------------------------
Total deferred credits 124,094 119,233
- ---------------------------------------------------------------------------------------------------
Contributions in Aid of Construction 43,216 40,863
- ---------------------------------------------------------------------------------------------------
Commitments and Contingent Liabilities
- ---------------------------------------------------------------------------------------------------
Total $ 667,933 $ 646,318
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-9-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands)
<CAPTION>
September 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Shareholder's Equity:
Common stock without par value, authorized,
15,000,000 shares, issued 1998 and 1997,
1,974,902 shares $ 15,741 $ 15,741
Paid-in capital 130,776 124,560
Capital stock expense (485) (485)
Retained earnings 59,328 53,538
- ---------------------------------------------------------------------------------------------------
Total common shareholder's equity 205,360 193,354
- ---------------------------------------------------------------------------------------------------
Preferred Shareholders' Equity:
Cumulative Preferred Stock
$100 par value, authorized, 200,000 shares; $5.90 series,
issued and outstanding, 120,000 shares 12,000 12,000
Cumulative Preferred Stock:
$25 par value, authorized, 500,000 shares; none issued
- ---------------------------------------------------------------------------------------------------
Long-Term Debt:
Elizabethtown Water Company:
7.20% Debentures, due 2019 10,000 10,000
7 1/2% Debentures, due 2020 15,000 15,000
6.60% Debentures, due 2021 10,500 10,500
6.70% Debentures, due 2021 15,000 15,000
8 3/4% Debentures, due 2021 27,500 27,500
8% Debentures, due 2022 15,000 15,000
5.60% Debentures, due 2025 40,000 40,000
7 1/4% Debentures, due 2028 50,000 50,000
Variable Rate Debentures, due 2027 50,000 50,000
The Mount Holly Water Company:
Notes Payable (due serially through 2000) 38 57
- ---------------------------------------------------------------------------------------------------
Total long-term debt 233,038 233,057
Unamortized discount-net (1,083) (1,113)
- ---------------------------------------------------------------------------------------------------
Total long-term debt-net 231,955 231,944
- ---------------------------------------------------------------------------------------------------
Total Capitalization $449,315 $ 437,298
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-10-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands)
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1998 1997
(Unaudited)
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock: $ 15,741 $ 15,741
- ---------------------------------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 124,560 117,457
Capital contributed by parent company 6,216 7,103
- ---------------------------------------------------------------------------------------------------
Balance at End of Period 130,776 124,560
- ---------------------------------------------------------------------------------------------------
Capital Stock Expense: (485) (485)
- ---------------------------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 53,538 49,580
Income before preferred stock dividends 19,021 20,905
Dividends on common stock (12,621) (16,134)
Dividends on preferred stock (610) (813)
- ---------------------------------------------------------------------------------------------------
Balance at End of Period 59,328 53,538
- ---------------------------------------------------------------------------------------------------
Total Common Shareholder's Equity $205,360 $193,354
===================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
-11-
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
<CAPTION>
Nine Months Ended
September 30,
1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Income before preferred stock dividends $ 19,021 $ 16,729
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 9,474 9,103
Increase in deferred charges (2,214) (1,087)
Deferred income taxes and investment tax
credits-net 2,109 1,890
Allowance for funds used during construction (915) (290)
Other operating activities-net 688 248
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (690) (2,511)
Unbilled revenues (2,650) (1,868)
Accounts payable and other liabilities 5,762 (5,849)
Accrued/prepaid interest and taxes 730 2,925
Other (742) 104
- ---------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,573 19,394
- ---------------------------------------------------------------------------------------------------
Cash Flows Used by Financing Activities:
Capital contributed by parent company 5,884 1,323
Proceed from issuance of debentures 50,000
Debt and preferred stock issuance and
amortization costs 339 (726)
Repayment of long-term debt (19) (19)
Contributions and advances for construction-net 333 2,857
Net decrease in notes payable - banks 3,000 (46,000)
Dividends paid on common stock and preferred stock (13,151) (12,584)
- ---------------------------------------------------------------------------------------------------
Net cash used by financing activities (3,614) (5,149)
- ---------------------------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (27,625) (15,501)
- ---------------------------------------------------------------------------------------------------
Cash used for investing activities (27,625) (15,501)
- ---------------------------------------------------------------------------------------------------
Net Decrease in Cash and
Cash Equivalents (666) (1,256)
Cash and Cash Equivalents at
Beginning of Period 4,226 3,122
- ---------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,560 $ 1,866
===================================================================================================
<FN>
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 9,177 $ 11,038
Income taxes $ 5,250 $ 2,825
Preferred stock dividends $ 531 $ 531
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
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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),
E'town Properties, Inc. (Properties), Edison Water Company (Edison),
Liberty Water Company, (Liberty), Applied Water Management, Inc. (AWM) and
Applied Wastewater Management, Inc. (AWWM). The Mount Holly Water Company
(Mount Holly) is a wholly owned subsidiary of Elizabethtown.
2. INTERIM FINANCIAL STATEMENTS
The financial statements reflect all adjustments which, in the opinion of
management, are necessary for a fair presentation. The Notes to
Consolidated Financial Statements accompanying the 1997 Annual Report to
Shareholders and the 1997 Form 10-K should be read in conjunction with
this report.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period.
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which is effective for fiscal
years beginning after December 15, 1997. The pronouncement requires
disclosure of selected information about operating segments in interim
financial reports. Based upon the immateriality of the Corporatio's
business segments at the present time, no additional disclosures are
currently required.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures
about Pensions and Other Postretirement Benefits," effective for fiscal
years beginning after December 15, 1997. The pronouncement revises certain
disclosure requirements for pension and other postretirement plans but
does not change the measurement or recognition of expenses under those
plans. The pronouncement standardizes the disclosure requirements for
pensions and other postretirement benefit obligations to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets that will facilitate financial
analysis, and eliminates disclosures that are no longer useful. E'town
will adopt these new disclosure requirements for the year ended December
31, 1998.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use." The SOP is
effective for fiscal years beginning after December 15, 1998 and
establishes criteria for capitalizing certain internal use software costs.
Adoption of the SOP will not have an effect on the Corporation's financial
statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-Up Activities" which is effective for fiscal years beginning after
December 15, 1998 and provides guidance on the expensing of costs of
start-up activities as these costs are incurred. E'town has elected to
adopt this change in 1998 and has recognized start-up expenses of
$.2 million in these financial statements.
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In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity". This Statement must be adopted by the
for the quarter ended March 31, 2000. The Corporation does not believe
this Statement will have a significant impact on its financial condition
and results of operations.
3. CAPITALIZATION
E'town routinely makes equity contributions to Elizabethtown which
represent a portion of the proceeds of common stock issued under E'town's
Dividend Reinvestment and Stock Purchase Plan (DRP). E'town contributed
$6.0 million from the DRP proceeds to Elizabethtown for the nine months
ended September 30, 1998. E'town also issued $6.7 million (186,310 shares)
of common stock for the purchase of Applied Wastewater General Partnership
(see Note 7).
4. LONG-TERM DEBT
In October 1998, E'town filed a registration statement on Form S-3 with
the Securities and Exchange Commission to issue up to $75 million of
unsecured medium-term notes. E'town plans to issue approximately $20
million of these notes later in 1998 to repay short-term debt incurred to
finance the acquisition of the contract to operate the water system of the
City of Elizabeth. The contract is being administered by Liberty Water
Company (see Note 7).
On November 5, 1998 Mount Holly closed on a loan agreement that will make
available up to $13.6 million proceeds from the issuance of unsecured
notes through the New Jersey Environmental Infrastructure Trust Financing
Program. This program provides financing through two loans. The first
loan, in the amount of $7.3 million, is through the New Jersey
Environmental Infrastructure Trust (Trust), which issued tax-exempt bonds
with interest rates ranging from 4.25% to 4.63%. The second loan, in the
amount of $6.0 million, is from the State of New Jersey, acting through the
New Jersey Department of Environmental Protection. The State is
participating in the Drinking Water State Revolving Fund authorized by the
Safe Drinking Water Act amendments of 1996 whereby the federal government
is funding the state loan at no interest cost. The effective interest rate
for the combined notes is approximately 2.59%. The proceeds of the loans
will finance the construction of the Mansfield Project.
In December 1997, E'town signed an agreement to issue $12 million of 6.79%
Senior Notes due December 15, 2007. E'town issued $4 million of these
notes in December 1997, $6 million in January 1998 and $2 million in May
1998. The proceeds were used to finance capital additions for Edison as
well as to meet working capital needs. The Note Agreement requires the
maintenance of a consolidated fixed charges coverage ratio of at least 1.5
to 1 and a debt to total capitalization ratio not to exceed .65 to 1. As
of September 30, 1998, the fixed charges coverage ratio was 2.8 to 1 and
the debt to total capitalization ratio was .61 to 1, calculated in
accordance with the Note Agreement.
5. LINES OF CREDIT
E'town has $105 million of uncommitted lines of credit with several banks,
of which up to $40 million is available to Etown for use by the
Corporation or its unregulated subsidiaries as of September 30, 1998.
Elizabethtown has access to up to $90 million of the total. These lines,
together with internal funds and proceeds of future issuances of debt and
preferred stock by Elizabethtown and sales of common stock and issuances
of short- and long-term debt by E'town, are expected to be sufficient to
finance the Corporation's capital needs.
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6. EARNINGS PER SHARE
Basic earnings per share are computed on the basis of the weighted average
number of shares outstanding. Diluted earnings per share assume both the
conversion of the 6 3/4% Convertible Subordinated Debentures and common
stock equivalents, which assume that all stock options whose option price
is lower than the current market value of the stock are exercised.
Reference is made to Exhibit 11 for the computations of earnings per
share.
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
Included in Non-utililty Property and Other Investments at September 30,
1998 is an investment of $1.33 million ($.30 million net of related
deferred taxes) in a limited partnership that owns Solar Electric
Generating System V (SEGS), located in California.
Also included in Non-utility Property and Other Investments at September
30, 1998 is $11.3 million 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 were being sought. Such costs are capitalized until the property
is offered for sale, after which time such costs are expensed. Based upon
independent appraisals received at various times prior to 1997, the
estimated net realizable value of each property exceeds its respective
carrying value as of September 30, 1998. No information has come to the
attention of management since these appraisals were last performed that
would indicate the aggregate carrying value of these parcels has been
impaired.
One of the real estate parcels was sold in 1997 for $.4 million, resulting
in a gain of less than $.1 million. Two other parcels were sold in 1998
for $1.7 million resulting in minimal gains. Properties is proceeding with
plans to sell the remaining properties and plans to invest the sale
proceeds into water and wastewater utility investments that produce a
current return. Properties has either entered into contracts for sale or
has received letters of intent for all but one of its remaining parcels.
In 1995, Properties entered into an agreement to sell a parcel of land to
a developer. The parties intended that the transaction would close prior
to December 31, 1996. The developer had been unable to obtain approval
from the municipality for an appropriate number of buildable units. All of
the material issues have now been resolved and a sale is expected to be
consummated prior to the end of 1998.
The Corporation will continue to monitor the relationship between the
carrying and net realizable values of its properties, either through
updated appraisals or letters of intent from prospective purchasers, or
for its investment in SEGS, based upon information provided by SEGS
management as well as through cash flow analyses.
E'town has entered into a contract with the City of Elizabeth, New Jersey
to operate its water system under a 40-year contract. E'town has formed a
wholly owned subsidiary, Liberty Water Company (Liberty) to administer the
contract. Under the contract Liberty made a payment to the City of
Elizabeth of $19.6 million in June 1998 and will make additional
installment payments of $12 million in June 1999 and $19 million in June
2000. The full amount of the installment payment obligations have been
recorded in the financial statements and the total of all the contract
costs ($50.6 million) is being amortized as an operating cost, ratably,
over the life of the contract, which became effective July 1998.
Under the contract, Liberty is receiving all revenues generated as a
result of operating the system and is incurring all operating expenses.
Liberty will be responsible for replacing meters within the water system
over a 40-year period at an estimated cost of $7 million. Other capital
improvements will be the responsibility of the City of Elizabeth.
Performance by Liberty of the contract provisions is guaranteed by E'town.
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<PAGE>
Edison continues to receive all revenues generated as a result of
operating the water system of the Township of Edison, New Jersey under a
contract signed in 1997. Edison expects to make expenditures of
approximately $25 million during the 20-year life of the contract. These
expenditures include capital improvements to the water system as well as
contract payments to the Township of Edison. Of the total, approximately
$14 million is expected to be expended in the first three years of the
contract. An initial payment of $5.7 million was made upon the closing in
June 1997.
In 1995, the Corporation entered into a three-year joint venture agreement
with Applied Wastewater Group (AWG) to form a New Jersey limited liability
company, Applied Watershed Management, LLC. AWG was a unit of several
privately held and affiliated companies providing design, engineering,
construction and operating services for water and wastewater facilities.
E'town exercised an option to purchase the operations of AWG to provide a
full complement of water and wastewater services and consequently, closed
on the transaction on June 12, 1998. The adjusted purchase price was $6.7
million (185,005 shares) for the three companies that now comprise AWM and
$.1 million (1,305 shares) for AWWM, a regulated wastewater utility, in a
stock-for-stock transaction accounted for as a purchase. Also included in
Non-utility Property and Other Investments at September 30, 1998 is $5.5
million of goodwill associated with the purchase of AWG. This goodwill is
being amortized ratably over a 40-year period. Had the acquisition been
consummated as of January 1, 1997, the pro-forma effect on earnings per
share for the nine months ended September 30, 1998 and twelve months ended
December 31, 1997 would be immaterial.
A calculation of the net assets acquired as of June 12, 1998 is as
follows (in thousands):
Working capital $1,006
Goodwill 5,355
Utility plant in service 989
Long-term notes receivable 148
Other property and investments 533
Long-term debt (1,150)
Preferred equity (227)
------
Net assets acquired $6,654
======
8. REGULATORY MATTERS
Rates
In December 1997, the BPU adopted an Order for rate increases for
Elizabethtown and Mount Holly, effective January 1, 1998, for the full
recovery of costs associated with SFAS No. 106 on an accrual basis less
the costs associated with SFAS No. 106 expenses previously recovered in
rates. The total increases in annual operating revenues resulting from
these Orders are $.39 million for Elizabethtown and $.02 million for Mount
Holly.
On October 6, 1998, the BPU issued an Order adopting a Stipulation signed
by the parties to Mount Holly's proceeding for a review of the prudence of
constructing the Mansfield Project. The Stipulation indicated that the
project provides the most cost-effective alternative available to Mount
Holly customers for meeting the requirements for an alternative source of
supply for the Mount Holly system. Effective in March 1998, Mount Holly
began purchasing 1.0 million gallons per day from another water purveyor
and will continue to purchase this water until the latter of January 1,
2000 or the date the Mansfield Project is placed into service.
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In September 1997, Mount Holly filed a petition with the BPU to establish
a Purchased Water Adjustment Clause (PWAC) to reflect the cost of water
purchased from the other purveyor under the agreement discussed above. On
May 27, 1998 the BPU adopted a Stipulation signed by the parties to the
PWAC case for an increase in annual revenues under Mount Holly's PWAC of
$1.3 million or 38.9%. Mount Holly has deferred the increase in purchased
water cost between March 19 and May 27 as Other Unamortized Expenses.
Recovery of this amount will be addressed in the next PWAC petition
expected in 1999. As of September 30, 1998, Mount Holly has deferred $.2
million of these costs.
In the fourth quarter of 1998, Mount Holly expects to file a petition with
the BPU for a significant rate increase, which will reflect additional
construction and financing costs, as well as increases in operating costs
since rates were last established in January 1996. This rate case will
also include the cost for a portion of the Mansfield Project that has now
been placed in service in the third quarter of 1998. A decision is
expected before the summer of 1999. Mount Holly expects to file an
additional rate case next year for the remaining cost of the Mansfield
Project to coincide with the completion of the project and the expiration
of the agreement to purchase water from the other purveyor and the
cancellation of the PWAC.
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<PAGE>
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),
E'town Properties, Inc. (Properties), Edison Water Company (Edison), Liberty
Water Company, (Liberty), Applied Water Management, Inc. (AWM) and Applied
Wastewater management, Inc. (AWWM). 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 September 30, 1998, and the results
of operations for the three, nine and twelve months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
Capital expenditures were $49.2 million for the first nine months of 1998. Of
this amount, $19.6 million was for the purchase of the City of Elizabeth
contract and $29.6 million was for water utility plant.
For the three years ending December 31, 2000, capital and investment
requirements for E'town are estimated to be $191.7 million, consisting of (i)
expenditures for water utility plant ($111.8 million for Elizabethtown and
$21.9 million for Mount Holly), and (ii) investments in non-regulated water
and wastewater operations including systems operated by E'town or its
subsidiaries under privatization contracts. The predominant portion of these
investments in non-regulated operations are expected to be $52.1 million for
Liberty, of which $19.6 million was expended through September 1998, and $4.7
million for Edison.
Elizabethtown
While Elizabethtown's projected capital outlays have dropped from recent
years now that the Canal Road Water Treatment Plant (Plant) is completed,
Elizabethtown's facilities will continue to be upgraded and expanded to
handle customer growth. Elizabethtown's three-year capital program includes
$62.0 million for routine projects (services, hydrants and main extensions
not funded by developers) and $50.7 million for transmission system upgrades,
a new operations center and other projects. Elizabethtown expects to file for
rate relief periodically to ensure that such costs are adequately reflected
in rates. (See Economic Outlook.)
Mount Holly
During the next three years, Mount Holly expects to spend $21.9 million,
primarily for an additional supply source (the Mansfield Project) to comply
with state regulations designed to prevent further depletion of a local
aquifer. On October 6, 1998, the BPU issued an Order adopting a Stipulation
signed by the parties to Mount Holl's proceeding for a review of the
prudence of constructing the Mansfield Project. The Stipulation indicated
that the project provides the most cost-effective alternative available to
Mount Holly customers for meeting the requirements for an alternative source
of supply for the Mount Holly system. The Stipulation also limits the amount
of a rate increase that may be received from the rate proceeding that will be
filed later in 1998 to $1.8 million. The Stipulation further limits the
amount of a rate increase for the initial phase of the Mansfield Project to
$.9 million, which reflects the estimated cost of the construction of the
initial phase and the related financing, operating and depreciation costs.
Effective in March 1998, Mount Holly began purchasing 1.0 million gallons per
day from another water purveyor and will continue to purchase this water for
a period to include the latter of January 1, 2000 or the date the Mansfield
Project is placed into service.
In September 1997, Mount Holly filed a petition with the BPU to establish a
Purchased Water Adjustment Clause (PWAC) to reflect the cost of water
purchased from the other purveyor under the agreement discussed above. On May
27, 1998 the BPU adopted a Stipulation signed by the parties to the PWAC case
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for an increase in annual revenues under Mount Holly's PWAC of $1.3 million
or 38.9%. Mount Holly has deferred the increase in purchased water cost
between March 19 and May 27 as Other Unamortized Expenses. Recovery of this
amount will be addressed in the next PWAC petition expected in 1999. As of
September 30, 1998, Mount Holly has deferred $.2 million of these costs.
In the fourth quarter of 1998, Mount Holly expects to file a petition with
the BPU for a significant rate increase, which will reflect additional
construction and financing costs, as well as increases in operating costs
since rates were last established in January 1996. This rate case will also
include the cost for a portion of the Mansfield Project that has now been
placed in service in the third quarter of 1998. A decision is expected before
the summer of 1999. Mount Holly expects to file an additional rate case next
year for the remaining cost of the Mansfield Project to coincide with the
completion of the project and the expiration of the agreement to purchase
water from the other purveyor and the cancellation of the PWAC.
Capital Resources
For the three-year period ending December 31, 2000, E'town estimates that
approximately 42.2% of its currently projected consolidated capital
expenditures and investments will be financed with internally generated funds
(after 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
debt, medium-term unsecured notes, proceeds of tax-exempt New Jersey Economic
Development Authority (NJEDA) bonds, borrowings through the New Jersey
Environmental Infrastructure Trust and short-term borrowings. Additional
external financing will be required for any future acquisitions or
investments in the three-year period. The NJEDA has granted preliminary
approval for the financing of almost all of Elizabethtown's major projects
during the next three years and the Mansfield Project. In addition,
Elizabethtown expects to pursue future tax-exempt financing for future
projects to the extent that final allocations are granted by the NJEDA.
On November 5, 1998 Mount Holly closed on a loan agreement that will make
available up to $13.6 million proceeds from the issuance of unsecured notes
through the New Jersey Environmental Infrastructure Trust Financing Program.
This program provides financing through two loans. The first loan, in the
amount of $7.3 million, is through the New Jersey Environmental
Infrastructure Trust (Trust), which issued tax-exempt bonds with interest
rates ranging from 4.25% to 4.63%. The second loan, in the amount of $6.0
million, is from the State of New Jersey, acting through the New Jersey
Department of Environmental Protection. The State is participating in the
Drinking Water State Revolving Fund authorized by the Safe Drinking Water Act
amendments of 1996 whereby the federal government is funding the state loan
at no interest cost. The effective interest rate for the combined notes is
approximately 2.59%. The proceeds of the loans will finance the construction
of the Mansfield Project.
E'town has also filed a registration statement on Form S-3 with the
Securities and Exchange Commission to issue up to $75 million of unsecured
medium-term notes. E'town plans to draw $20 million against these notes later
in 1998 to repay E'town's short-term debt, incurred to finance the
acquisition of the contract to operate the water system of the City of
Elizabeth. The contract is being administered by Liberty Water Company, as
discussed below.
E'town has entered into a contract with the City of Elizabeth, New Jersey to
operate its water system under a 40-year contract. E'town has formed Liberty
Water Company to administer the contract. Under the contract Liberty made a
payment to the City of $19.6 million on June 1, 1998 and will make additional
payments of $12 million on July 1, 1999 and $19 million on July 1, 2000.
Under the contract Liberty is receiving all revenues generated as a resulted
of operating the system and is incurring all operating expenses. Liberty will
be responsible for replacing meters within the water system over a 40-year
period at an estimated cost of $7 million. Other capital improvements will be
the responsibility of the City of Elizabeth. Performance by Liberty of the
contract provisions is guaranteed by E'town.
In 1995, the Corporation entered into a three-year joint venture agreement
with Applied Wastewater Group (AWG) to form a New Jersey limited liability
company, Applied Watershed Management, LLC. AWG was a unit of several
privately held and affiliated companies providing design, engineering,
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<PAGE>
construction and operating services for water and wastewater facilities.
E'town exercised an option to purchase the operations of AWG to provide a full
complement of water and wastewater services and consequently, closed on the
transaction on June 12, 1998. The adjusted purchase price was $6.6 million
(185,005 shares) for the three companies that now comprise AWM and $.1
million (1,305 shares) for AWWM, a regulated wastewater utility, in a
stock-for-stock transaction accounted for as a purchase.
Year 2000
The Corporation has assessed its various automated information systems for
compliance with the Year 2000. The assessment consisted of an investigation
of the degree to which the Corporation's significant business systems, as
well as peripheral support systems, are year 2000 compliant. The assessment
concluded that all significant business systems i.e.. customer billing and
service, financial, water treatment operating and control, water quality
laboratory information and telemetric data acquisition systems are year 2000
compliant. Therefore, the Corporation expects no disruption in the quality of
services it provides to its customers or its ability to process financial
transactions and measure financial results due to the year 2000. The
assessment did identify certain peripheral support systems that do need to be
addressed in connection with the year 2000. An implementation plan to address
these issues has been developed and is being implemented. The cost to resolve
these issues is not expected to be material to the financial statements.
RESULTS OF OPERATIONS
Net Income for the three months ended September 30, 1998 was $8.6 million or
$1.02 per share as compared to $7.5 million or $.94 per share for the same
period in 1997. Net income for the nine months ended September 30, 1998 was
$17.9 million or $2.18 per share as compared to $15.3 million or $1.95 per
share for the same period in 1997. Net income for the twelve months ended
September 30, 1998 was $21.8 million or $2.68 per share as compared to $18.9
million or $2.41 per share for the same period in 1997. Net income increased
for the three, nine and twelve month periods primarily due to higher revenues
from additional water consumption by Elizabethtown customers during the third
quarter of 1998 in addition to the results of ongoing cost control efforts.
Net income for Mount Holly also increased as a result of additional water
consumption in the third quarter. We estimate the third quarter weather
conditions accounted for an increase in earnings per share of $.03 over the
same quarter last year. In addition, the operations of Liberty and AWM
produced a positive contribution to net income for the third quarter.
Operating Revenues increased $5.3 million or 13.6%, $7.6 million or 7.5% and
$10.9 million or 8.4% for the three, nine and twelve months ended September
30, 1998, respectively, compared to the same periods in 1997. The increases
for the three, nine and twelve month periods resulted primarily from revenues
of Liberty Water Company and Applied Water Management which began operations
in July and June 1998, respectively. These new operations contributed $4.2
million, net of $1.3 million of, as part of E'town, intercompany sales, for
the quarter. Revenues in the third quarter were $.5 million higher due to the
hotter, drier weather conditions.
Operation Expenses increased $3.5 million or 28.1%, $3.8 million or 10.7% and
$4.7 million or 9.9% for the three, nine and twelve months ended September
30, 1998, respectively, compared to the same periods in 1997. The increases
for the three, nine and twelve month periods are primarily due to the
inclusion of the financial results of Liberty Water Company and Applied Water
Management in E'town's consolidated financial results and, on a twelve
month-to-date basis, reflect a full year's expenses for Edison Water Company
which began operation in July 1997. All other E'town companies combined
experienced only moderate increases in operation expenses of 1% or less for
the three, nine and twelve month periods due to ongoing cost control efforts.
Maintenance Expenses increased $.1 million or 8.3%, $.1 million or 2.9% and
$.5 million or 8.4% for the three, nine and twelve months ended September 30,
1998, respectively over the comparable periods in 1997. These increases are
due to the operations of Liberty and Edison Water Companies. Elizabethtown
Water Company experienced decreases in maintenance expenses for the three,
nine and twelve month periods due to continued cost control efforts as well
as mild weather in the winter of 1998.
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Depreciation Expense increased $.1 million or 2.8%, $.4 million or 3.9% and
$.8 million or 6.6% for the three, nine and twelve months ended September 30,
1998, respectively, over the comparable 1997 amounts. The increases were due
primarily to a higher level of depreciable plant in service.
Revenue Taxes increased $.1 million or 1.9%, $.2 million or 1.4% and $.5
million or 3.0% for the three, nine and twelve month periods ended September
30, 1998, respectively, compared to the same periods in 1997 due to the
increases in operating revenues discussed above, upon which these taxes are
calculated.
Real Estate, Payroll and Other Taxes Expenses decreased $.2 million or 22.5%,
$.2 million or 8.8% and less than $.1 million or .6% for the three, nine and
twelve month periods, respectively. These decreases are due primarily to a
final assessment in September 1998 for property taxes on the Canal Road Water
Treatment Plant. The estimated increased assessment had been accrued since
October 1998, the date the Plant went into service, and the final result was
less than anticipated.
Federal Income Taxes as a component of operating expenses increased $.5
million or 11.7%, $1.1 million or 13.9% and $1.6 million or 16.4% for the
three, nine and twelve months ended September 30, 1998, respectively, over
the comparable 1997 amounts due to the changes in the components of taxable
income discussed herein.
Other Income (Expense) increased $.3 million or 364.2%, $.5 million or 146.2%
and $.5 million or 67.5% for the three, nine and twelve month periods ended
September 30, 1998, respectively, compared to the same periods in 1997. These
increases are due primarily to an increase in AFUDC in connection with
Elizabethtown Water Company's ongoing capital program. In addition, E'town
Corporation sold a real estate parcel in the third quarter that produced a
gain of $.1 million. These increases were offset by the increases in
associated federal income taxes.
Total Interest Charges increased $.3 million or 7.5%, $.1 million or .6% and
$.4 million or 2.3% for the three, nine and twelve month periods ended
September 30, 1998, respectively, compared to the same periods in 1997. These
increases are due to additional financing costs associated with the
operations of Liberty and Edison Water Companies as well as Elizabethtown
Water Company's ongoing capital program.
ECONOMIC OUTLOOK
Forward Looking Information
Information in this report includes certain forward looking statements within
the meaning of the Federal securities laws. Any forward looking statements
are based upon information currently available and are subject to future
events, risks and uncertainties that could cause actual results to differ
materially from those expressed in the statements. Such events, risks and
uncertainties include, without limitation, actions of regulators, the effects
of weather on water consumption, changes in historical patterns of water
consumption and demand, including changes through increased use of
water-conserving devices, conditions in capital and real estate markets,
increases in operating expenses due to factors beyond the Corporation's
control, changes in environmental regulation and associated costs of
compliance and additional investments or acquisitions which may be made by
the Corporation.
E'town Corporation and Subsidiaries
Consolidated earnings for E'town for the next several years will be
determined by related but different strategies for the regulated and
non-regulated businesses. For Elizabethtown and Mount Holly, management will
continue to focus on expansion efforts to increase sales, as well as on
controlling costs through productivity improvements so that realized returns
remain comparable to authorized levels. For the non-regulated businesses,
management seeks to invest in water and wastewater assets (including
municipal privatization contracts and wastewater assets as a result of the
AWG acquisition) which produce a current return. Capital to finance
investments in both the regulated and non-regulated businesses will be raised
from external sources, from the sale of real estate parcels owned by
Properties and from internal cash generation.
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E'town expects earnings from the regulated operations to exceed those of 1997
due to hot, dry weather in July and August of 1998 and cost control efforts.
Also, consistent with E'town's strategy to sell its real estate properties
(discussed below) management expects to realize a gain from a property sale
later in 1998. Based upon these factors, management currently expects
earnings per share to exceed those reported for 1997.
Elizabethtown and Subsidiary - Regulated Utilities
Elizabethtown's authorized rate of return on common equity is currently
11.25%. In 1997, Elizabethtown achieved an actual return on common equity of
11.0%. Mount Holly earned a rate of return on common equity of 2.8% in 1997,
compared to an authorized rate of return of 11.25% established in its most
recent rate proceeding. Mount Holly contributed $.02 to E'town's consolidated
earnings per share in 1997. Management expects Mount Holly to increase its
contribution to E'town's earnings per share beginning later in 1999 upon
receipt of additional rate relief so that Mount Holly can realize rates of
return comparable to authorized levels.
E'town and Unregulated Subsidiaries
The activities of E'town, Properties, Edison Water Company, Liberty Water
Company and Applied Water Management are not regulated by the BPU.
The contracts for the operation of the water systems of the Township of
Edison, New Jersey and the City of Elizabeth, New Jersey as well as E'town's
investment in Applied Water Management are expected to yield marginal
contributions to earnings per share in the first several years of these
operations.
Properties
Included in Non-utility Property and Other Investments at September 30, 1998
is $11.3 million of investments in various parcels of undeveloped land in
New Jersey. Properties is proceeding with plans to sell such properties, and
E'town plans to invest the sale proceeds into water and wastewater utility
investments that produce a current return.
Properties had previously entered into a contract to sell another parcel to a
developer. The parties expected that the contract would close in 1996, but
the developer was unable to obtain the required municipal approvals. The
contract has been extended and all the material issues appear to have been
resolved. Properties expects to close on this parcel later in 1998. If
consummated, this sale would result in a gain.
Properties closed on two parcels during the third quarter of 1998. These
sales produced only a minimal gain. Properties has either entered into
contracts for sale or has received letters of intent for all but one of its
remaining parcels.
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. Such costs are
capitalized until the property is offered for sale, after which time such
costs are expensed. Based on independent appraisals received at various times
prior to 1997, the estimated net realizable value of each property exceeds
its respective carrying value as of September 30, 1998.
Included in Non-utililty Property and Other Investments at September 30, 1998
is an investment of $1.33 million ($.30 million net of related deferred
taxes) in a limited partnership that owns Solar Electric Generating System V
(SEGS), located in California.
The Corporation will continue to monitor the relationship between the
carrying and net realizable values of its properties, either through updated
appraisals or letters of intent from prospective purchasers, or for its
investment in SEGS, based upon information provided by SEGS management as
well as through cash flow analyses.
-22-
<PAGE>
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. The pronouncement requires disclosure of
selected information about operating segments in interim financial reports.
Based upon the immateriality of the Corporation's business segments at the
present time, no additional disclosures are currently required.
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The pronouncement revises certain
disclosure requirements for pension and other postretirement plans but does
not change the measurement or recognition of expenses under those plans. The
pronouncement standardizes the disclosure requirements for pensions and other
postretirement benefit obligations to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis, and eliminates
disclosures that are no longer useful.
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is
effective for fiscal years beginning after December 15, 1998 and establishes
criteria for capitalizing certain internal use software costs. Adoption of
the SOP will not have an effect on the Corporation's financial statements.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" which is effective for fiscal years beginning after December 15,
1998 and provides guidance on the expensing of costs of start-up activities
as these costs are incurred. E'town has elected to adopt this change in 1998
and has recognized start-up expenses of $.2 million in these financial
statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity". This Statement must be adopted by the for
the quarter ended March 31, 2000. The Corporation does not believe this
Statement will have a significant impact on its financial condition and
results of operations.
-23-
<PAGE>
PART II - OTHER INFORMATION
Items 1 - 5:
Nothing to Report.
Item 6(a) - Exhibits
Exhibits to Part I:
Exhibit 10(m) - Contract with the City of Elizabeth, New Jersey
for the Operation by E'town Corporation of the
City's Water System
Exhibit 10(n) - Employment Agreement between Applied Water Management,
Inc. and Edward A. Clerico
Exhibit 11 - E'town Corporation and Subsidiaries - Statement Regarding
Computation of Per Share Earnings
Exhibit 12 - Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges and Preferred Dividends and
Computation of Ratio of Earnings to Fixed Charges
Exhibit 27 - E'town Corporation and Subsidiaries and Elizabethtown
Water Company and Subsidiary - Financial Data Schedules
Item 6(b) - Reports on Form 8-K
None
-24-
<PAGE>
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 13, 1998
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
________________________________
Gail P. Brady
Treasurer
/s/ Dennis W. Doll
________________________________
Dennis W. Doll
Controller
-25-
<TABLE>
E'TOWN CORPORATION AND SUBSIDIARIES Exhibit 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BASIC
EARNINGS
Income Before Preferred Stock
Dividends of Subsidiary $8,758 $7,657 $18,489 $15,938 $22,625 $ 19,668
Deduct: Preferred Stock Dividends (203) (203) (609) (609) (813) (813)
--------------------------------------------------------
Net Income Available for Common Stock $8,555 $7,454 $17,880 $15,329 $21,812 $ 18,855
========================================================
SHARES
Weighted Average Number of Common Shares 8,381 7,945 8,201 7,854 8,151 7,831
--------------------------------------------------------
Basic Earnings Per Share of Common Stock $ 1.02 $ 0.94 $ 2.18 $ 1.95 $ 2.68 $ 2.41
========================================================
DILUTED
EARNINGS
Income Before Preferred Stock Dividends
of Subsidiary $8,758 $7,657 $18,489 $15,938 $22,625 $ 19,668
Deduct: Preferred Stock Dividends (203) (203) (609) (609) (813) (813)
Add: After Tax Interest Expense
Applicable to 6 3/4% Convertible
Subordinated Debentures 124 126 370 374 495 502
--------------------------------------------------------
Adjusted Net Income $8,679 $7,580 $18,250 $15,703 $22,307 $ 19,357
========================================================
SHARES
Weighted Average Number of Common Shares 8,381 7,945 8,201 7,854 8,151 7,831
Assuming Exercise of Options Reduced By
the Number Of Shares Which Could Have Been
Purchased With the Proceeds From Exercise of
Such Options 29 39 25 56 25 44
Assuming Conversion Of 6 3/4% Convertible
Subordinated Debentures (a) 280 283 282 285 282 286
Weighted Average Number of Common Shares
--------------------------------------------------------
Outstanding as Adjusted $8,690 $8,267 $ 8,508 $ 8,195 $ 8,458 $ 8,161
--------------------------------------------------------
Diluted Earnings Per Share of Common Stock $ 1.00 $ 0.92 $ 2.15 $ 1.92 $ 2.64 $ 2.37
========================================================
<FN>
(a) Convertible at $40 per share.
</FN>
</TABLE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
(In Thousands Except Ratios)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income before preferred stock dividends $8,689 $7,982 $19,021 $16,729 $23,197 $ 20,614
Federal income taxes 4,633 4,253 10,106 8,873 12,507 10,900
Interest charges 3,797 4,003 11,511 12,518 15,615 16,469
--------------------------------------------------------
Earnings available to cover fixed charges 17,119 16,238 40,638 38,120 51,319 47,983
--------------------------------------------------------
FIXED CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 3,651 3,671 10,988 10,318 14,700 13,570
Preferred dividend requirement (1) 311 311 933 932 1,251 1,243
Other interest 229 293 627 2,060 949 2,986
Amortization of debt discount - net 98 89 293 267 402 365
--------------------------------------------------------
Total fixed charges 4,289 4,364 12,841 13,577 17,302 18,164
--------------------------------------------------------
Ratio of Earnings to Fixed Charges
and Preferred Dividends 3.99 3.72 3.16 2.81 2.97 2.64
========================================================
(1) Preferred Dividend Requirement:
Preferred dividends 203 203 609 609 813 813
Effective tax rate 34.78% 34.76% 34.70% 34.66% 35.03% 34.59%
--------------------------------------------------------
Preferred dividend requirement $ 311 $ 311 $ 933 $ 932 $ 1,251 $ $1,243
========================================================
<FN>
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Income Before Preferred Stock Dividends, Federal income taxes and Interest
Charges (which is reduced by Allowance for Debt Funds Used During
Construction), divided by Fixed Charges. Fixed Charges and Preferred
Dividends consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), dividends
on Preferred Stock on a pre-tax basis and Amortization of debt discount.
</FN>
Page 1 of 2
</TABLE>
<PAGE>
<TABLE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARIES Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
(In Thousands Except Ratios)
<CAPTION>
Three Months Ended Nine Months Ended Twelve Months Ended
September 30, September 30, September 30,
1998 1997 1998 1997 1998 1997
-----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS:
Income before preferred stock dividends $ 8,689 $ 7,982 $19,021 $16,729 $23,197 $ 20,614
Federal income taxes 4,633 4,253 10,106 8,873 12,507 10,900
Interest charges 3,797 4,003 11,511 12,518 15,615 16,469
--------------------------------------------------------
Earnings available to cover fixed charges 17,119 16,238 40,638 38,120 51,319 47,983
--------------------------------------------------------
FIXED CHARGES:
Interest on long-term debt 3,651 3,671 10,988 10,318 14,700 13,570
Other interest 229 293 627 2,060 949 2,986
Amortization of debt discount - net 98 89 293 267 402 365
--------------------------------------------------------
Total fixed charges 3,978 4,053 11,908 12,645 16,051 16,921
--------------------------------------------------------
Ratio of Earnings to Fixed Charges 4.30 4.01 3.41 3.01 3.20 2.84
========================================================
<FN>
Earnings to Fixed Charges represents the sum of Income Before Preferred Stock
Dividends, Federal income taxes and Interest Charges (which is reduced by
Allowance for Debt Funds Used During Construction), divided by Fixed Charges.
Fixed Charges consist of interest on long and short-term debt (which is not
reduced by Allowance for Debt Funds Used During Construction), and
Amortization of debt discount.
</FN>
Page 2 of 2
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000764403
<NAME> ETOWN CORPORATION AND SUBSIDIARIES
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 595,310
<OTHER-PROPERTY-AND-INVEST> 74,726
<TOTAL-CURRENT-ASSETS> 48,355
<TOTAL-DEFERRED-CHARGES> 39,508
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 757,899
<COMMON> 165,794
<CAPITAL-SURPLUS-PAID-IN> (3,763)
<RETAINED-EARNINGS> 50,819
<TOTAL-COMMON-STOCKHOLDERS-EQ> 212,850
0
12,227
<LONG-TERM-DEBT-NET> 274,295
<SHORT-TERM-NOTES> 40,694
<LONG-TERM-NOTES-PAYABLE> 216
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 12,030
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 205,803
<TOT-CAPITALIZATION-AND-LIAB> 757,899
<GROSS-OPERATING-REVENUE> 43,907
<INCOME-TAX-EXPENSE> 4,482
<OTHER-OPERATING-EXPENSES> 26,508
<TOTAL-OPERATING-EXPENSES> 30,990
<OPERATING-INCOME-LOSS> 12,917
<OTHER-INCOME-NET> 354
<INCOME-BEFORE-INTEREST-EXPEN> 13,271
<TOTAL-INTEREST-EXPENSE> 4,513
<NET-INCOME> 8,758
203
<EARNINGS-AVAILABLE-FOR-COMM> 8,555
<COMMON-STOCK-DIVIDENDS> 4,276
<TOTAL-INTEREST-ON-BONDS> 4,049
<CASH-FLOW-OPERATIONS> 27,857
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.00<F1>
<FN>
<F1>All amounts are in thousands of dollars except per share amounts.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000032379
<NAME> ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 591,851
<OTHER-PROPERTY-AND-INVEST> 80
<TOTAL-CURRENT-ASSETS> 37,537
<TOTAL-DEFERRED-CHARGES> 38,465
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 667,933
<COMMON> 15,741
<CAPITAL-SURPLUS-PAID-IN> 130,291
<RETAINED-EARNINGS> 59,328
<TOTAL-COMMON-STOCKHOLDERS-EQ> 205,360
0
12,000
<LONG-TERM-DEBT-NET> 231,955
<SHORT-TERM-NOTES> 21,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 197,588
<TOT-CAPITALIZATION-AND-LIAB> 667,933
<GROSS-OPERATING-REVENUE> 38,821
<INCOME-TAX-EXPENSE> 4,493
<OTHER-OPERATING-EXPENSES> 22,102
<TOTAL-OPERATING-EXPENSES> 26,595
<OPERATING-INCOME-LOSS> 12,226
<OTHER-INCOME-NET> 260
<INCOME-BEFORE-INTEREST-EXPEN> 12,486
<TOTAL-INTEREST-EXPENSE> 3,797
<NET-INCOME> 8,689
203
<EARNINGS-AVAILABLE-FOR-COMM> 8,486
<COMMON-STOCK-DIVIDENDS> 4,276
<TOTAL-INTEREST-ON-BONDS> 3,651
<CASH-FLOW-OPERATIONS> 30,573
<EPS-PRIMARY> 0
<EPS-DILUTED> 0<F1>
<FN>
<F1>All amounts in thousands of dollars except per share amounts.
</FN>
</TABLE>
Exhibit 10(m)
AGREEMENT FOR PUBLIC/PRIVATE PARTNERSHIP AND
OPERATION, MAINTENANCE AND MANAGEMENT SERVICES FOR
THE CITY OF ELIZABETH'S MUNICIPAL WATER SYSTEM
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS
Section 1.1 2
Section 1.2 Interpretation 9
ARTICLE II. PARTNERSHIP
Section 2.1 Operation, Maintenance and Management 10
of System
Section 2.2 Irrevocable Performance Letter of
Credit/Labor and Materials Bond 10
ARTICLE III. TERM
Section 3.1 Term 11
ARTICLE IV. CONDITIONS PRECEDENT
Section 4.1 General 12
Section 4.2 Conditions Precedent to City's Obligations 12
Section 4.3 Conditions Precedent to Contract Partner
Obligations 15
Section 4.4 Satisfaction of Conditions Precedent 17
Section 4.5 Timing of Certain Obligations 18
ARTICLE V. REPRESENTATIONS AND WARRANTIES
Section 5.1 City Responsibilities and Warranties 20
Section 5.2 Contract Partner Responsibilities and
Warranties 21
ARTICLE VI. OPERATION, MAINTENANCE AND MANAGEMENT
OF THE SYSTEM
Section 6.1 General 23
Section 6.2 Inventory 26
Section 6.3 Maintenance Management Program 27
Section 6.4 Software Program 28
Section 6.5 Testing and Laboratory Analysis 28
Section 6.6 Reporting Requirements 29
Section 6.7 Staffing 32
Section 6.8 Licenses 35
Section 6.9 Compliance with Laws and Regulation and
Permits 35
Section 6.10 Safety and Security 37
Section 6.11 Continuity of Service 38
Section 6.12 Emergency Situations 39
Section 6.13 Access to System and Records 40
Section 6.14 Additional Responsibilities 41
Section 6.15 Operations Committee 48
<PAGE>
ARTICLE VII. SYSTEM CAPITAL IMPROVEMENTS
Section 7.1 General 49
Section 7.2 Capital Improvement Plan 49
Section 7.3 Capital Financing Plan 50
Section 7.4 Capital Improvement Fund 50
Section 7.5 City Payment Fund 51
Section 7.6 Repairs 51
Section 7.7 Emergencies or Improvements Required
by Law 52
ARTICLE VIII. FINANCIAL TERMS
Section 8.1 The Initial Payment 53
Section 8.2 The Annual Concession Payment 54
Section 8.3 Revenue Sharing 54
Section 8.4 Establishment and Collection of
Rates, Fees and Charges 54
Section 8.5 Expenses 57
Section 8.6 Billing and Collections 57
Section 8.7 Application of Rents, Rates, Fees
and Other Charges 59
Section 8.8 Allocation of Revenues 61
ARTICLE IX. DEFAULT AND TERMINATION
Section 9.1 General Provisions 62
Section 9.2 Termination for Cause by the City 62
Section 9.3 Termination for Cause by the Contract
Partner 69
Section 9.4 Termination for Unenforceability of
Agreement 75
Section 9.5 Optional Termination by the City 75
ARTICLE X. MISCELLANEOUS
Section 10.1 Insurance 76
Section 10.2 Indemnification 81
Section 10.3 New Equipment 82
Section 10.4 Enforcement 82
Section 10.5 Assignment 82
Section 10.6 Affirmative Action 83
Section 10.7 Entire Agreement 85
Section 10.8 Notices 85
Section 10.9 Public Notices 86
Section 10.10 Application of Law 86
Section 10.11 Relationship 86
Section 10.12 Public Relations 87
Section 10.13 Notice of Litigation 87
Section 10.14 Cost Substantiation 87
Section 10.15 Bulk Sale 88
Section 10.16 Unforeseen Events 88
Section 10.17 Hazardous Wastes 89
<PAGE>
Section 10.18 Pre-Existing Conditions 89
Section 10.19 Dispute Resolution 89
Section 10.20 Obligation Prior to Commencement Date 90
Schedules
Schedule 1 - City Payment Fund
Schedule 2 - Guarantor Agreement
Schedule 3 - Minimum Administrative Criteria
Schedule 4 - Minimum Financial Criteria
Schedule 5 - Minimum Technical Criteria
Schedule 6 - Free Water Services
Schedule 7 - Base Service Rate
Schedule 8 - Employees to be Offered Employment
Schedule 9 - Wholesale Water Supply Contracts
Schedule 10 - Termination Fee
<PAGE>
AGREEMENT FOR PUBLIC/PRIVATE PARTNERSHIP AND
OPERATION, MAINTENANCE AND MANAGEMENT SERVICES FOR
THE CITY OF ELIZABETH'S MUNICIPAL
WATER SYSTEM
THIS AGREEMENT, made this day of , 1998
by and between the CITY OF ELIZABETH, a Municipal Corporation of
the State of New Jersey (the "City"), and Liberty Water Company, a
New Jersey corporation doing business at 600 South Avenue West,
Westfield, New Jersey (the "Contract Partner").
W I T N E S S E T H :
WHEREAS, the City currently owns and operates a water
transmission and distribution system within the City limits of the
City of Elizabeth, New Jersey;
WHEREAS, the Contract Partner is engaged in the business of
operating, maintaining and managing water systems and utilities;
and
WHEREAS, it is the mutual desire of the parties to enter into
an agreement to provide for the operation, maintenance and
management of the City's water transmission and distribution
system; and
WHEREAS, the City Council of the City has determined that the
public health, safety, and welfare of the residents of the City can
best be protected by entering into an Agreement to provide for the
operation, maintenance, and management of the City's water
transmission and distribution system;
NOW, THEREFORE, in consideration of the mutual covenants,
conditions, and terms contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
1
<PAGE>
ARTICLE I. DEFINITIONS
Section 1.1. The following definitions shall apply to and
are used in this Agreement:
"Agreement" or "Partnership Agreement" - means this "Agreement
for Public/Private Partnership and the Operation, Maintenance and
Management Services for the City of Elizabeth's Municipal Water
System", executed by and between the City and the Contract Partner.
"Additional Concession Payments" - means the payments paid by
the Contract Partner to the City in accordance with Section 8.2
hereof.
"Approved Subcontractor" - means Utility Billing Services, or
such other entity to be approved by the City (such approval will
not be unreasonably withheld), who will subcontract with the
Contract Partner to provide all or a portion of the Services.
"Base Service Rate" - means that portion of the Total User
Charge Rate paid by customers of the System equal to the rates set
forth in Schedule 7 to this Agreement.
"Billing and Collection Services" - means the billing and
collection services to be rendered by the Contract Partner with
respect to the Water System and Wastewater System in accordance
with Section 8.6.
"Board" - means the Board of Public Utilities of the State of
New Jersey or any successor agency.
"Capital Improvements" - means any replacements, additions,
extensions, construction or reconstruction of or to permanent
structures or facilities in the Water System that (1) are
2
<PAGE>
nonconsumable in nature; (2) have a useful life greater than five
years; and (3) are identified in the Capital Improvement Plan
developed under Section 7.2 or as mutually agreed to by the City
and Contract Partner.
"Capital Improvement Costs" - means all costs associated with
the design, permitting, construction and financing of Capital
Improvements, including but not limited to, City's expenses
associated with funding and engineering fees for project review and
construction observation.
"Capital Improvement Fund" - means an account held by the City
or a trustee to be funded by the Contract Partner and/or the City
in accordance with Schedule 1 and Section VII - System Capital
Improvements.
"City" - means the City of Elizabeth, a public body corporate
and politic of the State of New Jersey.
"City Payment Fund" - means the fund so designated that is
herein established and created pursuant to Section 7.5.
"City's Procurement Cost" - means the amount of money paid or
payable by the City in the procurement of the services described in
this Agreement which are to be reimbursed by the Contract Partner
in accordance with Section 8.1(c).
"Commencement Date" - means the effective date of this
Agreement wherein the Contract Partner shall commence the Services.
"Contract Date" - means the date of execution of this
Agreement.
"Contract Partner" - means Liberty Water Company.
3
<PAGE>
"Contract Year" - means a one-year period commencing on July
1 and ending on June 30 in each year during the term of this
Agreement, which in the case of the first Contract Year shall be
the period beginning on the Commencement Date and ending on the
following June 30.
"Day" - means a calendar day of twenty-four hours measured
from midnight to the next midnight.
"Debt Retirement Account" - means the account created by the
City for the retirement of the City's outstanding indebtedness
related to the City's Water System.
"Debt Retirement Payment" - means the payment made by the
Contract Partner to the City to be paid into the Debt Retirement
Account as created by the City.
"DEP" or "Department" - means the New Jersey Department of
Environmental Protection or any successor agency.
"Division" - means the Local Finance Board of the Division of
Local Government Services of the New Jersey Department of Community
Affairs.
"EPA" - means the United States Environmental Protection
Agency or any successor agency.
"Guarantor" - means E'Town Corporation, a New Jersey
Corporation doing business at 600 South Avenue, Westfield, New
Jersey.
"Guarantor Agreement" - means the guarantor agreement between
the Guarantor and the City included in Schedule 2.
4
<PAGE>
"Initial Concession Payment" - means the payment made by the
Contract Partner to the City in the amount and in accordance with
Section 8.1(a).
"Local Public Contracts Law" - means N.J.S.A. 40A:11-1, et
seq.
"Minimum Administrative Criteria" - means the minimum
administrative requirements applicable to the Contract Partner as
set forth in Schedule 3 of this Agreement.
"Minimum Financial Criteria" - means the financial
requirements applicable to the Contract Partner that must be met
and maintained during the life of this Agreement as set forth in
Schedule 4 of this Agreement.
"Minimum Technical Criteria" - means the technical
requirements applicable to the Contract Partner that must be met
and maintained during the life of this Agreement as set forth in
Schedule 5 of this Agreement.
"Pass-through Charge" - means additional direct and indirect
costs (excluding profit) of Contract Partner resulting from the
occurrence of (a) Unforeseen Events; (b) Increases in water charges
charged by outside suppliers of wholesale water not in effect as of
the Commencement Date subject to Section 6.14(c)(iii) and as
otherwise provided herein; (c) Repair costs in excess of $50,000
per item per occurrence; (d) billing and collection services
related to the wastewater bill in accordance with Section 8.6.
"Pass-through Credit" - means the reduction in direct and
indirect costs (excluding profit) resulting from the occurrence of
5
<PAGE>
(a) Unforeseen Events; and (b) Decreases in water charges charged
by outside suppliers of wholesale water not in effect as of the
Commencement Date.
"Permits" - means permits, approvals and/or licenses issued by
the United States Environmental Protection Agency (USEPA), New
Jersey Department of Environmental Protection (NJDEP) or any other
federal, state or local regulatory agency or private party that is
necessary for the proper operation of the Water System.
"Proposal" - means the Proposal submitted by the Contract
Partner in response to the RFQ/RFP.
"Repairs" - means the repair, replacement or renewal of system
elements, as necessary to address the failure (or prospective
failure) of Water System components, as detailed in Section 7.6 of
this Agreement.
"Retire" or "Retirement" means the full payment or provision
for the full payment of the Water System indebtedness (existing on
Contract Date) in accordance with the requirements of the Local
Bond Law (N.J.S.A. 40A:2-1, et seq.) and the Internal Revenue Code
of 1986, as amended and supplemented.
"Revenues" - means all rates, fees, rents, charges and service
charges and other income derived or to be derived in cash from or
for the ownership, the operation, the direct or indirect connection
with, and the use or the services of the System and all amounts
paid into and credited to the Revenue Fund in accordance with the
Agreement.
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"Revenue Fund" - means the fund so designated that is herein
established under Section 8.6.
"RFQ/RFP" - means the "Request for Qualifications and Request
for Proposals for a Public/Private Partnership Agreement for the
Operation, Maintenance and Management Services of the City of
Elizabeth's Water and Wastewater Systems", dated December 2, 1997,
that was issued by the City in connection with procurement of the
Contract Partner to implement the maintenance, operation and
management services of the System.
"Services" - means all of the duties, obligations, and
services as defined herein to be provided by the Contract Partner
that are related to the management, operation and maintenance, or
any combination thereof, for provision of complete operating staff,
energy and other consumables, management, performance, operation
and maintenance of the City's System.
"System" - means collectively all of the individual components
and elements that compromise the Water System and the Billing and
Collection Services of the City of Elizabeth.
"Term" - means the period of time in which this Agreement is
in full force and effect.
"Total User Charge Rate" - means the sum of the Base Service
Rate and the Pass-through Charge or Pass-through Credit, as the
case may be.
"Unforeseen Events" - means circumstances beyond the control
of the parties hereto consisting of (a) any of the following acts,
events or conditions or any combination thereof (other than a labor
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strike by the Contract Partner or related entity, its employees,
affiliates, subcontractors, and/or suppliers) that (i) is
unforeseeable as of the Contract Date, (ii) is outside of the
control of the party relying thereon not performing an obligation
or complying with any condition required of such party under the
Agreement; and (iii) has had or may be reasonably expected to have
a direct, material effect on the System or the rendering of
Services under this agreement:
A. Force Majeure events that are outside the reasonable
control of the party adversely affected, such as acts of God, acts
of terrorism, insurrections, riots, epidemics, landslides,
lightning, earthquakes, fires, and explosions, civil disturbances,
acts of the public enemy, and war;
B. Change in Law, defined as (1) the enactment of any law,
regulations or ordinance after the Contract Date (excluding (a)
laws or regulations adopted at the time of execution of this
Agreement but which have provisions that take effect after the
first contract year and (b) pending changes in law reasonably
anticipated to be enacted as of the Contract Date); or (2) a
material modification of or imposition of any material condition on
the issuance, modification or renewal of any Permit which, in the
case of either (1) or (2) above, establishes requirements affecting
the financing or operation or capital costs of the System that are
materially more burdensome than the requirements in effect as of
the Contract Date;
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C. Judicial/Administrative Determinations, defined as the
final order, judgment, action and/or determination of any federal,
state or local court of competent jurisdiction, administrative
agency or governmental body (other than the City);
D. Permit Terminations, defined as the
suspension,termination, interruption, denial or failure of renewal
or issuance of any Permit (not caused in any way by the action or
inaction of either party hereto) that is necessary to operate the
System.
"Wastewater System" - means collectively all of the individual
components and elements that comprise the wastewater collection and
transmission system of the City.
"Water Act" - means the "New Jersey Water Supply
Public/Private Contracting Act, N.J.S.A. 58:26-19 et seq.
"Water System" - means collectively all of the individual
components and elements that comprise the potable water system of
the City, for which the City is responsible, including, but not
limited to, the City-wide system of water distribution, pipelines,
fire hydrants, valves, service lines from the main to the curb,
meters and related facilities for the potable water System.
Section 1.2. Interpretation. Whenever the context may
require, any pronoun that is used in this Agreement shall include
the corresponding masculine, feminine and neuter forms, and the
singular shall include the plural and vice versa. Unless otherwise
noted, the words "include", "includes" and "including" when used in
this Agreement shall be deemed to be followed by the phrase
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"without limitation". The words "agree", "agreements", "approval"
and "consent" when used in this Agreement shall be deemed to be
followed by the phrase "which shall not be unreasonably withheld or
unduly delayed", except or unless the context may otherwise
specify.
ARTICLE II. PARTNERSHIP
Section 2.1. Operation, Maintenance and Management of
System. On and after the Commencement Date, the City and the
Contract Partner, in combination with each other in the manner
herein described, shall operate, maintain and manage the System on
the terms and conditions set forth in this Agreement.
Section 2.2. Irrevocable Performance Letter of Credit/Labor
and Materials Bond. On or prior to the Commencement Date, and on
or before each anniversary of Commencement Date, the Contract
Partner shall submit to the City (i) an irrevocable performance
letter of credit specifically encumbered to the City; and (ii) in
the City's sole discretion, at any time during the term of the
Contract, a labor and materials payment bond, each of which shall
be in the amounts and substantially in form and substance as set
forth in the RFQ/RFP. The labor and materials payment bond shall
be obtained from a surety(s) that is authorized to do business in
the State and that is listed in the United States Treasury
Department Circular 570. The irrevocable letter of credit shall be
issued by a bank that is rated in one of the two highest rating
categories by Standard & Poor's Corporation and/or Moody's
Investors Service, such letter of credit may be drawn down in any
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amount up to face value by the City after a determination by the
City of a breach by Contract Partner and 24 hours advance notice
setting forth the reasons the City believes a breach has occurred.
The amount of the irrevocable letter of credit, as applicable, and
the labor and materials payment bond shall be provided in an amount
equal to 100% of the annual cost to provide the Services (which
amount shall be calculated by the City on or prior to the Contract
Date).
Failure of the Contract Partner to provide and maintain the
irrevocable letter of credit, as applicable, and the labor and
materials payment bond in the amounts and at the times provided
herein shall entitle the City to terminate this Agreement upon
thirty (30) days prior written notice to the Contract Partner and
to seek any damages and/or remedies available at law or at equity.
In the event the institution issuing the irrevocable letter of
credit has a decrease in its rating to that below a long-term
credit rating of AA as identified by Standard & Poor's Corporation
and/or Moody's Investors Service, the Contract Partner must obtain
a replacement irrevocable letter of credit of its sole cost and
expense that satisfies the above criteria within 30 days.
ARTICLE III. TERM
Section 3.1. Term. The term of this Agreement shall
commence on the Commencement Date, and unless earlier terminated in
accordance with the terms hereof, shall expire on the fortieth
anniversary date of the Commencement Date.
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ARTICLE IV. CONDITIONS PRECEDENT
Section 4.1. General. The issuance of a Notice to Proceed
and the establishment of the Commencement Date shall be subject to
the satisfaction or waiver of the conditions precedent set forth in
this Article IV.
Section 4.2. Conditions Precedent to the City's Obligations.
The City shall be under no obligation to perform any obligations
under the terms of this Agreement (other than those obligations
arising or relating to actions required to be taken by or on behalf
of the City prior to issuance of the Notice to Proceed) unless the
following conditions have been satisfied (or waived by the City,
(in writing)):
(a) The Board, the Division and the Department shall have
approved this Agreement.
(b) The Contract Partner shall have paid the Initial
Concession Payment to the City.
(c) The Contract Partner shall have paid the Debt Retirement
Payment to the City.
(d) The Contract Partner shall have paid to the City the
City's Procurement Costs in an amount not to exceed $400,000.
(e) The Contract Partner and the Guarantor shall have been
validly organized and created and shall be validly existing under
the laws of the State in which it was incorporated, as evidenced by
delivery of (1) certified copies of the Certificate of
Incorporation and the Certificate of Good Standing; (2) an opinion
of counsel to the Contract Partner and the Guarantor to such
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effect; and (3) such other documentation as the City may reasonably
require to evidence satisfaction of the requirements set forth in
this subparagraph.
(f) The Contract Partner shall have delivered the Guarantor
Agreement to the City, and such Guarantor Agreement shall be duly
executed and delivered by the duly authorized and proper corporate
officers of the Guarantor.
(g) The Contract Partner shall have delivered to the City (1)
a certificate of an authorized officer of the Contract Partner,
dated the Commencement Date, to the effect that each of the
representations of the Contract Partner that are set forth in this
Agreement and in the responses to the RFQ/RFP are true and correct
as if made on such date, and (2) an opinion of counsel to the
Contract Partner and Guarantor, in a form which is reasonably
satisfactory to the City, to the effect set forth in Section 5.2
hereof.
(h) The Contract Partner, its employees and/or its
subcontractors, as applicable, shall have obtained all applicable
permits, licenses and authorizations that are necessary for the
operation, maintenance and management of the System and any
facilities in the System.
(i) The Contract Partner shall have submitted to the City all
certificates of insurance and, at the City's option, copies of all
applicable endorsements to insurance policies, as are required by
the terms of this Agreement for operation, maintenance and
management of the System.
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(j) The Contract Partner and Guarantor shall have delivered
Opinions of Counsel to the effect that no material action, suit,
proceeding or official investigation shall have been threatened,
publicly announced or commenced by any federal, state or local
governmental authority or agency, or in any federal, state or local
court, that seeks to enjoin, assess civil or criminal penalties
against, assess civil damage against or obtain any judgment, order
or consent decree with respect to the Contract Partner or the
Guarantor or to any of the agreements that are referred to in this
Section as a result of the Contract Partner's negotiation,
execution, delivery or performance of any such agreement or its
participation or intended participation in any transaction
contemplated thereby;
(k) (i) No receiver, liquidator, custodian or trustee of the
Contract Partner or the Guarantor or of a major part of either
entity's property shall have been appointed subsequent to the
Contract Date, and no petition to reorganize the Contract Partner
or the Guarantor pursuant to the United States Bankruptcy Code or
any similar statute that is applicable to the Contract Partner or
the Guarantor shall have been filed; and (ii) no adjudication of
bankruptcy or a filing for voluntary bankruptcy under the
provisions of the United States Bankruptcy Code or any other
similar statute which is applicable to the Contract Partner or the
Guarantor shall have been filed.
(l) No indictment has been returned against any official or
officer of the Contract Partner or the Guarantor with respect to
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any business transaction, whether or not related to the
transactions contemplated by the terms and conditions of this
Agreement.
(m) The Minimum Financial Criteria set forth on Schedule 4
hereto have been, and will continue to be, satisfied as of the
Contract Date.
(n) No change shall have occurred subsequent to the Contract
Date and on or prior to the Commencement Date in any applicable
federal, State or local law, or any applicable federal, State or
local statute, regulation thereunder or written interpretation
thereof by any applicable regulatory authority, that would make the
execution or delivery by either party of this Agreement or the
compliance by the City with the terms and conditions hereof or the
consummation by the City of the transactions contemplated hereby,
a violation of such law, statute or regulation.
Section 4.3. Conditions Precedent to Contract Partner
Obligations. The Contract Partner shall be under no obligation to
perform any obligations under the terms of the Agreement (other
than obligations arising or relating to actions required to be
taken by or on behalf of the Contract Partner prior to issuance of
the Notice to Proceed) unless the following conditions have been
satisfied (or waived by the Contract Partner (in writing)):
(a) The Board, the Division and the Department shall have
approved this Agreement to the extent required by law.
(b) The City shall have delivered to the Contract Partner (1)
a certificate of an authorized officer of the City, dated the
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Commencement Date, to the effect that each of the representations
of the City that are set forth in Section 5.1 hereof are true and
correct as if made on such date.
(c) The City shall certify that to the best of its knowledge
that no material action, suit, proceeding or official investigation
shall have been threatened, publicly announced or commenced by any
federal, state or local governmental authority or agency, or in any
federal, state or local court, that seeks to enjoin, assess civil
or criminal penalties against, assess civil damage against or
obtain any judgment, order or consent decree with respect to the
City or to any of the agreements that are referred to in this
Section as a result of the City's negotiation, execution, delivery
or performance of any such agreement or its participation or
intended participation in any transaction contemplated thereby.
(d) No change shall have occurred subsequent to the Contract
Date in any applicable federal, State or local law, or any
applicable federal, State or local statute, regulation thereunder
or written interpretation thereof by any applicable regulatory
authority, that would make the execution or delivery by either
party to this Agreement (or the execution or delivery by the
Guarantor of the Guarantor Agreement) the compliance by the
Contract Partner or the Guarantor with the terms and conditions
hereof or the consummation by the Contract Partner or the Guarantor
of the transactions contemplated hereby, a violation of such law,
statute or regulation.
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(e) The City will use its best effort to provide the Contract
Partner with any licenses, drawings and other documents deemed
necessary by Contract Partner for the safe, adequate and proper
management of the System.
(f) The City will certify that to the best of the City's
knowledge that no material changes to the System have occurred
subsequent to the Contract Date that will materially impair the
Contract Partner's ability to perform the required Services.
Section 4.4. Satisfaction of Conditions Precedent. (a) The
parties hereto shall exercise good faith and due diligence in
satisfying the conditions precedent required by this Article IV and
shall promptly proceed to perform or cause to be performed those
conditions precedent, or portions thereof, that are within each
party's control.
(b) If the Commencement Date has not occurred on or prior to
one hundred and twenty days (120) after the Contract Date, the
period in which the conditions precedent can be satisfied or waived
may be extended by joint agreement of the City and Contract
Partner, for a period of time to be agreed upon by the City and
Contract Partner, on the same terms and conditions set forth in
this Agreement, except to the extent expressly provided below.
(c) In the event that the Commencement Date shall not have
occurred on or before the one hundred twentieth (120th) day after
the Contract Date or prior to the last day of any extension period
elected pursuant to Section 4.4(b), then either party, by notice in
writing to the other party, may terminate this Agreement. If the
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reason for such termination is the fault of neither party to the
Agreement, or solely the fault of the City to the Agreement then
all amounts paid by the Contract Partner to the City prior to such
termination shall be returned to such Contract Partner and each
partner shall bear its respective expenses attributable to the
Agreement. In the event that such termination is the fault of the
Contract Partner for failure to meet conditions precedent within
its control, then the City shall be entitled to all amounts,
including the Debt Retirement amount, Initial Concession Payment,
and City's Procurement Costs and each partner shall otherwise bear
its respective expenses attributable to the Agreement.
(d) The Contract Partner and the City shall each provide an
executed acknowledgment to the other of the date that the
respective conditions precedent to its obligations under this
Agreement have been met or waived and such acknowledgement shall be
given within thirty (30) Days of the date on which the last such
condition is met or waived. Neither party will be permitted to
terminate this Agreement for failure to satisfy any condition
precedent that is entirely and reasonably within such party's
control or which failure is determined to be City fault or Contract
Partner fault, as the case may be.
Section 4.5. Timing of Certain Obligations. (a) Pursuant to
the Act, this Agreement must be submitted to the Division,
Department and the Board for review and/or approval. The City
shall be responsible for obtaining such review and approval, and
the Contract Partner shall cooperate with the City in providing any
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assistance and information that is required in order to obtain such
review and approval. In the event that the Division, Department
and/or the Board conditionally approve this Agreement or any
portion thereof and premise future approval on the acceptance of
certain proposed terms and conditions by the parties, to the extent
that such terms and conditions are immaterial terms and conditions
in that such terms and conditions do not (i) materially affect the
rates to be charged by the City or the amounts of the Initial
Concession Payment and/or the Annual Concession Payments to be paid
to the City; (ii) impose restrictions on the City's use of the
Initial Concession Payment and/or the Annual Concession Payment; or
(iii) materially impact the cost to operate and maintain the
System (or any portion thereof), the parties shall accept such
terms and conditions and shall modify this Agreement to include
such terms and conditions. If the proposed terms and conditions
imposed by the Division, Department or the Board are material
terms and conditions in that such terms and conditions (i)
materially affect the rates to be charged by the City or the
amount of the Initial Concession Payment and/or the Annual
Concession Payment to be paid to the City; (ii) impose restrictions
on the City's use of the Initial Concession Payment and/or the
Annual Concession Payment; or (iii) materially impact the cost to
operate and maintain the System (or any portion thereof), the
parties shall cooperate in good faith to negotiate acceptable terms
and conditions to this Agreement that will satisfy the concerns of
the Division, Department or the Board, as the case may be.
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(b) On or before the Contract Date, the Contract Partner
shall pay to the City the full amount of the Initial Concession
Payment in accordance with, and subject to Section 8.1 hereof.
(c) The Contract Partner shall have paid, in cash, the Debt
Retirement Payment amount into the Debt Retirement Account to be
established promptly upon the satisfaction of the condition
described in Section 4.2(a) and 4.3(a). Following the Notice to
Proceed, the City may withdraw moneys from said Debt Retirement
Account for the Retirement of the System indebtedness. Any excess
amounts remaining in the Debt Retirement Account following
Retirement of the System indebtedness shall be paid to the City.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
Section 5.1. City Responsibilities and Warranties. The City
hereby represents and warrants to the Contract Partner as follows:
(a) The City is a municipal corporation duly created and
existing pursuant to the laws of the State of New Jersey. The City
has the requisite power and authority to enter into this Agreement.
(b) The City has the legal capacity and authority to assess
the rates for the supply of water and wastewater service to
customers of the System that are required to be established by the
City pursuant to Section 8.4 Establishment and Collection of Rates,
Fees and Charges hereof. The City has and will maintain for the
Term of this Agreement the legal capacity and authority to impose
liens and suspend service for the nonpayment of such rates and
fees. Other than the existing indebtedness and any indebtedness
for Capital Improvements if such are undertaken and paid for by the
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City, there are no liens, notes, bonds, mortgages, encumbrances, or
other entitlement to the Revenues of the Water System (other than
connection fees, if any, which shall be retained by the City and as
otherwise stated in this Agreement) which have priority over the
Contract Partner's entitlement to the Revenues of the Water System
pursuant to this Agreement, and no such liens, notes, bonds,
mortgages, or encumbrances (other than connection fees) will be
issued or imposed by the City during the term of this Agreement
which effect the priority of the Contract Partner's rights to the
Revenues provided for in this Agreement.
c. The City is not aware of any claims, suits, actions, or
judgments which, if successful, would create an encumbrance upon
the Revenues of the System which would have a priority over the
Contract Partner's entitlement to the Revenues of the System
pursuant to this Agreement or which otherwise would have a material
adverse effect on the ability of either the Contract Partner or the
City to perform its obligations hereunder.
d. The City has enacted, or will have enacted by the
Commencement Date, all municipal laws, ordinances, or regulations
necessary for the performance of this Agreement. The City shall
establish rates and fees for Services in accordance with Section
8.4 Establishment and Collection of Rates, Fees and Charges.
Section 5.2.Contract Partner Responsibilities and
Warranties. The Contract Partner represents and warrants to the
City as follows:
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a. The Contract Partner is an entity duly organized and
validly existing in good standing in the State of New Jersey and is
qualified and authorized to do business in the State of New Jersey.
b. The Contract Partner has full power and authority to
enter into this Agreement and to perform its duties and obligations
hereunder. This Agreement has been duly authorized, executed and
delivered by the Contract Partner and the authorization, execution,
delivery and performance of this Agreement by the Contract Partner
will not violate any law, judgment, order, ruling or regulation
applicable to the Contract Partner and does not constitute a breach
of or default under any agreement or instrument by which the
Contract Partner is bound.
c. The Contract Partner (or the Contract Partner's personnel
or subcontractors), has or holds, and will continue to have or hold
throughout the term of this Agreement, all approvals, licenses,
permits, and certifications necessary to operate, maintain and
manage the System in accordance with the terms and provisions of
this Agreement, competent and experienced personnel on its staff
who have direct experience in operating, maintaining and managing
water systems similar in nature and character to the System.
d. No litigation is pending or threatened (or reasonably
foreseeable) against the Contract Partner which would impair its
ability to perform its duties and obligations under this Agreement.
e. At all times during the term of this Agreement, the
Contract Partner shall keep the System and all components thereof
free from any and all liens and encumbrances arising out of or in
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connection with its operation, maintenance and management of the
System or any acts, omissions or debts of the Contract Partner, its
parent, any of its subsidiaries, or any of its subcontractors.
f. At all times during the term of this Agreement, the
Contract Partner (or Guarantor) shall meet and maintain the Minimum
Financial Criteria, as set forth in Schedule 4, and will maintain
the irrevocable letter of credit.
ARTICLE VI
OPERATION, MAINTENANCE AND MANAGEMENT OF THE SYSTEM
Section 6.1. General. (a) The Contract Partner shall
operate, maintain and manage the System at all times on behalf of
the City in compliance with all State, Federal and local laws and
regulations, permits and in accordance with the terms and
provisions of this Agreement. The Contract Partner, at all times,
shall keep the System in good repair and working order and shall
manage, operate and maintain the System in a professional,
efficient and economical manner, all in accordance with the terms
and provisions of this Agreement, sound operating practice and
prudent industry and utility practice. The Contract Partner shall
perform periodic testing of the System, including, without
limitation, testing of meters and AMR equipment installed in the
System in accordance with Section 6.14 hereof, all as shall be
required in accordance with prudent industry and utility practice.
(b) The City shall have the right (upon reasonable notice)
from time to time or at any time to inspect the System and/or the
operation thereof by the Contract Partner.
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(c) The City shall have the right to continuously monitor and
review the performance of the System and the operation, maintenance
and management thereof by the Contract Partner, and if the City so
chooses, the City shall be entitled to hire a consulting engineer
and/or other consultant at its cost for purposes of conducting such
monitoring and review activities. The Contract Partner shall keep
such records of all pertinent operating data and information
relating to the System, including accounting and financial records,
as prudent industry and utility practice shall require. The City
shall, upon reasonable notice, have continuous and unrestricted
access to all components of the System, including, without
limitation, all operating, monitoring and financial data and
information relating to the operation of the System required to be
kept by the Contract Partner in accordance with this Section and
Section 6.13 hereof. The City shall use its best efforts so as not
to disrupt the operation of the System. The Contract Partner shall
be obligated to provide the City, upon reasonable request, with
copies of all operating data, accounting, financial and other
information kept by the Contract Partner in accordance with this
Section and Section 6.13 hereof. If requested by the City, the
Contract Partner shall provide monthly or quarterly status reports
to the City that set forth basic operating and financial
information relating to the System for the previous month or
quarter, as the case may be.
(d) Except for the inventory items referred to in Section
6.2, below, which the Contract Partner shall have the right to use
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without charge in the performance of this Agreement, the Contract
Partner shall provide, at its cost and expense, all labor,
materials, machinery, vehicles, equipment, office equipment
(copiers, typewriters, computers, etc.), fuel, power, chemicals,
supplies, materials, spare parts, expendables, consumables, testing
and laboratory analysis, and all else necessary therefore or
incidental thereto for the operation, maintenance and management of
the System in accordance with the terms and provisions of this
Agreement and in accordance with applicable laws, ordinances and
regulations.
(e) The Contract Partner shall respond as soon as possible
after notification to all customer problems and emergencies
relating to the System and shall initiate a response as follows:
(1) main breaks or emergencies -- as soon as possible but not later
than 2 hours; (2) customer complaints -- within 24 hours or the
next business day; (3) utility markout -- in accordance with
applicable law; and (4) all other -- within a reasonable amount of
time.
The Contract Partner shall maintain at all times during the
term of this Agreement a toll-free 24 hour telephone number where
customers of the System can report any emergencies. In addition
thereto, if available and practicable, the Contract Partner shall
provide, within the geographical limits of the City, a centrally
located collection office (such as a bank) where customers of the
System may pay their bills during normal business hours Monday
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through Friday. Further, the Contract Partner shall maintain a
"drop box" in the City Hall Building.
(f) The Contract Partner shall provide, during the term of
this Agreement, free water service to the City offices, public
buildings and other entities identified in Schedule 6 hereto,
including free water service to the City fire department and all
fire department and street cleaning related activities for public
use. The City shall not be required to pay any hydrant fee during
the term of this Agreement. The Contract Partner shall also comply
with the provisions of N.J.S.A 40A:31-10.
(g) All repairs and/or improvements to the System shall be
made by the Contract Partner in accordance with City ordinances.
(h) The Contract Partner shall (i) provide routine
maintenance, including, but not limited to, preventative
maintenance tracking, corrective maintenance scheduling and spare
parts inventory control, cleaning and lubrication of service
equipment, equipment inspections, calibrations and adjustments of
System, equipment and tools in accordance with industry standards
and manufacturer's recommendations, whichever is more stringent,
(ii) perform appropriate testing and sampling in accordance with
industry standards and regulatory requirements, (iii) develop and
implement an emergency management plan, and (iv) develop and
periodically update operation and maintenance manuals.
Section 6.2. Inventory. The Contract Partner will be
responsible for submitting a complete inventory listing, the
quantity and condition of all spare parts, equipment, tools,
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supplies, materials and chemicals currently at the System's sites,
within four (4) weeks of the Commencement Date. The Contract
Partner shall provide the City with the same quantities or
equivalent inventory upon termination of the Agreement. During the
term of the Agreement, the Contract Partner shall maintain an up-
to-date inventory list and will maintain a reasonable number of
spare parts in stock (including standard lubricants, long-lead-time
replacement items and similar items) which it believes is
appropriate for continuity of operations.
Section 6.3 Maintenance Management Program. The Contract
Partner shall develop and implement a comprehensive microcomputer-
based maintenance management program that develops readily
available historical data, including an inventory of spare parts
and provisions for enforcing existing equipment warranties and
guarantees and maintaining all warranties on new equipment
purchased after Commencement Date, and of providing documentation
of same to the City for the System. Such a comprehensive
maintenance management program shall include preventative,
predictive, and corrective maintenance for all components of the
System, including:
Electrical systems and instrumentation
Mechanical equipment
Monitoring and sampling equipment
SCADA Systems
The maintenance management program shall:
Ensure efficiency, long-term reliability and conservation
of the System capital investment.
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Be in accordance with industry standards; local, state
and federal codes; manufacturer's equipment
recommendations; and existing O&M Manuals.
Provide for timely updating and/or generation of O&M
Manuals.
Be performed at regular intervals and in sufficient
detail as required by the City.
Be documented as required by the City.
Provide enforcement of existing equipment warranties or
guarantees and maintain all warranties on new equipment
purchased after the effective date of the Agreement.
No modifications or major maintenance affecting the
appearance of System under this Agreement shall be performed
without prior written approval of the City.
Section 6.4 Software Program. The Contract Partner shall
provide computerized software packages for all functions of the
System, including, but not limited to:
Data management
Water System maintenance
Water Quality Control and Data Management
Administration
Billings and Collections
Computerized programs may be those currently in use by the
City for the System. Programs shall be capable of interfacing with
other City functions if and as required.
Section 6.5. Testing and Laboratory Analysis. The Contract
Partner, at its sole cost and expense, shall perform, or cause to
be performed, all laboratory sampling and analyses, and reporting,
as necessary for compliance with all Federal, State, local or other
regulations and requirements, as well as that as is customary for
process monitoring and control.
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Sampling and testing procedures shall conform to the then
current edition of Standard Methods for the Examination of Water
and Wastewater or be in accordance with testing requirement of the
applicable regulations or permits. All testing shall be performed
by a New Jersey certified laboratory and the Contract Partner shall
prepare the data received from the testing laboratory for all
applicable regulations or permits monitoring and operating reports
and shall deliver such results to the appropriate state and
regulatory agencies.
Testing for the potable Water System facilities shall include,
but not be limited to, lead, copper, corrosiveness, alkalinity, and
all other tests required by NJDEP or USEPA for a system that
services a population in excess of 50,000 and that purchases all of
its supply from other purveyors. The number, frequency and
location of tests shall be in accordance with the applicable
provisions of the regulations, including the Lead and Copper Rule,
40 CFR 141, et seq.
Section 6.6 Reporting Requirements.
(a) The Contract Partner shall comply with all reporting
requirements related to its operations and the operation,
maintenance and management of the System, as mandated by Federal,
State and local laws and regulations and Permits.
(b) The Contract Partner shall provide comprehensive monthly,
year-to-date and annual reports in a format satisfactory to the
City and regulatory agencies for each function or activity of the
System, including, but not limited to:
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Operating parameters laboratory analyses, maintenance plans
and activities including conditions of the System, water
quality results, water produced or purchased vs. water sold,
equipment and parts inventories, manpower utilization,
repairs, service calls and responses and other relevant
information; and
Safety reports regarding accidents, injuries, and damage to
City property and other relevant information;
(c) The Contract Partner shall maintain up-to-date financial
records as they apply to the Services rendered under the terms of
this Agreement. All financial statements will be kept in
accordance with generally accepted accounting principles.
(d) The Contract Partner shall provide the City with its
periodic financial reports as they apply to the Services rendered
under the terms of this Agreement. At a minimum, such reports
shall include the following:
(i) Monthly reports on or before the twenty fifth (25)
day of each successive month and a cumulative report as of the end
of each Contract Year as follows:
(A) a summary account activity report showing the
aggregate balance of accounts receivables from customers
at the end of the preceding month, billings to customers
for the preceding month, collections from customers
during the preceding month, adjustments to customers'
accounts and aggregate balances of accounts receivable
from customers at the end of the preceding month. The
report shall provide a breakdown as classes of users and
components of billings, collections and adjustments as to
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Base Service Rate, the Pass-through Charge, Pass-through
Credit.
(B) a report showing the total cubic feet of water
purchased and sold for the preceding month and the
cumulative totals for the Contract Year, the
corresponding billings for the preceding month and
Contract Year as set forth in the summary account
activity report in accordance with this Agreement, and
the total cubic feet of water sold for the Contract Year
in excess of 635,030,000 total cubic feet.
(C) a cumulative analysis as of the end of the
preceding month showing the following information with
respect to any Pass-through Charge or Pass-through
Credit:
(I) Total amount of Pass-through Credit or
Pass-through Charge to be recovered during the
Fiscal Year pursuant to Article VIII;
(II)Total amount of Pass-through Credit or
Pass-through Charge collected within the Total User
Charge Rate as of the end of the preceding month;
(III) The balance of the Pass-through Credit
or Pass-through Charge, to be recovered or the
excess Pass-through Credit or Pass-through Charge;
(e) On or before each January 25, April 25, July 25, and
October 25, a quarterly detailed accounts receivable trial balance
showing the individual customers and their respective account
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balances as of the preceding December 31, March 31, June 30 and
September 30, respectively, as reconciled with the ending balance
of accounts receivables in the summary account activity report
submitted pursuant to Section 6.6 hereof.
(f) The Contract Partner shall deliver a year-end report to
the City consisting of a compilation of the monthly and quarterly
reports set forth above certified by an officer of the Contract
Partner and delivered to the City within sixty (60) Days of the end
of each Contract Year. The Contract Partner shall also deliver a
certified audit of the financial statements of the Guarantor on a
consolidated basis prepared in accordance with Generally Accepted
Accounting Principles, consistently applied and certified by a
certified public accountant within one hundred and twenty (120)
Days of the end of the Contract Partner's fiscal year.
(g) The Contract Partner shall provide such other reports as
may be reasonably requested from time to time by the City.
(h) The Contract Partner shall submit audited financial
statements to the City yearly.
Section 6.7 Staffing. (a) The Contract Partner shall
provide a staff of qualified and experienced employees who have
direct experience in operating, maintaining and managing potable
water system similar in nature and character to the City's System,
for operations, maintenance and management procedures, and shall
provide such additional third party support as may be needed to
perform its duties and obligations hereunder. Said third parties
shall be equally qualified for the particular services to be
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performed and shall not have any direct or indirect claim against
the City whatsoever. The Contract Partner at all times shall
maintain the necessary number of employees, staff and third-party
contractors to operate, maintain and manage the System in
accordance with the terms and provisions of this Agreement, to
adequately maintain the System in good repair and to adequately
operate the System to provide good service to the customers, and
protect the health, welfare and safety of the citizens of the City.
(b) The Contract Partner shall provide: (i) qualified
management, supervisory, technical, laboratory, operating
personnel, and personnel with licenses as required by the State of
New Jersey for operation of the System; (ii) an on-site manager for
day-to-day supervision; (iii) specialists, as may be necessary, in
water quality control, instrumentation, troubleshooting, emergency
management, and similar circumstances; and (iv) office and clerical
support staff as necessary.
(c) The Contract Partner shall provide a
technical/engineering support group that will provide on-call
backup advice and water quality control, management, maintenance
and System repair to assist the operational staff and ensure
performance of obligations hereunder.
(d) The Contract Partner shall provide an organizational
chart, listing, job classification, and number of staff proposed
for the transition phase and the full time operation. The
organization chart shall indicate the staffing for each element of
the System, including laboratory/testing personnel and the licensed
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individuals/positions necessary to satisfy regulatory requirements
and provide operations and maintenance services in a responsible
professional manner.
(e) The Contract Partner shall provide ongoing training
programs for all personnel in operations and maintenance
procedures, management, laboratory and process control, QA/QC,
Right-to-Know, safety, confined-space-entry, etc. as required for
proper performance of their duties and for professional
development.
(f) The Contract Partner's technical support group shall also
provide assistance in the investigation, development and
implementation of modifications in the System as may be appropriate
or necessary for regulatory compliance, worker safety, or process
improvement (e.g., corrosion control technologies, substitutions
for certain chemicals, disinfection, etc.). Changes which could
constitute a Capital Improvement that would impact the projected
rate structure will only be performed upon prior written approval
of the City.
(g) Elizabethtown Water Company shall offer employment
(subject only to Elizabethtown Water Company's standard medical
pre-employment testing) to all existing Water System employees
identified on Schedule 8 at comparable salary and benefit levels as
to that which is currently offered by the City. Any such person
who accepts such offer of employment by the Elizabethtown Water
Company shall work under the direct management and supervision of
Elizabethtown Water Company. Elizabethtown Water Company may
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terminate such employees for cause in accordance with Elizabethtown
Water Company's Collective Bargaining Agreements and general
personnel policies. The use of such employees by the Contract
Partner in the performance of the Services shall in no way relieve
or excuse the Contract Partner from performing the Services in
accordance with this Agreement or from any liability resulting from
its failure to so perform.
Section 6.8 Licenses. The Contract Partner or an approved
Subcontractor shall acquire and hold, or cause its personnel to
acquire and hold, all required State, Federal and local approvals,
licenses, permits, and certifications necessary to operate,
maintain and manage the System in accordance with the terms and
provisions of this Agreement.
Section 6.9 Compliance with Laws and Regulation and
Permits.
(a) The Contract Partner, and the approved Subcontractor (as
applicable) shall comply with the Safe Drinking Water Act ("SDWA"),
the Water Pollution Control Act (the "Clean Water Act"), the
Resource Conservation Recovery Act, as amended ("RCRA"), the
Comprehensive Environmental Response, Compensation and Liability
Act as amended ("CERCLA"), Occupational Safety and Health Act
("OSHA") and any other applicable local, state and federal laws,
codes, ordinances and regulations as they pertain to the System and
their operation. The Contract Partner shall pay all regulatory
fines and penalties, without limitations, assessed against the City
and/or the Contract Partner for non-compliance resulting from the
actions, or lack of action, of the Contract Partner throughout the
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duration of the term of the Agreement. In the event that any fine
or penalty is incurred which was caused in whole by a condition
which existed prior to the Commencement Date and could not through
the exercise of reasonable due diligence been discovered by
Contract Partner, then the City will remain responsible for the
payment of such fine or penalty. In the event that any fine or
penalty is imposed which was caused in part by conditions that
existed prior to the Commencement Date and could not through the
exercise of reasonable due diligence have been discovered by
Contract Partner, the City will pay a portion of the fine or
penalty in an amount equal to its degree of responsibility.
Except as provided in Section 6.14(d)(ii), the Contract
Partner shall comply with and shall satisfy, and shall pay all
costs or fees associated with, all regulatory requirements
pertaining to the above including, but not limited to, public
notification in the event of non-compliance with drinking water
standards, including, but not limited to, those associated with the
Lead and Copper Rule.
(b) The Contract Partner shall comply with all applicable
State, Federal and local laws, regulations and ordinances,
including, without limitation, all environmental laws and
regulations as they apply to the System and will comply with all
Permits issued for or with respect to the System. The Contract
Partner will maintain existing Permits (currently held by the City)
and will pay all costs associated therewith, including annual fees.
In the event that during the Term of this Agreement, any existing
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Permit must be renewed, or additional Permits are required, the
Contract Partner shall be responsible for obtaining, including
filling out required application forms, supplying required data,
and payment of required fees, for such Permits or Permit renewals.
All additional and renewed Permits shall be in the name of the City
as the permittee. This provision shall not be construed to
require the Contract Partner to make System Capital Improvements
and/or Repairs beyond those required by the terms and provisions of
this Agreement.
(c) On and after the Commencement Date, the Contract Partner
shall operate the System in compliance with all laws and Permits as
is required by the terms and provisions of this Agreement. The
Contract Partner shall indemnify and hold the City harmless from
any fines or penalties assessed by the regulatory agencies during
the Term of this Agreement for any and all violations of applicable
laws, regulations or Permits committed by the Contract Partner, its
agents, servants or employees and not attributable to the City.
(d) All Services to the System shall be performed by the
Contract Partner in accordance with City ordinances for work in the
City, including, but not limited to, securing all necessary road
opening permits.
Section 6.10 Safety and Security. The Contract Partner
shall provide for and maintain security and safety for all System
assets contemplated under this Agreement.
The Contract Partner shall conduct all operations, maintenance
and management of System in compliance with applicable health and
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safety regulations including, but not limited to: OSHA, general
industry regulations including requirements for confined space
entry, respiratory protection and hazard communication; EPA
regulations on emergency planning and notification under CERCLA, 40
CFR Part 355; and EPA regulations on hazardous chemical reporting
and community right-to-know, 40 CFR Part 370.
Section 6.11 Continuity of Service. The Contract Partner
shall cooperate in good faith with the City, its agents,
contractors, and subcontractors and shall provide for the orderly
transition of Services from the City and/or its contractors to the
Contract Partner without interruption or disruption of Services and
without adverse impacts to the customers or to the System of the
City.
In the event of termination of this Agreement, the Contract
Partner shall provide for continuity of Services during transition
of operations back to the City or to another contractor of the City
and shall provide for the continued use and useability of the
System.
The Contract Partner shall make such provisions as are
necessary to assure that the System shall not be shut down for any
period of time due to strikes, lock-outs or labor problems.
In the event a labor action, stoppage or dispute which
disrupts or prevents the Contract Partner's employees or its
subcontractor's employees from entering upon and working on any
part of the System or any affected portion thereof, the Contract
Partner shall, at its sole cost, seek appropriate legal
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injunctions, remedies, or court orders. In any event, the Contract
Partner shall continue to operate the System or any affected
portion thereof through the use of office personnel, management, or
other resources at its disposal. The Contract Partner shall always
maintain operation of the System to protect the health, welfare,
and safety of the customers of the System and the residents of the
City.
Section 6.12 Emergency Situations. The Contract Partner
shall promptly initiate a response to all problems and emergencies
relating to the System in accordance with Section 6.1(e) and shall
maintain at all times during the term of this Agreement a toll-free
24-hour telephone number where customers of the System can report
any emergencies.
The Contract Partner shall immediately notify the City and
appropriate State officials, including the DEP hotline, of any
activity, problem, or circumstance that threatens the safety,
health or welfare of the users of the System, and especially any
event that threatens the drinking water.
In the event of damage or destruction of the potable Water
System or any emergency which, in the reasonable judgment of the
Contract Partner, is likely to result in material loss or damage to
the System or constitute a material threat to human health or
safety, the Contract Partner may suspend operations of the System.
Emergency repairs as are necessary to mitigate or reduce such loss,
damage or threat to human health or safety shall be done in
consultation with the City. Notification of emergency/non-
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compliance events within the System shall be in accordance with
permit requirements and an emergency plan (to be developed by the
Contract Partner that shall be submitted to and approved by the
City and NJDEP) and any subsequent amendments or modifications
thereto.
The Contract Partner shall respond to emergencies and unusual
circumstances in accordance with applicable regulations and
requirements and with such personnel and equipment as necessary to
maintain or restore the operations of the System in a timely manner
with the least possible disruption or inconvenience to the users of
the System.
Section 6.13 Access to System and Records. Upon reasonable
notice, the City shall have the right from time to time or at any
time to inspect the System and/or the operation thereof by the
Contract Partner.
The Contract Partner shall make provision for, and shall
permit and facilitate 24-hour per day access to the System by City
personnel. Visits may be made at any time by any of the City's
employees or agents so designated by the City. Keys for the System
shall be provided to the City by the Contract Partner. It is
understood that all visitors shall comply with the Contract
Partner's operating and safety procedures and shall not
unreasonably disrupt the Contract Partner's operation of the
System.
The City shall have the right to continuously monitor and
review the performance of the System and the operation, maintenance
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and management thereof by the Contract Partner and, if the City so
chooses, the City shall be entitled to hire a consulting engineer
and/or other consultant at its cost for purposes of conducting such
monitoring and review activities.
The Contract Partner shall keep such records of all pertinent
operating data and information relating to the System, including
accounting and financial records, as prudent industry and utility
practice shall require. The City shall have continuous and
unrestricted access to all components of the System, including,
without limitation, all operating, monitoring and financial data
and information relating to the operation, maintenance and
management of the System required to be kept by the Contract
Partner in accordance with the Agreement. The Contract Partner
shall be obligated to provide the City, upon reasonable request,
with copies of all operating data, accounting, financial and other
information kept by the Contract Partner in accordance with this
Agreement. The Contract Partner shall be responsible to provide
all operating data, accounting, financial and other information
requested by the City.
Section 6.14 Additional Responsibilities.
(a) General.
(i) The Contract Partner shall develop and provide a
microcomputer-based process control system which furnishes complete
and accurate records and regulatory reports in a format acceptable
to the City and to the NJDEP. The system should be capable of
readily providing historical data and trends.
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(ii) The Contract Partner shall develop and maintain a
computer model of the Water System capable of being used to
identify problem areas that require Capital Improvements or
intensive maintenance activities. The Contract Partner shall
secure a license for such computer model systems, pay all fees and
charges, including necessary upgrades and upon the end of the term
of this Agreement transfer to the City the program equipment and
required computers at no additional cost to the City.
(iii) The Contract Partner shall perform periodic testing of
the System, including, without limitation, testing of the meters
and AMR equipment installed in the potable water System in
accordance with prudent industry and utility practice. Meters
shall be calibrated in accordance with manufacturer requirements.
(iv) All sludges, scum, grit, screenings, trash and refuse
generated by or resulting from the operations of the Water System
shall be disposed of in accordance with applicable regulations
pertaining thereto.
(v) The pressures of the System shall be monitored so that
service and fire fighting capabilities within the Water System can
be evaluated.
(vi) All hydrants shall be flushed once a year and the
condition and maintenance performed on the hydrants shall be
recorded. All hydrants found to be broken or inoperable shall be
bagged and shall be within one business day replaced or repaired.
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(vii) All water mains which become frozen or break shall be
repaired or replaced immediately so as to minimize disruption of
customer service.
(viii) All inoperable, inaccurate or broken water meters shall
be replaced within one business day of discovery. After the
initial change-out, all meters over twenty-five (25) years old
shall be replaced.
(ix) Maintenance and operations of the Water System shall also
include, but not be limited to, the following:
Removal and replacement of broken or inoperable valves
and/or hydrants
Repair of main and service breaks
Calibration of meters as required
Hydrant flushing and maintenance, including repair or
replacement
Removal and replacement of broken, inaccurate or
inoperable customer meters
Reading of meters as required for billing purposes
Disposal of all sludges, screenings, grit, debris, trash,
etc. from the System
Valve exercising and maintenance, including repair or
replacement.
Sampling, testing analysis, reporting, billing and
collections
All else necessary therefor or incidental thereto to
protect the health, safety and welfare of the customers
and as required by industry standards and utility
practices.
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(x) Improvements which could constitute a Capital Improvement
which would impact the projected rate structure will be performed
only by or on behalf of the City and in the City's sole discretion.
(xi) The Contract Partner shall provide free water service to
the Municipal Building, the Library, and all other City offices and
Public and Quasi-Public Facilities as identified in Schedule 6,
attached hereto. The Contract Partner shall also provide free
water service for all City Fire Department related activities and
City street cleaning activities for Public use. The City shall not
be required to pay any hydrant fee or any other water service
related fees during the term of this Agreement.
(b) Meters.
(i) The Contract Partner shall install within two (2) years
after the Commencement Date, at its sole cost and expense,
Automatic Meter Reading (herein called "AMR") equipment and new
water meters for each customer of the Water System whose meter
becomes more than 10 years old within two (2) years of the
Commencement Date. Thereafter during the term, the Contract
Partner shall at its sole cost and expense develop and implement a
program of meter replacement and/or rebuilding such that no meter
in the System exhibits unacceptable accuracy levels. Meters that
are older than twenty-five (25) years shall be replaced at Contract
Partner's sole cost and expense. The AMR equipment shall be
compatible with the remote registers as are in use as of the
Commencement Date. However, the Contract Partner shall, within the
first five (5) years after the Commencement Date replace all remote
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registers with computer compatible AMR equipment and shall develop
and implement a computer program for billing and collections at
Contract Partner's sole cost and expense. The City shall provide
all reasonable and necessary assistance to the Contract Partner in
order to expedite the installation/replacement process.
Notwithstanding anything in this Agreement to the contrary, failure
to install meters and AMR devices due to circumstances beyond the
control of the Contract Partner, including denial of access for
purposes of installation, shall not constitute a default by the
Contract Partner under this Agreement.
(ii) The Contract Partner shall obtain the City's prior
approval for the type of meter installed, and shall assign all
manufacturing warranties and representations to the City upon
conveyance of the title to the meters and AMR equipment to the City
at no cost to the City. The Contract Partner will obtain AMR
equipment and meters that are comparable with those meters that are
currently in use in the City.
(iii) Title to the installed AMR equipment shall be in the
name of the City, conveyed by the Contract Partner to the City, at
no cost to the City, after a reasonable time period for the
retirement of the cost incurred by the Contract Partner or by the
date of termination, whichever occurs first.
(iv) As soon as practicable after completion of the
installation of the meters and AMR equipment in accordance with
subsection (a) hereof, the Contract Partner shall deliver to the
City a certificate, signed by an authorized officer of the Contract
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Partner, certifying to the City the actual cost and expense of
installing the meters and AMR equipment.
(v) The Contract Partner is responsible for maintaining,
rehabilitating and, as necessary, replacing all meters and AMR
equipment that may be required during the Term of this Agreement,
such that no meter within the System exhibits unacceptable accuracy
levels or is greater than twenty-five (25) years old and that all
AMR equipment is functioning within its intended design parameters
at no additional cost to the City.
(c) Wholesale Water Supply. On and after the Commencement
Date, the Contract Partner shall (i) perform all of the obligations
of the City under the agreements with Elizabethtown Water Company
and the City of Newark, its current suppliers of wholesale water,
copies of which are attached hereto as Schedule 9, or any
successor wholesale water supply contract (hereinafter collectively
referred to as, the "Water Supply Contract"), including, without
limitation, the obligation to pay all bills rendered to the City by
the suppliers pursuant to each Water Supply Contract, and (ii) have
the right to exercise all of the rights of the City as applicable
regarding such interconnections, except for the right to terminate
the Water Supply Contract, which right remains exclusively with the
City. The Contract Partner shall keep the wholesale supply ratio
as closely as possible to that existing as the 12 month average for
the 12 months immediately preceding the Commencement Date,
consistent with the hydraulic design of the system. (iii) Any
increases in water charges charged by Elizabethtown Water Company
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shall only become effective upon the users of the system upon a
showing by Guarantor that such rate increase has been approved in
an adjudicatory proceeding, wherein the Board of Public Utilities
has concluded that such increase is just and reasonable:
Any bills or invoices received by the City pursuant to the
Water Supply Contract shall be promptly forwarded to the Contract
Partner. Any bills so forwarded to the Contract Partner shall be
reviewed by the Contract Partner, verified for accuracy and
thereafter paid by the Contract Partner. If the Water Supply
Contract is terminated for any reason prior to its stated
expiration date, then, upon request of the City, the Contract
Partner shall be obligated to provide the City with a water supply
on a wholesale basis, and comparable in quality in all material
respects, at a price not to exceed the price the City would have
been charged for wholesale water supply pursuant to the applicable
Water Supply Contract. If the Water Supply Contract terminates at
its stated expiration date prior to the termination of this
Agreement, then, upon the request of the City, the Contract Partner
shall be obligated to provide the City with a water supply on a
wholesale and comparable in quality in all material respects basis
for the remaining term of this Agreement at a price not to exceed
the highest price charged to the City under the Water Supply
Contract, unless otherwise agreed to by the City and the Contract
Partner.
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(d) Water Quality Standards.
(i) The Contract Partner shall comply with the Safe Water
Drinking Act (SWDA) and all other Federal, State and local
regulations concerning safe drinking water standards during the
term of this Agreement. The Contract Partner shall indemnify and
hold the City harmless from any fines or penalties assessed by the
regulatory agencies during the term of this Agreement for any and
all violations of applicable laws or Permits committed by the
Contract Partner, its agents, servants or employees, including
attorneys fees and consultants costs incurred as a result of non-
regulatory compliance.
(ii) The Contract Partner shall have no obligation to
indemnify the City for any fines or penalties assessed for
conditions that pre-exist the Commencement Date and that constitute
violations of any current Federal, State or local water quality
laws or regulations. The City shall disclose to the Contract
Partner any and all such conditions known to the City as soon as
practicable.
Section 6.15 Operations Committee.
The City and the Contract Partner shall establish a formal
Operations Committee, which shall meet every three (3) months to
discuss issues related to the operation, maintenance and management
of the System; to receive and review reports; and to confer
generally as a means of enhancing communication between the City
and the Contract Partner. In addition to such quarterly meetings,
representatives of the Contract Partner shall be available to meet
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with the Mayor and members of the City Council of the City or their
authorized representatives as reasonably requested by the City.
ARTICLE VII. SYSTEM CAPITAL IMPROVEMENTS
Section 7.1 General. Unless otherwise agreed to by the
City and the Contract Partner, or as otherwise provided in this
Agreement, the City shall be responsible for financing all Capital
Improvements to the System. The Contract Partner shall be
responsible for implementing such Capital Improvements on the terms
and conditions mutually acceptable to both parties subject to and
in accordance with applicable law. If the City and Contract
Partner are unable to agree, the City reserves the right to
implement such Capital Improvement.
All Capital Improvements, whether constructed by, or on behalf
of the City placed into service within the System of the City shall
become the property of the City.
Section 7.2 Capital Improvement Plan.
Based upon its hydraulic model, the Contract Partner shall, at
its sole cost and expense, develop a Capital Improvement plan
within 24 months of the Commencement Date identifying major
expenditures that will be necessary for the System to restore,
maintain, replace or upgrade the facilities or equipment for
efficiency, safety, function and/or compliance with current and
anticipated regulatory requirements (the "Capital Plan"). The
Contract Partner shall develop the Capital Plan in consultation
with the City, who shall assist the Contract Partner in said
development to assure that any work deemed necessary by the City is
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carried out in accordance with prudent utility practice and in a
manner which does not jeopardize the Contract Partner's ability to
provide safe adequate and proper service.
Section 7.3 Capital Financing Plan. It is anticipated that
Capital Improvements will be financed by the City through payments
made by Contract Partner into the City Payment Fund. The Contract
Partner represents that the Revenues generated by the rate schedule
as identified in Schedule 7 supports payments by the Contract
Partner to the City into the City Payment Fund in the amounts and
at the times as identified in Schedule 1, as well as all other
operation, management and maintenance costs related to the System.
The City and the Contract Partner agree to meet prior to the City
obtaining any financing in order to determine whether any
alternatives are available that would permit the Contract Partner
(or the City) to obtain more beneficial financing terms.
Section 7.4 Capital Improvement Fund. The City shall
establish a Capital Improvement Fund, which shall be used to pay
for any Capital Improvements or at the election of the City the
cost of Repairs which are the responsibility of the City under
Section 7.6 and which are not treated as Pass-through Charges.
Within such Fund, there will be a Bond Proceeds Account, which,
unless provided otherwise in any financing documents, shall receive
the proceeds of any financings of the City and a City Account which
shall hold monies to be paid from the City Payment Fund. All
payments for Capital Improvements and such Repairs shall be paid
first from the Bond Proceeds Account until such Account is
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extinguished, and thereafter from the City Account. The City shall
maintain a reserve in the City Account in such amounts as
determined by the City Engineer and Business Administrator as
needed or anticipated for Capital Improvements and such Repairs.
Any excess amount not needed may be paid to the City to be used for
any System purpose. To the extent the City withdraws funds from
the City Account and requires future Capital Improvements which
cannot be supported by payments into the City Payment Account under
Section 8.8, the City may either make up the shortfall or increase
the Total User Charge Rate. Except as indicated above, in the
event that any monies in the Capital Improvement Fund at the end of
any Contract Year are not fully expended, said monies will continue
to be held in the fund to be used for additional Capital
Improvements.
Section 7.5 City Payment Fund. Payments shall be made into
the City Payment Fund pursuant to Section 8.8. At the end of each
month, the City shall reserve the portion of the monies in the City
Payment Fund as needed by the City to pay debt service on any City
indebtedness issued with respect to the System (which amounts on a
monthly basis shall not be greater than 1/12 of the annual
principal amount and 1/6 of each semi-annual interest payment
calculated as of the subsequent payment date). The balance of the
monies in the City Payment Fund shall be deposited as of the end of
each month into the City Account of the Capital Improvement Fund.
Section 7.6 Repairs. The cost of any Repair shall be
allocated as follows: (i) the first $50,000 per occurrence shall
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be borne by the Contract Partner; and (ii) the costs in excess of
$50,000 per occurrence shall be borne by the City.
Notwithstanding anything in this Agreement to the contrary,
any and all corrective work required for the Water System,
including hydrant repairs or replacements and valve repairs or
replacements, shall be deemed a Repair and the implementation
thereof shall be the responsibility of the Contract Partner.
In the event the Contract Partner deems an element of work to
be a Capital Improvement or believes a Repair will cost in excess
of $50,000, then, prior to initiating said work, the Contract
Partner shall (i) immediately notify the City of the need to
perform such work; (ii) provide the City with an explanation of the
reasons why such work is necessary; and (iii) provide an estimate
of the cost of such work. The City shall have the option of
performing the work itself, or authorizing the Contract Partner to
perform such work. If authorized, all such work will be performed
by Contract Partner subject to cost substantiation.
If the cause of the work results from negligence of the
Contract Partner, its agents, subcontractors and/or employees, then
the Contract Partner shall be responsible for all costs, without
limit, of such work.
Section 7.7 Emergencies or Improvements Required by Law.
In the event that a Capital Improvement is required (a) in order to
continue to provide water service to the residents, (b) to be made
to the System in order to comply with applicable Federal, State or
local law, or (c) if the failure to make a Capital Improvement will
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jeopardize the health and safety of the residents of the City or
the public welfare, the City shall be obligated to implement such
Capital Improvement or to direct the Contract Partner to implement
the Capital Improvement, as soon as practicable under the
circumstances. In the event of an emergency that imminently
threats the public health, safety or welfare or threatens the
integrity of the System, the Contract Partner shall immediately
take corrective action and promptly notify the City.
ARTICLE VIII. FINANCIAL TERMS.
Section 8.1. he Initial Payments.
a) Initial Concession Payment. On or before the later of
the Contract Date or June 2, 1998 the Contract Partner will pay to
the City the sum of $19,000,000. If this Agreement is terminated
prior to Commencement Date, the Contract Partner shall be entitled
to the return of the Initial Concession Payment with interest
earned thereon.
b) Debt Retirement Payment. On the Contract Date, the
Contract Partner will pay to the Trustee [Three hundred and twenty-
eight thousand, six hundred and ninety-six Dollars ($328,696)],
equal to the Debt Retirement Payment. The Debt Retirement Payment
shall be used by the City to retire the City's entire outstanding
indebtedness as related to the City's Water System.
c) City's Procurement Cost. On the Contract Date the
Contract Partner shall reimburse the City for all of its costs
related to the procurement of the Services in an amount not to
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exceed $400,000. The actual amount of these costs will be
calculated as of the Contract Date.
Section 8.2 The Additional Concession Payments. On or before
June 2, 1999, the Contract Partner shall pay to the City the sum of
$12,000,000. In addition, on or before June 2, 2000, the Contract
Partner shall pay to the City the sum of $19,000,000.
Section 8.3 Revenue Sharing. If, during any Contract Year,
the water sold by the Contract Partner shall exceed 635.03 million
cubic feet then the Contract Partner shall pay over to the City, on
or before thirty (30) days following the end of such Contract Year,
75% percent of the net Revenues. Net Revenues shall be calculated
as follows:
Base Service Wholesale Rate - Purchase Price = Net Revenues
Section 8.4 Establishment and Collection of Rates, Fees and
Charges.
(a) Prior to the Commencement Date, the City shall, to the
extent permitted by law, increase its base service rates for the
Water System to at least the rate identified in Schedule 7.
(b) Prior to the beginning of each Contract Year (unless
otherwise agreed to between the parties) the City, to the extent
permitted by law, shall establish the Total User Charge Rate for
the Water System for the Contract Year, which shall include at
least the Base Service Rate, the Pass-through Charge and/or Pass-
through Credit as determined in Section 8.4(c). The Total User
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Charge Rate may not be adjusted except as explicitly set forth in
accordance with the terms and conditions of this Agreement.
(c) Pass-through Charges and Pass-through Credits will either
be permanent Pass-through Charges and Pass-through Credits and
result in an adjustment to the Total User Charge Rate for all
future Contract Years or a one-time Pass-through Charge or Pass-
through Credit and result in an adjustment to the Total User Charge
Rate only for the following Contract Year (unless not recovered in
full in such year). The City may elect to amortize a one-time
Pass-through Charge or Pass-through Credit as an adjustment to the
Total User Charge Rate over future Contract Years, provided the
Contract Partner is compensated in full by the end of the following
Contract Year for Pass-through Charges.
Notwithstanding the forgoing, the following provisions shall
apply with respect to the $113.00 per million gallons difference in
water rates charged by The City of Newark between 1997 and 1998:
one-half (1/2) of such difference shall be a permanent Pass-through
Charge for the Contract Year beginning on July 1, 1999 and one-half
(1/2) of such difference shall be a permanent Pass-through Charge
for the Contract Year beginning on July 1, 2000.
Any Pass-through Charge and/or Pass-through Credit shall
adjust the Total User Charge Rate by using the estimated volume of
billable water usage for the immediately following Contract Year
(unless otherwise agreed to by the parties) to be included in the
Total User Charge Rate that will take effect for such immediately
following Contract Year. The Contract Partner and the City shall
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calculate and agree to the amount of such increases or decreases,
and complete such calculation in a timely manner for such increases
or decreases to be included in the Total User Charge Rate effective
the immediately following Contract Year. In the event that at the
end of such Contract Year the amount of such Pass-through Charge or
Pass-through Credit actually collected or to be credited is less
than or greater than the actual amount of the Pass-through Charge
or the Pass-through Credit, then the amount of the short fall or
the excess, as the case may be, shall be recouped or credited, as
applicable, in the Total User Charge Rate in the subsequent
Contract Year as a Pass-through Charge or Pass-through Credit, as
applicable. One time Pass-through Charges and Pass-through Credits
will only affect the Total User Charge Rate in the following
Contract Year. Thereafter, the Total User Charge Rate will be
readjusted to reflect repayment thereof. Notwithstanding, the
parties may agree to amortize any repayment over the remaining term
of the Agreement. [In the event any Pass-through Charge represents
amounts paid by the City, such Pass-through Charge shall be paid to
the City within thirty (30) days of the receipt thereof by the
Contract Partner.]
(d) The City shall be the sole authority in determining and
establishing the connection fees to be charged to new customers of
the System connecting with the System on and after the Commencement
Date. All such connection fees shall be established in accordance
with the provisions of N.J.S.A. 40A-31-11 and all other charges
shall be established per municipal ordinance. All such connection
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fees charges shall be billed and collected by and be the property
of the City.
(e) All tapping fees shall be determined by the Contract
Partner. If the Contract Partner completes the connection work,
the Contract Partner shall receive the tapping fee for such work.
The City shall approve such tapping fee and its approval shall not
be unreasonably withheld.
Section 8.5 Expenses.
(a) The Contract Partner shall pay all expenses required for
the normal operation, maintenance and management of the Water
System, including, but not limited to, those specifically
identified in this Agreement.
Section 8.6 Billing and Collections.
(a) On and after the Commencement Date, the Contract Partner
as agent for the City, shall be responsible for the preparation,
maintenance, and collection of all bills and invoices to the users
of both the Water and Wastewater System(s) and all costs and
expenses associated therewith. The Contract Partner shall have no
right to any revenues attributable in any way to the Wastewater
System. The billing practices employed by the Contract Partner
shall be consistent with existing billing practices utilized by the
City. The bill for both water and wastewater charges shall be
separately identified on both portions of a single bill identifying
Contract Partner as agent for the City in the collection of
wastewater revenues.
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The Contract Partner shall deposit all funds collected from
the users into a lock box (the "Revenue Fund") on a daily basis
from which the City's trustee will disburse funds in accordance
with Section 8.8.
The City agrees to cooperate with the Contract Partner in
collection matters and to use its statutory powers pertaining to
any and all remedies granted to municipalities for purposes of
collection. The Contract Partner, in addition to other monies paid
to the City pursuant to the terms of this Agreement, shall
reimburse the City for any and all costs and expenses, including
reasonable attorneys' fees, incurred by the City in connection with
the use of its statutory powers and remedies to enforce such
collections.
The Contract Partner shall promptly (within 24 hours or the
next business day following a holiday or weekend) respond to all
customer billing and collection questions, problems, and inquiries
and shall maintain a toll free telephone number for customers of
the System to handle such questions, problems and inquiries as may
arise. The Contract Partner shall provide the City, upon request,
a copy of the Contract Partner's written policy in dealing with
customer service and complaints relating to billing and collection
matters.
To the extent practicable, the Contract Partner shall provide,
within the geographical limits of the City, a centrally located
collection office (such as a bank) where customers of the System
may pay their bills during normal business hours Monday through
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Friday. The Contract Partner shall also provide a "drop box" for
customer use to be located in the City Hall.
The Contract Partner shall initiate all work as required to
implement and effect the billing and collection Services for both
the Water System and the Wastewater System. All monies collected
from the users of the Water and Wastewater System shall be paid
into the lock box in accordance with the provisions contained
herein.
The Contract Partner shall be entitled to additional
compensation for performing the Billing and Collection Services
associated with the wastewater bill. Such additional compensation
shall be allocated as a Pass-through Charge subject to cost
substantiation in accordance with Section 10.14. No additional
compensation will be permitted for any billing and collection
matters that are a duplication of services performed by Contract
Partner as such is related to the Water System Billing and
Collections Services.
Section 8.7 Application of Rents, Rates, Fees and Other
Charges.
(a) Notwithstanding anything in this Agreement to the
contrary, the City specifically reserves the right to pay directly
to the Contract Partner any Pass-through Charge in lieu of
adjusting the Total User Charge Rate or finance such Pass-through
Charges and adjust future Total User Charge Rates.
(b) Notwithstanding anything in this Agreement to the
contrary, any rents, rates, fees or other charges for direct or
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indirect connection with, or the use of the services of, the Water
System that are collected by the Contract Partner on or after the
Commencement Date and are in payment for connections made with, or
services rendered by, the Water System prior to the Commencement
Date shall be paid over to the City by the Contract Partner as soon
as practicable after receipt thereof by the Contract Partner but in
no event greater than 30 days.
(c) Notwithstanding anything in this Agreement to the
contrary (except with respect to connection fees), any rents,
rates, fees or other charges for the use by the customers of the
Water System that are collected by the City on or after the
termination date of this Agreement and are in payment for services
rendered by Contract Partner prior to such termination date shall
be paid over to the Contract Partner by the City as soon as
practicable after receipt thereof by the City.
(d) Except as provided in Section 6.14(c), if, prior to
termination of this Agreement, the City enters into an agreement to
obtain a source of wholesale water supply for the Water System
pursuant to which the Contract Partner can purchase wholesale water
for the needs of the Water System at a cost which is lower than the
cost of water under the Water Supply Contract, then the Contract
Partner shall pay over to the City the savings realized by the
Contract Partner as a result of such lower cost of water.
(e) In accordance with Section 8.3, if during any one year
period commencing on Commencement Date and each year thereafter,
the water usage of the System shall exceed 635.03 million cubic
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feet of water sold in any given contract year, then the Contract
Partner shall pay over to the City, as soon as practicable after
receipt thereof, 75% of the net revenue received by the Contract
Partner resulting from the usage of the System exceeding 635.03
million cubic feet of water sold per contract year.
Section 8.8 Allocation of Revenues. The Contract Partner
shall deposit on a daily basis all Revenues collected from the
ratepayers of the Water and Wastewater Systems into a lock box
maintained for the benefit of the City and the Contract Partner as
their interests may appear. The Contract Partner shall on a daily
basis determine the appropriate allocation of deposits as between
Water System Revenues and Wastewater System Revenues and direct
that such amounts thereafter be deposited into separate water and
wastewater accounts (hereinafter referred to as "Water System
Account" maintained by the holder of the lock box and "Wastewater
System Account" of the City, respectively) and direct the holder of
the lock box to make disbursements prioritized as follows:
(a) Water System Account
Unless required otherwise in any financing documents related
to any System Indebtedness, the holder of the lock box shall,
disburse funds on a daily basis from the Water System Account as
follows:
(i) To the City, all Revenues generated from the Water
System prior to the Commencement Date.
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(ii) To the City Payment Fund, an amount equal to 1/365
of the amounts reflected on Schedule 1 plus 1/365 of any
Pass-through Charges which are financed by the City.
(iii) To the City, the amount of any Revenue sharing
under Section 8.3 due to the City.
(iv) To the Contract Partner, the balance of the monies
in such Water System Account.
(b) Wastewater System Account
The holder of the lock box shall disburse all Revenues from
the Wastewater System Account to the City on a daily basis (unless
otherwise directed by the City).
ARTICLE IX. DEFAULT AND TERMINATION
Section 9.1 General Provisions.
This Agreement may be terminated prior to its stated
expiration date by the City or the Contract Partner on the terms
and conditions set forth in this Article IX. The rights of the
City and the Contract Partner to terminate this Agreement shall be
strictly construed in accordance with the provisions of this
Article IX.
Section 9.2 Termination for Cause by the City.
A. Upon the happening of any of the following events of
default by the Contract Partner, the City shall have the right to
terminate this Agreement and/or to pursue a cause of action for
actual damages, all as more fully described herein:
(1) the persistent and repeated failure by the
Contract Partner to provide the Services in accordance
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with the terms and provisions of this Agreement, and/or
applicable laws, rules and regulations;
(2) the failure of the Contract Partner to perform
any of its covenants, agreements, obligations and/or
duties created by this Agreement;
(3) if any representation and/or warranty which is
not capable of cure is made by the Contract Partner that
shall prove to be false and/or misleading in any material
respect and the legality of this Agreement or the ability
of the Contract Partner to carry out its duties and
obligations under this Agreement is thereby materially
and adversely affected;
(4) the commencement of any bankruptcy, insolvency,
liquidation and/or similar proceeding against the
Contract Partner, its parent corporation or Guarantor and
which materially and adversely affects the Contract
Partner's ability to perform its duties or obligations
under this Agreement; the consent by the Contract
Partner, or its parent to the appointment of and/or
taking possession by a receiver, liquidator, assignee,
trustee and/or custodian of the Contract Partner, its
parent corporation or Guarantor and/or any substantial
part of their respective assets which materially and
adversely affects the Contract Partner's ability to
perform its duties or obligations under this Agreement;
the making by the Contract Partner, and/or its parent
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corporation or Guarantor of any assignment for the
benefit of creditors which materially and adversely
affects the Contract Partner's ability to perform its
duties or obligations under this Agreement; and/or the
failure by the Contract Partner, its parent corporation
or Guarantor to generally pay its debts as they come due;
or
(5) the failure by the Contract Partner to make any
payment required to be made by the Contract Partner
pursuant to the terms of this Agreement.
B. Upon the happening of any event described in clause
(1), (2) or (5) of paragraph (A) of Section 9.2, the City shall
provide written notice to the Contract Partner setting forth in
detail the alleged failure and/or deficiency of the Contract
Partner. The Contract Partner shall have thirty (30) days after
receipt of such written notice from the City to cure and/or correct
such failure and/or deficiency or to deliver to the City a written
notice alleging that no such event described in clause (1) or (2)
of subsection (A) of this Section 9.2 has occurred and setting
forth in detail its reasoning as to why no such event has occurred.
In the event that the Contract Partner does not cure and/or correct
such failure and/or deficiency within said thirty (30) day period
or deliver to the City the written notice described in the
preceding sentence within said thirty (30) day period, the City
shall provide the Contract Partner with a second written notice
affording the Contract Partner an additional thirty (30) days to
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cure and/or correct such failure and/or deficiency. If the
Contract Partner fails to cure and/or correct the failure and/or
deficiency within such second thirty (30) day period, the City
shall be entitled to seek specific performance before a court of
competent jurisdiction.
C. Upon the happening of any event described in clause
(3), (4) or (5) of paragraph (A) of this Section 9.2, the City
shall have the right to terminate this Agreement upon 30 days prior
written notice to the Contract Partner.
D. If the City terminates this Agreement in accordance
with the provisions of this Section 9.2, the City shall be
obligated to pay to the Contract Partner, the sum determined in
accordance with the following formula:
A + B - C + D - E + F
Where: A = The unamortized balance of Capital
Improvements funded by the Contract Partner
(such unamortized balance to be calculated
assuming level debt service amortized over the
Term of the Agreement from the date of the
completion of such Capital Improvements
assuming that the Capital Improvement was
financed with simple interest at the rate of
5% per year). The City will have no
obligation to pay as part of this termination
formula to the Contract Partner the actual
cost of financing or any interest paid by
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Contract Partner prior to the date of
termination.
Where: B = The unamortized balance of the debt defeasance
payment (such unamortized balance to be
calculated assuming level debt service
amortized over the term of the agreement
assuming that the debt defeasance was financed
with simple interest at the rate of 5% per
year). The City will have no obligation to
pay as part of this termination formula to the
Contract Partner the actual cost of financing
or any interest paid by Contract Partner prior
to the date of termination.
Where: C = The amount, if any, necessary to enable the
City to restore the System so that it is
operational by the City as a stand-alone
System without the Contract Partner, or the
amount necessary to enable the City to replace
the Contract Partner.
Where: D = Any outstanding Pass-through Charge required
to be charged to the City pursuant to Section
8.4(b).
Where: E = Any outstanding Pass-through Credit required
to be credited to the City pursuant to Section
8.4(b).
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Where: F = The unamortized balance of concession fees
previously paid to the City in accordance with
Section 8.1(a) and 8.2 (such unamortized
balance to be calculated assuming that the
concession fees were financed with simple
interest at the rate of 5% per year). The
City will have no obligation to pay as part of
this termination formula to the Contract
Partner the actual cost of financing or any
interest paid by Contract Partner prior to the
date of termination. It is the intent of this
Agreement and the parties hereby agree that
the City will not be required to pay any
portion of the first $20 million of the above-
referenced concession fees. (Note: By way of
example, if the City should exercise its right
of termination in Year 2 of the Agreement,
subsequent to the date Contract Partner has
paid a total of $31 million in concession
fees, the City would be obligated to repay the
unamortized portion of $11 million.)
The sum to be paid by the City to the Contract Partner in
accordance with the preceding formula shall be paid within six (6)
months after the date of the negotiated settlement between the City
and the Contract Partner, or a final determination by a court of
competent jurisdiction, as the case may be.
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E. Notwithstanding anything in this Agreement to the
contrary, the City shall be entitled to pursue a cause of action
against the Contract Partner for any and all damages suffered by
the City as a result of any default by the Contract Partner, plus
any and all reasonable attorneys' fees, litigation costs,
collection costs or other expenses incurred by the City.
F. The parties agree that with respect to this Section,
the Agreement is not an executory contract subject to assumption as
defined by the Bankruptcy Code. The parties further specifically
acknowledge that this provision is intended to "bankruptcy-proof"
the Agreement, that this provision is critical to the Agreement and
was "bargained for" and part of the consideration for the
Agreement.
To the extent a court of competent jurisdiction holds
this Agreement to be an executory contract subject to assumption by
the Contract Partner as a debtor pursuant to the Bankruptcy Code,
the Contract Partner and the City specifically acknowledge that
this Agreement falls within the provisions of 11 U.S.C. Section
365(c)(i)(a) to the extent that the trustee may not assume or
assign it without the consent of the City in that "applicable law
excuses the party, other than the debtor, to such contract or lease
from accepting performance from or rendering performance to an
entity other than the debtor or the debtor-in-possession, whether
or not such contract or lease prohibits or restricts assignment of
rights or delegation of duties."
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Alternatively, to the extent a court of competent
jurisdiction holds that the Agreement is an executory contract
subject to assumption and not within the exception of 11 U.S.C.
Section 365(c)(i)(a), the City and Contract Party specifically
agree to the following:
(A) The Contract Partner or the debtor-in-
possession agrees to perform all obligations under the
Agreement, including curing all defaults and making
ongoing payments, or, in the event it chooses not to do
so, will move as soon as practicable to reject the
executory contract under applicable bankruptcy law.
(B) Since the Contract Partner is a publicly
regulated entity specialized in the provision of Services
and therefore is in a special legal position and has
certain unique legal attributes, no other entity can
provide "adequate assurance of future performance" as
that term is defined under the Bankruptcy Code and
therefore the Agreement cannot be assigned.
Section 9.3 Termination for Cause by the Contract Partner.
A. Upon the happening of any of the following events of
default by the City, the Contract Partner shall have the right to
terminate this Agreement or pursue a cause of action, all as
described herein:
1. the failure of the City to perform any of its
material covenants, agreements, obligations and/or duties created
by this Agreement;
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2. if any representation and/or warranty which is not
capable of cure is made by the City that shall prove to be false
and/or misleading in any material respect and the legality of this
Agreement or the ability of the City to carry out its duties and
obligations under this Agreement is thereby materially and
adversely affected;
3. the commencement of any bankruptcy, insolvency,
liquidation and/or similar proceeding against the City which
materially and adversely affects the City's ability to perform its
duties or under this Agreement; the consent by the City to the
appointment of and/or taking possession by a receiver, liquidator,
assignee, trustee and/or custodian of the City, and/or any
substantial part of its assets which materially and adversely
affects the City's ability to perform its duties or obligations
under this Agreement; the making by the City of any assignment for
the benefit of creditors which materially and adversely affects the
City's ability to perform its duties or obligations under this
Agreement; and/or the failure by the City to generally pay its
debts as they come due.
B. Upon the happening of any event described in clause
(1) or (2), of paragraph (a) of Section 9.3, the Contract Partner
shall provide written notice to the City setting forth in detail
the alleged failure and/or deficiency of the City. The City shall
have thirty (30) days after receipt of such written notice from the
Contract Partner to cure and/or correct such failure and/or
deficiency or to deliver to the Contract Partner a written notice
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alleging that no such event described in clause (1) or (2) of
subsection (a) of this Section 9.3 has occurred and setting forth
in detail its reasoning as to why no such event has occurred. In
the event that the City does not cure and/or correct such failure
and/or deficiency within said thirty (30) day period or deliver to
the Contract Partner the written notice described in the preceding
sentence within said thirty (30) day period, the Contract Partner
shall provide the City with a second written notice affording the
City an additional thirty (30) days to cure and/or correct such
failure and/or deficiency. If the City fails to cure and/or
correct the failure and/or deficiency within such second thirty
(30) day period, the Contract Partner shall be entitled to seek
specific performance before a court of competent jurisdiction.
C. Upon the happening of any event described in clause
(2) or (3) of paragraph (a) of this Section 9.3, the Contract
Partner shall have the right to terminate this Agreement upon 30
days prior written notice to the City.
D. If the Contract Partner terminates this Agreement in
accordance with the provisions of this Section 9.3, the City shall
be obligated to pay to the Contract Partner, the sum determined in
accordance with the following formula:
A + B - C + D + E
Where: A = The sum of (1) the unamortized balance of
concession fees paid to the City in accordance
with Section 8.1(a) and 8.2 and the City
procurement cost paid under 8.1(c) (such
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unamortized balance to be calculated assuming
level debt service amortized from the date of
such payment with simple interest assuming
that the money was financed at the rate of 9%
per year). The City will have no obligation
to pay as part of this termination formula the
actual cost of financing or the interest paid
by Contract Partner to the date of
termination. and (2) the unamortized balance
of the Debt Defeasance payment (such
unamortized balance to be calculated assuming
level debt service amortized over 40 years
from the commencement date with simple
interest assuming that the money was financed
at the rate of 9% per annum). The City will
have no obligation to pay as part of this
termination formula the actual cost of
financing or the interest paid by Contract
Partner prior to the date of termination.
Where: B = Any outstanding Pass-through Charge permitted
to be charged to the users of the System
pursuant to Section 8.4(b).
Where: C = Any outstanding Pass-through Credit required
to be credited to the City pursuant to Section
8.4(b).
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Where: D = The unamortized balance of Capital
Improvements funded by the Contract Partner
(such unamortized balance to be calculated
assuming level debt service amortized over the
Term of the Agreement from the date of the
completion of such Capital Improvements
financed with simple interest at the rate of
9% per year). The City will have no
obligation to pay as part of this termination
formula to the Contract Partner the actual
cost of financing or any interest paid by
Contract Partner prior to the date of
termination.
Where E = A one time termination payment in an amount to
be calculated in accordance with Schedule 10.
The sum to be paid by the City to the Contract Partner in
accordance with the preceding formula shall be paid within six (6)
months after the date of the negotiated settlement between the
Contract Partner and the City, or a final determination by a court
of competent jurisdiction, as the case may be. The parties agree
that in the event this Agreement is terminated in accordance with
this Section 9.3 that other than the amounts to be calculated in
accordance with the above-referenced termination formula, the
Contract Partner shall not be entitled to any other remedy or
damage claim and Contract Partner waives its right to pursue an
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action at law for any damages either express or implied except for
claims for punitive damages.
E. The parties agree that with respect to this Section,
the Agreement is not an executory contract subject to assumption as
defined by the Bankruptcy Code. The parties further specifically
acknowledge that this provision is intended to "bankruptcy-proof"
the Agreement, that this provision is critical to the Agreement and
was "bargained for" and part of the consideration for the
Agreement.
To the extent a court of competent jurisdiction holds
this Agreement to be an executory contract subject to assumption by
the City as a debtor pursuant to the Bankruptcy Code, the City and
Contract Partner specifically acknowledge that this Agreement falls
within the provisions of 11 U.S.C. Section 365(c)(i)(a) to the
extent that the trustee may not assume or assign it without the
consent of the Contract Partner in that "applicable law excuses the
party, other than the debtor, to such contract or lease from
accepting performance from or rendering performance to an entity
other than the debtor or the debtor-in-possession, whether or not
such contract or lease prohibits or restricts assignment of rights
or delegation of duties."
Alternatively, to the extent a court of competent
jurisdiction holds that the Agreement is an executory contract
subject to assumption and not within the exception of 11 U.S.C.
Section 365(c)(i)(a), the City and Contract Party specifically
agree to the following:
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(A) The City or the debtor-in-possession agrees to
perform all obligations under the Agreement, including
curing all defaults and making ongoing payments, or, in
the event it chooses not to do so, will move as soon as
practicable to reject the executory contract under
applicable bankruptcy law.
(B) Since the City is a public body corporate and
politic of the State of New Jersey and therefore is in a
special legal position and has certain unique legal
attributes, no other entity can provide "adequate
assurance of future performance" as that term is defined
under the Bankruptcy Code and therefore the Agreement
cannot be assigned.
Section 9.4 Termination for Unenforceability of Agreement.
(a) If any court, agency and/or other entity with
competent jurisdiction shall finally determine that this Agreement
is unenforceable and/or prohibited by law, or, if for any reason
the City Council is legally prohibited from enacting any ordinance
establishing the rates for the supply of water service to the
customers of the System which are required to be established by the
City in accordance with Section 5.1(d) and Section 9.4 hereof or
any such ordinance so enacted shall fail to become legally
effective or shall no longer be legally effective, then the City
and the Contract Partner shall each have the right to terminate
this Agreement, upon ninety (90) days' prior written notice to the
other party provided that the City shall make a payment to the
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Contract Partner determined pursuant to Section 9.3(D) formula
provisions A., B., C. and D. as of the termination date provided,
however, that the rate of interest utilized for the calculation of
the termination payment referenced above shall be 8.50%.
Section 9.5. Optional Termination by the City
(a) The City may, at its sole option and discretion, after
the twentieth (20) anniversary of this Agreement, terminate this
Agreement for any reason whatsoever, upon ninety (90) Days' prior
written notice to the Contract Partner provided that the City pays
the amount determined pursuant to Section 9.3(D) as of the
termination date.
ARTICLE X. MISCELLANEOUS
Section 10.1 Insurance.
The Contract Partner shall not commence performance of the
Services under the Agreement until it has provided insurance of the
types and in such amounts as set forth herein and such insurance
has been approved by the City. The Contract Partner shall maintain
such insurance in full force and effect for the duration of the
Partnership Agreement.
The insurance policies provided by the Contract Partner at its
expense and more particularly described hereafter shall
specifically designate the City of Elizabeth as an additional
insured.
The Contract Partner shall be responsible for all injuries to
persons or property occurring on account of and during performance
of Services hereunder, regardless who is performing the Services,
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and shall indemnify and save harmless the City from liability on
any and all claims for damages on account of such injuries to
persons or property and from all costs and expenses in suits which
may be brought against the City for such injuries to persons and
property, it being agreed that the Contract Partner shall be solely
responsible and liable for and shall fully protect and indemnify
the City against all claims for damages to persons or property
occasioned by or resulting from the Services regardless by whom
performed, which is the subject matter of this Agreement whether
such damages be attributable to the negligence of the Contract
Partner or his employees or otherwise. In the event that the City
shall determine to have counsel of its choosing, the Contract
Partner shall be responsible for payment of the reasonable costs
associated with the retaining of such counsel for such purposes and
for other activities of counsel associated therewith.
The Contract Partner shall note the insurance requirements set
forth below and shall ascertain the cost to it of all the required
insurance policies before submitting its Proposal. No separate
payment will be made for the cost of the insurance herein
specified, but the Contract Partner shall include the cost of such
insurance in the prices for the various items scheduled in the
Proposal.
Certificates, in triplicate, from the insurance carrier,
stating the limits of liability and the expiration date for each
policy and type of coverage shall be filed with the City before
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Services are begun. The certificates shall contain the following
express obligation:
"This is to certify that the policies of
insurance described herein have been issued to
the insured for whom this certificate is
executed and are in force at this time. In
the event of cancellation or material change
in a policy affecting the certificate holder,
sixty (60) days prior written notice will be
given the certificate holder."
Such certificates shall specifically refer to the Agreement and
article, and the following paragraphs in accordance with which the
insurance is being furnished, and state that such insurance is as
required by such paragraphs of this Agreement.
Certificates of the required insurance as listed above shall
be submitted to the City as evidence covering comprehensive General
Liability, Comprehensive Automobile Liability and where applicable,
necessary Worker's Compensation and Employer's Liability Insurance.
Such coverage shall be with acceptable insurance companies only
which possesses an A.M. Best Company rating of at least A+.
All insurance policies herein required of the Contract Partner
shall be written by a company duly authorized and licensed to do
business in the State of New Jersey and be executed by some agent
therein duly licensed as an agent in said state.
Insurance shall include the type of insurance specified below
in not less than the amounts stated and whatever other insurance
may be necessary to provide complete protection to the City and
Contract Partner against liability, damage and accident of every
kind. Neither approval by the City, nor a failure to disapprove
insurance furnished by a Contract Partner shall release the
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Contract Partner from full responsibility for liability, damages,
and accidents as set forth herein.
The Contract Partner shall take out and maintain during the
life of this Agreement the following types of insurance in an
amount, for each policy, not less than the amounts stated:
1. Worker's Compensation and Employer's Liability Insurance in
accordance with the requirements of the General Laws of the
State of New Jersey and all other applicable laws and
regulations. If any class of employees engaged in hazardous
work cannot be protected by Worker's Compensation and
Liability Insurance, the Contract Partner shall provide
adequate insurance for each class of employees.
The Contract Partner shall take out and maintain during the
life of this Contract the applicable statutory Worker's
Compensation Insurance with an insurance company authorized to
write such insurance and in the applicable state covering all
of his employees, and in the case of any work sublet, the
Contract Partner shall require the Subcontractor similarly to
provide statutory Worker's Compensation Insurance for the
latter's employees. The Contract Partner shall take out and
maintain during the life of this Agreement, Employer's
Liability Insurance with a limit of $500,000 in an insurance
company authorized to write such insurance in all states where
the Contract Partner will have employees located in the
performance of this Agreement and the Contract Partner shall
require each of his Subcontractor's similarly to maintain
Employer's Liability Insurance on his employees.
2. Public Liability Insurance
a. The Contract Partner shall maintain during the life of
this Agreement such Public Liability Insurance as shall
protect it against claims for damages resulting from (a)
bodily injury, including wrongful death, and (b) property
damages, which may arise from operations under this
Agreement whether such operations be by himself or by any
Subcontractor or anyone directly or indirectly employed
by either of them. The minimum acceptable limits of
liability to be provided by such Public Liability
Insurance shall be as follows:
Bodily Injury Limits and Property Damage - $1,000,000
each occurrence/annual aggregate.
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b. The Public Liability Insurance required by the preceding
subparagraph shall include the following extensions of
coverage:
(1) The coverage shall be provided under a
Comprehensive General Liability form of policy or
similar thereto.
(2) XCU Coverage - If the Agreement requires any work
procedures involving blasting, excavating,
tunneling or other underground work, the liability
coverage shall include Standard Blasting or
Explosion Coverage, Standard Collapse Coverage and
Standard Underground Coverage, commonly referred to
as XCU property damage liability coverage with
limits of $1,000,000 CSL.
(3) The property damage coverage shall include a Broad
Form Property Damage Endorsement.
(4) Contractual Liability coverage shall be included.
(5) Protective Liability coverage shall be included to
protect the Contract Partner against claims arising
out of operations performed by his subcontractors.
(6) Products Liability and/or Completed Operations
coverage shall be included.
3. Automobile Liability and Property Damage Insurance
The Contract Partner shall take out and maintain during the
life of the Agreement such Automobile Liability Insurance as
shall protect him against claims for damages resulting from 1)
bodily injury, including wrongful death, and 2) property
damage, which may arise from the operations of any owned,
hired or non-owned automobiles used by or for him in any
capacity in connection with the carrying out of this
Agreement. The minimum acceptable limits of liability to be
provided by such Automobile Liability Insurance shall be as
follows:
Bodily Injury Limits and Property Damage - $5,000,000 each
occurrence/annual aggregate, or $1,000,000 for each
subcontractor.
Excess umbrella liability in an amount not less than
$10,000,000.
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Each subcontractor shall furnish to the Contract Partner four
(4) copies of a certificate of insurance and such certificate shall
contain the same information required hereinabove. The Contract
Partner shall furnish three (3) copies of the certificate to the
City.
If at any time the Contract Partner fails to maintain any of
the foregoing policies, or if a company issuing any such policy
shall become unsatisfactory to the City, the Contract Partner
shall, upon notice to that effect from the City, promptly obtain a
new policy, submit the same to the City for its approval and submit
a Certificate thereof as hereinabove provided. Upon failure of the
Contract Partner to furnish, deliver and maintain such insurance as
above provided, this Agreement, at the election of the City, may be
forthwith declared suspended, discontinued or terminated. Failure
of the Contract Partner to take out and/or maintain or the taking
out and/or maintenance of any required insurance, shall not relieve
the Contract Partner of any liability under the Agreement.
Section 10.2 Indemnification.
(a) The Contract Partner shall indemnify and hold harmless
the City, its elective and appointive officers, and its duly
authorized agents, servants and employees from any liability,
including liability to third parties, for personal injury,
including death, and/or property damage which are caused by or
arise from the negligence or willful misconduct of the Contract
Partner, its employees or any subcontractor selected by the
Contract Partner.
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(b) The Contract Partner's indemnification shall include the
reimbursement to the City of all legal fees and expenses reasonably
incurred.
(c) Notwithstanding the above, the Contract Partner shall
have no obligation to indemnify the City for any fines or penalties
assessed for conditions that pre-exist the Commencement Date and
that constitute violations of any current Federal, State or local
water quality laws or regulations that could not through the
exercise of reasonable due diligence have been discovered by the
Contract Partner.
Section 10.3 New Equipment. Any new equipment installed in
the System by the Contract Partner during the term of this
Agreement shall become the property of the City. The Contract
Partner shall maintain books and records regarding any such new
equipment. Prior to making any significant change to the System or
expenditures of its own, the Contract Partner will consult with the
City.
Section 10.4 Enforcement. The failure on the part of any
party to enforce any provision of this Agreement shall not be
construed as a waiver of its right to enforce such provision in the
future.
Section 10.5 Assignment. This Agreement shall not be
assigned by any party without the prior written consent of the
other parties.
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Section 10.6 Affirmative Action.
(a) During the performance of this Agreement, the Contract
Partner shall conform with the following requirements:
The Contract Partner or subcontractor, where applicable, will
not discriminate against any employee or applicant for employment
because of age, race, creed, color, national origin, ancestry,
marital status, sex, affectional or sexual orientation. The
Contract Partner will take affirmative action to ensure that such
applicants are recruited and employed, and that employees are
treated during employment, without regard to their age, race,
creed, color, national origin, ancestry, marital status, sex,
affectional or sexual orientation. Such action shall include, but
not be limited to the following: employment, upgrading, demotion,
or transfer; recruitment or recruitment advertising; layoff or
termination, rates of pay or other forms of compensation; and
selection for training, including apprenticeship. The Contract
Partner agrees to post in conspicuous places, available to
employees and applicants for employment, notices to be provided by
the Public Agency Compliance Officer setting forth provisions of
this nondiscrimination clause.
The Contract Partner or subcontractor, where applicable, will,
in all solicitations or advertisements for employees placed by or
on behalf of the Contract Partner, state that all qualified
applicants will receive consideration for employment without regard
to age, race, creed, color, national origin, ancestry, marital
status, sex, affectional or sexual orientation;
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The Contract Partner or subcontractor, where applicable, will
send to each labor union or representative or workers with which it
has a collective bargaining agreement or other contract or
understanding, a notice, to be provided by the agency contracting
officer advising the labor union or workers' representative of the
Contract Partner's commitments under this act and shall post copies
of this notice in conspicuous places available to employees and
applicants for employment.
The Contract Partner or subcontractor, where applicable,
agrees to comply with the regulations promulgated by the Treasurer
pursuant to P.L. 1975, c.127, as amended and supplemented from time
to time and the Americans with Disabilities Act.
The Contract Partner or subcontractor agrees to attempt in
good faith to employ minority and female workers consistent with
the applicable county employment goals prescribed by N.J.A.C.
17:27-5.2 promulgated by the Treasurer pursuant to P.L. 1975,
c.127, as amended and supplemented from time to time or in
accordance with a binding determination of the applicable county
employment goals determined by the Affirmative Action Office
pursuant to N.J.A.C. 17:27-5.2 promulgated by the Treasurer
pursuant to P.L. 1975, c.127, as amended and supplemented from time
to time.
The Contract Partner or subcontractor agrees to inform in
writing appropriate recruitment agencies in the area, including
employment agencies, placement bureaus, colleges, universities,
labor unions, that it does not discriminate on the basis of age,
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creed, color, national origin, ancestry, marital status, sex,
affectional or sexual orientation, and that it will discontinue the
use of any recruitment agency which engages in direct or indirect
discriminatory practices.
The Contract Partner or subcontractor agrees to revise any of
its testing procedures, if necessary, to assure that all personnel
testing conforms with the principles of job-related testing, as
established by the statutes and court decisions of the State of New
Jersey, and applicable Federal court decisions.
The Contract Partner and its subcontractors shall furnish such
reports or other documents to the Affirmative Action Office as may
be requested by the office from time to time in order to carry out
the purposes of these regulations, and public agencies shall
furnish such information as may be requested by the Affirmative
Action Office for conducting a compliance investigation pursuant to
Subchapter 10 of the Administrative Code (NJAC 17:27).
Section 10.7 Entire Agreement. This Agreement contains the
entire agreement between the parties hereto relating to the
operation, maintenance and management of the System and supersedes
all previous or contemporaneous communications, representations, or
agreements. This Agreement may be modified only by written
amendment signed by the parties hereto.
Section 10.8 Notices. All notices given pursuant to the
terms of this Agreement shall be in writing and delivered in person
or transmitted by certified mail, return receipt requested, postage
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prepaid. Notices required to be given to the Contract Partner
shall be addressed as follows:
Notices required to be given to the City shall be addressed as
follows:
The City of Elizabeth
City Hall
Winfield Scott Plaza
Elizabeth, New Jersey 07201
Contact Person: Philip Connelly, Business Administrator
Elizabethtown Water Company
600 South Avenue W.
Westfield, New Jersey 07090
Contact Person: Henry S. Patterson, III, Vice President, Administration
Section 10.9 Public Notices. The Contract Partner shall
issue all public notices associated with non-compliance with
regulatory requirements for drinking water standards, in a format
acceptable to the City and the City shall provide all necessary
support that the Contract Partner may reasonably require.
Section 10.10 Application of Law. This Agreement shall be
construed in accordance with, and is subject to, all applicable
laws, rules and regulations of the United States of America, the
State of New Jersey, any appropriate political subdivision(s), and
any relevant regulatory or administrative agency.
Section 10.11 Relationship. The relationship of the Contract
Partner to the City is that of independent contractor and not one
of employment. None of the employees or agents of the Contract
Partner shall be considered employees of the City. For the
purposes of all state, local and federal laws and regulations, the
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Contract Partner shall exercise primary management and operational
decision making authority.
Section 10.12 Public Relations. The Contract Partner shall
develop, with the advice and consent of the City, a communications,
publicity and community relations program in order to keep the City
and System customers informed about the operation and maintenance
of the System. The Contract Partner will deal in a professional
manner with community groups concerned with any aspect of the
operation of the System, including scheduling of tours of the
System, if and as requested. The Contract Partner shall prepare
written summaries of all formal meetings with the City and/or
community groups and provide the City with a copy.
Section 10.13 Notice of Litigation. In the event the
Contract Partner or City receives notice of or undertakes the
defense or the prosecution of any actions, claims, suits,
administrative or arbitration proceedings or investigations in
connection with the System, the party receiving such notice or
undertaking such prosecution shall give the other party timely
notice of such proceedings and will inform the other party in
advance of all hearings regarding such proceedings.
Section 10.14. Cost Substantiation. With respect to any costs
and expenses incurred or to be incurred by the parties hereto in
the performance of their obligations hereunder, all such costs and
expenses shall be reasonably documented and accompanied by a
certificate, signed by an authorized representative of the City or
the Contract Partner, as the case may be, stating the reason for
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incurring the cost, the amount of the cost, including labor,
materials and a fixed overhead, the event or Section of this
Agreement giving rise to the requesting party's right to incur such
cost, and that such cost represents a competitive price for the
service or materials supplied and any other information that is
reasonably requested by the other party in order to assist in the
evaluation and approval of the cost; provided, however, that such
amounts shall not include any contingency amounts.
Section 10.15 Bulk Sale. The Contract Partner shall not be
permitted to sell water to parties outside of the City without the
prior written approval of the City.
Section 10.16 Unforeseen Events.
(a) If an Unforeseen Event occurs, each party shall be
relieved of its responsibility to perform to the extent
necessitated by the Unforeseen Event and during the pendency
thereof. The affected party will notify the other promptly of such
Unforeseen Event, including the anticipated duration and effects of
the Unforeseen Event, and will make all reasonable efforts to
alleviate or eliminate the effects of the Unforeseen Event.
If an Unforeseen Event occurs that causes a material adverse
change in the operations of the System or the operational costs,
the Contract Partner shall prepare a proposal to be submitted to
the City that describes the cause of the changes, the extent of the
changes, the anticipated duration of the changes, the cost impact
(increase or decrease) of the changes, and the duration of time
that such anticipated cost increases or decreases will be in
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effect. If the City approves the changes, such cost increases or
decreases will be Pass-through Charges or Pass-through Credits, as
the case may be, and shall be recovered through an increase or
decrease in rates in the following year or amortized, as the case
may be.
Section 10.17 Hazardous Wastes.
If, during the course of excavation work necessary to make
repairs and/or improvements to the System(s), hazardous waste
materials are uncovered by the Contract Partner, it shall not be
the obligation of the Contract Partner to remove and dispose of
such hazardous substances. The Contract Partner shall, however,
take all of the necessary steps to protect existing System(s) from
contamination and to notify the appropriate agencies and determine
the necessary steps to properly dispose of such hazardous waste.
The parties legally responsible shall pay all costs for such
removal.
Section 10.18 Pre-Existing Conditions. The Contract Partner
shall not be responsible for conditions existing in the System
prior to the Contract Date that could not have been discovered upon
reasonable due diligence inquiry by Contract Partner.
Section 10.19 Dispute Resolution. Any disputes arising under
this Agreement shall be referred to the Operations Committee for
resolution. If the dispute cannot be resolved by the Operations
Committee to the satisfaction of both the City and the Contract
Partner, such dispute shall be referred to a committee comprised of
one senior officer selected by the Contract Partner and one senior
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official of the City designated by the Mayor. If the dispute still
is not resolved to the satisfaction of both the City and the
Contract Partner, either party shall be entitled to refer the
dispute to an arbitration panel comprised in the following manner:
The City and the Contract Partner shall each select one (1)
independent third party to serve as an arbitrator and shall
together select one (1) additional mutually acceptable independent
third party to serve as an arbitrator, so that a panel of three (3)
independent third-party arbitrators will be formed. The decision
of said panel on any disputes arising under this Agreement shall be
binding on both the City and the Contract Partner.
Section 10.20 Obligation Prior to Commencement Date.
Notwithstanding anything in this Agreement to the contrary, the
parties agree to be obligated to perform all obligations that are
required of the parties between the Contract Date and the
Commencement Date.
IN WITNESS WHEREOF, the parties have hereunto set their hands
and fixed their seals as of the date first above written.
ATTEST: CITY OF ELIZABETH
/s/ Anthony R. Pillo
By: /s/ J. Christian Bollwage
ATTEST: CONTRACT PARTNER
/s/ Gail P. Brady
By: /s/ Henry S. Patterson, III
ATTEST: ELIZABETHTOWN WATER COMPANY
as to Section 6.7(g)
/s/ Gail P. Brady
By: /s/ Andrew M. Chapman
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EMPLOYMENT AGREEMENT Exhibit 10(n)
THIS AGREEMENT made as of the 9th day of June, 1998, by and
between APPLIED WATER MANAGEMENT, INC., a New Jersey corporation
having a principal place of business at 2 Clerico Lane, Belle
Mead, New Jersey 08502 (hereinafter referred to as "Employer"),
and EDWARD A. CLERICO, an individual residing at xxxxxxxxxxx,
xxxxxxxxxxxxx (hereinafter referred to as
"Employee").
WITNESSETH:
WHEREAS, the Employer provides design/build services in the
water and wastewater industry; and
WHEREAS, the Employee has been employed by the Employer for a
number of years in numerous executive and managerial capacities
and is currently the President of the Employer; and
WHEREAS, the Employee possesses an intimate knowledge of the
business and affairs of the Employer and its subsidiaries, their
policies, methods, personnel and problems; and
WHEREAS, the Employer desires to assure the Employer of the
Employee's continued employment as President of the Employer;
and the Employee desires to continue to provide services to the
Employer as President of the Employer, in accordance with the
terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the covenants and promises
contained herein and for other good consideration, it is
mutually agreed by the parties hereto as follows:
ARTICLE I
Nature of Employment
1.01 Employment. The Employer does hereby agree to continue to
employ, engage and hire the Employee and the Employee does
hereby agree to continue to serve the Employer, on the terms and
conditions set forth in this Agreement.
1.02 Position and Duties. The Employee shall serve as President
of the Employer and shall have responsibility, reporting only to
the Board of Directors of the Employer (the "Board"), or such
other individuals as may be designated by the Board, to
supervise the general management and operations of the Employer,
and shall have such other powers and duties as may from time to
time be prescribed by the Board to ensure that the goals and
objectives of the Board are met in a timely fashion, and all
incidental and related tasks necessary to facilitate the growth
of the Employer; provided that such duties are consistent with
the Employee's present duties and position as President of the
Employer. The Employee shall exert all reasonable efforts on
behalf of the Employer and shall devote substantially all of his
working time to the business and affairs of the Employer. The
Employee agrees that he will at all times faithfully,
industriously and to the best of his ability, experience and
talent perform all of the duties that may be required of him
pursuant to the terms hereof to the reasonable satisfaction of
the Employer.
1.03 Meetings with the President and Board. Employee shall meet
with the Board at the offices of the Employer on a regular basis
and shall submit at such meetings reports and such other
information as may be required or requested by the Employer
and/or the Board from time to time.
ARTICLE II
Duration of Employment
2.01 The term of this Agreement shall be for a period of four
(4) years commencing on March 6, 1998, unless sooner terminated
or extended as set forth under this Agreement. At the end of
said term, this Agreement shall automatically be extended for
additional successive periods of four (4) years each unless
either the Employer or the Employee notifies the other in
writing not less than sixty (60) days prior to the expiration
date of the then current term of this Agreement of its intent
not to renew the term of this Agreement.
Article III
Compensation
3.01 Base Salary. The Employer shall pay the Employee and
Employee hereby agrees to accept from the Employer, in full
payment for the Employee's services hereunder, a base salary in
the amount of $175,000.00 per annum ("Base Salary") payable on a
twoweek basis. Base Salary shall be subject to the usual
deductions for taxes, medical insurance and other insurance in
accordance with the Employer's standard policies in effect from
time to time. The Base Salary shall be reviewed annually and
adjusted at the sole discretion of the Board based on the
Board's evaluation of the Employee's performance hereunder and
the Employer's practice. In addition to Base Salary, the
Employee shall be entitled to receive such incentive
compensation and bonuses as the Board may from time to time
determine in its sole discretion.
3.02 Expenses. The Employer agrees to reimburse the Employee
for any and all documented, necessary, customary, legitimate,
reasonable and usual expenses incurred by the Employee while
acting on behalf of the Employer and within the scope of
employment under this Agreement. The Employee shall comply with
the Employer's general expense and reimbursement policies and
procedures in effect from time to time. In the event that the
Employee is entitled to reimbursement for expenses, the Employer
shall reimburse the Employee within thirty (30) days of receipt
of documents submitted by the Employee evidencing to the
satisfaction of the Employer the amount due for such related
business expenses.
3.03 Fringe Benefits. The Employee shall be entitled to
continue to participate in and receive benefits under any and
all of the Employer's employee benefits plans and arrangements
in which the Employee currently is a participant and any other
plan or arrangement made available during the term of this
Agreement by the Employer to its employees generally including,
without limitation, any incentive compensation, company credit
card program, pension, life insurance, stock option, stock
rights, stock bonus, profit sharing, deferred compensation,
vacation, or health-and-accident plans, subject to and on a
basis consistent with the terms, conditions and overall
administration of such plans and arrangements, as the Employer
in its sole discretion may amend from time to time during the
term of this Agreement. Nothing paid to the Employee under any
such plan or arrangement referred to in this Section 3.03 shall
be deemed to be in lieu of compensation to the Employee under
Section 3.01 hereof.
3.04 Motor Vehicle. During the term of this Agreement, the
Employer shall provide the Employee a motor vehicle in good
condition and comparable in quality and amenities to the Saab
900 Turbo convertible currently provided to the Employee by the
Employer (which may include a lease by the Employer of such
motor vehicle for the benefit of the Employee), and shall pay
for the costs of all fuel, maintenance, and insurance for said
motor vehicle in accordance with the Employer's general policies
and procedures relating thereto. The Employee acknowledges that
benefits to the Employee under this Section 3.04 are chargeable
as income to the Employee to the extent required by applicable
law.
ARTICLE IV
Restrictions Surviving Termination of Employment
4.01 Covenant Not to Compete. Employee agrees that he shall
not, during the term of this Agreement and, if his employment is
terminated for any reason whatsoever other than for a Change in
Control (as hereinafter defined), during the Restrictive Period
(as hereinafter defined), alone or with others, directly or
indirectly (as owner, stockholder, partner, member, lender or
other investor, director, officer, employee, consultant, agent
or in any other capacity or otherwise beneficially) own, manage,
operate, join in, control, participate in the ownership,
management, operation, or control of, or work for, or permit the
use of his name by, or provide financial or other assistance to,
or be connected in any manner with, any person, corporation,
partnership or entity which engages in, any business which is
the same as or is similar to the business of the Employer or any
affiliate of the Employer which offers products or services
competitive with those offered or proposed to be offered by the
Employer or any affiliate of the Employer. The Restrictive
Period shall commence as of the date of termination of the
Employee's employment with the Employer and continue for a
period of two (2) years thereafter. The restrictions set forth
in this Section 4.01 shall apply to any business either located
in or doing business within, or to services rendered to
individuals or companies either located in or doing business
within, (i) the geographic boundaries of New Jersey, (ii) all
areas of Pennsylvania within a fifty (50) mile radius of the
westerly bank of the Delaware River, and (iii) within a
twenty-five (25) mile radius of any office of the Employer or
wastewater disposal systems or similar facilities designed
and/or built by the Employer within the twelve (12) months
immediately preceding such termination (the "Restricted
Territory"). The Employee recognizes and agrees that in order
to adequately protect the Employer's confidential information
from disclosure (whether deliberate or inadvertent) to
competitors, a covenant not to compete of limited duration and
scope is necessary and desirable, and that the nature of
Employer's business is such that use of the Employer's
confidential information anywhere in the Restricted Territory
will harm the Employer's business.
4.02 Covenant Not to Solicit. The Employee agrees that during
the Restrictive Period he shall not, alone or with others,
directly or indirectly (as owner, stockholder, partner, member,
lender or other investor, director, officer, employee,
consultant, agent or in any other capacity or otherwise
beneficially) do any of the following:
(a) induce or attempt to induce or solicit for his benefit or
the benefit of any person, corporation, partnership or entity,
other than the Employer, any person who, during the term of this
Agreement, is an employee, representative, consultant, agent or
supplier of the Employer or any affiliate of the Employer, to
terminate his, her or its employment or relationship with the
Employer or any such affiliate or to violate the terms of any
agreement between said representative, agent, consultant,
employee or supplier of the Employer or any such affiliate, or
hire or attempt to hire any employee of the Employer or
affiliate of the Employer who has left the employment of the
Employer or such affiliate within sixty (60) days after the
termination of such employee's employment with the Employer or
such affiliate; or
(b) induce or attempt to induce any person, business or entity
which is or was a client or customer of the Employer or any
affiliate of the Employer at any time during the term of the
Employee's employment with the Employer to terminate any written
or oral agreement or understanding with the Employer or any such
affiliate to become a customer of any person, corporation,
partnership or other entity which engages in any business which
is the same as or is similar to any business engaged in by the
Employer or any affiliate of the Employer or which offers
product or services competitive with those offered or proposed
to be offered by the Employer or any affiliate of the Employer
on the date of such termination.
4.03 Applicability. Notwithstanding anything to the contrary
contained in the provisions of this Article VI, the Employee
shall not be subject to the restrictive covenants set forth in
Sections 4.02 and 4.03 above in the event the Employee's
employment with the Employer is terminated (whether by the
Employee or the Employer) as a result of a Change of Control.
For purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if:
(a) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), directly or indirectly, hereafter becomes the
beneficial owner (as defined in Rule 13d-3 of the Exchange Act)
of securities of the Employer representing more than fifty
percent (50%) of the combined voting power of the Employer's
then outstanding securities having the ordinary right to elect
directors of the Employer, other than any person who (i) at the
time of acquisition of such beneficial ownership is a trustee or
other fiduciary holding securities under an employee benefit
plan of the Employer, or (ii) is an immediate family member of
any "person" described in clause (i) of this Section 4.03(a), or
(iii) has been a "person" for more than twenty-four (24)
consecutive months prior to such termination, or (iv) is a
"person" engaging in a transaction of the type described in
Section 4.03(c) below but which does not constitute a change in
control thereunder; or
(b) during any period of twenty-four (24) consecutive months
during the term of this Agreement, individuals who at the
beginning of such period constitute the Board and any new
director (other than a director designated by a person who has
entered into an agreement with the Employer to effect a
transaction described in Sections 4.03(a) or 4.03(c) of this
Agreement) whose election by the Board, or nomination for
election by the Employer's shareholders, was approved by a vote
of at least two-thirds (2/3) of the directors then still in
office who either were directors at the beginning of the period
or whose election or nomination for election was previously so
approved, cease for any reason to constitute a majority of the
Board; or
(c) the shareholders of the Employer approve or, if no
shareholder approval is required or obtained, the Employer
completes a merger, consolidation or similar transaction of the
Employer with or into any other corporation (other than an
affiliate of the Employer), or completes a binding share
exchange involving the Employer's securities (other than with an
affiliate of the Employer), other than any such transaction
which would result in the voting securities of the Employer
outstanding immediately prior to such transaction continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least
seventy-five percent (75%) of the combined voting power of the
voting securities of the Employer or such surviving entity
outstanding immediately after such transaction; or
(d) the shareholders of the Employer approve a plan of complete
liquidation of the Employer or an agreement for the sale or
disposition by the Employer of all or substantially all of the
Employer's assets.
ARTICLE V
Nondisclosure of Information Concerning Business; Inventions
5.01 Nondisclosure. The Employee agrees that he will not at any
time, either directly or indirectly, disclose or communicate to
any person, firm or corporation, in any manner, any information
of any kind or nature concerning any matters affecting or
relating to the business of the Employer or any of the
affiliates of the Employer. The foregoing shall include, but
not be limited to, a prohibition against disclosing or
communicating the names of any of current or potential customers
or any other information concerning the business of the Employer
or its affiliates, the manner of operation, plans or any other
data of any kind relating to the Employer or its affiliates. The
foregoing prohibition shall apply regardless of whether the same
would be deemed confidential material or important, as the
parties hereto stipulate that, as between them, all information
of any kind concerning the business of the Employer or of the
Employer's affiliates is important material and confidential.
The breach of the terms of this Section 5.01 shall be a material
breach of this Agreement. The terms, conditions and
restrictions and prohibitions set forth in this Article V shall
not apply to any disclosures or communications which the
Employee makes in good faith while acting on behalf of and for
the benefit of the Employer. The provisions of this Section
5.01 shall be binding upon the Employee's heirs, successors and
legal representatives.
5.02 Inventions. The Employee expressly covenants and agrees
that any inventions, improvement, discoveries, processes or
methods that the Employee, solely or jointly with others, makes,
invents, discovers, develops, acquires or suggests (whether or
not at the request or upon the suggestion of the Employer or
during regular hours of work or otherwise) during the Employee's
employment with the Employer relating generally to any matter
connected in any way to the services performed directly or
indirectly by the Employee for the Employer shall become the
absolute and exclusive property of the Employer.
ARTICLE VI
Termination
6.01 Termination.
(a) Death.The Employee's employment hereunder shall
automatically terminate upon the Employee's death.
(b) Disability.The Employer may terminate the Employee's
employment hereunder upon the Employee's Disability (as
hereinafter defined).
(c) Cause.The Employer may terminate the Employee's employment
hereunder for Cause.
(d) Termination by the Employee. The Employee may terminate
the Employee's employment hereunder for any reason whatsoever.
(e) Other Termination by the Employer. The Employer may
terminate the Employee's employment hereunder for any reason
whatsoever (other than for the death or Disability of the
Employee or for Cause, which shall be governed by the applicable
provisions of this Agreement) upon thirty (30) days' prior
written notice.
6.02 Notice of Termination. Any termination of the Employee's
employment with the Employer shall be communicated by written
notice of termination to the other party hereto.
6.03 Compensation Upon Termination.
(a) In the event the Employee's employment is terminated by
the Employer prior to the expiration of the initial or any
renewal term of this Agreement, for any reason other than Cause
(including death or Disability), the Employee shall be entitled
to receive severance pay in an amount equal to three (3) months
of the Employee's then current Base Salary, payable in six (6)
equal bi-weekly installments commencing as of the date of such
termination, subject to the usual deductions for taxes, and any
medical insurance and other insurance provided to the Employee
by the Employer at the time of such termination, in accordance
with the Employer's standard policies then in effect, which the
Employee elects to continue during such period after such
termination.
(b) If the Employee's employment hereunder shall be terminated
for Cause, or is terminated by the Employee for any reason
whatsoever, the Employer shall pay the Employee's Base Salary
accrued through the date of termination at the rate in effect at
the time notice of termination is given and the Employer shall
have no further obligations to the Employee under this Agreement.
(c) The Employee shall be required to mitigate the amount of
any payment provided for in this Article VI by seeking other
employment, and the amount of any payment provided for in this
Article VI shall be reduced by any compensation earned by the
Employee as the result of employment by another employer after
the date of any such termination and may be otherwise reduced by
way of offset against any amount owed by the Employee to the
Employer.
6.04 Definitions. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) "Cause" shall mean (A) the failure by the Employee to
substantially perform the Employee's duties hereunder (other
than any such failure resulting from the Employee's Disability),
or (B) the engaging by the Employee in conduct which is
injurious to the Employer including, but not limited to,
embezzlement, theft or similar criminal conduct or fraud, or (C)
the breach by the Employee of any provision of this Agreement.
(b) "Disability" shall mean that the Employee is unable, as a
result of any mental or physical condition, from substantially
performing the Employee's usual and customary duties and
obligations for a continuous period of one hundred eighty (180)
days or such longer period as may agreed by the Employer. The
Employee hereby consents to reasonable medical examinations by
physicians appointed by the Employer for purposes of determining
Disability of the Employee under this Agreement.
ARTICLE VII
Resolutions of Disputes
7.01 Mediation. If a disagreement exist between or among the
parties concerning this Agreement, any party may require the
other party to submit the reason for its position, in writing,
and to then enter into good faith negotiations to attempt to
resolve the disagreement. If such disagreement cannot be
settled by good faith negotiation between the parties, and if
the continued failure to settle such disagreement is likely to
have a material adverse impact on the Employer, any party may
elect to submit the disagreement to mediation under the
Commercial Mediation Rules of the American Arbitration
Association. If any party so elects, the other party shall
submit to mediation. The mediator shall not have authority to
impose a settlement upon the parties, but will attempt to help
them reach a satisfactory resolution of the disagreement. The
mediator shall end the mediation whenever, in the mediator's
judgment, further efforts at mediation would not contribute to a
resolution of the submitted disagreement. The costs and fees of
such mediation shall be allocated by the mediator.
7.02 Arbitration. All claims, disputes and other matters in
question arising out of, or relating to, this Agreement or the
performance thereof shall be submitted to, and determined by,
arbitration if good faith negotiations among the parities do not
resolve such claim, dispute or other matter within ninety (90)
days and the parties have not elected to submit such claim,
dispute or other matter to mediation pursuant to Section 7.01
above. Such arbitration shall proceed in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association then pertaining (the "Rules"), insofar as such Rules
are not inconsistent with the provisions expressly set forth in
this Agreement, unless the Employer and the Employee mutually
agree otherwise in writing. Notice of the demand for
arbitration shall be filed in writing with the other party to
this Agreement and with the American Arbitration Association.
The arbitrator shall be appointed by the American Arbitration
Association in accordance with the Rules. Reasonable discovery
shall be allowed in arbitration. All proceedings before the
arbitrator shall be held in Union County, New Jersey. The
governing law shall be as specified in Section 9.05 below. The
costs and fees of the arbitration, including attorneys' fees,
shall be allocated by the arbitrators. The award rendered by
the arbitrator shall be final and binding and any judgment
relating to such arbitration award may be entered in accordance
with applicable law and in any court having jurisdiction thereof.
ARTICLE VIII
Assignment
8.01 During the term of this Agreement, the Employer shall have
the right, without the Employee's consent or approval, to assign
this Agreement to any successor to or assignee of (whether
direct or indirect, by purchase, consolidation, merger or
otherwise) all or substantially all of the business and/or
assets of the Employer and, in any such event, the Employee
shall have the right, upon prompt written request, to receive a
written agreement from such successor or assign, as the case may
be, to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Employer would
be required to perform if no such succession or assignment had
taken place. Upon any such assignment, subject to the
provisions of Section 4.03 of this Agreement, the terms and
conditions of this Agreement shall continue in full force and
effect and shall inure to the benefit of such successor or
assignee, as the case may be.
ARTICLE IX
Miscellaneous
9.01 Entire Agreement; Modification. This Agreement contains
the sole and entire Agreement between the parties hereto and
incorporates and supersedes any and all prior or contemporaneous
oral or written agreements with respect to the matters referred
to herein. This Agreement may not be modified, amended or
changed except by an agreement in writing signed by both parties
hereto. The parties acknowledge and agree that neither of them
have made any representation with respect to the subject matter
of this Agreement or any representations including the execution
and delivery hereof.
9.02 Waiver. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other parry shall be deemed a continuing waiver or a waiver of
any similar or dissimilar provisions or conditions at the same
or at any prior or subsequent time.
9.03 Invalidity. To the extent any provisions hereof may be
held invalid or unenforceable as a matter of law, the remaining
provisions hereof shall continue in full force and effect.
9.04 Counterparts. This Agreement may be executed and exchanged
in counterparts.
9.05 Governing Law. Irrespective of the present or future
residence of either of the parties hereto, the parties hereby
agree that the terms of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of New
Jersey, without giving effect to principles of conflicts of law.
9.06 Survival. The Employee understands that the provisions of
Articles 4 and 5 of this Agreement shall survive, in full force
and effect, any expiration or termination of this Agreement for
any reason whatsoever.
9.07 Specific Performance. The parties hereto, recognizing that
irreparable injury to the Employer, its business and property
would inevitably occur in the event of any violation of this
Agreement by the Employee, and that damages at law may be
inadequate to compensate the loss resulting therefrom, agree
that in any such event the Employer shall be entitled to an
injunction, in addition to any other remedies and damages
available and without proof of monetary or immediate damage, to
restrain the violation thereof by the Employee or other person,
partnership, firm, corporation, Employer, servant, agent,
employers or employees acting for or with the Employee.
9.08 Binding Nature. The rights and obligations of the Employer
under this Agreement shall inure to the benefit of and shall be
binding upon the Employer and its successors and assigns.
9.9 Section Headings. The section headings contained in this
Agreement are inserted for reference purposes only and shall not
effect the meaning or interpretation of this Agreement.
9.10 Notice. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by
certified mail return receipt requested, postage prepaid, to the
party entitled to receive the same at the address for such party
or to such other address as a party may fix by notice or in the
case of notice to the Employee, in person to the Employee, or in
the case of notice to the Employer, in person to an executive
officer of the Employer and immediately confirmed by writing to
the president of the Employer. All notices given by mail shall
be deemed given when mailed.
9.11 Waiver of Trial by Jury. THE EMPLOYEE EXPRESSLY WAIVES ANY
RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN
CONTRACT, TORT, OR OTHERWISE, BETWEEN THE EMPLOYER AND THE
EMPLOYEE ARISING OUT OF OR RELATED TO THE TRANSACTIONS
CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH.
EITHER THE EMPLOYER OR THE EMPLOYEE MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT OF
COMPETENT JURISDICTION AS WRITTEN EVIDENCE OF THE CONSENT OF THE
PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date set forth above.
ATTEST: APPLIED WATER MANAGEMENT, INC.
/s/ Susan C. Buckley
By: /s/ Andrew M. Chapman
Name: Andrew M. Chapman
Title: Chairman
WITNESSETH: EMPLOYEE
/s/ Henry S. Patterson, III /s/ Edward A. Clerico
EDWARD A. CLERICO
