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 March 31, 1999
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: March 31, 1999
E'town Corporation (without par value) 8,534,380
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 25
Items 1 - 5
Item 6 (a) - Exhibits 25
(b) - Reports on Form 8-K 25
SIGNATURES 26
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands Except Per Share Amounts)
(Unaudited) Three Months Ended
March 31,
1999 1998
- -----------------------------------------------------------------------------
Operating Revenues $ 35,476 $ 31,267
- -----------------------------------------------------------------------------
Operating Expenses:
Operation 14,575 11,156
Maintenance 1,609 1,569
Depreciation and amortization 3,674 3,158
Revenue taxes 3,740 3,846
Real estate, payroll and other taxes 990 846
Federal income taxes 2,213 2,237
- -----------------------------------------------------------------------------
Total operating expenses 26,801 22,812
- -----------------------------------------------------------------------------
Operating Income 8,675 8,455
- -----------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 75 115
Federal income taxes (1,243) (70)
Gain on sale of land 3,197
Other - net 281 82
- -----------------------------------------------------------------------------
Total other income (expense) 2,310 127
- -----------------------------------------------------------------------------
Total Operating and Other Income 10,985 8,582
- -----------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 4,134 3,985
Other interest expense - net 291 214
Capitalized interest (53) (91)
Amortization of debt discount and expense-net 110 108
- -----------------------------------------------------------------------------
Total interest charges 4,482 4,216
- -----------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 6,503 4,366
Preferred Stock Dividends 203 203
- -----------------------------------------------------------------------------
Net Income $ 6,300 $ 4,163
=============================================================================
Earnings Per Share of Common Stock (Note 6):
- -----------------------------------------------------------------------------
Basic $ 0.74 $ 0.52
Diluted $ 0.73 $ 0.51
- -----------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- -----------------------------------------------------------------------------
Basic 8,512 8,057
Diluted 8,797 8,366
- -----------------------------------------------------------------------------
Dividends Paid Per Common Share $ 0.51 $ 0.51
=============================================================================
See Notes to Consolidated Financial Statements.
-1-
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
1999 December 31,
Assets (Unaudited) 1998
- -----------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $ 718,117 $ 717,985
Construction work in progress 24,992 16,580
- -----------------------------------------------------------------------------
Total utility plant 743,109 734,565
Less accumulated depreciation 128,448 125,262
- -----------------------------------------------------------------------------
Utility plant-net 614,661 609,303
- -----------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net (Note 7) 83,813 84,945
- -----------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 7,017 5,909
Customer and other accounts receivable
(less reserve: 1999, $1,080, 1998, $1,065) 31,059 24,720
Unbilled revenues 12,224 12,198
Infrastructure loan funds receivable (Note 4) 5,657 5,895
Materials and supplies-at average cost 2,432 2,538
Prepaid insurance, taxes, other 1,466 2,515
- -----------------------------------------------------------------------------
Total current assets 59,855 53,775
- -----------------------------------------------------------------------------
Deferred Charges:
Waste residual management 1,318 1,371
Unamortized debt and preferred stock expenses 9,924 10,050
Taxes recoverable through future rates 14,226 14,226
Postretirement benefit expense 3,425 3,490
Other unamortized expenses 2,002 1,582
- -----------------------------------------------------------------------------
Total deferred charges 30,895 30,719
- -----------------------------------------------------------------------------
Total $ 789,224 $ 778,742
=============================================================================
See Notes to Consolidated Financial Statements.
-2-
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
1999 December 31,
Capitalization and Liabilities (Unaudited) 1998
- -----------------------------------------------------------------------------
Capitalization (Notes 3 and 4):
Common shareholders' equity $ 219,828 $ 215,472
Mandatory Redeemable Cumulative Preferred Stock 12,000 12,000
Redeemable preferred stock 227 227
Long-term debt - net 286,675 286,908
- -----------------------------------------------------------------------------
Total capitalization 518,730 514,607
- -----------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 41,984 44,022
Long-term debt - current portion 30 30
Accounts payable and other liabilities 18,306 19,469
Contract obligations payable 12,000 12,000
Customers' deposits 246 248
Municipal and state taxes accrued 20,830 16,789
Federal income taxes accrued 1,768
Interest accrued 5,365 3,675
Preferred stock dividends accrued 59 59
- -----------------------------------------------------------------------------
Total current liabilities 100,588 96,292
- -----------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 42,113 41,102
Federal income taxes 67,297 66,487
State income taxes 207 207
Unamortized investment tax credits 7,872 7,839
Accumulated postretirement benefits 4,030 4,090
- -----------------------------------------------------------------------------
Total deferred credits 121,519 119,725
- -----------------------------------------------------------------------------
Contributions in Aid of Construction 48,387 48,118
- -----------------------------------------------------------------------------
Commitments and Contingent Liabilities
- -----------------------------------------------------------------------------
Total $ 789,224 $ 778,742
=============================================================================
See Notes to Consolidated Financial Statements.
-3-
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts) March 31,
1999 December 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------
Common Shareholders' Equity:
E'town Corporation:
Common stock without par value, authorized,
15,000,000 shares, issued 1999, 8,566,934
shares; 1998, 8,504,344 shares $ 171,719 $ 169,324
Paid-in capital 1,315 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 52,922 50,961
Less cost of treasury stock; 1999 and
1998, 32,554 shares (968) (968)
- -----------------------------------------------------------------------------
Total common shareholders' equity 219,828 215,472
- -----------------------------------------------------------------------------
Preferred Shareholders' Equity
Elizabethtown Water Company:
Mandatory Redeemable 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:
No par value, non-cumulative, issued and
outstanding, 227 shares 227 227
- -----------------------------------------------------------------------------
Total preferred shareholders' equity 12,227 12,227
- -----------------------------------------------------------------------------
Long-Term Debt (Note 4):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures,
due 2012 10,257 10,499
6.79% Senior Notes, due 2007 12,000 12,000
Liberty Water Company:
Contract Obligations Payable 19,000 19,000
Applied Wastewater/Applied Water Management:
Notes Payable 267 261
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:
New Jersey Environmental Infrastructure
Trust Notes 7,295 7,295
New Jersey Department of Environmental
Protection Notes 5,895 5,895
Notes Payable (due serially through 2000) 23 30
- -----------------------------------------------------------------------------
Total long-term debt 287,737 287,980
Unamortized (discount) premium-net (1,062) (1,072)
- -----------------------------------------------------------------------------
Total long-term debt-net 286,675 286,908
- -----------------------------------------------------------------------------
Total Capitalization $ 518,730 $ 514,607
=============================================================================
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands Except Share Amounts) Three Months Ended
March 31, Year Ended
1999 December 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------
Common Stock:
Balance at Beginning of Period $ 169,324 $ 153,162
Common stock issued under Dividend Reinvestment
and Stock Purchase Plan (1999, 53,340 shares;
1998, 213,568 shares) 2,067 7,861
Redemption of Convertible Debentures (1999,
6,050 shares; 1998, 18,100 shares) 242 724
Issuance of restricted stock under compensation
programs (1998, 9,590 shares) 332
Issuance of restricted stock for acquisitions
(1998, 186,310 shares) 6,653
Exercise of stock options (1999, 3,200 shares;
1998, 22,386 shares) 592
- -----------------------------------------------------------------------------
Balance at End of Period 171,719 169,324
- -----------------------------------------------------------------------------
Paid-in Capital: 1,315 1,315
- -----------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160)
- -----------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 50,961 45,560
Net Income 6,300 22,330
Dividends on common stock (1999, $.51; 1998, $2.04) (4,339) (16,929)
- -----------------------------------------------------------------------------
Balance at End of Period 52,922 50,961
- -----------------------------------------------------------------------------
Treasury Stock:
Balance at Beginning of Period (968) (954)
Cost of shares redeemed to exercise stock
options (1998, 346 shares) (14)
- -----------------------------------------------------------------------------
Balance at End of Period (968) (968)
- -----------------------------------------------------------------------------
Total Common Shareholders' Equity $ 219,828 $ 215,472
=============================================================================
See Notes to Consolidated Financial Statements.
-5-
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited) Three Months Ended
March 31,
1999 1998
- -----------------------------------------------------------------------------
Cash Flows Provided by Operating Activities:
Net Income $ 6,300 $ 4,163
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,674 3,158
Increase in deferred charges (367) (739)
Deferred income taxes and investment tax
credits-net 844 803
Capitalized interest and AFUDC (128) (206)
Other operating activities-net 314 351
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (6,101) (820)
Unbilled revenues (26) 491
Accounts payable and other liabilities (1,165) 1,916
Accrued/prepaid interest and taxes 8,517 7,861
Other 106 (350)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 11,968 16,628
- -----------------------------------------------------------------------------
Cash Flows Used by Financing Activities:
Proceeds from issuance of common stock 2,395 2,021
Funds held in Trust by others 258
Debt and preferred stock issuance and
amortization costs 126 124
Issuance of other of long-term debt 6,000
Repayment of long-term debt (243) (72)
Contributions and advances for construction-net 1,280 (926)
Net decreases in notes payable - banks (2,038) (12,000)
Dividends paid on common stock (4,339) (4,107)
- -----------------------------------------------------------------------------
Net cash flows used by financing activities (2,561) (8,960)
- -----------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant and other capital expenditures
(excluding allowance for funds used during
construction) (9,541) (7,314)
Capital expenditures on privatization contracts (286)
Proceeds from sale of land 1,528
Development costs of land (excluding
capitalized interest) (14)
- -----------------------------------------------------------------------------
Net cash flows used for investing activities (8,299) (7,328)
- -----------------------------------------------------------------------------
Net Increase in Cash
and Cash Equivalents 1,108 340
Cash and Cash Equivalents at
Beginning of Period 5,909 6,233
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 7,017 $ 6,573
=============================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 3,896 $ 2,244
Income taxes $ 1,600 $ -0-
Preferred stock dividends $ 177 $ 177
- -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
-6-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
1999 1998
- -----------------------------------------------------------------------------
Operating Revenues $ 31,066 $ 30,507
- -----------------------------------------------------------------------------
Operating Expenses:
Operation 11,591 10,409
Maintenance 1,456 1,455
Depreciation 3,197 3,158
Revenue taxes 3,733 3,846
Real estate, payroll and other taxes 883 824
Federal income taxes 2,189 2,413
- -----------------------------------------------------------------------------
Total operating expenses 23,049 22,105
- -----------------------------------------------------------------------------
Operating Income 8,017 8,402
- -----------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 75 115
Federal income taxes (72) (43)
Other - net 128 7
- -----------------------------------------------------------------------------
Total other income (expense) 131 79
- -----------------------------------------------------------------------------
Total Operating and Other Income 8,148 8,481
- -----------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 3,757 3,624
Other interest expense - net 63 206
Allowance for funds used during construction (53) (91)
Amortization of debt discount and expense-net 98 97
- -----------------------------------------------------------------------------
Total interest charges 3,865 3,836
- -----------------------------------------------------------------------------
Net Income 4,283 4,645
Preferred Stock Dividends 203 203
- -----------------------------------------------------------------------------
Earnings Applicable To Common Stock $ 4,080 $ 4,442
=============================================================================
See Notes to Consolidated Financial Statements.
-7-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
1999 December 31,
Assets (Unaudited) 1998
- -----------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $ 714,433 $ 714,301
Construction work in progress 23,857 15,694
- -----------------------------------------------------------------------------
Total utility plant 738,290 729,995
Less accumulated depreciation and amortization 128,255 125,096
- -----------------------------------------------------------------------------
Utility plant-net 610,035 604,899
- -----------------------------------------------------------------------------
Non-utility Property (Note 7) 7,057 7,315
- -----------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 4,205 3,598
Customer and other accounts receivable
(less reserve: 1999, $653, 1998, $670) 18,469 16,952
Unbilled revenues 9,950 10,091
Infrastructure loan funds receivable (Note 4) 5,657 5,895
Materials and supplies-at average cost 2,432 2,538
Prepaid insurance, taxes, other 1,392 2,433
- -----------------------------------------------------------------------------
Total current assets 42,105 41,507
- -----------------------------------------------------------------------------
Deferred Charges:
Waste residual management 1,318 1,371
Unamortized debt and preferred stock expenses 9,254 9,368
Taxes recoverable through future rates 14,226 14,226
Postretirement benefit expense 3,425 3,490
Other unamortized expenses 1,689 1,152
- -----------------------------------------------------------------------------
Total deferred charges 29,912 29,607
- -----------------------------------------------------------------------------
Total $ 689,109 $ 683,328
=============================================================================
See Notes to Consolidated Financial Statements.
-8-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands) March 31,
1999 December 31,
Capitalization and Liabilities (Unaudited) 1998
- -----------------------------------------------------------------------------
Capitalization (Note 3):
Common shareholder's equity $ 210,381 $ 208,573
Mandatory redeemable cumulative preferred stock 12,000 12,000
Long-term debt - net 245,151 245,148
- -----------------------------------------------------------------------------
Total capitalization 467,532 465,721
- -----------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 20,000 22,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 10,094 12,457
Customers' deposits 246 248
Federal income taxes accrued 451
Municipal and state taxes accrued 20,851 16,776
Interest accrued 4,960 3,228
Preferred stock dividends accrued 59 59
- -----------------------------------------------------------------------------
Total current liabilities 56,691 54,798
- -----------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 41,915 40,874
Federal income taxes 65,495 64,696
Unamortized investment tax credits 7,872 7,839
Accumulated postretirement benefits 3,882 3,947
- -----------------------------------------------------------------------------
Total deferred credits 119,164 117,356
- -----------------------------------------------------------------------------
Contributions in Aid of Construction 45,722 45,453
- -----------------------------------------------------------------------------
Commitments and Contingent Liabilities
- -----------------------------------------------------------------------------
Total $ 689,109 $ 683,328
=============================================================================
See Notes to Consolidated Financial Statements.
-9-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands) March 31,
1999 December 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------
Common Shareholder's Equity (Note 3):
Common stock without par value, authorized,
15,000,000 shares, issued 1999 and 1998,
1,974,902 shares $ 15,741 $ 15,741
Paid-in capital 134,820 132,753
Capital stock expense (485) (485)
Retained earnings 60,305 60,564
- -----------------------------------------------------------------------------
Total common shareholder's equity 210,381 208,573
- -----------------------------------------------------------------------------
Preferred Shareholders' Equity:
Mandatory Redeemable 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:
New Jersey Department of Environmental
Protection Notes 5,895 5,895
New Jersey Environmental Infrastructure
Trust Notes 7,295 7,295
Notes Payable (due serially through 2000) 23 30
- -----------------------------------------------------------------------------
Total long-term debt 246,213 246,220
Unamortized discount-net (1,062) (1,072)
- -----------------------------------------------------------------------------
Total long-term debt-net 245,151 245,148
- -----------------------------------------------------------------------------
Total Capitalization $ 467,532 $ 465,721
=============================================================================
See Notes to Consolidated Financial Statements.
-10-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands)
Three Months Ended
March 31, Year Ended
1999 December 31,
(Unaudited) 1998
- -----------------------------------------------------------------------------
Common Stock: $ 15,741 $ 15,741
- -----------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 132,753 124,560
Capital contributed by parent company 2,067 8,193
- -----------------------------------------------------------------------------
Balance at End of Period 134,820 132,753
- -----------------------------------------------------------------------------
Capital Stock Expense (485) (485)
- -----------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 60,564 53,538
Net income 4,283 24,768
Dividends on common stock (4,339) (16,929)
Dividends on preferred stock (203) (813)
- -----------------------------------------------------------------------------
Balance at End of Period 60,305 60,564
- -----------------------------------------------------------------------------
Total Common Shareholder's Equity $ 210,381 $ 208,573
=============================================================================
See Notes to Consolidated Financial Statements.
-11-
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
(Unaudited) Three Months Ended
March 31,
1999 1998
- -----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 4,283 $ 4,645
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,197 3,158
Increase in deferred charges (484) (587)
Deferred income taxes and investment tax
credits-net 832 783
Allowance for funds used during construction (128) (206)
Other operating activities-net (16) 120
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (1,279) (942)
Unbilled revenues 141 545
Accounts payable and other liabilities (2,365) 2,284
Accrued/prepaid interest and taxes 7,299 8,064
Other 106 (350)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 11,586 17,514
- -----------------------------------------------------------------------------
Cash Flows Used by Financing Activities:
Capital contributed by parent company 2,067 1,498
Funds held in Trust by others 258
Debt and preferred stock issuance and
amortization costs 114 113
Repayment of long-term debt (7) (4)
Contributions and advances for construction-net 1,310 (926)
Net decrease in notes payable - banks (2,000) (7,000)
Dividends paid on common stock and preferred stock (4,516) (4,284)
- -----------------------------------------------------------------------------
Net cash used by financing activities (2,774) (10,603)
- -----------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (8,205) (7,073)
- -----------------------------------------------------------------------------
Cash used for investing activities (8,205) (7,073)
- -----------------------------------------------------------------------------
Net Increase (Decrease) in Cash and
Cash Equivalents 607 (162)
Cash and Cash Equivalents at
Beginning of Period 3,598 4,226
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 4,205 $ 4,064
=============================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 2,795 $ 2,049
Income taxes $ 1,600 $ -0-
Preferred stock dividends $ 177 $ 177
- -----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
-12-
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
E'town Corporation (E'town or Corporation), is the parent company of
Elizabethtown Water Company (Elizabethtown or Company), Edison Water
Company (Edison), E'town Properties, Inc. (Properties), 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 regulated utilities,
Elizabethtown, Mount Holly and AWWM, comprise the Regulated Utilities
segment, Liberty and Edison comprise the Contract Operations segment, AWM
is the Engineering/Operations/Construction segment and E'town and
Properties comprise the Financing and Investment segment.
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 1998 Annual Report to
Shareholders and the 1998 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". The pronouncement requires
disclosure of selected information about operating segments in interim
financial reports. The Corporation adopted this pronouncement in 1998. See
Note 9 for this disclosure.
In 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.
The Corporation adopted this pronouncement in the first quarter of 1999.
Adoption of the SOP did not have an effect on the Corporatio's financial
statements.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity". Absent any possible changes, this
Statement must be adopted by January 1, 2000. The Corporation does not
believe this Statement will have any 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
$2.1 million from the DRP proceeds to Elizabethtown for the three months
ended March 31, 1999.
-13-
<PAGE>
4. LONG-TERM DEBT
In October 1998, E'town filed a registration statement with the Securities
and Exchange Commission (SEC) to issue up to $75 million of unsecured
medium-term notes. The SEC is currently reviewing the filing, E'town
plans to issue approximately $25 million of these notes later in 1999 to
repay short-term debt incurred to finance the acquisition of the contract
to operate the water system of the City of Elizabeth and capital costs for
the non-regulated subsidiaries.
In November 1998 Mount Holly closed on loan agreements that will make
available up to $13.19 million in 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 $7.30 million, is through the New Jersey
Environmental Infrastructure Trust (Trust), which issued tax-exempt bonds
with average interest rates of 4.7%. The second loan, in the amount of
$5.89 million, is from the State of New Jersey, acting through the New
Jersey Department of Environmental Protection. The state is participating
in the Safe 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 2.60%. The proceeds of the loans
will finance the construction of the Mansfield Project (see Note 8).
E'town has outstanding $12 million of 6.79% Senior Notes due December 15,
2007. 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 March 31, 1999, the
fixed charges coverage ratio was 2.9 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 $98 million of uncommitted lines of credit with several banks,
of which up to $43 million is available to E'town for use by the
Corporation or its unregulated subsidiaries and $88 million is available
to Elizabethtown as of March 31, 1999. 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.
-14-
<PAGE>
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 assumes both the
conversion of the 6 3/4% Convertible Subordinated Debentures and common
stock equivalents, assuming all stock options are exercised. The
calculations of basic and diluted earnings per share for the three months
ended March 31, 1999 and 1998 follow:
(Thousands of Dollars Except Per Share Amounts)
1999 1998
------ ------
Basic:
Net income $ 6,300 $ 4,163
Average common shares outstanding 8,512 8,057
------- -------
Basic earnings per share $ .74 $ .52
======= =======
Diluted:
Net income $ 6,300 $ 4,163
After tax interest expense applicable
to 6 3/4% Convertible Subordinated
Debentures 112 112
------- -------
Adjusted net income $ 6,412 $ 4,286
------- -------
Average common shares outstanding 8,512 8,057
Additional shares from assumed
exercise of stock options 25 25
Additional shares from assumed
conversion of 6 3/4% Convertible
Subordinated Debentures 260 284
------- -------
Average common shares outstanding
as adjusted 8,797 8,366
------- -------
Diluted earnings per share $ .73 $ .51
======= =======
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
The detail of amounts included in Non-Utility Property and Other
Investments at March 31, 1999 and December 31, 1998 is as follows :
(Thousands of Dollars)
1999 1998
------ ------
Concession fees on privatization
contracts - net of amortization $ 55,115 $ 55,505
Capital assets for privatization
contracts - net of amortization 3,617 3,341
Investments in real estate 9,301 11,341
Funds held in trust by others 6,976 7,234
Goodwill on AWM and AWWM
acquisitions - net of amortization 5,363 5,401
Investment in SEGS 1,214 1,214
Other capital assets 2,036 637
Other 191 272
-------- --------
Total $ 83,813 $ 84,945
======== ========
Effective July 1998 E'town, through Liberty entered into a contract with
the city of Elizabeth (Elizabeth), New Jersey to operate its water system
under a 40-year contract serving 17,900 customers. Under the contract,
Liberty made a payment to Elizabeth of $19.7 million in 1998 and is
contractually obligated to make payments to Elizabeth of $12 million in
-15-
<PAGE>
June 1999 and $19 million in June 2000, which have been included in
Concession Fees on Privatization contracts, net of amortization. These
Concession Fees are being amortized on a straight-line basis over the life
of the contract. Also under the terms of the contract, Liberty will
deposit $57.8 million from revenues earned over the 40-year contract, of
which $52.3 million is due after 2012, into a fund administered by
Elizabeth to be used by Elizabeth to pay for capital improvements to the
water system. In addition, Liberty is responsible for $7.45 million of
construction expenditures, primarily for meter replacements, over the life
of the contract. These construction expenditures, as they are incurred,
are being amortized on a straight-line basis over the remaining life of
the contract. Of these total commitments, approximately $4.01 million is
expected to be expended in the next three years. E'town will receive all
the revenues from operating the system in accordance with rate increases
set forth in the contract. E'town is also responsible for all operating
expenses as well as the capital expenditures discussed above. Performance
by Liberty of the contract provisions is guaranteed by E'town.
E'town also performs the commercial billing operations for the wastewater
system of Elizabeth. E'town does not operate the wastewater system. E'town
does the wastewater billing for Elizabeth and remits all cash collected to
Elizabeth. Recorded on the financial statements as Customer and Other
Accounts Receivable at March 31, 1999 are the receivables from the
customers of Elizabeth for wastewater services in the amount of $2.63
million. An equal amount of liability to Elizabeth is included in Accounts
Payable and Other Liabilities which has been established to reflect
E'town's obligation to remit these funds to Elizabeth as collected.
In 1997 E'town formed a wholly-owned subsidiary, Edison Water Company
(Edison), for the purpose of managing the assets and operations of the
Edison Township water system under a 20-year contract. Edison serves
approximately 11,600 residential, commercial and industrial customers.
Edison bills and receives all water revenues generated as a result of
operating the water system of the township of Edison, New Jersey and pays
all the expenses under the contract. Edison expects to make expenditures
of approximately $25 million during the 20-year life of the contract of
which $10.16 million has been spent to date. Construction expenditures, as
they are incurred, are being amortized on a straight-line basis over the
remaining life of the contract. Performance by Edison of the contract
provisions is guaranteed by E'town.
Also included in Non-Utility Property and Other Investments at March 31,
1999 is $9.3 million of investments in several parcels of undeveloped
land in New Jersey. A parcel 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 a gain of less than $.1 million. Cash
proceeds of $1.2 million were received in 1998 and the balance was
financed with a one-year mortgage at an interest rate of 8%, with full
payment due in 1999. On February 17, 1999, Properties sold a parcel of
land which has been under contract since 1995 in Green Brook, New Jersey
for $5.83 million, at a gain of $2.08 million net of taxes. Cash proceeds
of $1.5 million were received in February 1999 and the remaining $4.33
million was financed with a 7.75% mortgage, to be paid over two years.
This amount is included in Customer and Other Accounts Rceivable in
E'town's Consolidated Balance Sheets. The long-term portion of $1.9
million is included in this balance and is due February 2001. The gain has
been reflected in the accompanying financial statements. The sale proceeds
will be invested into water and wastewater investments that produce a
current return. Properties has entered into contracts for sale for all but
one of its remaining parcels. The eventual sale of these parcels is
contingent upon the purchaser obtaining various approvals for development.
This process could take several years. Based upon independent appraisals
received at various times prior to 1997 and the expected sales prices for
properties under contract to be sold, the estimated net realizable value
of each property exceeds its respective carrying value as of March 31,
1999.
In 1998 E'town exercised an option to purchase the operations of Applied
Wastewater General Partnership (AWG) to provide a full complement of water
and wastewater services and consequently closed on the transaction in June
1998. The purchase price, in a non-cash transaction, was $6.6 million
(185,005 restricted common shares) for the three companies that now
comprise AWM and $.04 million (1,305 restricted common shares) for AWWM, a
regulated wastewater utility, in a stock-for-stock transaction accounted
-16-
<PAGE>
for as a purchase. Of the shares issued, 20% are being held in escrow. The
goodwill amounted to $5.46 million, which is being amortized over a
40-year period. The purchase price is subject to a potential downward
post-closing adjustment based upon a multiple of earnings for the twelve
months ended March 31, 1998. As required by the purchase contract, E'town
has undertaken an audit of AWG for such period. Therefore, the amount of
any post-closing adjustment is not yet determinable.
Included in Non-Utility Property and Other Investments at March 31, 1999
is an investment of $1.21 million ($.43 million net of related deferred
taxes) in a limited partnership that owns Solar Electric Generating System
V (SEGS), located in California. The Corporation owns a 3.19% interest in
SEGS. The transaction is being accounted for on the equity method. The
Corporation will continue to monitor the relationship between the carrying
and net realizable values of its investment in SEGS, based upon
information provided by SEGS management as well as through cash flow
analyses.
8. REGULATORY MATTERS
Rates
ELIZABETHTOWN
Elizabethtown expects to file for rate relief later in 1999 to recover
additional construction and financing costs incurred since base rates were
last established in October 1996.
MOUNT HOLLY
On January 29, 1999, Mount Holly filed a petition with the BPU for a $2.09
million or 40.55% rate increase, which reflects additional construction
and financing costs, as well as increases in operating costs since base
rates were last established in January 1996. This rate case also includes
$8.96 million in costs with a corresponding rate increase of $1.30
million, for the portion of Mount Holly's Mansfield Project that was
placed in service in the third quarter of 1998. A decision is expected
during the fall of 1999. Mount Holly expects to file an additional rate
case later in 1999 for the remaining cost of the Mansfield Project, to
coincide with the completion of the project and the expiration of an
agreement to purchase 1.0 million gallons per day from another regional
purveyor under a Purchased Water Adjustment Clause (PWAC) now in effect.
9. SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires that companies disclose segment data based upon how
management makes decisions, allocates resources and measures performance.
The first quarter 1999 segment data is presented as follows:
Engineering/ Financing
Regulated Contract Operations/ and
Utilities Operations Construction Investment Eliminations Total
----------------------------------------------------------------------------
(Thousands of Dollars)
----------------------------------------------------------------------------
Operating
revenues $ 31,117 $4,774 $1,514 $ (1,929) $ 35,476
Operating
expenses 23,128 3,990 1,438 $ 174 (1,929) 26,801
Interest 3,866 290 326 4,482
expense
Net income 4,060 521 75 8,327 (6,683) 6,300
Total assets $693,898 $70,078 $5,453 $47,914 $(28,119) $789,224
-17-
<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), Edison Water Company (Edison), E'town
Properties, Inc. (Properties), 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. Mount Holly contributed about 3% and Liberty, AWM and
Edison each contributed 4% of the Corporation's consolidated operating
revenues for 1998. The regulated utilities, Elizabethtown, Mount Holly
and AWWM, comprise the Regulated Utilities segment, Liberty and Edison
comprise the Contract Operations segment, AWM is the
Engineering/Operations/Construction segment and E'town and Properties
comprise the Financing and Investment segment (See Notes 2 and 9 to
E'town's Notes to Consolidated Financial Statements). The following
analysis sets forth significant events affecting the financial condition
of the various segments at March 31, 1999, and the results of operations
for the three months ended March 31, 1999 and 1998.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
In the first quarter of 1999 capital expenditures were $9.8 million, of
which $1.2 million was for the purchase of several small wastewater
plants by AWM, $.3 million was for capital additions for contract
operations and $8.2 million was for water utility plant. For the three
years ending December 31, 2001, capital and investment requirements for
E'town are estimated to be $181.4 million, consisting of (I)
expenditures for the Regulated Utilities Segment ($107.5 million for
Elizabethtown, $17.0 million for Mount Holly and $16.4 million for
AWWM), (ii) investments in the Contract Operations segment for
concession payments for Liberty, and capital improvements for Liberty
and Edison of $39.0 million, and (iii) investments in the
Engineering/Operations/Construction segment of $1.5 million. These
estimates do not include any amounts for possible additional
acquisitions or privatization activities in the three-year period.
REGULATED UTILITIES SEGMENT
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 $50.6 million for routine projects (services, hydrants
and main extensions not funded by developers) and $56.9 million for
transmission system upgrades, a new operations center and other
projects. Elizabethtown expects to file for rate relief in the later
part of 1999 and periodically thereafter 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 $17.0 million,
primarily for an additional supply source to comply with state
regulations designed to prevent further depletion of a local aquifer.
Mount Holly currently obtains all of its water from wells drilled into
an aquifer, which has been subject to over- pumping by various users in
a portion of southern New Jersey. The state adopted legislation
requiring all local purveyors, including Mount Holly, to obtain
alternate supplies and reduce their withdrawals from the affected parts
-18-
<PAGE>
of the aquifer. Mount Holly is constructing a Project, called the
Mansfield Project, to obtain water from outside the affected part of the
aquifer for delivery into the Mount Holly system. A portion of this
project was placed into service in the fall of 1998.
On January 29, 1999, Mount Holly filed a petition with the BPU for a
$2.09 million or 40.55% rate increase, which reflects additional
construction and financing costs, as well as increases in operating
costs since base rates were last established in January 1996. This rate
case also includes $8.96 million in costs with a corresponding rate
increase of $1.30 million, for the portion of Mount Holly's Mansfield
Project that has been placed in service. A decision is expected during
the fall of 1999. Mount Holly expects to file an additional rate case
later in 1999 for the remaining cost of the Mansfield Project, to
coincide with the completion of the project and the expiration of an
agreement to purchase 1.0 million gallons per day from another regional
purveyor under a Purchased Water Adjustment Clause (PWAC) now in effect.
AWWM
AWWM expects to incur capital expenditures of $16.4 million in the next
three years, the predominant portion of which is expected to be spent in
1999 and 2000. These expenditures are
primarily for the purchase of wastewater plants from developers upon
completion of their construction by AWM.
CONTRACT OPERATIONS SEGMENT
LIBERTY
Under the contract to operate the water system of the City of Elizabeth,
New Jersey, Liberty
made a payment to Elizabeth of $19.7 million in 1998 and is
contractually obligated to make payments to Elizabeth of $12 million in
June 1999 and $19 million in June 2000. Also, under the terms of the
contract, Liberty will deposit $57.8 million from revenues earned during
the 40-year contract, of which $52.4 million is due after 2012, into a
fund administered by Elizabeth to be used by Elizabeth to pay for
capital improvements to the water system. In addition, Liberty is
responsible for $7.8 million of construction expenditures, primarily for
meter replacements,
over the life of the contract. Of the total construction expenditures,
approximately $4.0 million is expected to be expended in the next three
years.
EDISION
Under the contract to operate the water system of the Township of
Edison, New Jersey, Edison Water expects to spend $3.6 million during
the next three years to upgrade the system.
ENGINEERING/OPERATIONS/CONSTRUCTION SEGMENT
AWM
AWM expects to incur capital expenditures of $1.5 million during the
next three years. These expenditures consist primarily of vehicles and
equipment used in the construction and waste hauling operations.
Capital Resources
During 1998 E'town financed 35.5% of its capital expenditures, including
concession fees for the Regulated Utilities segment and investments in
the Contract Operations and Engineering/Operations/Construction
segments, from internally generated funds (after payment of common stock
dividends). The balance was financed with a combination of short-term
borrowings under lines of credit, proceeds from capital contributions
from E'town (funded by issuances of Common Stock under the Corporation's
Dividend Reinvestment and Stock Purchase
Plan) and long-term debt.
-19-
<PAGE>
For the three-year period ending December 31, 2001, E'town estimates
that 52.2% of its currently projected capital expenditures and
concession fees for all segments are expected to 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, medium-term notes, proceeds of tax-exempt
New Jersey Economic Development Authority (NJEDA) bonds, and short-term
borrowings. Mount Holly's Mansfield Project will be financed by
requisitions from the New Jersey Environmental Infrastructure Trust
Financing Program. The NJEDA has granted preliminary approval for the
financing of almost all of Elizabethtown's major projects during the next
three years. Elizabethtown expects to pursue additional tax-exempt
financing to the extent that final allocations are granted by the NJEDA.
In October 1998, E'town filed a registration statement with the
Securities and Exchange Commission (SEC) to issue up to $75 million of
unsecured medium-term notes. The SEC is currently reviewing the filing,
E'town plans to issue approximately $25 million of these notes later in
1999 to repay short-term debt incurred to finance the acquisition of the
contract to operate the water system of the City of Elizabeth and
capital costs for the non-regulated subsidiaries.
In November 1998 Mount Holly closed on two loans that will provide up to
$13.2 million in 2.60% financing for the Mansfield Project through the
New Jersey Environmental Infrastructure Trust Financing Program. 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 average interest rates of 4.7%. The second loan, in the
amount of $5.9 million, is from the state of New Jersey, acting through
the New Jersey Department of Environmental Protection, funded by federal
monies at no interest cost. The effective interest rate for the combined
notes is approximately 2.60%.
E'town's senior debt is currently rated A3 and A- and Elizabethtown's
senior debt is currently rated A3 and A by Moody's Investors Service and
Standard & Poor's Ratings Group, respectively.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISK
The Corporation is subject to the risk of fluctuating interest rates in
the normal course of business. The Corporation manages interest rates
through the use of fixed and, to a lesser extent, variable rate debt. A
hypothetical single percentage point change in interest rates for the
three months ended March 31, 1999 would result in a $.1 million change
in interest costs and earnings before tax related to short-term and
variable rate debt.
RESULTS OF OPERATIONS
Net Income for the three months ended March 31, 1999 was $6.3 million or
$.74 per share on a basic basis as compared to $4.2 million or $.52 per
share for the same period in 1998. Net income increased by $2.1 million
or $.24 per share due to an after-tax gain on the sale of a real estate
parcel. Net income, as a result of continuing operations, remained
relatively constant between the first quarter of 1999 and the first
quarter of 1998. Revenues and expenses increased in 1999 due to the
operations of Liberty and AWM which were formed in the second quarter of
1998.
Operating Revenues increased $4.2 million or 13.5% for the three months
ended March 31, 1999 compared to the same period in 1998. The increase
resulted primarily from revenues of Liberty and AWM which began
operations in July and June 1998, respectively. These new operations
contributed $2.2 million (for Liberty) and $1.6 million (for AWM), net
of $1.2 million of intercompany sales/expenses, for the quarter.
-20-
<PAGE>
Operation Expenses increased $3.4 million or 30.6% for the three months
ended March 31, 1999 compared to the same period in 1998. The increase
was primarily due to the inclusion of the operation expenses of Liberty
and AWM in E'town's consolidated financial results. This contributed $.9
million (for Liberty) and $1.2 million (for AWM), net of $1.2 million of
intercompany sales, for the quarter. Elizabethtown's operation expenses
increased $.9 million for the quarter primarily due to additional labor
costs for additional employees and increased overtime. Mount Holly's
operation costs increased $.3 million primarily due to the cost, which
is reflected in utility rates under the PWAC, of purchasing water from
another purveyor as discussed above. All other E'town operation expenses
combined changed only moderately.
Maintenance Expenses increased less than $.1 million or 2.5% for the
three months ended March 31, 1999 over the comparable period in 1998.
These increases are due to the operations of Liberty and Edison Water
Companies. Maintenance costs remained relatively constant due to ongoing
preventive maintenance programs and cost control efforts.
Depreciation and Amortization Expense increased $.5 million or 16.3%
primarily due to the amortization of concession fees associated with the
contract to operate the water system of the city of Elizabeth, New
Jersey. Depreciation expense also increased due to a higher level of
depreciable plant in service.
Revenue Taxes decreased $.1 million or 2.8% for the three months ended
March 31, 1999 compared to the same period in 1998 primarily due to a
higher proportion of increased sales to exempt customers in the Service
to Other Systems revenue class than in other revenue classes.
Real Estate, Payroll and Other Taxes Expenses increased $.1 million or
17.0% for the three months ended March 31, 1999 compared to the same
period in 1998 primarily due to increased payroll taxes as a result of
higher wage levels and additional employees.
Federal Income Taxes as a component of operating expenses decreased less
than $.1 million or 1.1% for the three months ended March 31, 1999
compared to the same period in 1998 due to a small decline in taxable
income from operations.
Other Income (Expense) increased $2.2 million for the three months ended
March 31, 1999 compared to the same period in 1998 due to a sale of a
parcel of land in Green Brook, New Jersey at a gain of $3.2 million
($2.08 million after taxes). This increase was offset by an increase in
associated income taxes.
Total Interest Charges increased $.3 million or 6.3% % for the three
months ended March 31, 1999 compared to the same period in 1998 due
primarily to an increase in long-term interest expense as a result of
the issuance of long-term notes through the New Jersey Environmental
Infrastructure Trust Financing Program to finance the construction of
the Mansfield Project.
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.
-21-
<PAGE>
E'town Corporation and Subsidiaries
During the next several years, management will seek to increase earnings
per share by (I) maximizing earned returns on the Regulated Utilities
segment through expansion efforts to increase sales and cost control
measures and (ii) investing in water and wastewater assets (including
municipal privatization contracts, as well as designing, constructing,
operating and purchasing wastewater assets through AWM and AWWM,
discussed below) which produce a current return. The Corporation intends
to continue to sell Properties' real estate holdings during the next
several years to fund a portion of the investment planned for the
regulated and non-regulated businesses. The balance of such funding will
be generated from internal and external sources.
Earnings per share will vary going forward due to the effect of weather
on costs and pumpage, timing and adequacy of rate relief, time elapsed
since the last rate increase, the nonrecurring effect of real estate
sales and other factors. For 1999 E'town expects consolidated earnings
per share to be similar to 1998, based on somewhat reduced returns from
the regulated operations, assuming a return to normal weather patterns
after the unusually dry summers in 1998 and 1997, to be offset by the
gain on the sale of a parcel of land located in Green Brook, New Jersey
in February 1999 of $2.08 million or $.24 per share. In particular,
Elizabethtown's returns should be somewhat lower in 1999 given that this
year will be the third year since the last rate adjustment.
Regulated Utilities Segment
Elizabethtown, Mount Holly and AWWM
Elizabethtown expects to petition the BPU for an increase in rates in
1999 to reflect the increases in construction, financing and operating
costs since base rates were last established in October 1996.
Mount Holly earned a rate of return on common equity of 4.7% in 1998,
compared to an authorized rate of return of 11.25%, established in its
most recent rate proceeding. Mount Holly contributed $.04 to E'town's
consolidated earnings per share in 1998. Management expects Mount Holly
to increase its contribution to E'town's earnings per share later in
1999 and into 2000 upon receipt of additional rate relief from the rate
increase filed in January 1999, so that Mount Holly can realize rates of
return comparable to authorized levels. Mount Holly earned significantly
below its authorized return in 1998 and 1997 as the Company was
precluded from filing for needed rate relief due to recently settled
litigation with another purveyor.
AWWM expects to realize rates of return comparable to those earned by
Elizabethtown on its anticipated investments of $16.4 million in new
wastewater facilities during the next several years.
Contract Operations Segment
Liberty
Effective July 1, 1998, E'town, through its Liberty Water Company
subsidiary, commenced operation of the 17,900 customer water supply
system of the city of Elizabeth under a 40-year contract. Liberty is
expected to realize a return on its capital in an amount similar to that
currently earned by E'town's regulated operations.
-22-
<PAGE>
Edison
Effective July 1, 1997, E'town, through its Edison Water Company
subsidiary, commenced operation of Edison Township's 11,600-customer
water system under a 20-year contract. Edison is expected to realize a
return on its capital in an amount similar to that currently earned by
E'town's regulated operations. Contributions to earnings will be small
through 2002 and then will increase as rate increases specified in the
contract take effect.
E'town continues to pursue opportunities to operate municipal water and
wastewater systems under long-term contracts, primarily in New Jersey.
E'town will focus on opportunities where it may have an advantage due to
location or experience in operation.
Engineering/Operations/Construction
AWM
AWM provides "one-stop shopping" for water and wastewater services to
residential and commercial developers. These services include the
design, construction and operation of water and wastewater facilities
and, in some instances, purchase of such utilities at project build-out
by AWWM, thereby adding to E'town's regulated utility customer base.
E'town expects the
acquisition to increase its contribution to E'town's earnings per share
in 1999.
Financing and Investment Segment
E'town and Properties
E'town is in the process of selling its various parcels of undeveloped
land carried as investments of $9.3 million at March 31, 1999. 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 a gain of less than $.1 million. In February
1999 Properties sold a parcel of land, which had been under contract
since 1995 in Green Brook, New Jersey for $5.83 million, at a gain of
$2.08 million, net of income taxes, or $.24 per share. Cash proceeds
from this sale, of $1.5 million, were received in February 1999 and the
remaining $4.33 million will be paid over the next two years. Properties
has entered into contracts for the sale of all of its remaining parcels
at prices that exceed the carrying cost of such properties. The eventual
sale of these parcels is contingent upon the purchaser obtaining various
approvals for development and could take several years. E'town expects
to invest the sale proceeds from the remaining parcels into water and
wastewater utility investments that produce a current return. The
Corporation has no plans to make additional investments other than in
water and wastewater projects.
New Accounting Pronouncements
See Note 2 of E'town's Notes to Consolidated Financial Statements for a
discussion of new accounting standards.
Year 2000
State of Readiness
The Corporation has assessed its significant business systems, as well
as non-critical, peripheral support systems for compliance with the Year
2000 computer challenge. 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. The
assessment also included inquiries as to the state of readiness of
significant vendors whose services to the Corporation could have an
impact on the Corporation's ability to deliver service to its customers.
Management concluded that the delivery of electric power as well as
chemicals used in the water treatment process are two areas of
significant importance and received documentation from the vendors who
provide these services that indicates their ability to provide service.
Therefore, the Corporation expects no disruption in the services it
provides to its customers and expects to process transactions in its
financial, customer billing and customer services systems. The
assessment did identify certain peripheral support systems that need to
be addressed. A plan to address these issues has been developed and is
being implemented.
-23-
<PAGE>
The Costs To Address The Corporation's Year 2000 Issues
The significant business systems of the Corporation defined above are
Year 2000 compliant and have been operational for up to several years.
Therefore, no further costs are expected to be incurred in connection
with bringing these systems into compliance. The peripheral support
systems that are being addressed will require the Corporation to incur
costs to bring them into compliance. The present estimates place the
total of these costs at less than $.2 million.
Risks Associated With The Corporation's Year 2000 Issues
Management believes that all identifiable issues with respect to Year
2000 compliance have been addressed, or will be addressed, in sufficient
time and in sufficient detail to preclude any disruption in service or
adverse effect on the Corporation's financial profile. Management,
therefore, believes that risks associated with this issue are minimal
with respect to those areas, which are internal to the Corporation and
over which management exercises control. Those areas that are external
to the Corporation i.e., issues associated with our vendors, have been
mitigated to the extent possible through inquiry of our vendors, tests
of their claims of Year 2000 compliance and development of contingency
plans as considered appropriate.
Contingency Plan
There are operational contingency plans in place on an ongoing basis to
address issues, such as natural disasters, that could result in a
disruption of service. These procedures would be activated in the event
that certain physical facilities were not operable as a result of
failures by our vendors associated with Year 2000 issues. In addition,
Elizabethtown Water Company has alternative electric, natural gas and
diesel generation capacity that could sustain a significant level of
pumping capacity for an indefinite period of time.
-24-
<PAGE>
PART II - OTHER INFORMATION
Items 1 - 5:
Nothing to Report.
Item 6(a) - Exhibits
Exhibits to Part I:
Exhibit 10(o) - E'town Corporation & Subsidiaries - Form of Amended
and Restated Change in Control Agreement for certain
officers of E'town and Affiliated Companies
Exhibit 10(p) - E'town Corporation & Subsidiaries - Amendments to
Change in Control Agreement for Andrew M. Chapman
Exhibit 10(q) - E'town Corporation & Subsidiaries - Amendments to
Change in Control Agreement for Anne E. Estabrook
Exhibit 12 - E'town Corporation and Subsidiaries - Computation of
Ratio of Earnings to Fixed Charges
Exhibit 12(a) - Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges
Exhibit 12(b) - Elizabethtown Water Company - Computation of Ratio of
Earnings to Fixed Charges and Preferred Dividends
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
-25-
<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: May 13, 1999
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
/s/ Gail P. Brady
________________________________
Gail P. Brady
Treasurer
/s/ Dennis W. Doll
________________________________
Dennis W. Doll
Controller
-26-
Exhibit 10(O)
AMENDED AND RESTATED AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT is dated and entered into
effective as of the 20th day of August, 1998 by and between E'Town
Corporation, a New Jersey corporation (together with its affiliated
companies, the "Company"), and XXXXXXXXXXXXX, residing at XXXXXXXXXXXXX (the
"Executive").
W I T N E S S E T H:
WHEREAS, subsequent to the execution and delivery of the original
of this Agreement, dated and entered into effective as of the 20th day of
August, 1998, the parties hereto have agreed to make several clarifications
to the terms and conditions of this Agreement, as are reflected herein, and
to restate this Agreement in its entirety; and
WHEREAS, should the Company receive a proposal from or engage in
discussions with a third person concerning a possible business combination
with the Company or the acquisition of a substantial portion of voting
securities of the Company, the Board of Directors of the Company (the
"Board") has deemed it imperative that it and the Company be able to rely on
the Executive to continue to serve in the Executive's position and that the
Board and the Company be able to rely upon the Executive's advice as being in
the best interests of the Company and its shareholders without concern that
the Executive might be distracted by the personal uncertainties and risks
that such a proposal or discussions might otherwise create; and
WHEREAS, the Company desires to reward the Executive for the
Executive's valuable, dedicated service to the Company should the Executive's
service be terminated under circumstances hereinafter described; and
WHEREAS, the Board therefore considers it in the best interests of
the Company and its shareholders for the Company to enter into this Agreement
with the Executive; and
WHEREAS, the Board has approved the execution and delivery of this
Agreement by the Company by resolution duly adopted by the Board at a meeting
of the Board held on August 20, 1998;
NOW, THEREFORE, to assure the Company of the Executive's continued
dedication and the availability of the Executive's advice and counsel in the
event of any such proposal, to induce the Executive to remain in the employ
of the Company and to reward the Executive for the Executive's valuable,
dedicated service to the Company should the Executive's service be terminated
under circumstances hereinafter described, and for other good and valuable
consideration, the receipt and adequacy whereof each party acknowledges, the
Company and the Executive agree as follows:
1. OPERATION, EFFECTIVE DATE, AND TERM OF AGREEMENT.
(a) This Agreement shall commence on the date hereof and continue
in effect through December 31, 1999; provided, however, that commencing on
January 1, 2000 and each succeeding January 1 thereafter, the term of this
Agreement shall be extended automatically for one additional year unless not
later than September 30 of the preceding year the Company shall have given
notice to the Executive that it does not wish to extend this Agreement.
(b) This Agreement is effective and binding on both parties hereto
as of the date hereof. Notwithstanding its present effectiveness, the
provisions of paragraphs 3 and 4 of this Agreement shall become operative
only when, as and if there has been a "Change in Control of the Company" (as
hereinafter defined). For purposes of this Agreement, a "Change in Control
of the Company" shall be deemed to have occurred if
(X) 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")), other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company or a
person engaging in a transaction of the type described in clause
(Z) below of this paragraph 1(b) but which does not constitute a
change in control under such clause (Z), hereafter becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing more than 50% of the combined voting power of the
Company's then outstanding securities; or
(Y) 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 Company to effect a transaction described in
clauses (X) or (Z) of this paragraph 1(b)) whose election by the
Board, or nomination for election by the Company'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 thereof; or
(Z) the shareholders of the Company approve or, if no
shareholder approval is required or obtained, the Company
completes, a merger, consolidation or similar transaction of the
Company with or into any other corporation, or a binding share
exchange involving the Company's securities, other than any such
transaction which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity) at least 50% of the
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such
transaction, or the shareholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the
Company's assets.
2. EMPLOYMENT OF EXECUTIVE.
Nothing herein shall affect any right which the Executive or the
Company may otherwise have to terminate the Executive's employment by the
Company at any time in any lawful manner, subject always to the Company's
providing to the Executive the payments and benefits specified in paragraphs
3 and 4 of this Agreement to the extent hereinbelow provided.
In the event that any person commences a tender or exchange offer,
circulates a proxy statement to the Company's shareholders or takes other
steps designed to effect a Change in Control of the Company as defined in
paragraph 1 of this Agreement, the Executive agrees that the Executive will
not voluntarily leave the employ of the Company and will continue to perform
the Executive's regular duties and to render the services provided by the
Executive to the Company until such person has abandoned or terminated his
efforts to effect a Change in Control of the Company or until a Change in
Control of the Company has occurred. Should the Executive voluntarily
terminate the Executive's employment before any such effort to effect a
Change in Control of the Company has commenced, or after any such effort has
been abandoned or terminated without effecting a Change in Control of the
Company and no such effort is then in process, this Agreement shall
automatically terminate and be of no further force or effect.
3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If any of the events described in paragraph 1 hereof
constituting a Change in Control of the Company shall have occurred, the
Executive shall be entitled to the payments and benefits provided in
paragraph 4 hereof upon the subsequent termination of the Executive's
employment within the applicable period set forth in paragraph 4 hereof
following such Change in Control of the Company unless such termination is
(i) due to the Executive's death; or (ii) by the Company by reason of the
Executive's Disability (as hereinafter defined) or for Cause (as hereinafter
defined); or (iii) by the Executive other than for Good Reason (as
hereinafter defined).
(b) If, following a Change in Control of the Company, the
Executive's employment is terminated by reason of the Executive's death or
Disability, the Executive shall be entitled to death or long-term disability
benefits, as the case may be, from the Company no less favorable than the
maximum benefits to which the Executive would have been entitled had the
death or termination for Disability occurred at any time during the six month
period prior to the Change in Control of the Company. If prior to any such
termination for Disability, the Executive fails to perform the Executive's
duties as a result of incapacity due to physical or mental illness, the
Executive shall continue to receive the Executive's Salary (as hereinafter
defined), less any benefits as may be available to the Executive under the
Company's disability plans until the Executive's employment is terminated for
Disability.
(c) If the Executive's employment shall be terminated by the
Company for Cause or by the Executive other than for Good Reason, the Company
shall pay to the Executive the Executive's full Salary through the Date of
Termination (as hereinafter defined) at the rate in effect at the time Notice
of Termination is given, and the Company shall have no further obligations to
the Executive under this Agreement.
(d) For purposes of this Agreement:
(i) "Disability" shall mean the Executive's incapacity due to
physical or mental illness such that the Executive shall
have become qualified to receive benefits under the
Company's long-term disability plans or any equivalent
coverage required to be provided to the Executive
pursuant to any other plan or agreement, whichever is
applicable.
(ii) "Cause" shall mean:
(A) the conviction of the Executive for a felony, or the
willful commission by the Executive of a criminal or
other act that in the judgment of the Board causes
or will probably cause substantial economic damage
to the Company or substantial injury to the business
reputation of the Company;
(B) the commission by the Executive of an act of fraud
in the performance of such Executive's duties on
behalf of the Company that causes or will probably
cause economic damage to the Company; or
(C) the continuing willful failure of the Executive to
perform the Executive's duties, as such duties were
performed by the Executive prior to the day of the
Change in Control of the Company (other than any
such failure resulting from the Executive's
incapacity due to physical or mental illness) after
written notice thereof (specifying the particulars
thereof in reasonable detail) and a reasonable
opportunity to be heard and cure such failure are
given to the Executive by the Compensation Committee
of the Board.
For purposes of this subparagraph (d)(ii), no act, or failure to
act, on the Executive's part shall be considered "willful" unless done, or
omitted to be done, by the Executive not in good faith and without reasonable
belief that the Executive's action or omission was in the best interests of
the Company.
(iii)"Good Reason" shall mean:
(A) The assignment by the Company to the Executive of
duties without the Executive's express written
consent, which (i) are materially different or
require travel significantly more time consuming or
extensive than the Executive's duties or business
travel obligations immediately prior to the Change
in Control of the Company, or (ii) result in either
a significant reduction in the Executive's authority
and responsibility as a senior corporate executive
of the Company when compared to the highest level of
authority and responsibility assigned to the
Executive at any time during the six (6) month
period prior to the Change in Control of the
Company, or (iii) the removal of the Executive from,
or any failure to reappoint or reelect the Executive
to, the highest title held since the date six (6)
months before the Change in Control of the Company,
except in connection with a termination of the
Executive's employment by the Company for Cause, or
by reason of the Executive's death or Disability;
(B) A reduction by the Company of the Executive's
Salary, or the failure to grant increases in the
Executive's Salary on a basis at least substantially
comparable to those granted generally to other
executives of the Company of comparable title,
salary and performance ratings, made in good faith;
(C) The relocation of the Company's principal executive
offices to a location outside the State of New
Jersey, or a requirement by the Company that the
Executive relocate (except for required travel on
the Company's business to an extent substantially
consistent with the Executive's business travel
obligations immediately prior to the Change in
Control) (i) to a location which is outside a radius
of one hundred (100) miles from the Executive's
place of employment with the Company immediately
prior to the Change in Control, or (ii) to a
location outside the State of New Jersey; or, in the
event the Executive expressly consents in writing to
any such relocation of the Executive outside such
one hundred mile radius or the State of New Jersey,
the failure by the Company to pay (or reimburse the
Executive for) all reasonable moving expenses
incurred by the Executive relating to a change of
principal residence in connection with such
relocation and to indemnify the Executive against
any loss realized in the sale of the Executive's
principal residence in connection with any such
change of residence, all to the effect that the
Executive shall incur no loss upon such sale on an
after tax basis;
(D) The failure by the Company to continue to provide
the Executive with substantially the same welfare
benefits (which for purposes of this Agreement shall
mean benefits under all welfare plans as that term
is defined in Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended),
and perquisites, including participation on a
comparable basis in the Company's stock option plan,
incentive bonus plan and any other plan in which
executives of the Company of comparable title and
salary or subject to similar performance criteria
participate and as were provided to the Executive
immediately prior to such Change in Control of the
Company, or with a new package of welfare benefits
and perquisites that is substantially comparable in
all material respects to the welfare benefits and
perquisites as were provided to the Executive
immediately prior to such Change in Control; or
(E) The failure of the Company to obtain the express
written assumption of and agreement to perform this
Agreement by any successor as contemplated in
paragraph 5(c) hereof.
(iv) "Dispute" shall mean (i) in the case of termination of
employment of the Executive with the Company by the
Company for Disability or Cause, that the Executive
challenges the existence of Disability or Cause and (ii)
in the case of the Executive's termination of employment
with the Company by the Executive for Good Reason, that
the Company challenges the existence of Good Reason.
(v) "Salary" shall mean the Executive's then current annual
rate of salary plus any of the following amounts which
are not included in the Executive's annual salary as
reported on the Executive's United States Internal
Revenue Service Form W-2 ("Form W-2"): (i) any restricted
stock of the Company awarded to the Executive, or which
the Executive is entitled to receive under any plan,
arrangement or contract of the Company or pursuant to any
resolution of the Board, in lieu of base compensation,
(ii) any 401(K) compensation, and (iii) any compensation
deferred in accordance with Section 125 of the United
States Internal Revenue Code of 1986, as amended and the
regulations thereunder (the "Code").
(vi) "Incentive Compensation" in any year shall mean the
amount accrued, if any, under any plan or arrangement of
the Company in which executives of the Company of
comparable title and salary or being subject to
comparable performance criteria participate, or any under
contract between the Company and the Executive, in each
case which provides for any cash bonus, restricted stock,
stock option, stock award or similar incentive
compensation in addition to base salary and which is not
reported on Form W-2.
(e) Any purported termination of the Executive's employment by the
Company by reason of the Executive's Disability or for Cause, or by the
Executive for Good Reason shall be communicated by written Notice of
Termination (as hereinafter defined) to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a notice given by the
Executive or the Company, as the case may be, which shall indicate the
specific basis for termination and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for determination of any
payments due under this Agreement. The Executive shall not be entitled to
give a Notice of Termination that the Executive is terminating the
Executive's employment with the Company for Good Reason more than six (6)
months following the occurrence of the event alleged to constitute Good
Reason. The Executive's actual employment by the Company shall cease on the
Date of Termination, even though such Date of Termination for all other
purposes of this Agreement may be extended in the manner contemplated in the
second sentence of paragraph 3(f) below.
(f) For purposes of this Agreement, the "Date of Termination"
shall mean (i) the date specified in the Notice of Termination, which shall
be not more than ninety (90) days after such Notice of Termination is given,
as such date may be modified pursuant to the next sentence, or (ii) in the
event that no Notice of Termination is given, on the date that the
Executive's employment with the Company actually terminated. If within thirty
(30) days after any Notice of Termination is given, the party who receives
such Notice of Termination notifies the other party that a Dispute exists,
the Date of Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected);
provided, that the Date of Termination shall be extended by a notice of
Dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such Dispute with reasonable diligence and
provided further that, pending the resolution of any such Dispute, the
Company shall continue to pay the Executive the same Salary and Incentive
Compensation, and provide the Executive with the same or substantially
comparable welfare benefits and perquisites that the Executive was paid and
provided immediately prior to the Change in Control of the Company. Should a
Dispute ultimately be determined in favor of the Company, then all sums paid
by the Company to the Executive from the Date of Termination specified in the
Notice of Termination until final resolution of the Dispute pursuant to this
paragraph 3(f) shall be repaid promptly by the Executive to the Company, with
interest at the average prime rate generally prevailing from time to time
among major New York City banks and all options, rights and stock awards
granted to the Executive during such period shall be canceled or returned to
the Company. The Executive shall not be obligated to pay to the Company the
cost of providing the Executive with welfare benefits and perquisites for
such period unless the final judgment, order or decree of a court or other
body resolving the Dispute determines that the Executive acted in bad faith
in giving a notice of Dispute. Should a Dispute ultimately be determined in
favor of the Executive, then the Executive shall be entitled to retain all
sums paid to the Executive under this paragraph 3(f) pending resolution of
the Dispute and shall be entitled to receive, in addition, the payments and
other benefits provided for in paragraph 4 hereof to the extent not
previously paid hereunder. In addition, should a Dispute, or any other
challenge, claim, action, proceeding or dispute brought by the Executive
against the Company with respect to this Agreement, ultimately be determined
in favor of the Executive, then the Company shall reimburse the Executive for
all costs and expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Executive in connection therewith.
4. PAYMENTS UPON TERMINATION.
If within three (3) years after a Change in Control of the Company,
the Company shall terminate the Executive's employment other than by reason
of the Executive's death, Disability or for Cause, or if the Executive shall
terminate the Executive's employment for Good Reason, then
(a) the Company will continue to pay to the Executive, for a
period of eighteen (18) months following the Date of Termination, as
compensation for services rendered by the Executive on or before the
Executive's Date of Termination, the Executive's Salary and Incentive
Compensation (subject to any applicable payroll taxes or other taxes required
to be withheld computed at the rate for supplemental payments) at the highest
rate in effect during the twenty-four (24) month period ending on the date on
which a Change in Control of the Company occurred; and
(b) for a period of eighteen (18) months following the Date of
Termination, the Company shall provide, at the Company's expense, the
Executive and the Executive's spouse and children with full benefits under
any employee benefit plan or arrangement in which the Executive participated
immediately prior to the date of a Change in Control, including, without
limitation, any hospital, medical and dental insurance with substantially the
same coverage and benefits as were provided to the Executive immediately
prior to the date on which a Change in Control of the Company occurred; and
(c) the Company will pay on the Date of Termination of the
Executive as compensation for services rendered on or before the Executive's
Date of Termination, in addition to the amounts set forth in paragraph 4(a)
above, a sum equal to the greater of (i) all Incentive Compensation and other
incentive awards due to the Executive immediately prior to the date on which
a Change in Control of the Company occurred which are not yet paid and (ii)
all Incentive Compensation and other incentive awards due to the Executive
immediately prior to the Date of Termination which are not yet paid; and
(d) for a period of eighteen (18) months following the Date of
Termination, the Company shall provide to the Executive, at the Company's
expense, the automobile (or a comparable automobile) or automobile allowance,
as the case may be, provided by the Company to the Executive immediately
prior to the date on which a Change in Control of the Company occurred and
the Company shall reimburse the Executive any and all expenses incurred by
the Executive in connection with the use of such automobile during such
eighteen month period to the extent that the Company reimburses generally
other executives of comparable title and salary or subject to comparable
performance criteria; and
(e) subject to the limitations set forth herein, any restricted
stock of the Company in the Executive's account as an officer of the Company
and any stock options granted to the Executive on or prior to the Date of
Termination which are not vested in the Executive as of the Date of
Termination shall become immediately vested, and all such restrictions
thereon (including, but not limited to, any restrictions on the
transferability of such stock), and any restrictions on any other restricted
stock or stock options awarded to the Executive through any plan, arrangement
or contract of the Company on or before the Date of Termination, shall be
null and void and of no further force and effect and the Company agrees to
accelerate and make immediately exercisable in full all unmatured
installments of all outstanding stock options to acquire stock of the Company
which the Executive holds as of the Date of Termination; provided, however,
that notwithstanding anything to the contrary contained in this Agreement,
the Board hereby reserves the right and authority to amend, modify and
eliminate the provisions of this Section 4(e), from time to time on or after
the date of this Agreement, in whole or in part, including, without
limitation, the right to modify, amend or eliminate the acceleration of
vesting or exercisability of stock options and the lapsing of any
restrictions thereon, in its sole discretion without the approval or consent
of the Executive or any other person or entity, for the purposes of obtaining
accounting treatment which is favorable or beneficial for, or in the interest
of, the Company in connection with any business combination involving the
Company or acquisition of any substantial portion of voting securities of the
Company and, in the event that the Board determines, in its sole discretion,
to so modify, amend or eliminate the provisions of this Section 4(e), the
Executive hereby agrees that the Executive shall not, and hereby waives any
right to, dispute, challenge or bring any claim, action or proceeding against
the Company with respect to any action taken by or on behalf of the Company
to so modify, amend or eliminate the provisions of this Section 4(e) and any
such modification, amendment, or elimination of the provisions of this
Section 4(e) shall not affect the validity or enforceability of any other
provisions of this Agreement, which such other provisions shall remain in
full force and effect in accordance with the terms thereof; and
(f) the Executive's retirement benefits in effect immediately
prior to the date on which a Change in Control of the Company occurred under
the Company's Supplemental Executive Retirement Plan, or any successor plan
in effect on the date on which a Change in Control of the Company occurred
(the "SERP"), shall become fully vested and nonforfeitable on the Date of
Termination and (i) if the Executive has not attained the age of 65 as of the
Date of Termination, the Executive shall be deemed to have attained the age
of 65 as of the Date of Termination for purposes of the normal retirement
provisions of the SERP, and (ii) the Executive shall be deemed to have
accumulated ten (10) years of continuous service on the Date of Termination
for purposes of the benefit accrual provisions of the SERP, in addition to
the number of years of service already accumulated by the Executive as of the
Date of Termination. In satisfaction of the Company's obligations under this
paragraph 4(f), the Company shall purchase an annuity or similar instrument
owned by the Executive and payable to the Executive (or the Executive's
beneficiaries, as the case may be) which provides for payment of the SERP
retirement benefits consistent with the payment provisions of the SERP. Such
annuity or other instrument shall be purchased and delivered to the Executive
by the Company within thirty (30) days after the Date of Termination; and
(g) in event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control of the
Company or the termination of the Executive's employment, whether pursuant to
the terms of this Agreement or any other plan, arrangement or agreement with
the Company (collectively, with the payments and benefits hereunder, "Total
Payments") would not be deductible as employee compensation, in whole or in
part, by the Company as the result of Section 280G of the Code, the Company
shall pay to the Executive either of the following amounts as directed by the
Executive by written notice to the Company (i) an amount equal to the
payments and benefits due under this Agreement reduced until no portion of
the Total Payments is not deductible, as the result of Section 280G of the
Code, by reducing to the extent necessary the payments and benefits due under
paragraph 3(a) hereof (the "Reduced Amount"); provided, however, that the
Executive shall elect which payment and/or benefits shall be reduced and the
amount of such reduction so long as, after such reduction, the aggregate
present value of the Total Payments equals the Reduced Amount, or (ii) the
payments and benefits due under this Agreement in accordance with the terms
and conditions of this Agreement; it being the understanding and agreement of
each of the Company and the Executive that, if the Executive makes the
election under clause (ii) of this paragraph 4(g), the Executive shall be
responsible to pay the amount of any federal, state and local income taxes
and any excise tax imposed by Section 4999 of the Code on such payments and
benefits due under paragraph 3(a) of this Agreement (the "Excise Tax"), that
the Company shall have no obligation to pay to the Executive any additional
payment for such Excise Tax, if any, and that the Executive shall have no
liability or responsibility to reimburse the Company for any losses incurred
by the Company as a result of the Company's inability to deduct such payment,
in whole or in part, as the result of Section 280G of the Code. For purposes
of this limitation (A) no portion of the Total Payments, the receipt or
enjoyment of which the Executive shall have effectively waived in writing
prior to the date of payment, shall be taken into account, (B) no portion of
the Total Payments shall be taken into account which, in the opinion of tax
counsel selected by the Executive and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code, and (C) the value of any non-cash
benefit or any deferred payment or benefit included in the Total Payments
shall be determined by the Company's independent auditors in accordance with
the principles of Sections 280G(d)(3) and (4) of the Code. The Company and
the Executive each shall reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the existence or
amount of liability for any Excise Tax with respect to the payments and
benefits due under this Agreement. As promptly as practicable following such
determination and the elections hereunder, the Company shall pay or
distribute to or for the benefit of the Executive such payments and benefits
as are then due to the Executive under this Agreement and shall promptly pay
or distribute to or for the benefit of the Executive in the future such
payments and benefits as become due to the Executive under this Agreement.
In the event that an underpayment of payments and benefits due to the
Executive under this Agreement occurs as a result of a miscalculation of the
Total Payments as a "parachute payment" within the meaning of Section 280G of
the Code, such underpayment shall be paid promptly by the Company to or for
the benefit of the Executive, together with interest at the applicable
federal rate provided for in Section 7872(f)(2)(A) of the Code. The Company
shall pay or distribute to or for the benefit of the Executive such payments
and benefits as are then due to the Executive under this Agreement even if
the Company is unable to deduct any portion of such payment and benefits as
the result of Section 280G of the Code.
5. GENERAL.
(a) The Executive shall retain in confidence any proprietary or
other confidential information known to the Executive concerning the Company
and its business so long as such information is not publicly disclosed and
disclosure is not required by an order of any governmental body or court.
Notwithstanding anything to the contrary contained herein, this paragraph
5(a) shall survive any expiration or termination of this Agreement for any
reason whatsoever.
(b) Subject to paragraph 5(f) below, the Company's obligation to
pay the compensation and provide the benefits to the Executive and to make
the arrangements provided herein shall be absolute and unconditional and
shall not be affected by any circumstance, including, without limitation, any
setoff, counterclaim, recoupment, defense or other right which the Company
may have against the Executive or anyone else. All amounts payable by the
Company hereunder shall be paid without notice or demand. Except as
expressly provided herein, the Company waives all rights which it may now
have or may hereafter have conferred upon it, by statute or otherwise, to
terminate, cancel or rescind this Agreement in whole or in part. Except as
provided in paragraph 5(f) herein, each and every payment made hereunder by
the Company shall be final and the Company will not seek to recover for any
reason all or any part of such payment from the Executive or any person
entitled thereto.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by written
agreement in form and substance satisfactory to the Executive, to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which executes and delivers the agreement provided for in this
paragraph 5 or which otherwise becomes bound by all the terms and provisions
of this Agreement by operation of law.
(d) This Agreement shall inure to the benefit of, and be
enforceable by, the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
the Executive should die while any amounts would still be payable to the
Executive hereunder if the Executive had continued to live, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms
of this Agreement to the Executive's devisee, legatee or other designee or,
if there be no such designee, to the Executive's estate. The obligations of
the Executive hereunder shall not be assignable by the Executive.
(e) Nothing in this Agreement shall be deemed to entitle the
Executive to continued employment with the Company and the rights of the
Company to terminate the employment of the Executive shall continue as fully
as though this Agreement were not in effect.
(f) The Executive shall be required to mitigate the amount of any
payment or other benefit provided for in this Agreement by seeking other
employment of similar responsibility, salary and benefits and, upon any such
employment of the Executive, the payments and other benefits provided for in
this Agreement then or thereafter due to the Executive (other than any
payments and benefits provided for in Section 4(f) above) shall be reduced or
modified, as applicable, to the extent the Executive receives a similar
payment or benefit of equal or greater value in connection with any such
other employment.
6. NOTICE.
For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
XXXXXXXXXXXX
If to the Company:
E'Town Corporation
600 South Avenue
Westfield, New Jersey 07090
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
7. MISCELLANEOUS.
Except as expressly set forth in this Agreement to the contrary, no
provisions of this Agreement may be modified, waived or discharged unless
such waiver, modification or discharge is agreed to in writing, signed by the
Executive and such officer as may be specifically designated by the Board.
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 party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. No assurances or representations, oral or otherwise, express or
implied, with respect to the subject matter hereof have been made by either
party which are not set forth expressly in this Agreement. However, this
Agreement is in addition to, and not in lieu of, any other plan providing for
payments to or benefits for the Executive or any agreement now existing, or
which hereafter may be entered into, between the Company and the Executive.
The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the State of New Jersey.
8. VALIDITY.
The invalidity or unenforceability of any provisions of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
Any provision in this Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective only to the
extent of such prohibition or unenforceability without invalidating or
affecting the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9. AMENDMENT TO SERP.
By execution and delivery of this Agreement, the Executive hereby
acknowledges that, on or before the date of this Agreement, the Executive has
received and has had an opportunity to read, and that the Executive
understands, the Amendment to the SERP (the "Amendment") and that the
amendments, modifications and supplements in and to the SERP set forth in the
Amendment are in the best interests of the Executive and are necessary and
appropriate to conform the terms and conditions of the SERP to the terms and
conditions of this Agreement and the Executive hereby agrees to the
amendments, modifications and supplements in and to the provisions of the
SERP in accordance with the terms and conditions set forth in the Amendment to
be effective as of the date of this Agreement and that a copy of the
Amendment shall be attached as an exhibit to and incorporated by reference
into the SERP as of the date of this Agreement.
10. VARIANCE AMONG AGREEMENTS.
The Executive understands that the Company may enter into
agreements with other executives of the Company similar to this Agreement
that may contain terms different from those contained in this Agreement.
Despite any such different terms in such other agreements,
the Executive understands and agrees that this Agreement alone sets forth the
Executive's rights with respect to the subject matter of this Agreement, and
that the Executive is not a third party beneficiary of any such other
agreements.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
E'TOWN CORPORATION
By:
-------------------------------
Name:
Title:
EXECUTIVE
--------------------------------------
XXXXXXXXXXXX
Address: XXXXXXXXXXXXX
Recipients of the above contract:
Walter Braswell
Beth Gates
Edward Mullen
Gail Brady
Henry Patterson, III
James Cowley
Joseph Stroin
Norbert Wagner
Robert W. Kean, III
Dennis Doll
Exhibit 10(P)
AMENDMENT TO THE CHANGE IN CONTROL AGREEMENT
Dated April 21, 1994
by and between
ANDREW M. CHAPMAN
and
E'TOWN CORPORATION
This Amendment ("Amendment") to the Change In Control Agreement, dated
as of April 21, 1994 between ANDREW M. CHAPMAN (the "Executive") and E'TOWN
CORPORATION (the "Company"), is made effective as of this 18th day of March,
1999 by and between the Executive and the Company.
WITNESSETH:
WHEREAS, the board of directors (the "Board") of the Company has entered
into a Change in Control Agreement with the Executive, dated as of April 21,
1994 (the "Chapman Agreement"), which sets forth the terms and conditions
under which benefits and payments shall be made by the Company to the
Executive should the Company receive a proposal from or engage in discussions
with a third person concerning a possible business combination with the
Company or the acquisition of a substantial portion of voting securities of
the Company; and
WHEREAS, the Board, considering that it is imperative that it and the
Company be able to rely on certain of the other key executives of the Company
to continue to serve in their respective positions without concern that they
might be distracted by the personal uncertainties and risks that a proposal
or discussions concerning any such business combination or acquisition of
voting securities of the Company might otherwise create, has entered into
change in control agreements (collectively, the "Change in Control
Agreements") with such other key executives which set forth the terms and
conditions of benefits and payments to be made by the Company to such other
key executives upon any termination of their services in the event of a
change in control of the Company as defined in the Change in Control
Agreements; and
WHEREAS, the Board considers it in the best interests of the Company and
its shareholders that the Company amend, modify and supplement the Chapman
Agreement in order to conform certain of the terms and conditions of the
Chapman Agreement with certain of the terms and conditions of the Change in
Control Agreements, and to set forth such other terms and conditions of
benefits and payments to be made by the Company to the Executive as reward
for the valuable, dedicated service provided by the Executive to the Company
upon any termination of the Executive's services in the event of a change in
control of the Company as defined herein; and
WHEREAS, the Board has approved the execution and delivery of this
Amendment by the Company by resolution duly adopted by the Board at a meeting
of the Board held on March 18, 1999;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties
hereto, intending to be legally bound hereby, agree to amend the Chapman
Agreement as follows:
1. Paragraph 3 is amended by replacing Paragraph 3 in its entirety
with the following:
"3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If any of the events described in paragraph 1 hereof
constituting a Change in Control of the Company shall have
occurred, the Executive shall be entitled to the payments and
benefits provided in paragraph 4 hereof upon the subsequent
termination of the Executive's employment within the
applicable period set forth in paragraph 4 hereof following
such Change in Control of the Company unless such termination
is (i) due to the Executive's death; or (ii) by the Company
for Cause (as hereinafter defined); or (iii) by the Executive
other than for Good Reason (as hereinafter defined).
(b) If, following a Change in Control of the Company, the
Executive's employment is terminated by reason of the
Executive's death, the Executive shall be entitled to death
benefits from the Company no less favorable than the maximum
benefits to which the Executive would have been entitled had
the death occurred at any time during the six month period
prior to the Change in Control of the Company.
(c) If, following a Change in Control of the Company, the
Executive's employment is terminated by reason of the
Executive's Disability (as hereinafter defined), the Executive
shall be entitled to receive in one lump sum payment made
within thirty (30) days after the Date of Termination (as
hereinafter defined) an aggregate amount equal to the
difference between (i) the Maximum Disability Benefit (as
hereinafter defined), and (ii) the Total Payments (as
hereinafter defined). For purposes of this Agreement, the
term "Maximum Disability Benefit" shall be the greater of (A)
the long-term disability benefits due from the Company as of
the Date of Termination, or (B) the maximum long-term
disability benefits to which the Executive would have been
entitled had the Disability occurred at any time during the
six month period prior to the Change in Control of the
Company. If prior to any such termination for Disability, the
Executive fails to perform the Executive's duties as a result
of incapacity due to physical or mental illness, the Executive
shall continue to receive the Executive's Salary (as
hereinafter defined), less any benefits as may be available to
the Executive under the Company's disability plans, until the
Executive's employment is terminated for Disability.
(d) If the Executive's employment shall be terminated by the
Company for Cause or by the Executive other than for Good
Reason, the Company shall pay to the Executive the Executive's
full Salary through the Date of Termination at the rate in
effect at the time Notice of Termination is given, and the
Company shall have no further obligations to the Executive
under this Agreement.
(e) For purposes of this Agreement:
(i) "Disability" shall mean the Executive's incapacity
due to physical or mental illness such that the Executive
shall have become qualified to receive benefits under the
Company's long-term disability plans or any equivalent
coverage required to be provided to the Executive pursuant to
any other plan or agreement, whichever is applicable.
(ii) "Cause" shall mean:
(A) the conviction of the Executive for a felony,
or the willful commission by the Executive of a criminal
or other act that in the judgment of the Board causes or
will probably cause substantial economic damage to the
Company or substantial injury to the business reputation
of the Company;
(B) the commission by the Executive of an act of
fraud in the performance of such Executive's duties on
behalf of the Company that causes or will probably cause
economic damage to the Company; or
(C) the continuing willful failure of the Executive
to perform the Executive's duties, as such duties were
performed by the Executive prior to the day of the Change
in Control of the Company (other than any such failure
resulting from the Executive's incapacity due to physical
or mental illness) after written notice thereof
(specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such
failure are given to the Executive by the Compensation
Committee of the Board.
For purposes of this paragraph 3(e)(ii), no act, or
failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by the Executive
not in good faith and without reasonable belief that the
Executive's action or omission was in the best interests of
the Company.
(iii)"Good Reason" shall mean:
(A) The election by the Executive, exercised in his
sole discretion with or without cause by giving a Notice
of Termination to the Company within twelve (12) months
after the date on which a Change in Control of the
Company has occurred, to terminate the Executive's
services with the Company, unless the Executive shall
have received a Notice of Termination from the Company on
or prior to the date on which the Executive gives a
Notice of Termination to the Company which Notice of
Termination by the Company specifies that the Company has
terminated the Executive's employment with the Company
for Cause or by reason of the Executive's Disability;
(B) The assignment by the Company to the Executive
of duties without the Executive's express written
consent, which (i) are materially different or require
travel significantly more time consuming or extensive
than the Executive's duties or business travel
obligations immediately prior to the Change in Control of
the Company, or (ii) result in either a significant
reduction in the Executive's authority and responsibility
as a senior corporate executive of the Company when
compared to the highest level of authority and
responsibility assigned to the Executive at any time
during the six (6) month period prior to the Change in
Control of the Company, or (iii) the removal of the
Executive from, or any failure to reappoint or reelect
the Executive to, the highest title held since the date
six (6) months before the Change in Control of the
Company, except in connection with a termination of the
Executive's employment by the Company for Cause, or by
reason of the Executive's death or Disability;
(C) A change in the reporting obligations of the
Executive without the Executive's express written consent
unless, pursuant to such change, the Executive thereafter
shall report directly to the Board, or any of the
following officers ("Senior Officers") of the Company:
one or more Chairmen (or Vice Chairmen) of the Board, the
Chief Executive Officer, the President, or the Chief
Operating Officer (or other senior executive officer with
a title and responsibilities which are comparable to
those of a chief operating officer); provided, however,
that if the Company has a parent corporation (the
"Parent"), "Good Reason" under this paragraph
3(e)(iii)(C) shall mean a change in the reporting
obligations of the Executive without the Executive's
express written consent unless, pursuant to such change,
the Executive thereafter shall report directly to the
Board of Directors of such Parent or any Senior Officer
of such Parent;
(D) A reduction by the Company of the Executive's
Salary, or the failure to grant increases in the
Executive's Salary on a basis at least substantially
comparable to those granted generally to other executives
of the Company of comparable title, salary and
performance ratings, made in good faith;
(E) The relocation of the Company's principal
executive offices to a location outside the State of New
Jersey, or a requirement by the Company that the
Executive relocate (except for required travel on the
Company's business to an extent substantially consistent
with the Executive's business travel obligations
immediately prior to the Change in Control) (i) to a
location which is outside a radius of fifty (50) miles
from the Executive's place of employment with the Company
immediately prior to the Change in Control, or (ii) to a
location outside the State of New Jersey; or, in the
event the Executive expressly consents in writing to any
such relocation of the Executive outside such fifty mile
radius or the State of New Jersey, the failure by the
Company to pay (or reimburse the Executive for) all
reasonable moving expenses incurred by the Executive
relating to a change of principal residence in connection
with such relocation and to indemnify the Executive
against any loss realized in the sale of the Executive's
principal residence in connection with any such change of
residence, all to the effect that the Executive shall
incur no loss upon such sale on an after tax basis;
(F) The failure by the Company to continue to
provide the Executive with substantially the same welfare
benefits (which for purposes of this Agreement shall mean
benefits under all welfare plans as that term is defined
in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended), and perquisites,
including participation on a comparable basis in the
Company's stock option plan, incentive bonus plan and any
other plan in which executives of the Company of
comparable title and salary or subject to similar
performance criteria participate and as were provided to
the Executive immediately prior to such Change in Control
of the Company, or with a new package of welfare benefits
and perquisites that is substantially comparable in all
material respects to the welfare benefits and perquisites
as were provided to the Executive immediately prior to
such Change in Control; or
(G) The failure of the Company to obtain the
express written assumption of and agreement to perform
this Agreement by any successor as contemplated in
paragraph 5(c) hereof.
(iv) "Dispute" shall mean (i) in the case of termination
of employment of the Executive with the Company by the Company
for Disability or Cause, that the Executive challenges the
existence of Disability or Cause and (ii) in the case of the
Executive's termination of employment with the Company by the
Executive for Good Reason, that the Company challenges the
existence of Good Reason.
(v) "Salary" shall mean the Executive's then current
annual rate of salary plus any of the following amounts which
are not included in the Executive's annual salary as reported
on the Executive's United States Internal Revenue Service Form
W-2 ("Form W-2"): (i) any restricted stock of the Company
awarded to the Executive, or which the Executive is entitled
to receive under any plan, arrangement or contract of the
Company or pursuant to any resolution of the Board, in lieu of
base compensation, (ii) any 401(K) compensation, and (iii) any
compensation deferred in accordance with Section 125 of the
United States Internal Revenue Code of 1986, as amended and
the regulations thereunder (the "Code").
(vi) "Incentive Compensation" in any year shall mean the
amount accrued, if any, under any plan or arrangement of the
Company in which executives of the Company of comparable title
and salary or being subject to comparable performance criteria
participate, or any under contract between the Company and the
Executive, in each case which provides for any cash bonus,
restricted stock, stock option, stock award or similar
incentive compensation in addition to base salary and which is
not reported on Form W-2.
(f) Any purported termination of the Executive's employment
by the Company by reason of the Executive's Disability or for
Cause, or by the Executive for Good Reason shall be
communicated by written Notice of Termination (as hereinafter
defined) to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice given
by the Executive or the Company, as the case may be, which
shall indicate the specific basis for termination and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for determination of any payments
due under this Agreement. Except as provided in paragraph
3(e)(iii)(A) above, the Executive shall not be entitled to
give a Notice of Termination that the Executive is terminating
the Executive's employment with the Company for Good Reason
more than six (6) months following the occurrence of the event
alleged to constitute Good Reason. The Executive's actual
employment by the Company shall cease on the Date of
Termination, even though such Date of Termination for all
other purposes of this Agreement may be extended in the manner
contemplated in the second sentence of paragraph 3(g) below.
(g) For purposes of this Agreement, the "Date of Termination"
shall mean (i) the date specified in the Notice of
Termination, which shall be not more than ninety (90) days
after such Notice of Termination is given, as such date may be
modified pursuant to the next sentence, or (ii) in the event
that no Notice of Termination is given, on the date that the
Executive's employment with the Company actually terminated.
If within thirty (30) days after any Notice of Termination is
given, the party who receives such Notice of Termination
notifies the other party that a Dispute exists, the Date of
Termination shall be the date on which the Dispute is finally
determined, either by mutual written agreement of the parties
or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); provided, that
the Date of Termination shall be extended by a notice of
Dispute only if such notice is given in good faith and the
party giving such notice pursues the resolution of such
Dispute with reasonable diligence and provided further that,
pending the resolution of any such Dispute, the Company shall
continue to pay the Executive the same Salary and Incentive
Compensation, and provide the Executive with the same or
substantially comparable welfare benefits and perquisites that
the Executive was paid and provided immediately prior to the
Change in Control of the Company. Should a Dispute ultimately
be determined in favor of the Company, then all sums paid by
the Company to the Executive from the Date of Termination
specified in the Notice of Termination until final resolution
of the Dispute pursuant to this paragraph 3(g) shall be repaid
promptly by the Executive to the Company, with interest at the
average prime rate generally prevailing from time to time
among major New York City banks and all options, rights and
stock awards granted to the Executive during such period shall
be canceled or returned to the Company. The Executive shall
not be obligated to pay to the Company the cost of providing
the Executive with welfare benefits and perquisites for such
period unless the final judgment, order or decree of a court
or other body resolving the Dispute determines that the
Executive acted in bad faith in giving a notice of Dispute.
Should a Dispute ultimately be determined in favor of the
Executive, then the Executive shall be entitled to retain all
sums paid to the Executive under this paragraph 3(g) pending
resolution of the Dispute and shall be entitled to receive, in
addition, the payments and other benefits provided for in
paragraph 4 hereof to the extent not previously paid
hereunder. In addition, should a Dispute, or any other
challenge, claim, action, proceeding or dispute brought by the
Executive against the Company with respect to this Agreement,
ultimately be determined in favor of the Executive, then the
Company shall reimburse the Executive for all costs and
expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Executive in connection therewith."
2. Paragraph 4 is amended by replacing Paragraph 4 in its entirety
with the following:
"4. PAYMENTS UPON TERMINATION.
If within three (3) years after a Change in Control of
the Company, the Company shall terminate the Executive's
employment other than by reason of the Executive's death or
for Cause, or if the Executive shall terminate the Executive's
employment for Good Reason (other than Good Reason as set
forth in paragraph 3(e)(iii)(A) above) or, if within twelve
(12) months after a Change in Control of the Company, the
Executive shall terminate the Executive's employment for Good
Reason as set forth in paragraph 3(e)(iii)(A) above, then
(a) The Company will continue to pay to the Executive, for a
period of thirty (30) months following the Date of
Termination, as compensation for services rendered by the
Executive on or before the Executive's Date of Termination,
the Executive's Salary and Incentive Compensation (subject to
any applicable payroll taxes or other taxes required to be
withheld computed at the rate for supplemental payments) at
the highest rate in effect during the twenty-four (24) month
period ending on the date on which a Change in Control of the
Company occurred; and
(b) For a period of thirty (30) months following the Date of
Termination, the Company shall provide, at the Company's
expense, the Executive and the Executive's spouse and children
with full benefits under any employee benefit plan or
arrangement in which the Executive participated immediately
prior to the date of a Change in Control, including, without
limitation, any hospital, medical and dental insurance with
substantially the same coverage and benefits as were provided
to the Executive immediately prior to the date on which a
Change in Control of the Company occurred; and
(c) The Company will pay on the Date of Termination of the
Executive as compensation for services rendered on or before
the Executive's Date of Termination, in addition to the
amounts set forth in paragraph 4(a) above, an amount equal to
the sum of (i) all Incentive Compensation and other incentive
awards due to the Executive immediately prior to the date on
which a Change in Control of the Company occurred which are
not yet paid and (ii) all Incentive Compensation and other
incentive awards due to the Executive for the period between
the date on which a Change in Control of the Company occurred
and the Date of Termination which are not yet paid; and
(d) For a period of thirty (30) months following the Date of
Termination, the Company shall provide to the Executive, at
the Company's expense, the automobile (or a comparable
automobile) or automobile allowance, as the case may be,
provided by the Company to the Executive immediately prior to
the date on which a Change in Control of the Company occurred
and the Company shall reimburse the Executive any and all
expenses incurred by the Executive in connection with the use
of such automobile during such thirty month period to the
extent that the Company reimburses generally other executives
of comparable title and salary or subject to comparable
performance criteria; and
(e) Any restricted stock of the Company in the Executive's
account as an officer of the Company and any stock options
granted to the Executive on or prior to the Date of
Termination which are not vested in the Executive as of the
Date of Termination shall become immediately vested, and all
such restrictions thereon (including, but not limited to, any
restrictions on the transferability of such stock), and any
restrictions on any other restricted stock or stock options
awarded to the Executive through any plan, arrangement or
contract of the Company on or before the Date of Termination,
shall be null and void and of no further force and effect and
the Company agrees to accelerate and make immediately
exercisable in full all unmatured installments of all
outstanding stock options to acquire stock of the Company
which the Executive holds as of the Date of Termination; and
(f) The Executive's retirement benefits in effect immediately
prior to the date on which a Change in Control of the Company
occurred under the Company's Supplemental Executive Retirement
Plan, or any successor plan in effect on the date on which a
Change in Control of the Company occurred (the SERP), shall
become fully vested and nonforfeitable on the Date of
Termination and (i) if the Executive has not attained the age
of 65 as of the Date of Termination, the Executive shall be
deemed to have attained the age of 65 as of the Date of
Termination for purposes of the normal retirement provisions
of the SERP, and (ii) the Executive shall be deemed to have
accumulated fifteen (15) years of continuous service on the
Date of Termination for purposes of the benefit accrual
provisions of the SERP, in addition to the number of years of
service already accumulated by the Executive as of the Date of
Termination. In satisfaction of the Company's obligations
under this paragraph 4(f), at the option of the Executive, the
Company either shall (A) pay within thirty (30) days after the
Date of Termination, an amount equal to the present value of
the Executive's accrued SERP benefit under this paragraph
4(f), if any, utilizing the discount rate for calculating such
present value in accordance with this paragraph 4(f), or (ii)
purchase an annuity or similar instrument owned by the
Executive and payable to the Executive (or the Executive's
beneficiaries, as the case may be) which provides for payment
of the accrued SERP benefit under this paragraph 4(f)
consistent with the benefit payment provisions of the SERP.
Such annuity or other instrument, if so elected by the
Executive, shall be purchased and delivered to the Executive
by the Company within thirty (30) days after the Date of
Termination. For purposes of this Agreement, the discount
rate for calculating the present value of the Executive's
accrued SERP benefit under this paragraph 4(f) shall be equal
to the "discount rate" as defined in the Statement of
Financial Accounting Standards No. 87 published by the
Financial Accounting Standards Board, utilized for purposes of
the most recent audit disclosure relating to the Company's
tax-qualified defined benefit pension plan preceding the
Change in Control by the "enrolled actuary" (as defined in
Section 7701(a)(35) of the Code), who signed the Schedule B to
the most recent Internal Revenue Service Form 5500 relating to
the Company's tax-qualified defined benefit pension plan,
filed prior to the Change in Control; and
(g) In event that any payment or benefit received or to be
received by the Executive in connection with a Change in
Control of the Company or the termination of the Executive's
employment, whether pursuant to the terms of this Agreement or
any other plan, arrangement or agreement with the Company
(collectively, with the payments and benefits hereunder,
"Total Payments") are subject to tax imposed by Section 4999
of the Code (the "Excise Tax"), the Company shall pay to the
Executive an additional amount (the "Gross-Up Payment") such
that the net amount retained by the Executive after deduction
of any Excise Tax on the Total Payments and all federal, state
and local income taxes and Excise Tax upon such Gross-Up
Payment, shall be equal to the Total Payments. For purposes
of this paragraph 4(g) in determining the amount of Excise Tax
(A) no portion of the Total Payments, the receipt or enjoyment
of which the Executive shall have effectively waived in
writing prior to the date of payment, shall be taken into
account, (B) no portion of the Total Payments shall be taken
into account which, in the opinion of tax counsel selected by
the Executive and acceptable to the Company's independent
auditors, is not likely to constitute a "parachute payment"
within the meaning of Section 280G(b)(2) of the Code, and (C)
the value of any non-cash benefit or any deferred payment or
benefit included in the Total Payments shall be determined by
the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. For
purposes of determining the amount of the Gross-Up Payment,
the Executive shall be deemed to pay federal, state and local
income taxes at the highest marginal rate of income taxation
applicable to any individual residing in the jurisdiction in
which the Executive resides in the calendar year in which the
Gross-Up Payment is to be made. The Company and the Executive
each shall reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the
existence or amount of liability for any Excise Tax with
respect to the Total Payments. As promptly as practicable
following the determination of the Excise Tax imposed upon the
Total Payments, if any, the Company shall pay the Gross-Up
Payment as is then due to the Executive under this Agreement
and shall promptly pay or distribute to or for the benefit of
the Executive in the future such payments and benefits as they
become due to the Executive under this Agreement. In the
event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time
of termination of the Executive's employment, the Executive
shall repay to the Company, at the time that the amount of
such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction
(plus that portion of the Gross-Up Payment attributable to the
Excise Tax and federal, state and local income tax imposed on
the Gross-Up Payment being repaid by the Executive to the
extent that such repayment results in a reduction in Excise
Tax and/or federal, state or local income tax deduction) plus
interest on the amount of such repayment at the rate provided
in Section 1274(b)(2)(B) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into
account hereunder at the time of the termination of the
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company shall make an additional
Gross-Up Payment in respect of such excess (plus any interest,
penalties, or additions payable by the Executive with respect
to such excess) at the time that the amount of such excess is
finally determined. The Company shall pay or distribute to or
for the benefit of the Executive such payments and benefits as
are then due to the Executive under this Agreement even if the
Company is unable to deduct any portion of such payment and
benefits as a result of Section 280G of the Code and the
Executive shall have no liability or responsibility to
reimburse the Company for any losses incurred by the Company
as a result of the Company's inability to deduct such payment,
in whole or in part, as the result of Section 280G of the
Code."
3. Paragraph 5(b) is amended by adding after the word "compensation"
in the second line thereof the following words: "and provide the benefits to
the Executive."
4. Paragraph 5(d) is amended by replacing the word "devises" in the
third line with the word "devisee."
5. Paragraph 5(f) is amended by replacing Paragraph 5(f) in its
entirety with the following:
"(f) The Executive shall not be required to mitigate damages
or the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or other benefit provided for
in this Agreement then or thereafter
due to the Executive be reduced or modified by any
compensation or other payment or benefit earned or received by
the Executive as the result of or in connection with any
employment of the Executive by another employer after the Date
of Termination, or otherwise."
6. A new Paragraph 9 shall be added at the end of the Chapman
Agreement as follows:
"9. AMENDMENT TO SERP.
By execution and delivery of this Agreement, the
Executive hereby acknowledges that, on or before the date of
this Agreement, the Executive has received and has had an
opportunity to read, and that the Executive understands, the
Amendment to the SERP (the "Amendment") and that the
amendments, modifications and supplements in and to the SERP
set forth in the Amendment are in the best interests of the
Executive and are necessary and appropriate to conform the
terms and conditions of the SERP to the terms and conditions
of this Agreement and the Executive hereby agrees to the
amendments, modifications and supplements in and to the
provisions of the SERP in accordance with the terms and
conditions set forth in the Amendment to be effective as of
August 20, 1998 and that a copy of the Amendment shall be
attached as an exhibit to and incorporated by reference into
the SERP effective as of August 20, 1998."
7. If any of the terms and conditions of the Chapman Agreement are
inconsistent with the terms and conditions of this Amendment, the terms and
conditions of this Amendment shall supercede such inconsistent terms and
conditions of the Chapman Agreement. Except to the extent changed or
modified herein, all terms and conditions of the Chapman Agreement shall
remain unchanged and be in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of this 18th day of March, 1999.
EXECUTIVE:
ANDREW M. CHAPMAN
E'TOWN CORPORATION
By:
Anne Evans Estabrook, Chairman of the Board
Exhibit 10(Q)
AMENDMENT TO THE CHANGE IN CONTROL AGREEMENT
Dated May 15, 1997
by and between
ANNE EVANS ESTABROOK
and
E'TOWN CORPORATION
This Amendment ("Amendment") to the Change In Control Agreement, dated
as of May 15, 1997 between ANNE EVANS ESTABROOK (the "Executive") and E'TOWN
CORPORATION (the "Company"), is made effective as of this 18th day of March,
1999 by and between the Executive and the Company.
WITNESSETH:
WHEREAS, the board of directors (the "Board") of the Company has entered
into a Change in Control Agreement with the Executive, dated as of May 15,
1997 (the "Estabrook Agreement"), which sets forth the terms and conditions
under which benefits and payments shall be made by the Company to the
Executive should the Company receive a proposal from or engage in discussions
with a third person concerning a possible business combination with the
Company or the acquisition of a substantial portion of voting securities of
the Company; and
WHEREAS, the Board, considering that it is imperative that it and the
Company be able to rely on certain of the other key executives of the Company
to continue to serve in their respective positions without concern that they
might be distracted by the personal uncertainties and risks that a proposal
or discussions concerning any such business combination or acquisition of
voting securities of the Company might otherwise create, has entered into
change in control agreements (collectively, the "Change in Control
Agreements") with such other key executives which set forth the terms and
conditions of benefits and payments to be made by the Company to such other
key executives upon any termination of their services in the event of a
change in control of the Company as defined in the Change in Control
Agreements; and
WHEREAS, the Board considers it in the best interests of the Company and
its shareholders that the Company amend, modify and supplement the Estabrook
Agreement in order to conform certain of the terms and conditions of the
Estabrook Agreement with certain of the terms and conditions of the Change in
Control Agreements, and to set forth such other terms and conditions of
benefits and payments to be made by the Company to the Executive as reward
for the valuable, dedicated service provided by the Executive to the Company
upon any termination of the Executive's services in the event of a change in
control of the Company as defined herein; and
WHEREAS, the Board has approved the execution and delivery of this
Amendment by the Company by resolution duly adopted by the Board at a meeting
of the Board held on March 18, 1999;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged by the parties, the parties
hereto, intending to be legally bound hereby, agree to amend the Estabrook
Agreement as follows:
1. Paragraph 3 is amended by replacing Paragraph 3 in its entirety
with the following:
"3. TERMINATION FOLLOWING CHANGE IN CONTROL.
(a) If any of the events described in paragraph 1 hereof
constituting a Change in Control of the Company shall have
occurred, the Executive shall be entitled to the payments and
benefits provided in paragraph 4 hereof upon the subsequent
termination of the Executive's employment within the
applicable period set forth in paragraph 4 hereof following
such Change in Control of the Company unless such termination
is (i) due to the Executive's death; or (ii) by the Company by
reason of the Executive's Disability (as hereinafter defined)
or for Cause (as hereinafter defined); or (iii) by the
Executive other than for Good Reason (as hereinafter defined).
(b) If, following a Change in Control of the Company, the
Executive's employment is terminated by reason of the
Executive's death or Disability, the Executive shall be
entitled to death or long-term disability benefits, as the
case may be, from the Company no less favorable than the
maximum benefits to which the Executive would have been
entitled had the death or termination for Disability occurred
at any time during the six month period prior to the Change in
Control of the Company. If prior to any such termination for
Disability, the Executive fails to perform the Executive's
duties as a result of physical incapacity or mental injury or
illness, the Executive shall continue to receive the
Executive's Salary (as hereinafter defined), less any benefits
as may be available to the Executive under the Company's
disability plans, until the Executive's employment is
terminated for Disability.
(c) If the Executive's employment shall be terminated by the
Company for Cause or by the Executive other than for Good
Reason, the Company shall pay to the Executive the Executive's
full Salary through the Date of Termination (as hereinafter
defined) at the rate in effect at the time Notice of
Termination is given, and the Company shall have no further
obligations to the Executive under this Agreement.
(d) For purposes of this Agreement:
(i) "Disability" shall mean the Executive's incapacity
due to physical or mental injury or illness such that the
Executive shall have become qualified to receive benefits
under the Company's long-term disability plans or any
equivalent coverage required to be provided to the Executive
pursuant to any other plan or agreement, whichever is
applicable.
(ii) "Cause" shall mean:
(A) the conviction of the Executive for a felony,
or the willful commission by the Executive of a criminal
or other act that in the judgment of the Board causes or
will probably cause substantial economic damage to the
Company or substantial injury to the business reputation
of the Company;
(B) the commission by the Executive of an act of
fraud in the performance of such Executive's duties on
behalf of the Company that causes or will probably cause
economic damage to the Company; or
(C) the continuing willful failure of the Executive
to perform the Executive's duties, as such duties were
performed by the Executive prior to the day of the Change
in Control of the Company (other than any such failure
resulting from the Executive's incapacity due to physical
or mental injury or illness) after written notice thereof
(specifying the particulars thereof in reasonable detail)
and a reasonable opportunity to be heard and cure such
failure are given to the Executive by the Compensation
Committee of the Board.
For purposes of this paragraph 3(d)(ii), no act, or
failure to act, on the Executive's part shall be considered
"willful" unless done, or omitted to be done, by the Executive
not in good faith and without reasonable belief that the
Executive's action or omission was in the best interests of
the Company.
(iii)"Good Reason" shall mean:
(A) The assignment by the Company to the Executive
of duties without the Executive's express written
consent, which (i) are materially different or require
travel significantly more time consuming or extensive
than the Executive's duties or business travel
obligations immediately prior to the Change in Control of
the Company, or (ii) result in either a significant
reduction in the Executive's authority and responsibility
as a senior corporate executive of the Company when
compared to the highest level of authority and
responsibility assigned to the Executive at any time
during the six (6) month period prior to the Change in
Control of the Company, or (iii) the removal of the
Executive from, or any failure to reappoint or reelect
the Executive to, the highest title held since the date
six (6) months before the Change in Control of the
Company, except in connection with a termination of the
Executive's employment by the Company for Cause, or by
reason of the Executive's death or Disability;
(B) A reduction by the Company of the Executive's
Salary, or the failure to grant increases in the
Executive's Salary on a basis at least equal to or better
than those granted generally to other executives of the
Company of comparable title, salary and performance
ratings, made in good faith;
(C) The relocation of the Company's principal
executive offices to a location outside the State of New
Jersey, or a requirement by the Company that the
Executive relocate (except for required travel on the
Company's business to an extent substantially consistent
with the Executive's business travel obligations
immediately prior to the Change in Control) (i) to a
location which is outside a radius of fifty (50) miles
from the Executive's place of employment with the Company
immediately prior to the Change in Control, or (ii) to a
location outside the State of New Jersey; or, in the
event the Executive expressly consents in writing to any
such relocation of the Executive outside such fifty mile
radius or the State of New Jersey, the failure by the
Company to pay (or reimburse the Executive for) all
reasonable moving expenses incurred by the Executive
relating to a change of principal residence in connection
with such relocation and to indemnify the Executive
against any loss realized in the sale of the Executive's
principal residence in connection with any such change of
residence, all to the effect that the Executive shall
incur no loss upon such sale on an after tax basis;
(D) The failure by the Company to continue to
provide the Executive with the same or better welfare
benefits (which for purposes of this Agreement shall mean
benefits under all welfare plans as that term is defined
in Section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended), and perquisites,
including participation on a comparable basis in the
Company's stock option plan, incentive bonus plan and any
other plan in which executives of the Company of
comparable title and salary or subject to similar
performance criteria participate and as were provided to
the Executive immediately prior to such Change in Control
of the Company, or with a new package of welfare benefits
and perquisites that is at least equal to or better in
all material respects than the welfare benefits and
perquisites as were provided to the Executive immediately
prior to such Change in Control; or
(E) The failure of the Company to obtain the
express written assumption of and agreement to perform
this Agreement by any successor as contemplated in
paragraph 5(c) hereof.
(iv) "Dispute" shall mean (i) in the case of termination
of employment of the Executive with the Company by the Company
for Disability or Cause, that the Executive challenges the
existence of Disability or Cause and (ii) in the case of the
Executive's termination of employment with the Company by the
Executive for Good Reason, that the Company challenges the
existence of Good Reason.
(v) "Salary" shall mean the Executive's then current
annual rate of salary plus any of the following amounts which
are not included in the annual salary as reported on the
Executive's United States Internal Revenue Service Form W-2
("Form W-2"): (i) any restricted stock of the Company awarded
to the Executive, or which the Executive is entitled to
receive under any plan, arrangement or contract of the Company
or pursuant to any resolution of the Board, in lieu of base
compensation, (ii) any 401(K) compensation, and (iii) any
compensation deferred in accordance with Section 125 of the
United States Internal Revenue Code of 1986, as amended and
the regulations thereunder (the "Code").
(vi) "Incentive Compensation" in any year shall mean the
amount accrued, if any, under any plan or arrangement of the
Company in which executives of the Company of comparable title
and salary or being subject to comparable performance criteria
participate, or any under contract between the Company and the
Executive, in each case which provides for any cash bonus,
restricted stock, stock option, stock award or similar
incentive compensation in addition to base salary and which is
not reported on Form W-2.
(e) Any purported termination of the Executive's employment
by the Company by reason of the Executive's Disability or for
Cause, or by the Executive for Good Reason shall be
communicated by written Notice of Termination (as hereinafter
defined) to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice given
by the Executive or the Company, as the case may be, which
shall indicate the specific basis for termination and shall
set forth in reasonable detail the facts and circumstances
claimed to provide a basis for determination of any payments
due under this Agreement. The Executive shall not be entitled
to give a Notice of Termination that the Executive is
terminating the Executive's employment with the Company for
Good Reason more than six (6) months following the occurrence
of the event alleged to constitute Good Reason. The
Executive's actual employment by the Company shall cease on
the Date of Termination, even though such Date of Termination
for all other purposes of this Agreement may be extended in
the manner contemplated in the second sentence of paragraph
3(f) below.
(f) For purposes of this Agreement, the "Date of Termination"
shall mean (i) the date specified in the Notice of
Termination, which shall be not more than ninety (90) days
after such Notice of Termination is given, as such date may be
modified pursuant to the next sentence, or (ii) in the event
that no Notice of Termination is given, on the date that the
Executive's employment with the Company is actually
terminated. If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of
Termination notifies the other party that a Dispute exists,
the Date of Termination shall be the date on which the Dispute
is finally determined, either by mutual written agreement of
the parties or by a final judgment, order or decree of a court
of competent jurisdiction (the time for appeal therefrom
having expired and no appeal having been perfected); provided,
that the Date of Termination shall be extended by a notice of
Dispute only if such notice is given in good faith and the
party giving such notice pursues the resolution of such
Dispute with reasonable diligence and provided further that,
pending the resolution of any such Dispute, the Company shall
continue to pay the Executive the same Salary and Incentive
Compensation, and provide the Executive with the same or at
least equal or better welfare benefits and perquisites that
the Executive was paid and provided immediately prior to the
Change in Control of the Company. Should a Dispute ultimately
be determined in favor of the Company, then all sums paid by
the Company to the Executive from the date of termination
specified in the Notice of Termination until final resolution
of the Dispute pursuant to this paragraph 3(f) shall be repaid
promptly by the Executive to the Company, with interest at the
average prime rate generally prevailing from time to time
among major New York City banks and all options, rights and
stock awards granted to the Executive during such period shall
be canceled or returned to the Company. The Executive shall
not be obligated to pay to the Company the cost of providing
the Executive with welfare benefits and perquisites for such
period unless the final judgment, order or decree of a court
or other body resolving the Dispute determines that the
Executive acted in bad faith in giving a notice of Dispute.
Should a Dispute ultimately be determined in favor of the
Executive, then the Executive shall be entitled to retain all
sums paid to the Executive under this paragraph 3(f) pending
resolution of the Dispute and shall be entitled to receive, in
addition, the payments and other benefits provided for in
paragraph 4 hereof to the extent not previously paid
hereunder. In addition, should a Dispute, or any other
challenge, claim, action, proceeding or dispute brought by the
Executive against the Company with respect to this Agreement,
ultimately be determined in favor of the Executive, then the
Company shall reimburse the Executive for all costs and
expenses (including, without limitation, reasonable attorneys'
fees) incurred by the Executive in connection therewith."
2. Paragraph 4 is amended by replacing Paragraph 4 in its entirety
with the following:
"4. PAYMENTS UPON TERMINATION.
If within three (3) years after a Change in Control of
the Company, the Company shall terminate the Executive's
employment other than by reason of the Executive's death,
Disability or for Cause, or if the Executive shall terminate
the Executive's employment for Good Reason, then
(a) The Company will continue to pay to the Executive, for a
period of thirty (30) months following the Date of
Termination, as compensation for services rendered by the
Executive on or before the Executive's Date of Termination,
the Executive's Salary and Incentive Compensation (subject to
any applicable payroll taxes or other taxes required to be
withheld computed at the rate for supplemental payments) at
the highest rate in effect during the twenty-four (24) month
period ending on the date on which a Change in Control of the
Company occurred; and
(b) For a period of thirty (30) months following the Date of
Termination, the Company shall provide, at the Company's
expense, the Executive and the Executive's spouse and children
with full benefits under any employee benefit plan or
arrangement in which the Executive participated immediately
prior to the date of a Change in Control, including, without
limitation, any hospital, medical and dental insurance with at
least equal to or better coverage and benefits as were
provided to the Executive immediately prior to the date on
which a Change in Control of the Company occurred; and
(c) The Company will pay on the Date of Termination of the
Executive as compensation for services rendered on or before the
Executive's Date of Termination, in addition to the amounts set
forth in paragraph 4(a) above, an amount equal to the sum of (i)
all Incentive Compensation and other incentive awards due to the
Executive immediately prior to the date on which a Change in
Control of the Company occurred which are not yet paid and (ii) all
Incentive Compensation and other incentive awards due to the
Executive for the period between the date on which a Change in
Control of the Company occurred and the Date of Termination which
are not yet paid; and
(d) For a period of thirty (30) months following the Date of
Termination, the Company shall provide to the Executive, at
the Company's expense, the automobile (or a comparable
automobile) or automobile allowance, as the case may be,
provided by the Company to the Executive immediately prior to
the date on which a Change in Control of the Company occurred
and the Company shall reimburse the Executive any and all
expenses incurred by the Executive in connection with the use
of such automobile during such thirty month period to the
extent that the Company reimburses generally other executives
of comparable title and salary or subject to comparable
performance criteria; and
(e) Any restricted stock of the Company in the Executive's
account as an officer of the Company and any stock options
granted to the Executive on or prior to the Date of
Termination which are not vested in the Executive as of the
Date of Termination shall become immediately vested, and all
restrictions thereon (including, but not limited to, any
restrictions on the transferability of such stock), and any
restrictions on any other restricted stock or stock options
awarded to the Executive through any plan, arrangement or
contract of the Company on or before the Date of Termination,
shall be null and void and of no further force and effect and
the Company agrees to accelerate and make immediately
exercisable in full all unmatured installments of all
outstanding stock options to acquire stock of the Company
which the Executive holds as of the Date of Termination; and
(f) In event that any payment or benefit received or to be
received by the Executive in connection with a Change in Control of the
Company or the termination of the Executive's employment, whether
pursuant to the terms of this Agreement or any other plan, arrangement
or agreement with the Company (collectively, with the payments and
benefits hereunder, "Total Payments") are subject to tax imposed by
Section 4999 of the Code (the "Excise Tax"), the Company shall pay to
the Executive an additional amount (the "Gross-Up Payment") such that
the net amount retained by the Executive after deduction of any Excise
Tax on the Total Payments and all federal, state and local income taxes
and Excise Tax upon such Gross-Up Payment, shall be equal to the Total
Payments. For purposes of this paragraph 4(f) in determining the
amount of Excise Tax (A) no portion of the Total Payments, the receipt
or enjoyment of which the Executive shall have effectively waived in
writing prior to the date of payment, shall be taken into account, (B)
no portion of the Total Payments shall be taken into account which, in
the opinion of tax counsel selected by the Executive and acceptable to
the Company's independent auditors, is not likely to constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of the
Code, and (C) the value of any non-cash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by the
Company's independent auditors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, the Executive shall be deemed to
pay federal, state and local income taxes at the highest marginal rate
of income taxation applicable to any individual residing in the
jurisdiction in which the Executive resides in the calendar year in
which the Gross-Up Payment is to be made. The Company and the
Executive each shall reasonably cooperate with the other in connection
with any administrative or judicial proceedings concerning the
existence or amount of liability for any Excise Tax with respect to the
Total Payments. As promptly as practicable following the determination
of the Excise Tax imposed upon the Total Payments, if any, the Company
shall pay the Gross-Up Payment as is then due to the Executive under
this Agreement and shall promptly pay or distribute to or for the
benefit of the Executive in the future such payments and benefits as
they become due to the Executive under this Agreement. In the event
that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time of termination of the
Executive's employment, the Executive shall repay to the Company, at
the time that the amount of such reduction in Excise Tax is finally
determined, the portion of the Gross-Up Payment attributable to such
reduction (plus that portion of the Gross-Up Payment attributable to
the Excise Tax and federal, state and local income tax imposed on the
Gross-Up Payment being repaid by the Executive to the extent that such
repayment results in a reduction in Excise Tax and/or federal, state or
local income tax deduction) plus interest on the amount of such
repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In
the event that the Excise Tax is determined to exceed the amount taken
into account hereunder at the time of the termination of the
Executive's employment (including by reason of any payment the
existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up
Payment in respect of such excess (plus any interest, penalties, or
additions payable by the Executive with respect to such excess) at the
time that the amount of such excess is finally determined. The Company
shall pay or distribute to or for the benefit of the Executive such
payments and benefits as are then due to the Executive under this
Agreement even if the Company is unable to deduct any portion of such
payment and benefits as a result of Section 280G of the Code and the
Executive shall have no liability or responsibility to reimburse the
Company for any losses incurred by the Company as a result of the
Company's inability to deduct such payment, in whole or in part, as the
result of Section 280G of the Code."
3. Paragraph 5(b) is amended by adding after the word "compensation"
in the second line thereof the following words: "and provide the benefits to
the Executive."
4. Paragraph 5(d) is amended by deleting the word "devises" in the
fourth line and by deleting the word "devisee" in the eighth line thereof.
5. Paragraph 5(f) is amended by replacing Paragraph 5(f) in its
entirety with the following:
"(f) The Executive shall not be required to mitigate damages
or the amount of any payment or other benefit provided for in
this Agreement by seeking other employment or otherwise, nor
shall the amount of any payment or other benefit provided for
in this Agreement then or thereafter due to the Executive be
reduced or modified by any compensation or other payment or
benefit earned or received by the Executive as the result of
or in connection with any employment of the Executive by
another employer after the Date of Termination, or otherwise."
6. Paragraph 6 is amended by changing the words "Short Hills" in
the address for notice to the Executive to the word "Summit".
7. A new Paragraph 9 shall be added at the end of the Estabrook
Agreement as follows:
"9. VARIANCE AMONG AGREEMENTS.
The Executive understands that the Company may enter into
agreements with other executives of the Company similar to
this Agreement that may contain terms different from those
contained in this Agreement. Despite any such different terms
in such other agreements, the Executive understands and agrees
that this Agreement alone sets forth the Executive's rights
with respect to the subject matter of this Agreement, and that
the Executive is not a third party beneficiary of any such
other agreements."
8. If any of the terms and conditions of the Estabrook Agreement are
inconsistent with the terms and conditions of this Amendment, the terms and
conditions of this Amendment shall supercede such inconsistent terms and
conditions of the Estabrook Agreement. Except to the extent changed or
modified herein, all terms and conditions of the Estabrook Agreement shall
remain unchanged and be in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of this 18th day of March, 1999.
EXECUTIVE:
ANNE EVANS ESTABROOK
E'TOWN CORPORATION
By:
Barry T. Parker
Chairman of the Executive Compensation
Committee of the Board
Exhibit 12
E'TOWN CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(In Thousands Except Ratios)
Three Months Ended
March 31,
1999 1998
EARNINGS:
Net income $ 6,300 $ 4,163
Federal income taxes 3,456 2,307
Interest charges 4,482 4,216
---------------------------
Earnings available to cover fixed charges 14,238 10,686
---------------------------
FIXED CHARGES:
Interest on long-term debt 4,134 3,985
Other interest 291 214
Amortization of debt discount - net 110 108
---------------------------
Total fixed charges $ 4,535 $ 4,307
---------------------------
Ratio of Earnings to Fixed Charges 3.14 2.48
===========================
Earnings to Fixed Charges represents the sum of Net Income,
Federal income taxes and Interest Charges (which is reduced by
Capitalized interest), divided by Fixed Charges.
Fixed Charges consist of interest on long and short-term debt (which is not
reduced by Capitalized Interest), and Amortization of debt discount.
Exhibit 12(a)
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
Computation of Ratio of Earnings to Fixed Charges
(In Thousands Except Ratios)
Three Months Ended
March 31,
1999 1998
EARNINGS:
Net income $ 4,283 $ 4,645
Federal income taxes 2,261 2,456
Interest charges 3,865 3,836
---------------------------
Earnings available to cover fixed charges 10,409 10,937
---------------------------
FIXED CHARGES:
Interest on long-term debt 3,757 3,624
Other interest 63 206
Amortization of debt discount - net 98 97
---------------------------
Total fixed charges $ 3,918 $ 3,927
---------------------------
Ratio of Earnings to Fixed Charges 2.66 2.79
===========================
Earnings to Fixed Charges represents the sum of Net Income,
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.
Exhibit 12(b)
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
(In Thousands Except Ratios)
Three Months Ended
March 31,
1999 1998
EARNINGS:
Net income $ 4,283 $ 4,645
Federal income taxes 2,261 2,456
Interest charges 3,865 3,836
---------------------------
Earnings available to cover fixed charges 10,409 10,937
---------------------------
FIXED CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 3,757 3,624
Preferred dividend requirement (1) 310 310
Other interest 63 206
Amortization of debt discount - net 98 97
---------------------------
Total fixed charges $ 4,228 $ 4,237
---------------------------
Ratio of Earnings to Fixed Charges
and Preferred Dividends 2.46 2.58
===========================
(1) Preferred Dividend Requirement:
Preferred dividends 203 203
Effective tax rate 34.55% 34.59%
---------------------------
Preferred dividend requirement $ 310 $ 310
===========================
Earnings to Fixed Charges and Preferred Dividends represents the sum of
Net Income, 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.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000764403
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 614,661
<OTHER-PROPERTY-AND-INVEST> 83,813
<TOTAL-CURRENT-ASSETS> 59,855
<TOTAL-DEFERRED-CHARGES> 30,895
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 789,224
<COMMON> 170,751
<CAPITAL-SURPLUS-PAID-IN> (3,845)
<RETAINED-EARNINGS> 52,922
<TOTAL-COMMON-STOCKHOLDERS-EQ> 219,828
12,000
227
<LONG-TERM-DEBT-NET> 273,485
<SHORT-TERM-NOTES> 41,984
<LONG-TERM-NOTES-PAYABLE> 13,190
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 9,656
<TOT-CAPITALIZATION-AND-LIAB> 790,228
<GROSS-OPERATING-REVENUE> 35,476
<INCOME-TAX-EXPENSE> 2,213
<OTHER-OPERATING-EXPENSES> 24,588
<TOTAL-OPERATING-EXPENSES> 26,801
<OPERATING-INCOME-LOSS> 8,675
<OTHER-INCOME-NET> 2,310
<INCOME-BEFORE-INTEREST-EXPEN> 10,985
<TOTAL-INTEREST-EXPENSE> 4,482
<NET-INCOME> 6,503
203
<EARNINGS-AVAILABLE-FOR-COMM> 6,300
<COMMON-STOCK-DIVIDENDS> 4,339
<TOTAL-INTEREST-ON-BONDS> 4,134
<CASH-FLOW-OPERATIONS> 11,968
<EPS-PRIMARY> .74<F1>
<EPS-DILUTED> .73<F1>
<FN>
<F1>All amounts in thousands of dollars except per share amounts.
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000032379
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 610,035
<OTHER-PROPERTY-AND-INVEST> 7,057
<TOTAL-CURRENT-ASSETS> 42,105
<TOTAL-DEFERRED-CHARGES> 29,912
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 689,109
<COMMON> 15,741
<CAPITAL-SURPLUS-PAID-IN> 134,335
<RETAINED-EARNINGS> 60,305
<TOTAL-COMMON-STOCKHOLDERS-EQ> 210,381
12,000
0
<LONG-TERM-DEBT-NET> 245,151
<SHORT-TERM-NOTES> 20,000
<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> 198,230
<TOT-CAPITALIZATION-AND-LIAB> 685,792
<GROSS-OPERATING-REVENUE> 31,066
<INCOME-TAX-EXPENSE> 2,189
<OTHER-OPERATING-EXPENSES> 20,860
<TOTAL-OPERATING-EXPENSES> 23,049
<OPERATING-INCOME-LOSS> 8,017
<OTHER-INCOME-NET> 131
<INCOME-BEFORE-INTEREST-EXPEN> 8,148
<TOTAL-INTEREST-EXPENSE> 3,865
<NET-INCOME> 4,283
203
<EARNINGS-AVAILABLE-FOR-COMM> 4,080
<COMMON-STOCK-DIVIDENDS> 4,339
<TOTAL-INTEREST-ON-BONDS> 3,757
<CASH-FLOW-OPERATIONS> 11,586
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
