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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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, includ(908)r654-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, without par value New York Stock Exchange
Commission file number 0-628
ELIZABETHTOWN WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1683171
(State of incorporation) (I.R.S. Employer Identification No.)
600 South Avenue
Westfield, New Jersey 07090
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, includ(908)r654-1234
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the 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_____
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ___X___
On December 31, 1998, the aggregate market value of E'town Corporation's
voting stock held by non-affiliates was $401,393,410.
On December 31, 1998, there were 8,471,790 shares of Common Stock
outstanding, exclusive of treasury shares or shares held by subsidiaries of
E'town Corporation.
Note: All of the Common Stock of Elizabethtown Water Company is owned by
E'town Corporation.
Parts II and IV incorporate information by reference from the Annual Report
to Shareholders of E'town Corporation for the Year Ended December 31, 1998
Part III incorporates information by reference from the definitive Proxy
Statement in connection with E'town Corporation's Annual Meeting of
Shareholders to be held on May 20, 1999.
<PAGE>
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page
Item 1. Business 1
Organization 1
Service Area and Customers 1
Water Supply 2
Water Treatment Facilities and Water
Quality Regulations 3
Transmission and Distribution 5
Energy Supply 5
Environmental Matters 5
Franchises 5
Employee Relations 5
Rate Matters 5
Real Estate Matters 6
Other Developments 7
Executive Officers of the Corporation
and Elizabethtown 8
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
PART II
Item 5. Market for the Corporation's Common Stock and Related
Stockholder Matters 9
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Consolidated
Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 16
PART III
Item 10. Directors and Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
and Management 16
Item 13. Certain Relationships and Related Transactions 16
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K 16
SIGNATURES
AUDITORS' REPORT & SUPPLEMENTAL SCHEDULES
EXHIBIT INDEX
APPENDIX I
Elizabethtown Water Company and Subsidiary Consolidated Financial Statements
for the Years Ended December 31, 1998, 1997 and 1996 and Independent
Auditors' Report
<PAGE>
E'TOWN CORPORATION
ELIZABETHTOWN WATER COMPANY
Annual Report on Form 10-K
For the year ended December 31, 1998
PART I
Item 1. Business
ORGANIZATION
E'town Corporation (E'town or Corporation) was originally incorporated under
the laws of the State of New Jersey in 1985 to serve as a holding company for
Elizabethtown Water Company (Elizabethtown or Company) and its wholly owned
subsidiary, The Mount Holly Water Company (Mount Holly). Elizabethtown and
Mount Holly are regulated water utilities which, as a consolidated entity,
are referred to herein as Elizabethtown Water Company (Elizabethtown Water
Company). Applied Wastewater Management (AWWM) is a regulated wastewater
utility acquired in June 1998 as part of the acquisition of E'town's joint
venture partner (discussed below) and is engaged in the ownership and
operation of wastewater facilities. Elizabethtown, Mount Holly and AWWM are
public utilities and are regulated by the New Jersey Board of Public
Utilities (BPU). Elizabethtown, Mount Holly and AWWM comprise the regulated
utilities segment of the business for financial and management reporting
purposes. Liberty Water Company (Liberty) is a wholly owned, non-regulated
subsidiary of E'town formed in July 1998 to operate the water system of the
City of Elizabeth, New Jersey under a 40-year operating contract. Edison
Water Company (Edison) is a wholly owned, non-regulated subsidiary of E'town
formed in July 1997 to operate the water system of the Township of Edison,
New Jersey under a 20-year operating contract. Edison and Liberty comprise
the contract operations segment of the business for financial and management
reporting purposes. E'town Properties, Inc. (Properties) was incorporated in
1987 as a wholly owned and non-regulated subsidiary of E'town to acquire,
develop and sell real estate holdings. E'town and Properties comprise the
financing and investing segment of the business for financial and management
reporting purposes. E'town provides the financing for its non-regulated
subsidiaries through issuance of short- and long-term debt as well as
through public equity offerings for capital contributions to all
subsidiaries. In June 1998 E'town acquired the operations of Applied
Wastewater General Partnership (AWG), E'town's joint venture partner. The
newly-acquired companies are now comprised of Applied Water Management, Inc.
(AWM) and AWWM. AWM is engaged in the design and construction of wastewater
facilities as well as in the pumping and hauling of wastewater materials.
This entity represents the Engineering, Operations and Construction segment
of the business for financial and management reporting purposes.
Elizabethtown is a New Jersey corporation, one of whose predecessors was
first incorporated in 1854. The present corporation was formed in 1961 as a
result of a consolidation of Elizabethtown Water Company Consolidated and
Plainfield-Union Water Company. Elizabethtown owns all of the common stock of
Mount Holly. The assets and operating results of Elizabethtown constitute the
predominant portions of E'town's assets and operating results. Mount Holly
contributed 3% and Liberty, AWM and Edison each contributed 4% of the
Corporation's consolidated operating revenues for 1998.
Regulated Utilities Segment
SERVICE AREA AND CUSTOMERS
At December 31, 1998, Elizabethtown and Mount Holly furnished water service
on a retail basis to general customers and to industrial customers totaling
200,348 in 54 municipalities in the counties of Union, Middlesex, Somerset,
Mercer, Hunterdon, Ocean, Morris and Burlington in New Jersey. AWWM serves
188 wastewater and 97 water customers.
1
Elizabethtown also provides, on a wholesale basis, a portion of the water
requirements of eight additional municipalities with their own retail water
systems and, of three other investor-owned water companies. Water for fire
protection service is provided to 53 municipalities and also to commercial
and industrial establishments.
At December 31, 1998, Edison and Liberty served 37,391 customers under their
contracts to operate the water systems of the Township of Edison and the City
of Elizabeth, both in New Jersey.
The operating revenues of E'town by major classification of customer for the
twelve months ending December 31, 1998 are as follows:
General customers 60.3%
Other water systems 11.0%
Industrial wholesale customers 5.6%
Fire service/miscellaneous 11.6%
Contract operations 7.5%
Engineering, operations and construction 4.0%
The water systems are substantially all metered except for fire service.
AWM provides a variety of services for internal purposes as well as for
external customers. Engineering services are provided internally for the
construction division of AWM in the design and building of wastewater
facilities for developers, as well as for a variety of external customers for
various wastewater projects. The operations division of AWM performs a
variety of wastewater pumping and hauling services. These services include
sludge hauling for commercial, industrial and governmental customers under
contract, as well as septic cleaning for residential and other customers.
Additional operating statistics appear in Item 6.
WATER SUPPLY
The water supply systems of Elizabethtown and Mount Holly are physically
separate. During 1998, Elizabethtown's pumpage averaged 131.7 million gallons
per day (MGD) and Mount Holly's pumpage averaged 3.7 MGD. Elizabethtown and
Mount Holly believe they have sufficient water supply sources to meet the
current needs of their customers. Mount Holly is constructing additional
facilities, as discussed below, to augment its water supplies.
In 1998, surface water sources supplied approximately 90% of Elizabethtown's
supply with wells supplying the remaining 10%. All of Mount Holly's water is
produced from wells although beginning in March 1998, 1.0 million gallons per
day is being purchased by Mount Holly from another purveyor on a temporary
basis from surface sources (see below).
Substantially all of Elizabethtown's surface water is purchased under a
long-term contract with the New Jersey Water Supply Authority (NJWSA) which
requires Elizabethtown to purchase (i) 32 MGD from the state-owned Delaware
and Raritan Canal which transports water from the Delaware River Basin plus
(ii) 70 MGD from the Raritan River Basin which includes the state-owned
Spruce Run-Round Valley Reservoir System. The safe yield of the Raritan River
Basin and the Delaware and Raritan Canal is 225 MGD of which 150 MGD is
presently allocated to Elizabethtown and others. The NJWSA has available, and
Elizabethtown purchases, water above the Company's minimum purchase
obligation on an as-needed basis.
Mount Holly has historically obtained all of its water from wells drilled
into an aquifer, which has been subject to over-pumping. The state adopted
legislation requiring all local purveyors, including Mount Holly, to obtain
alternate supplies and reduce their withdrawals from the affected parts of
the aquifer. Mount Holly designed a project to obtain water from outside the
affected part of the aquifer for delivery into the Mount Holly system.
Management has determined that this project (the "Mansfield Project") is the
most cost effective method for Mount Holly to comply with the state's
regulations.
2
By September 1995, Mount Holly had obtained all New Jersey Department of
Environmental Protection (DEP) approvals for the Mansfield Project and was
ready to begin construction when New Jersey-American Water Company (NJAM)
appealed the granting of Mount Holly's permits for the project. Under an
August 1997 settlement among Mount Holly, the DEP and NJAM, Mount Holly will
purchase 1 million gallons per day from NJAM for a period to include the
later of January 1, 2000 or the date the Mansfield Project is placed into
service. Purchases began during March of 1998.
Mount Holly has taken steps necessary to recover in rates both the costs of
purchased water and the costs of the Mansfield Project (see Rate Matters
below). On May 27, 1998 the BPU adopted a Stipulation signed by the parties
to a petition filed in September 1997 for a Purchased Water Adjustment Clause
(PWAC) for an increase in annual revenues $1.29 million or 38.9%. Mount Holly
has deferred the increase in purchased water cost between March 19, 1998 and
May 27, 1998 as Other Unamortized Expenses. Recovery of this amount will be
addressed in the next PWAC petition expected in 1999. On October 6, 1998, the
BPU issued an Order adopting a Stipulation signed by the parties to Mount
Holly's proceeding for a review of the prudence of constructing the Mansfield
Project. The Stipulation indicated that the project provides the most
cost-effective alternative available to Mount Holly customers for meeting the
requirements for an alternative source of supply for the Mount Holly system.
On January 29, 1999 Mount Holly filed a petition with the BPU for an increase
in annual operating revenues of $2.1 million or 40.5%. This request is
intended to cover increases in capital expenditures as well as increases in
operating expenses since rates were last established in January 1996. The
majority of the increase in capital expenditures relates to the construction
of the initial phase of the Mansfield Project.
WATER TREATMENT FACILITIES AND WATER QUALITY REGULATIONS
Elizabethtown owns and operates two treatment plants at the confluence of the
Raritan and Millstone Rivers adjacent to the Delaware and Raritan Canal to
treat surface water purchased from the NJWSA. The plants can withdraw water
from any of the above sources, which is an advantage in the event that one
source becomes temporarily contaminated. The Raritan-Millstone Plant (RM
Plant) was placed in service in 1931 and has continually been upgraded since
that time. The RM Plant has a production capacity of 155 MGD. The Canal Road
Water Treatment Plant (Plant) was placed in service in October 1996 to
increase Elizabethtown's sustainable production capacity and provide the
ability to continue to meet water quality regulations. The Plant has an
initial rated production capacity of 40 MGD. Elizabethtown also operates
smaller treatment facilities to treat groundwater produced by certain wells.
Mount Holly operates similar groundwater treatment facilities.
Both the United States Environmental Protection Agency (EPA) and the DEP
regulate the operation of Elizabethtown's and Mount Holly's water treatment
and distribution systems and the quality of the water Elizabethtown and Mount
Holly deliver to their customers. Currently, Elizabethtown and Mount Holly
believe they are in compliance, in all material respects, with all present
federal and state water quality standards, including all regulations
promulgated to date by the EPA pursuant to the Federal Safe Drinking Water
Act, as amended (SDWA), and by the DEP pursuant to similar state
legislation. Elizabethtown has included certain capital projects in its
three-year capital expenditure plans which it anticipates will be necessary
to comply with regulations that have been proposed by the EPA and DEP.
Recovery of the financing and operating costs of such improvements, plus
those costs for any additional projects which cannot be foreseen at this
time, will be requested in rates.
Elizabethtown has responded in recent years to water quality regulations
promulgated by DEP and the EPA by replacing groundwater supplies with
increased supplies of surface water. The Company expects this trend to
continue because it is preferable from the standpoint of operational
efficiency and cost to modify treatment processes and facilities at one or
two large plants than to constantly upgrade treatment facilities at multiple
well sites.
3
Water Quality Regulations
As required by the SDWA, the EPA has established maximum contaminant levels
(MCLs) for various substances found in drinking water. As authorized by
similar state legislation, the DEP has set MCLs for certain substances which
are more restrictive than the MCLs set by the EPA. In certain cases, the EPA
and DEP have also mandated that certain treatment procedures be followed in
addition to satisfying MCLs established for specific contaminants. The DEP
is also the USEPA's agent for enforcing the SDWA in New Jersey and, in that
capacity, monitors the activities of Elizabethtown and Mount Holly and
reviews the results of water quality tests performed by Elizabethtown and
Mount Holly for adherence to applicable regulations. Regulations generally
applicable to water utilities, including Elizabethtown and Mount Holly,
include the Lead and Copper Rule (LCR), the MCLs established for various
volatile organic compounds (VOCs), the MCLs proposed for radionuclides and
the Surface Water Treatment Rule (SWTR).
Lead and Copper Rule
The LCR requires Elizabethtown and Mount Holly to test the quantity of lead
and copper in drinking water at the customer's tap and, if certain
contaminant levels (action levels) are exceeded, to notify customers and
initiate a public information campaign advising customers how to minimize
exposure to lead and copper. The LCR also requires Elizabethtown to add
corrosion inhibitors to water to minimize leaching of lead from piping,
faucets and soldered joints into water consumed at the tap. Results from two
separate tests completed during 1992 within Elizabethtown and Mount Holly's
systems did not indicate lead and copper concentrations above the action
levels. Accordingly, public notification and a public information campaign
have not been required. Corrosion inhibitor facilities for Elizabethtown
were completed in 1996. The Company is in compliance with LCR requirements.
Volatile Organic Compounds
VOCs include various substances (primarily synthetic organic solvents) which
have percolated into groundwater aquifers from surface sources.
Elizabethtown has found VOCs in excess of the applicable MCLs in certain of
its wells and has either suspended the use of such wells or constructed
aeration towers which remove such contaminants from the water by venting them
into the atmosphere. Because underground water flows are difficult to map,
it is difficult to predict when and where contamination will occur in the
future. To the extent that contamination in excess of applicable MCLs occurs
at wells lacking aeration towers, Elizabethtown will consider building
aeration towers if feasible and cost effective, or closing such wells,
thereby increasing its reliance on surface water. To date, Mount Holly has
not been affected by VOC contamination.
Radionuclides
Radionuclides are naturally occurring radioactive substances (primarily
radon) found in groundwater. Like VOCs, radon can be removed from
groundwater using aeration towers. If the MCLs proposed for all
radionuclides are finally adopted, Elizabethtown believes that it will
abandon wells with aggregate production capacity of approximately 5 MGD,
thereby further increasing Elizabethtown's reliance on surface water.
Elizabethtown currently owns and operates wells with an aggregate safe daily
yield of 22 MGD.
Surface Water Treatment Rule
The operation of Elizabethtown's Raritan-Millstone treatment plant is subject
to the SWTR. Elizabethtown has assessed the plant's sustainable production
capacity, assuming operation consistent with the requirements of the SWTR,
and determined that improvements to the existing plant were necessary.
Specifically, Elizabethtown has installed additional pumps to increase
capacity and reliability at peak times and has constructed a new building to
house offices and lab facilities. Also, Elizabethtown has replaced existing
chlorine gas disinfection facilities with liquid sodium hypochlorite to
improve community and employee safety and has installed corrosion inhibitor
facilities in conformance with the LCR.
The Canal Road Water Treatment Plant has been designed and is being operated
for compliance with the SWTR.
4
TRANSMISSION AND DISTRIBUTION
As of December 31, 1998, Elizabethtown Water Company's transmission and
distribution system included 2,955 miles of transmission and distribution
mains. Mains range in size up to 60 inches, substantially all of which are
either ductile iron, cast iron or pre stressed concrete pipe. Elizabethtown
conducts an ongoing program to clean and line its older cast iron mains the
cost of which is capitalized and has been included in rate base in
stipulations settling recent rate cases. On an ongoing basis, Elizabethtown
assesses the capacity of its system to maintain adequate pressures and
initiates plans to construct pumping, transmission and storage facilities as
needed.
ENERGY SUPPLY
Elizabethtown pumps most of its water with electric power purchased from two
major electric utilities. The Company has replaced certain electric pumps
with natural gas-fired pumps over the last several years to reduce energy
costs. Elizabethtown also has other diesel powered pumping and generating
facilities at its major treatment plants and at certain transfer stations to
provide basic service during possible electrical shortages. Elizabethtown has
not, to date, experienced any shortage of electric energy, natural gas or
diesel fuel to operate its pumps and has cooperated with its electric
suppliers during their peak periods by operating non-electrical pumping
facilities upon request.
ENVIRONMENTAL MATTERS
Elizabethtown and Mount Holly are also subject to regulation by the DEP with
respect to water supply plans and specifications for the construction,
improvement, alteration and operation of public water supply systems and with
respect to the quality of any residuals from treatment plants.
As a normal byproduct of treating surface water, Elizabethtown's existing
surface water treatment plants generate silt removed from untreated river
water plus residue from chemicals used in the treatment process.
Historically, Elizabethtown had disposed of this material in landfills. As a
result of revised regulations governing landfills, Elizabethtown has been
reusing this material on site for flood protection and is presently removing
some material off-site for beneficial reuse.
Under New Jersey law, environmental matters are addressed by the DEP before
diversion allowances or other water supply projects are authorized. To date,
Elizabethtown has been able to construct all plant facilities and obtain all
diversion authorizations necessary to maintain customer service. Mount Holly
has also been able to construct all facilities and obtain all diversion
authorizations including the diversion permit for the Mansfield Project
discussed previously.
FRANCHISES
The property and franchises of Elizabethtown and Mount Holly are subject to
rights of eminent domain of the State of New Jersey. These rights have been
delegated by statutes now in effect to municipalities or groups of
municipalities and have been or may be delegated to various public agencies.
No such rights of eminent domain have been exercised since 1931.
EMPLOYEE RELATIONS
As of December 31, 1998, the Corporation had a total of 505 full-time
employees, of which 224 were covered by union contracts. The contracts
between the Company and the Utility Workers Union of America (A.F.L.-C.I.O.)
were renegotiated on February 1, 1999 and will expire on January 31, 2003.
The contract provides for wage increases of 1.5% on the first of February and
August beginning in 1999 through August of 2002. The Company considers
relations with both union and nonunion employees to be satisfactory.
RATE MATTERS
Elizabethtown, Mount Holly and AWWM are subject to regulation by the New
Jersey Board of Public Utilities (BPU) with respect to the issuance and sale
of securities, rates and service, classification of accounts, mergers, and
other matters. Rate relief is sought periodically cover the cost of increased
operating expenses, increases in financing expenses due to additional
investments in utility plant, and other costs of doing business.
5
Elizabethtown
In December 1997 the BPU adopted a Stipulation for rate increases for
Elizabethtown and Mount Holly, effective January 1, 1998, for the full
recovery of costs associated with SFAS No. 106 "Accounting for Employer's
Postretirement Benefits," on an accrual basis less the costs associated with
SFAS No. 106 expenses previously recovered in rates. The total increases in
annual operating revenues resulting from these Stipulations are $.39 million
for Elizabethtown and $.02 million for Mount Holly.
Elizabethtown expects to file for rate relief later in 1999 to recover
additional construction and financing costs since base rates were last
established in October 1996.
Mount Holly
On October 6, 1998, the BPU issued an Order adopting a Stipulation signed by
the parties to Mount Holly's proceeding for a review of the prudence of
constructing a new well field, treatment plant and pipeline to provide an
alternate water source required due to State mandated restrictions. This
project is known as the Mansfield Project. The Stipulation indicated that the
Mansfield project provides the most cost-effective alternative available to
Mount Holly customers for meeting the requirements for an alternative source
of supply for the Mount Holly system. Effective in March 1998, Mount Holly
began purchasing 1 million gallons per day from NJAM and will continue to
purchase this water until the later of January 1, 2000 or the date the
Mansfield Project is placed into service. The annual cost of the purchased
water is $1.16 million.
In September 1997 Mount Holly filed a petition with the BPU to establish a
PWAC to reflect the cost of water purchased from NJAM. On May 27, 1998 the BPU
adopted a Stipulation signed by the parties to the PWAC case for an increase
in annual revenues under Mount Holly's PWAC of $1.29 million or 38.9%. Mount
Holly has deferred the increase in purchased water cost between March 19 and
May 27 as Other Unamortized Expenses. Recovery of this amount has been
requested in the rate increase discussed below. As of December 31, 1998,
Mount Holly has deferred $.08 million of these costs.
On January 29, 1999, Mount Holly filed a petition with the BPU for a $2.09
million or 40% 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 the 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 the agreement to purchase water from NJAM and the
cancellation of the PWAC.
Financing and Investment Segment
REAL ESTATE MATTERS
E'town Properties and E'town Corporation own various parcels of undeveloped
land in New Jersey carried as investments of $11.3 million in Non-Utility
Property and Other Investments - Net, in the Consolidated Balance Sheets of
E'town at December 31, 1998. E'town and Properties are proceeding with plans
to sell such properties and expect to invest the sale proceeds into water and
wastewater utility investments that produce a current return.
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. 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. In the
first quarter of 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 or approximately $.25 per share. Cash proceeds
of $1.5 million were received in 1999 and the balance was financed with a
7.75% mortgage for the remaining $4.33 million, to be paid over two years.
Properties has entered into contracts for sale for all of its remaining
parcels. The eventual sale of these parcels is contingent upon the purchaser
obtaining various approvals for development. This process could take up to
several years.
6
The carrying value of each parcel includes the original cost plus any real
estate taxes, interest and, where applicable, direct costs capitalized while
rezoning or governmental approvals were being sought. Such costs were
capitalized until the property was offered for sale, after which time such costs
were expensed. 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 December 31, 1998.
Contract Operations Segment
OTHER DEVELOPMENTS
Effective July 1, 1998, E'town, through Liberty, has 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 June
1999 and $19 million in June 2000. Also under the terms of the contract,
Liberty will deposit $57.8 million from revenues earned over 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. 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 $4.0 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.
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. Expenditures include capital improvements to the water
system as well as contract payments to the Township of Edison. Of the total,
approximately $3.6 million is expected to be expended in the next three years
of the contract. An initial payment of $5.7 million was made upon the closing
in June 1997 and has been included in concession fees on privatization
contracts, net of amortization. Performance by Edison of the contract
provisions is guaranteed by E'town.
Engineering/Operations/Construction Segment
In 1995 the Corporation entered into a three-year joint venture agreement
with AWG to form a New Jersey limited liability company, Applied Watershed
Management, LLC. AWG was a unit of several privately held and affiliated
companies providing design, engineering, construction and operating services
for water and wastewater facilities. E'town exercised an option to purchase
the operations of AWG to provide a full complement of water and wastewater
services and consequently closed on the transaction in June 1998. The
purchase price was $6.61 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. Of the shares issued, 20% are being held in escrow. 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 downward post-closing adjustment is not
yet determinable.
7
<PAGE>
Executive Officers of the Corporation and Elizabethtown
Name Age Positions Held
Anne Evans Estabrook 54 Chairman of the Corporation since 1997.
Vice President of the Corporation since
1987. Owner of the Elberon Development
Co., (a real estate holding company)and
President of David 0. Evans, Inc. (a
construction company).
Andrew M. Chapman 43 President of the Corporation since 1997,
Chief Financial Officer of the
Corporation from 1989 until 1997 and
Treasurer of the Corporation from 1990
to 1997. President of Elizabethtown
since 1996 and Executive Vice President
of Elizabethtown from 1994 to 1995. He
served as Senior Vice President of
Elizabethtown from 1993 to 1994, Chief
Financial Officer of Elizabethtown from
1990 to 1995 and Treasurer of
Elizabethtown from 1989 to 1994.
Gail P. Brady 53 Treasurer of the Corporation since 1997,
Senior Vice President, Chief Financial
Officer and Treasurer of Elizabethtown
since 1998 and Vice President - Finance,
Regulatory Affairs and Treasurer of
Elizabethtown since 1994.
Dennis W. Doll 40 Controller of the Corporation since
1997, Vice President and Controller of
Elizabethtown since 1998 and Controller
of Elizabethtown since 1994.
Norbert Wagner 63 Senior Vice President - Operations of
Elizabethtown since 1992.
Item 2. Properties
All principal plants and other materially important units of property of
Elizabethtown and Mount Holly are owned in fee. The Company considers that
the properties of Elizabethtown and Mount Holly are in good operating
condition.
Item 3. Legal Proceedings
Their are environmental matters that are inherent in the production,
transmission and distribution of water as well as in the treatment of
wastewater. The Corporation is sensitive to these issues and mitigates the
environmental impact of these activities to the extent required by the laws
and regulations under which these activities are governed and makes efforts
to exceed the regulatory requirements where practical.
The Corporation, in the ordinary course of business, periodically becomes
involved in litigation. There is currently no litigation in progress
regarding environmental or other issues in which an outcome adverse to the
Corporation would have a material impact on the financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
None
8
<PAGE>
PART II
Item 5. Market for the Corporation's Common Stock and Related Stockholder
Matters
This information is included in Exhibit 13, filed herewith, and is
incorporated herein by reference. All of the common stock of Elizabethtown
Water Company is owned by E'town.
9
<PAGE>
Item 6. Selected Financial Data
E'town Corporation
This information is included in Exhibit 13, filed herewith, and is
incorporated herein by reference.
Elizabethtown Water Company
1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------
Utility Plant (Thousands)
Utility Plant - net $604,899 $572,785 $560,024 $507,858 $437,456
Construction Expenditures
(excluding AFUDC) 43,500 24,612 55,125 73,789 69,981
Total Assets 683,328 646,318 640,779 580,808 502,848
Capitalization (Thousands)
Shareholder's Equity 208,573 193,354 182,293 176,685 151,624
Preferred Stock 12,000 12,000 12,000 12,000 12,000
Debt (1) 267,178 249,974 250,963 208,952 164,951
Total Capitalization $487,751 $455,328 $445,256 $397,637 $328,575
Capitalization Ratios
Common Stock 43% 42% 41% 44% 46%
Preferred Stock 2% 3% 3% 3% 4%
Debt (1) 55% 55% 56% 53% 50%
Earnings Applicable to
Common Stock (Thousands) $ 23,955 $ 20,092 $ 15,942 $ 16,512 $ 13,369
Operating Statistics
Revenues (Thousands)
General Customers $ 87,698 $ 85,195 $ 68,797 $ 67,455 $ 62,923
Other Water Systems 22,181 21,900 18,929 18,720 18,082
Industrial Wholesale 8,148 8,451 7,869 7,947 7,458
Fire Service/Miscellaneous 6,820 16,242 14,763 14,276 13,570
Total Revenues $134,847 $131,788 $110,358 $108,398 $102,033
Water Sales - Millions of Gallons (mg)
General Customers 24,609 24,333 22,890 23,999 23,551
Other Water Systems 14,397 14,504 15,049 15,569 15,691
Industrial Wholesale 3,482 3,533 3,567 3,673 3,568
System Use and Unaccounted 6,933 6,948 6,444 6,402 6,570
Total Water Sales 49,421 49,318 47,950 49,643 49,380
System Delivery by Source - mg
Surface 48,067 42,585 41,485 42,646 42,534
Wells 1,072 6,689 6,328 6,764 6,690
Purchased 282 44 137 233 156
Total System Delivery 49,421 49,318 47,950 49,643 49,380
Millions of Gallons Pumped:
Average Day 135 135 131 136 135
Maximum Day 196 205 170 183 182
General Information
Customers 200,251 197,663 195,482 192,617 189,440
Miles of Main 2,953 2,926 2,899 2,869 2,828
Fire Hydrants Served 16,402 16,228 16,012 15,650 15,291
==============================================================================
(1) Includes long-term debt, notes payable and long-term debt-current portion.
10
<PAGE>
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
E'town Corporation
This information is included in Exhibit 13, filed herewith, and is
incorporated by reference.
Elizabethtown Water Company and Subsidiary
The water utility operations of Elizabethtown Water Company (Elizabethtown)
and its subsidiary, The Mount Holly Water Company (Mount Holly), presently
constitute the major portion of E'town Corporation (E'town or Corporation),
assets and earnings. Elizabethtown and Mount Holly are regulated water
companies which, as a consolidated entity are referred to herein as
Elizabethtown Water Company (Company). Mount Holly contributed about 3% of
the Company's consolidated operating revenues for 1998. The following
analysis sets forth significant events affecting the financial condition of
Elizabethtown at December 31, 1998, and the results of operations for the
years ended December 31, 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
Capital Expenditures Program
In 1998, capital expenditures were $43.5 million, primarily for water utility
plant. For the three years ending December 31, 2001, capital and investment
requirements for Elizabethtown are estimated to be $124.5 million, primarily
for water utility plant consisting of $107.5 million for Elizabethtown and
$17.0 million for Mount Holly.
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 later in 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 of the aquifer. Mount Holly
designed a project to obtain water from outside the affected part of the
aquifer for delivery into the Mount Holly system. In August 1998, the New
Jersey Board of Public Utilities (BPU) adopted a Stipulation among Mount
Holly and other parties concluding that this project (the "Mansfield
Project") is the most cost effective method for Mount Holly to comply with the
state regulations.
To settle an appeal initiated by New Jersey-American Water Company (NJAM)
concerning the diversion rights for the Mansfield Project, Mount Holly signed
a Stipulation with NJAM, the New Jersey Department of Environmental
Protection (DEP) and other parties, requiring Mount Holly to purchase one
million gallons per day from NJAM during the two-year period that the
Mansfield Project is being constructed. Purchases began during March of 1998,
after completion of an interconnection.
11
In September 1997, Mount Holly filed a petition with the BPU to establish a
Purchased Water Adjustment Clause (PWAC) to reflect the cost of water
purchased from NJAM under the agreement discussed above. On May 27, 1998 the
BPU adopted a Stipulation signed by the parties to the PWAC case for an
increase in annual revenues under Mount Holly's PWAC of $1.3 million or
38.9%. Mount Holly has deferred the increase in purchased water cost between
March 19 and May 27. Recovery of this amount has been requested in the rate
increase discussed below. As of December 31, 1998, Mount Holly has deferred
$.1 million of these costs.
Mount Holly filed for a rate increase in January 1999 to reflect a portion of
the expenditures for the Mansfield Project, as well as to increase the rates
of return realized and, therefore, the contribution to E'town's earnings per
share.
Capital Resources
During 1998, Elizabethtown financed 56.3% of its capital expenditures 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 and proceeds from capital contributions from E'town (funded by
issuances of Common Stock under the Corporation's Dividend Reinvestment and
Stock Purchase Plan).
For the three-year period ending December 31, 2001, Elizabethtown estimates
that 67.5% of its currently projected capital expenditures 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
capital contributions from E'town sales of common stock, proceeds from
tax-exempt New Jersey Economic Development Authority (NJEDA) bonds and
short-term borrowings. Mount Holly's Mansfield Project will be financed from
requisitions from the New Jersey Environmental Infrastructure Trust Financing
Program (see below). 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 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, 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%.
Interest Rate Risk
The Company is subject to the risk of fluctuating interest rates in the
normal course of business. The Company manages interest rates through the use
of fixed and, to a lesser extent, variable rate debt. As of December 31,
1998, a hypothetical single percentage point change in interest rates would
result in a $.9 million change in interest costs and earnings before tax
related to short-term and variable rate debt.
RESULTS OF OPERATIONS
Net Income for 1998 was $24.0 million as compared to $20.1 million for 1997.
Net income increased by $3.9 million, primarily comprised of (i) $.6 million
due to an extended dry period in the summer of 1998 resulting in higher water
consumption than in 1997 (ii) $1.3 million from lower operating expenses due
to a combination of a mild winter in 1998, more efficient use of our work
force, lower employee benefit costs and success with our ongoing cost control
efforts (iii) $.7 million as a result of new customers and (iv) $.5 million
related to refinancing short-term debt at lower interest rates. Capitalized
construction interest accounted for an increase in net income of $.5 million.
Net Income for 1997 was $20.1 million as compared to $15.9 million for 1996.
The increase in net income and earnings per share is attributable to the
$21.8 million rate increase for the new Plant in October 1996, which was
offset by the operating and financing costs of the Plant. Net income also
increased $1.4 million, primarily due to variations in the weather,
specifically the dry summer of 1997, as compared to the wet summer of 1996.
12
Operating Revenues increased $3.1 million or 2.3% in 1998 over the comparable
1997 amount. The increase is primarily comprised of $1.4 million from water
service to residential and wholesale customers attributable to increased
water consumption as a result of warmer, drier weather in the summer of 1998
than in 1997. New customers accounted for $.7 million of the increase. The
PWAC rate increase for Mount Holly accounted for the remainder of the
increase.
Operating Revenues increased $21.4 million or 19.4% in 1997 over the
comparable 1996 amount. The increase is primarily comprised of $17.7 million
from a rate increase for Elizabethtown, effective October 1996 and $3.1
million from increased water consumption. The increase in water consumption
is primarily due to the dry summer of 1997.
Operation Expenses decreased $.2 million or .4% in 1998 from 1997. The
Company experienced a decrease of $1.0 million from lower operating costs due
to a mild winter, greater work force utilization, ongoing cost control
efforts and decreased employee benefit costs. These decreases were partially
offset by an increased cost of labor, purchased water for Mount Holly and
variable costs for the higher water sales.
Operation Expenses increased $1.6 million or 3.6% in 1997 over the comparable
1996 amount. Increases resulting from variable costs associated with the
increase in water consumption totaled $.3 million. Labor costs increased $.6
million. The remainder of the increase is attributable to various items,
including operating costs for the Plant, information technology and other
administrative costs.
Maintenance Expenses decreased $.9 million or 13.3% in 1998, as compared to
1997 due to improved procurement procedures and preventative maintenance
programs.
Maintenance Expenses increased $.7 million or 11.8% in 1997 over the
comparable 1996 amount. This increase is primarily attributable to costs
associated with the maintenance of the Plant. The increase also includes $.4
million related to the costs of determining the most cost-effective method
for disposing of byproducts (waste residuals) generated from the water
treatment process at the Raritan-Millstone Plant.
Depreciation Expense increased $.2 million or 1.7% in 1998 compared to 1997
due to depreciation on utility plant additions.
Depreciation Expense increased $2.3 million or 23.7% in 1997 compared to
1996. The increase includes $2.1 million for the Plant and $.8 million for
other utility plant additions. A decrease of $.6 million resulted from
Elizabethtown no longer being required by the BPU to depreciate utility plant
acquired through Contributions In Aid of Construction and Customers' Advances
for Construction. This change was agreed to by the parties to Elizabethtown's
last rate case for which an increase was effective in October 1996.
Revenue Taxes increased $.2 million or 1.1% in 1998 and $2.7 million or 19.8%
in 1997 due to the taxes on increases in operating revenues discussed above.
Real Estate, Payroll and Other Taxes decreased $.5 million or 14.7% in 1998.
This overall decrease was comprised of additional payroll taxes due to
additional labor costs which were offset by decreases from lower than
anticipated property taxes on the Plant. These taxes increased $.2 million or
6.8% in 1997 due to additional labor costs, as well as additional property
taxes.
Federal Income Taxes as a component of operating expenses increased $1.7
million or 15.0% and $3.7 million or 49.8% as compared to 1997 and 1996,
respectively, due to the changes in the components of taxable income for all
segments discussed herein.
13
Other Income (Expense) increased $.3 million or 70.5% due to a $.4 million
increase in Allowance for Funds Used During Construction (AFUDC), primarily
for Elizabethtown's western operations center. Federal income taxes increased
$.1 million for the taxes on the AFUDC.
Other Income (Expense) decreased $2.3 million or 83.0% compared to the 1996
amount. A decrease in the equity component of Allowance for Funds Used During
Construction (AFUDC) of $3.5 million resulted from no longer capitalizing the
financing costs associated with the Plant as the facility was placed in
service in October 1996. An increase of $1.2 million for other miscellaneous
items, as well as the offsetting federal income taxes associated with the
Other Income (Expense), account for the remainder of the decrease.
Total Interest Charges decreased $1.0 million or 6.1% due primarily to
refinancing short-term debt at lower interest rates. In addition, the debt
component of AFUDC increased $.3 million, resulting in lower interest
expense, as a result of higher construction expenditures, primarily for
Elizabethtown's new western operations center.
Total Interest Charges increased $3.8 million or 29.8% in 1997 over the
comparable 1996 amount. The increase includes $3.0 million due to a reduction
in capitalized interest as a result of the Plant being placed in service in
October 1996. Interest expense also increased due to increased borrowings
incurred to finance capital expenditures.
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 markets, increases in
operating expenses due to factors beyond the Company's control, changes in
environmental regulation and associated costs of compliance and other claims
or assessments made upon the Company.
Elizabethtown and Mount Holly
Over the next several years, management will seek to increase earnings by
maximizing earned returns through expansion efforts to increase sales and
through cost control measures. Capital to finance water investments will be
raised from external sources and from capital contributions from E'town.
Earnings 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 and other factors. For 1999, the Company expects earnings to be
somewhat lower than in 1998, based on an assumed return to normal weather
patterns after the unusually dry summers in 1998 and 1997. In particular,
Elizabethtown's return should be somewhat lower in 1999 given that this year
will be the third year since the last rate adjustment.
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 earned significantly below its authorized
return in 1998 and 1997 as the Company was precluded from filing for needed
rate relief due to ongoing litigation with NJAM. Management expects Mount
Holly to increase its return 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.
14
New Accounting Pronouncements
See Note 2 of Elizabethtown's Notes to Consolidated Financial Statements for
a discussion of new accounting standards that were effective in 1998.
Year 2000
State of Readiness
The Company has assessed its significant business systems, as well as
non-critical, peripheral support system for compliance with the Year 2000.
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 Company could have an
impact on the Company'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 Company 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. An implementation plan has been developed and is being
implemented.
The Costs to Address The Company's Year 2000 Issues
The significant business systems of the Company 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 Company 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 Company'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 Company's financial profile. Management therefore believes that risks
associated with this issue are minimal with respect to those areas, which are
internal to the Company and, over which management exercises complete
control. Those areas that are external to the Company 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.
15
<PAGE>
Item 8. Financial Statements and Supplementary Data
The information for E'town is included in Exhibit 13, filed herewith, and is
incorporated herein by reference.
The information for Elizabethtown Water Company is contained in Appendix I
hereto, incorporated by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to directors of E'town and Elizabethtown is included
in E'town's Proxy Statement for the 1999 Annual Meeting of Stockholders, and
is incorporated herein by reference.
Information regarding the executive officers of both E'town and Elizabethtown
is included under Item I in Part I of this Form 10-K.
Item 11. Executive Compensation
This information for E'town and Elizabethtown is included in E'town's Proxy
Statement for the 1999 Annual Meeting of Stockholders, and is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information is included in E'town's Proxy Statement for the 1999 Annual
Meeting of Stockholders, and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This information for E'town and Elizabethtown is included in E'town's Proxy
Statement for the 1999 Annual Meeting of Stockholders, and is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this report:
1. Financial Statements:
Elizabethtown Water Company
Statements of Consolidated Income for the years ended December 31, 1998, 1997
and 1996.
Consolidated Balance Sheets as of December 31, 1998 and 1997.
Statements of Consolidated Capitalization as of December 31, 1998 and
1997.
16
Statement of Consolidated Shareholder's Equity for the years ended
December 31, 1998, 1997 and 1996.
Statements of Consolidated Cash Flows for the years ended December 31,
1998, 1997 and 1996.
Notes to Consolidated Financial Statements.
E'town Corporation
A portion of the 1998 Annual Report to Shareholders which includes
Management's Discussion and Analysis of Consolidated Financial Condition and
Results of Operations, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Independent Auditors' Report and Other
Financial and Statistical Data is filed herewith as Exhibit 13 and is herein
incorporated by reference.
Elizabethtown Water Company
The Independent Auditors' Report and Elizabethtown Water Company's consolidated
financial statements and notes thereto are contained in Appendix I hereto,
incorporated by reference herein.
2. Financial Statement Schedules:
E'town Corporation
Elizabethtown Water Company
Schedule II - Valuation and Qualifying Accounts for the Years Ended December
31, 1998, 1997 and 1996.
Supplemental Schedule of Property, Plant and Equipment at December 31, 1998
and 1997.
Other schedules are omitted because of the absence of the conditions under
which they are required or because the required information is included in
the financial statements or the notes accompanying each Company's financial
statements.
3. Exhibits
(a) Exhibits for E'town and Elizabethtown Water Company are listed
in the Exhibit Index, which is incorporated by reference herein.
(b) Reports on Form 8-K: None
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
E'TOWN CORPORATION
March 31, 1999
By: /s/ Anne Evans Estabrook
Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1999.
Chairman and Director /s/ Anne Evans Estabrook
President and Director /s/ Andrew M Chapman
Director /s/ Thomas J. Cawley
Director /s/ Anthony S. Cicatiello
Director /s/ James W. Hughes
Director /s/ Barry T. Parker
Director /s/ Hugo M. Pfaltz, Jr.
Director /s/ Chester A. Ring III
Director /s/ Joan Verplanck
Director /s/ Edward A. Clerico
Treasurer /s/ Gail P. Brady
(Principal Financial Officer)
Controller /s/ Dennis W. Doll
(Principal Accounting Officer)
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
ELIZABETHTOWN WATER COMPANY
March 31, 1999
By: /s/ Anne Evans Estabrook
Chairman and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 31, 1999.
Chairman and Director /s/ Anne Evans Estabrook
President and Director /s/ Andrew M. Chapman
Director /s/ Thomas J. Cawley
Director /s/ Anthony S. Cicatiello
Director /s/ James W. Hughes
Director /s/ Barry T. Parker
Director /s/ Hugo M. Pfaltz, Jr.
Director /s/ Chester A. Ring III
Director /s/ Joan Verplanck
Director /s/ Edward A. Clerico
Vice President - Finance & Treasurer /s/ Gail P. Brady
(Principal Financial Officer)
Controller /s/ Dennis W. Doll
(Principal Accounting Officer)
<PAGE>
INDEPENDENT AUDITORS' REPORT
E'TOWN CORPORATION:
We have audited the consolidated financial statements of E'town Corporation
and its subsidiaries as of December 31, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and have issued our report
thereon dated February 24, 1999; such consolidated financial statements and
report are included in your 1998 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the financial
statement schedules of E'town Corporation and its subsidiaries, listed in
Item 14. These financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
February 24, 1999
Parsippany, New Jersey
<PAGE>
Schedule II
E'TOWN CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Description: Period Expenses (A) Period
- -------------------------------------------------------------------
Reserve for
Uncollectible Accounts:
Year Ended 12/31/98 $612,000 $995,940 (B)$542,940 $1,065,000
Year Ended 12/31/97 $566,000 $607,929 $561,929 $612,000
Year Ended 12/31/96 $532,000 $600,242 $566,242 $566,000
(A) Write-off of uncollectible accounts, net of recoveries.
(B) Includes reserves for Liberty Water Company, ($39,970) and Applied Water
Management, Inc., ($344,630), acquired in 1998 and Edison Water Company
($37,400 acquired in 1997).
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
Additions
Balance at Charged to Balance at
Beginning of Costs and Deductions End of
Description: Period Expenses (A) Period
- ------------------------------------------------------------------
Reserve for
Uncollectible Accounts:
Year Ended 12/31/98 $612,000 $573,940 $542,940 $643,000
Year Ended 12/31/97 $566,000 $607,929 $561,929 $612,000
Year Ended 12/31/96 $532,000 $600,242 $566,242 $566,000
(A) Write-off of uncollectible accounts, net of recoveries.
<PAGE>
E'town Corporation & Subsidiaries Supplemental
Elizabethtown Water Company and Subdidiary Schedule
Property, Plant & Equipment
As of December 31, 1998
(In Thousands)
Elizabethtown Water Company and Subsidiary 1998 1997
- ------------------------------------------ ---- ----
Utility Plant In Service:
Intangible Plant $251 $251
Source of Supply Plant 21,688 20,513
Pumping Plant 62,578 57,498
Water Treatment Plant 160,259 156,601
Transmission & Distribution Plant 450,100 422,284
General Plant 18,778 19,994
Leasehold Improvements 15 136
Acquisition Adjustments 632 632
-------- --------
Utility Plant In Service 714,301 677,909
Construction Work In Progress 15,694 9,300
-------- --------
Total Utility Plant 729,995 687,209
======== ========
Non-Utility Property - Net 7,315 79
-------- --------
Total $737,310 $687,288
======== ========
E'town Corporation and Subsidiaries
- -----------------------------------
Utility Plant (from above) 729,995 687,209
Utility Plant (AWWM) 3,684
Construction Work In Progress (AWWM) 886
-------- --------
Total Utility Plant $734,565 $687,209
Non-utility Property and Other Investments-Net 84,945 20,570
-------- --------
Total $819,510 $707,779
======== ========
<PAGE>
EXHIBIT INDEX
Certain of the following exhibits, designated with an asterisk(*), are filed
herewith. The exhibits not so designated have heretofore been filed with the
Commission and are incorporated herein by reference to the documents
indicated in brackets following the description of such exhibits. Exhibits
designated with a (1) are management contracts or compensatory plans or
arrangements.
E'town Corporation
Exhibit
No. Description
3(a) - Certificate of Incorporation of E'town Corp.
[Registration Statement No. 33-42509, Exhibit 4(a)]
*3(b) - By-Laws of E'town Corp.
3(c) - Certificate of Incorporation of E'town Properties, Inc.
[Registration Statement No. 33-32143, Exhibit 4(j)]
3(d) - By-laws of E'town Properties, Inc. [Registration Statement
No. 33-32143, Exhibit 4(n)]
4(a) - Rights Agreement dated as of February 4, 1991 between
E'town and the Rights Agent [Registration Statement No.
33-38566, Exhibit 4(n)]
4(b) - Indenture dated as of January 1, 1987 from E'town
Corporation to Boatmen's Trust, Trustee, relating to the
6 3/4% Convertible Subordinated Debentures due 2012
[Registration Statement No. 33-32143, Exhibit 4(a)]
4(c) - Note Purchase Agreement relating to the 6.79% Senior Notes
due December 15, 2007
10(a) - Incentive Stock Option Plan [Registration Statement No.
2-99602, Exhibit 28(a)] (1)
10(b) - Savings and Investment Plan - 401(k) [Form 10-K for the
year 1994, Exhibit 10(b)]
10(c) - E'town's 1987 Stock Option Plan [Registration Statement No.
33-42509, Exhibit 28] (1)
10(d) - Management Incentive Plan [Registration Statement No.
33-38566, Exhibit 10(i)] (1)
10(e) - E'town's 1998 Stock Option Plan [Definitive Proxy
Statement for 1998 Annual Meeting of Stockholders, filed
pursuant to Rule 14a-6(b)] (1)
10(f) - E'town's 1998 Directors Stock Plan [Definitive Proxy
Statement for 1998 Annual Meeting of Stockholders, filed
pursuant to Rule 14a-6(b)] (1)
10(g) - E'town's 1990 Performance Stock Program [Registration
Statement No. 33-46532, Exhibit 10(k)] (1)
<PAGE>
Exhibit
No. Description
10(h) - E'town's Dividend Reinvestment and Stock Purchase Plan
[Registration No. 333-69549, Dated December 23, 1998]
10(i) - Change of Control Agreement for Andrew M. Chapman [Form
10-Q for the quarter ended March 31, 1995, Exhibit 10] (1)
10(j) - Contract Between Edison Water Company, E'town Corporation
and the Township of Edison to Operate the Water
System of the Township of Edison, New Jersey dated as of
June 25, 1997 [Form 10-Q for the quarter ended June 30,
1997, Exhibit 10(a)]
10(k) - Employment Contract Between E'town Corporation and
Anne Evans Estabrook [Form 10-K for the year 1997,
Exhibit 10(k)] (1)
10(l) - Change in Control Agreement for Anne Evans Estabrook
[Form 10-K for the year 1997, Exhibit 10(k)] (1)
10(m) - Contract with the City of Elizabeth, New Jersey for
the Operation by E'town Corporation of the City's Water
System [Form 10-Q for the quarter ended September 30,
1998, Exhibit 10(m)]
10(n) - Employment Agreement between Applied Water Management, Inc.
and Edward A. Clerico [Form 10-Q for the quarter ended
September 30, 1998, Exhibit 10(n)]
*10(o) - Change in Control Agreement for certain officers
*12 - Computation of Ratio of Earnings to Fixed Charges
*13 - Portion of the 1998 Annual Report to Shareholders which
includes Management's Discussion and Analysis of
Consolidated Financial Condition and Results of
Operations, Consolidated Financial Statements, Notes to
Consolidated Financial Statements, Independent Auditors'
Report and Other Financial and Statistical Data and is
herein incorporated by reference.
*21 - Subsidiaries of the Corporation
*23 - Consent of Deloitte & Touche LLP, Independent Auditors
*27 - Financial Data Schedule
<PAGE>
Elizabethtown Water Company
Exhibit
No. Description
3(a) - Form of Restated Certificate of Incorporation of
Elizabethtown Water Company
[Form 10-K for the year ended December 31, 1994,
Exhibit 3(a)]
*3(b) - By-laws of Elizabethtown Water Company
4(a) - Indenture dated as of November 1, 1994 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to the 7 1/4% Debentures due 2028 [Form 10-K for year
ended December 31, 1994, Exhibit 4(a)]
4(b) - Indenture dated as of September 1, 1992 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to the 8% Debentures due 2022 [Form 10-K for year ended
December 31, 1993, Exhibit 4(a)]
4(c) - Indenture dated as of October 1, 1991 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to the 8 3/4% Debentures due 2021 [Registration Statement
No. 33-46532, Exhibit 4(f)]
4(d) - Indenture dated as of August 1, 1991 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to the 6.60% Debentures due 2021 [Registration Statement
No. 33-46532, Exhibit 4(g)]
4(e) - Indenture dated as of August 1, 1991 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to the 6.70% Debentures due 2021[Registration Statement
No. 33-46532, Exhibit 4(h)]
4(f) - Indenture dated as of October 1, 1990 from Elizabethtown
Water Company to Citibank, N.A., Trustee, relating to the
7 1/2% Debentures due 2020 [Registration Statement No.
33-38566, Exhibit 4(e)]
4(g) - Indenture dated as of December 1, 1989 from Elizabethtown
Water Company to Citibank, N.A., Trustee, relating to the
7.20% Debentures due 2019 [Registration Statement No.
33-38566, Exhibit 4(f)]
4(h) - Indenture dated as of December 1, 1995 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to the 5.60% Debentures due 2025
4(i) - Indenture dated as of June 1, 1997 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to Variable Rate Demand Debentures, due 2027 (Series B)
[Form 10-Q for the quarter ended September 30, 1997,
Exhibit 4(i)]
4(j) - Indenture dated as of June 1, 1997 from Elizabethtown
Water Company to The Bank of New York, Trustee, relating
to Variable Rate Demand Debentures, due 2027 (Series A)
[Form 10-Q for the quarter ended September 30, 1997,
Exhibit 4(j)]
*4(k) - Loan Agreement Dated November 1, 1998 Between the State
of New Jersey, Acting Through the New Jersey Department
of Environmental Protection, and The Mount Holly Water
Company
<PAGE>
Exhibit
No. Description
*4(l) - Loan Agreement Dated November 1, 1998 Between the New
Jersey Environmental Infrastructure Trust and The Mount
Holly Water Company
10(a) - Contract for service to Middlesex Water Company.
[Registration Statement No. 33-38566, Exhibit 10(a)]
10(b) - Contract for service to Edison Township. [Form 10-Q for
the quarter ended June 30, 1997, Exhibit 10(b)
10(c) - Contract for service to New Jersey-American Water
Company. [Form 10-K for the year ended December 31, 1993,
Exhibit 10(c)]
10(d) - Contract for service to City of Elizabeth. [Form 10-K for
the year ended December 31, 1992, Exhibit 10(d)]
10(e) - Contract for service to Franklin Township.[Registration
Statement No. 33-46532, Exhibit 10(e)]
10(f) - Contract with the New Jersey Water Supply Authority
for the purchase of water from the Raritan Basin.
[Registration Statement No. 33-32143, Exhibit 10(e)]
10(g) - Supplemental Executive Retirement Plan of Elizabethtown
Water Company [Form 10-K for the year ended December 31,
1992, Exhibit 10(g)] (1)
10(h) - Medical Reimbursement Plan of Elizabethtown Water Company
[Form 10-K for the year ended December 31, 1992, Exhibit
10(h)] (1)
10(i) - Supplemental Executive Retirement Plan of Elizabethtown
Water Company [Form 10-Q for the year ended September 30,
1995, Exhibit 10]
10(k) - Employment Contract Between Elizabethtown Water Company
and Anne Evans Estabrook [Form 10-K forthe year 1997,
Exhibit 10(k)] (1)
*10(l) - Amendment to Supplemental Executive Retirement Plan of
Elizabethtown Water Company (1)
*12(a) - Computation of Ratio of Earnings to Fixed Charges
*12(b) - Computation of Ratio of Earnings to Fixed
Charges and Preferred Dividends
*21 - Subsidiaries of the Company
*23 - Consent of Deloitte & Touche LLP, Independent Auditors
*27 - Financial Data Schedule.
<PAGE>
APPENDIX I
INDEPENDENT AUDITORS' REPORT
TO THE SHAREHOLDER AND BOARD OF DIRECTORS OF ELIZABETHTOWN WATER COMPANY:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of Elizabethtown Water Company and its
subsidiary as of December 31, 1998 and 1997, and the related statements of
consolidated income, shareholder's equity, and cash flows for each of the
three years in the period ended December 31, 1998. Our audits also included
the financial statement schedules listed in the Index at Item 14. These
financial statements and financial statement schedules are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Elizabethtown Water Company and
its subsidiary at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
February 24, 1999
Parsippany, New Jersey
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY APPENDIX I
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands)
Year Ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------
Operating Revenues $ 134,847 $ 131,788 $ 110,358
- -----------------------------------------------------------------------------
Operating Expenses:
Operation 45,117 45,301 43,713
Maintenance 5,674 6,548 5,859
Depreciation 12,439 12,233 9,893
Revenue taxes 16,728 16,550 13,820
Real estate, payroll and other taxes 2,613 3,064 2,869
Federal income taxes 12,678 11,026 7,360
- -----------------------------------------------------------------------------
Total operating expenses 95,249 94,722 83,514
- -----------------------------------------------------------------------------
Operating Income 39,598 37,066 26,844
- -----------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction 597 215 3,725
Federal income taxes (423) (248) (1,462)
Other - net 612 494 452
- -----------------------------------------------------------------------------
Total other income (expense) 786 461 2,715
- -----------------------------------------------------------------------------
Total Operating and Other Income 40,384 37,527 29,559
- -----------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 14,721 14,030 13,011
Other interest expense - net 960 2,382 2,640
Allowance for funds used during construction (456) (166) (3,208)
Amortization of debt discount and expense-net 391 376 361
- -----------------------------------------------------------------------------
Total interest charges 15,616 16,622 12,804
- -----------------------------------------------------------------------------
Net Income 24,768 20,905 16,755
Preferred Stock Dividends 813 813 813
- -----------------------------------------------------------------------------
Earnings Applicable To Common Stock $ 23,955 $ 20,092 $ 15,942
=============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY APPENDIX I
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
Assets 1998 1997
- -----------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $ 714,301 $ 677,909
Construction work in progress 15,694 9,300
- -----------------------------------------------------------------------------
Total utility plant 729,995 687,209
Less accumulated depreciation and amortization 125,096 114,424
- -----------------------------------------------------------------------------
Utility plant-net 604,899 572,785
- -----------------------------------------------------------------------------
Non-utility Property (Note 4) 7,315 79
- -----------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 3,598 4,226
Customer and other accounts receivable
(less reserve: 1998, $670, 1997, $612) 16,952 17,283
Unbilled revenues 10,091 9,663
Infrastructure loan funds receivable (Note 4) 5,895
Materials and supplies-at average cost 2,538 1,966
Prepaid insurance, taxes, other 2,433 3,461
- -----------------------------------------------------------------------------
Total current assets 41,507 36,599
- -----------------------------------------------------------------------------
Deferred Charges:
Waste residual management 1,371 936
Unamortized debt and preferred stock expenses 9,368 9,656
Taxes recoverable through future rates (Note 3) 14,226 21,439
Postretirement benefit expense (Note 10) 3,490 3,738
Other unamortized expenses 1,152 1,086
- -----------------------------------------------------------------------------
Total deferred charges 29,607 36,855
- -----------------------------------------------------------------------------
Total $ 683,328 $ 646,318
=============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY APPENDIX I
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
Capitalization and Liabilities 1998 1997
- -----------------------------------------------------------------------------
Capitalization (Note 4):
Common shareholder's equity $ 208,573 $ 193,354
Mandatory redeemable cumulative preferred stock 12,000 12,000
Long-term debt - net 245,148 231,944
- -----------------------------------------------------------------------------
Total capitalization 465,721 437,298
- -----------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks 22,000 18,000
Long-term debt - current portion 30 30
Accounts payable and other liabilities 12,457 10,626
Customers' deposits 248 272
Municipal and state taxes accrued 16,776 16,817
Interest accrued 3,228 3,120
Preferred stock dividends accrued 59 59
- -----------------------------------------------------------------------------
Total current liabilities 54,798 48,924
- -----------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 40,874 39,131
Federal income taxes (Note 3) 64,696 67,851
Unamortized investment tax credits 7,839 8,042
Accumulated postretirement benefits (Note 10) 3,947 4,209
- -----------------------------------------------------------------------------
Total deferred credits 117,356 119,233
- -----------------------------------------------------------------------------
Contributions in Aid of Construction 45,453 40,863
- -----------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note 9)
- -----------------------------------------------------------------------------
Total $ 683,328 $ 646,318
=============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY APPENDIX I
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands)
December 31,
1998 1997
- -----------------------------------------------------------------------------
Common Shareholder's Equity (Note 4):
Common stock without par value, authorized,
15,000,000 shares, issued 1998 and 1997, 1,974,902 $ 15,741 $ 15,741
Paid-in capital 132,753 124,560
Capital stock expense (485) (485)
Retained earnings 60,564 53,538
- -----------------------------------------------------------------------------
Total common shareholder's equity 208,573 193,354
- -----------------------------------------------------------------------------
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
New Jersey Environmental Infrastructure Trust Notes 7,295
Notes Payable (due serially through 2000) 30 57
- -----------------------------------------------------------------------------
Total long-term debt 246,220 233,057
Unamortized discount-net (1,072) (1,113)
- -----------------------------------------------------------------------------
Total long-term debt-net 245,148 231,944
- -----------------------------------------------------------------------------
Total Capitalization $ 465,721 $ 437,298
=============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY APPENDIX I
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands)
Year Ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------
Common Stock: $ 15,741 $ 15,741 $ 15,741
- -----------------------------------------------------------------------------
Paid-in Capital:
Balance at Beginning of Period 124,560 117,457 112,157
Capital contributed by parent company 8,193 7,103 5,300
- -----------------------------------------------------------------------------
Balance at End of Period 132,753 124,560 117,457
- -----------------------------------------------------------------------------
Capital Stock Expense (485) (485) (485)
- -----------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Period 53,538 49,580 49,272
Net income 24,768 20,905 16,755
Dividends on common stock (16,929) (16,134) (15,634)
Dividends on preferred stock (813) (813) (813)
- -----------------------------------------------------------------------------
Balance at End of Period 60,564 53,538 49,580
- -----------------------------------------------------------------------------
Total Common Shareholder's Equity $ 208,573 $ 193,354 $ 182,293
=============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY APPENDIX I
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
Year Ended December 31,
1998 1997 1996
- -----------------------------------------------------------------------------
Cash Flows from Operating Activities:
Net income $ 24,768 $ 20,905 $ 16,755
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,439 12,233 9,893
(Decrease) increase in deferred charges (501) 690 (613)
Deferred income taxes and investment tax
credits-net 3,855 2,693 4,853
Allowance for funds used during construction (1,053) (381) (6,934)
Other operating activities-net 252 362 68
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable 331 (558) 218
Unbilled revenues (428) (307) (1,912)
Accounts payable and other liabilities 1,807 (6,495) 365
Accrued/prepaid interest and taxes 1,095 3,173 (1,955)
Other (572) 78 (133)
- -----------------------------------------------------------------------------
Net cash provided by operating activities 41,993 32,393 20,605
- -----------------------------------------------------------------------------
Cash Flows Used by Financing Activities:
Capital contributed by parent company 7,861 7,103 5,300
Funds held in Trust by others (7,234)
Proceeds from issuance of debentures 50,000
Proceeds from issuance of other long-term debt 7,295
Debt and preferred stock issuance and
amortization costs 288 (667) 396
Repayment of long-term debt (27) (30) (30)
Contributions and advances for construction-net 6,333 4,759 2,521
Net increase (decrease) in notes payable-banks 4,000 (51,000) 42,000
Dividends paid on common stock and
preferred stock (17,637) (16,842) (16,342)
- -----------------------------------------------------------------------------
Net cash provided (used) by financing activities 879 (6,677) 33,845
- -----------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant expenditures (excluding allowance
for funds used during construction) (43,500) (24,612) (55,125)
- -----------------------------------------------------------------------------
Cash used for investing activities (43,500) (24,612) (55,125)
- -----------------------------------------------------------------------------
Net (Decrease) Increase in Cash and
Cash Equivalents (628) 1,104 (675)
Cash and Cash Equivalents at
Beginning of Period 4,226 3,122 3,797
- -----------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 3,598 $ 4,226 $ 3,122
=============================================================================
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 14,459 $ 16,063 $ 8,481
Income taxes $ 7,723 $ 5,981 $ 5,723
Preferred stock dividends $ 708 $ 708 $ 708
See Notes to Consolidated Financial Statements.
<PAGE>
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS APPENDIX I
1. Organization
Elizabethtown Water Company (Elizabethtown or Company) and its wholly owned
subsidiary, The Mount Holly Water Company (Mount Holly), is a wholly owned
subsidiary of E'town Corporation (E'town or Corporation). Elizabethtown and
Mount Holly are regulated water companies in the State of New Jersey. E'town
is also the parent of E'town Properties, Inc. (Properties), Edison Water
Company (Edison), Liberty Water Company, (Liberty), Applied Water Management,
Inc. (AWM) and Applied Wastewater Management, Inc. (AWWM).
2. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include Elizabethtown and its
subsidiariy, Mount Holly. Significant intercompany accounts and transactions
have been eliminated. Elizabethtown and Mount Holly are regulated water
utilities and follow the Uniform System of Accounts, as adopted by the New
Jersey Board of Public Utilities (BPU).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions 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.
Utility Plant and Depreciation
Income is charged with the cost of labor, materials and other expenses
incurred in making repairs and minor replacements, and in maintaining the
properties. Utility plant accounts are charged with the cost of improvements
and major replacements of property. When depreciable property is retired or
otherwise disposed of, the cost thereof, plus the cost of removal net of
salvage, is charged to accumulated depreciation. Depreciation is generally
computed on a straight-line basis at functional rates for all classes of
assets. The provision for depreciation, as a percentage of average
depreciable property, was 1.81% for 1998, 1.85% for 1997 and 1.73% for 1996.
Allowance for Funds Used During Construction
Elizabethtown and Mount Holly capitalize, as an appropriate cost of utility
plant, an Allowance for Funds Used During Construction (AFUDC), which
represents the cost of financing major projects during construction. AFUDC, a
non-cash credit on the Statements of Consolidated Income, is added to the
construction cost of the project and included in rate base and then recovered
through depreciation charges in rates during the assets' useful life. AFUDC
is comprised of a debt component (credited to Interest Charges), and an
equity component (credited to Other Income) in the Statements of Consolidated
Income. AFUDC totaled $1.05 million, $.38 million and $6.93 million for 1998,
1997 and 1996, respectively. AFUDC increased in 1996 during the construction
of the Canal Road Water Treatment Plant.
Revenues
Revenues are recorded based on the amounts of water delivered to customers
through the end of each accounting period. This includes an accrual for
unbilled revenues for water delivered from the time meters were last read to
the end of the respective accounting periods.
Federal Income Taxes
Elizabethtown files a consolidated tax return with E'town. Income taxes are
allocated to Elizabethtown based upon the Company's taxable income. Deferred
income taxes are provided for temporary differences in the recognition of
revenues and expenses for tax and financial statement purposes to the extent
permitted by the BPU. Elizabethtown and Mount Holly account for prior years'
investment tax credits by the deferral method, which amortizes the credits
over the lives of the respective assets.
Customers' Advances for Construction and Contributions in Aid of Construction
Customers' Advances for Construction (CAC) and Contributions in Aid of
Construction (CIAC) represent capital provided by developers for main
extensions to new real estate developments. Some portion of CAC is refunded
based upon the revenues that the new developments generate. CIAC also
represents CAC that, under the terms of individual main extension agreements,
are no longer subject to refund.
Short-term Investments
Short-term investments are stated at cost, which approximates market value.
Cash Equivalents
Elizabethtown Water Company considers all highly liquid debt instruments
purchased with maturities of three months or less to be cash equivalents.
New Accounting Pronouncements
In February 1998, the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The pronouncement revises certain
disclosure requirements for pension and other postretirement plans but does
not change the measurement or recognition of expenses under those plans. The
pronouncement standardizes the disclosure requirements for pensions and other
postretirement benefit obligations to the extent practicable, requires
additional information on changes in the benefit obligations and fair values
of plan assets that will facilitate financial analysis, and eliminates
disclosures that are no longer useful. Elizabethtown has adopted these new
disclosure requirements for the year ended December 31, 1998 (see Note 10).
In March 1998, the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is
effective for fiscal years beginning after December 15, 1998 and establishes
criteria for capitalizing certain internal use software costs. Adoption of
the SOP will not have an effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity". This Statement must be adopted by the
quarter ended March 31, 2000. The Company does not believe this Statement
will have any impact on its financial statements.
In June 1997, the FASB issued SFAS 130, "Reporting Comprehensive Income,"
which is effective for fiscal years beginning after December15, 1997. SFAS
130 dictates that all items required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement displayed with the same prominence as other financial statements.
It also requires that an enterprise classify items of other comprehensive
income by their nature in a financial statement and display the accumulated
balance of other comprehensive income separately from retained earnings and
additional paid-in capital in the equity section of a statement of financial
position. The Company adopted SFAS 130 effective January 1, 1998. The effects
of adoption of SFAS 130 are not material for the Company.
Reclassification
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
<PAGE>
3. Federal Income Taxes
The computation of federal income taxes and the reconciliation of the tax
provision computed at the federal statutory rate (35%) with the amount
reported in the Statements of Consolidated Income follow:
1998 1997 1996
- ---------------------------------------------
(Thousands of Dollars)
- ---------------------------------------------
Tax expense at
statutory rate $ 13,255 $ 11,262 $ 8,952
Items for which
deferred taxes are
not provided:
Difference between
book and tax
depreciation 63 58 132
Other (14) 157 (56)
Investment tax credits (203) (203) (205)
- ----------------------------------------------
Provision for federal
income taxes $ 13,101 $ 11,274 $ 8,823
==============================================
The provision for
federal income
taxes is composed of
the following:
Current $ 8,902 $ 7,212 $ 3,764
Tax on (deposits)
refunds on main
extensions 525 1,369 207
Deferred:
Tax depreciation 3,131 2,716 3,379
Capitalized
interest 91 19 1,264
Main cleaning and
lining 796 612 587
Other 40 (451) (174)
Investment tax
credits - net (203) (203) (204)
Refund from IRS (181)
- ---------------------------------------------
Total provision $ 13,101 $ 11,274 $ 8,823
=============================================
Elizabethtown and Mount Holly provide deferred taxes at the enacted statutory
rate for all temporary differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities irrespective of
the treatment for rate-making purposes. Management believes it is probable
that the accumulated tax benefits that previously have been treated as a
flow-through item to Elizabethtown and Mount Holly's customers will be
recovered from utility customers in the future. Accordingly, offsetting
regulatory assets were established. At December 31, 1998 Elizabethtown and
Mount Holly had deferred tax liabilities of $13.7 million and $.5 million.
There were also, at December 31, 1998, offsetting regulatory assets for the
same amounts representing the future revenue expected to be recovered through
rates based upon established regulatory practices which permit recovery of
current taxes payable. These amounts were determined using the enacted
Federal income tax rate of 35% and were calculated in accordance with SFAS
No. 109.
<PAGE>
The tax effect of significant temporary differences representing deferred
income tax assets and liabilities as of December 31, 1998 and 1997 is as
follows:
1998 1997
- ---------------------------------------------
(Thousands of Dollars)
- ---------------------------------------------
Water utility plant-net $(47,538) $(43,611)
Taxes recoverable through
future rates (14,226) (21,439)
Prepaid pension expense (29) 75
Capitalized interest (2,683) (2,591)
Waste residuals (480) (322)
Other assets 541 415
Other liabilities (281) (378)
- ---------------------------------------------
Net deferred income tax
liabilities $(64,696) $(67,851)
=============================================
4. Capitalization
E'town routinely makes equity contributions to Elizabethtown which represent
the proceeds of common stock issued under E'town's Dividend Reinvestment and
Stock Purchase Plan (DRP). Such equity contributions amounted to $7.86
million, $6.98 million and $5.30 million fir each of the three years ended
December 31, 1998, 1997 and 1996, respectively.
Preferred Stock
Elizabethtown's $5.90 Mandatory Redeemable Cumulative Preferred Stock is not
redeemable at the option of the Company. Elizabethtown is required to redeem
the entire issue at $100 per share on March 1, 2004.
Long-term Debt
Elizabethtown's long-term debt indentures restrict the amount of retained
earnings available to Elizabethtown to pay cash dividends (which is the
primary source of funds available to the Corporation for payment of dividends
on its common stock) or acquire Elizabethtown's common stock, all of which is
held by E'town. At December 31, 1998, $7.56 million of Elizabethtown's
retained earnings were restricted under the most restrictive indenture
provision.
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%. Non-utility Property includes $7.2 million of funds
held in trust by others relating to this financing. 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 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).
In June 1997 Elizabethtown issued a total of $50 million of 30-year Variable
Rate Debentures due December 2027, $25 million of Series A and $25 million of
Series B, to evidence a like amount of Variable Rate Notes issued through the
New Jersey Economic Development Authority (NJEDA). The proceeds were used to
repay $50 million of balances outstanding under Elizabethtown's revolving
credit agreement. The NJEDA Notes are remarketed on a weekly basis, at which
time the interest rates on each issue are subject to change. The rates in
effect as of December 31, 1998, were 3.90% for Series A and 3.85% for Series B.
<PAGE>
5. Lines of Credit
Elizabethtown has $55 million of uncommitted lines of credit with several
banks as of December 31, 1998. These lines, together with internal funds and
proceeds of future issuances of debt and preferred stock, and capital
contributions from proceeds from sales of common stock by E'town, are
expected to be sufficient to finance the Elizabethtown's capital needs.
Information relating to bank borrowings for 1998, 1997 and 1996 is as follows:
1998 1997 1996
---------------------------------------------
(Thousands of Dollars)
---------------------------------------------
Maximum amount
outstanding $22,000 $69,500 $69,000
Average monthly
amount
outstanding $14,983 $40,886 $45,240
Average interest rate
at year end 5.9% 6.0% 5.7%
Compensating balances
at year end $ -0- $ -0- $ -0-
Weighted average
interest rate based on
average daily balances 5.8% 5.8% 5.8%
6. Financial Instruments
The carrying amounts and the estimated fair values, as of December 31, 1998
and 1997, of financial instruments issued or held by the Company are as
follows:
1998 1997
- --------------------------------------------
(Thousands of Dollars)
- ---------------------------------------------
Cumulative preferred stock:
Carrying amount $12,000 $12,000
Estimated fair value 13,020 11,760
Long-term debt:
Carrying amount $245,148 $231,944
Estimated fair value 255,087 239,585
Estimated fair values are based upon quoted market prices for these or
similar securities.
7. Regulatory Assets and Liabilities
Certain costs incurred by Elizabethtown and Mount Holly, which have been
deferred, have been recognized as regulatory assets and are being amortized
over various periods, as set forth below:
1998 1997
- -----------------------------------------------
(Thousands of Dollars)
- -----------------------------------------------
Waste residual management $ 1,371 $ 936
Unamortized debt and
preferred stock expense 9,368 9,656
Taxes recoverable through
future rates (Note 3) 14,226 21,439
Postretirement benefit
expense (Notes 10 and 12) 3,490 3,738
Safety management expense 245 331
Business process redesign 210 284
Rate case expenses 7 80
PWAC under (over) recovery 305 (8)
- -----------------------------------------------
Total $29,222 $36,456
===============================================
<PAGE>
Waste Residual Management
The costs of disposing of the byproducts generated by Elizabethtown's and
Mount Holly's water treatment plants are being amortized and recovered in
rates over three- and five-year periods, respectively, for ratemaking and
financial statement purposes. No return is being earned on the deferred
balances related to these programs.
Unamortized Debt and Preferred Stock Expenses
Costs incurred in connection with the issuance or redemption of long-term
debt have been deferred and are being amortized and recovered in rates over
the lives of the respective issues for ratemaking and financial statement
purposes. Costs incurred in connection with the issuance and redemption of
preferred stock have been deferred and are being amortized and recovered in
rates over a 10-year period for ratemaking and financial statement purposes.
Other
Safety management expenses and business process redesign expenses relate to
studies undertaken by the Company and are being amortized and recovered in
rates over five years.
Purchased Water Adjustment Clause
In 1994, Elizabethtown established a Purchased Water Adjustment Clause
(PWAC), to reflect the cost of
water purchased from the New Jersey Water Supply Authority (NJWSA). The
current rate for the PWAC is zero since the costs of purchased water were
reflected in the 1996 rate case; however, because of the high pumpage in the
summer of 1998, Elizabethtown has under recovered its purchased water costs
and therefore, has deferred $.23 million as of December 31, 1998. As of
December 31, 1998, Mount Holly has deferred $.08 million of PWAC costs (see
Note 8).
Rate Case Expenses
Rate case expenses are being substantially recovered in rates during two-year
periods.
There were no regulatory liabilities at December 31, 1998 or 1997.
8. Regulatory Matters
Elizabethtown
In December 1997 the BPU adopted a Stipulation for rate increases for
Elizabethtown and Mount Holly, effective January 1, 1998, for the full
recovery of costs associated with SFAS No. 106 "Accounting for Employer's
Postretirement Benefits" on an accrual basis less the costs associated with
SFAS No. 106 expenses previously recovered in rates. The total increases in
annual operating revenues resulting from these Stipulations are $.39 million
for Elizabethtown and $.02 million for Mount Holly.
Elizabethtown expects to file for rate relief later in 1999 to recover
additional construction and financing costs since base rates were last
established in October 1996.
Mount Holly
On October 6, 1998, the BPU issued an Order adopting a Stipulation signed by
the parties to Mount Holly's proceeding for a review of the prudency of
constructing a new well field, treatment plant and pipeline to provide an
alternate water source required due to State mandated restrictions. This
project is known as the Mansfield Project. The Stipulation indicated that the
Mansfield Project provides the most cost-effective alternative available to
Mount Holly customers for meeting the requirements for an alternative source
of supply for the Mount Holly system. Effective in March 1998, Mount Holly
began purchasing 1 million gallons per day from New Jersey-American Water
Company (NJAM) and will continue to purchase this water until the later of
January 1, 2000 or the date the Mansfield Project is placed into service.
In September 1997, Mount Holly filed a petition with the BPU to establish a
PWAC to reflect the cost of water purchased from NJAM under the agreement
discussed above. On May 27, 1998 the BPU adopted a Stipulation signed by the
parties to the PWAC case for an increase in annual revenues under Mount
Holly's PWAC of $1.29 million or 38.9%. Mount Holly has deferred the increase
in purchased water cost between March 19 and May 27 as Other Unamortized
Expenses. Recovery of this amount has been requested in the rate increase
discussed below. As of December 31, 1998, Mount Holly has deferred
$.08 million of these costs.
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 the 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 the agreement to purchase water from NJAM and the
cancellation of the PWAC.
9. Commitments and Contingent Liabilities
Elizabethtown is obligated, under a contract that expires in 2013, to
purchase from the NJWSA a minimum of 37 billion gallons of water annually.
Effective July 1, 1997, the annual cost of water under contract is $7.86
million. The Company purchases additional water from the NJWSA on an
as-needed basis. The total cost of water purchased from the NJWSA was $8.91
million, $8.79 million and $8.70 million for 1998, 1997 and 1996,
respectively.
Mount Holly is obligated, under a contract, to purchase water from NJAM, at a
rate of 1 million gallons per day until the Mansfield Project is completely
in service in approximately January 2000. The annual cost of the purchased
water is $1.16 million.
Capital expenditures of Elizabethtown and Mount Holly are estimated to be
$107.54 million and $17.0 million, respectively, through 2001.
Expected future minimum rental payments required under noncancelable leases
with terms in excess of one year at December 31 of each of the years 1999
through 2003 are: 1999, $.72 million; 2000, $.76 million; 2001 $.79 million;
2002, $.80 million and 2003, $.61 million. Rent expense totaled $.73 million,
$.72 million and $.84 million in 1998, 1997 and 1996, respectively.
Elizabethtown leases vehicles and certain office equipment. The minimum
payments required under noncancelable leases with terms in excess of one year
at December 31 of each of the years 1999 through 2003 are: $1.01 million per
year. The lease expense for 1998 was $.26 million. There are no lease
expenses for 1997 or 1996 as vehicles were not leased during that time
period.
Environmental, Legal and Other Matters
There are environmental matters that are inherent in the production,
transmission and distribution of water as well as in the treatment of
wastewater. Elizabethtown and Mount Holly are sensitive to these issues and
mitigate the environmental impact of these activities to the extent required
by the laws and regulations under which these activities are governed and
make efforts to exceed the regulatory requirements where practical.
The Company, in the ordinary course of business, periodically becomes
involved in litigation. There is currently no litigation in progress
regarding environmental or other issues in which an outcome adverse to the
Company would have a material impact on the financial statements.
<PAGE>
10. Pension Plan and Other Postretirement Benefits
Pension Plan
Elizabethtown has a trusteed, noncontributory retirement plan, which covers
most employees.
Supplemental Pension Plan
The Company also has a supplemental retirement plan for certain management
employees that is not funded. Benefit payments under this plan are made
directly by the Corporation. The unfunded benefit obligation at December 31,
1998 and 1997 was $1.5 million and $1.4 million, respectively.
Other Postretirement Benefits
The Company provides certain health care and life insurance benefits for
substantially all of its retired employees. As a result of a contract
negotiated in February 1996 with the Company's bargaining unit, all union and
non-union employees retiring after January 1, 1997, pay 25% of future
increases in the premiums the Company pays for postretirement medical
benefits.
Under SFAS No. 106, the costs of postretirement benefits are accrued for each
year the employee renders service, based on the expected cost of providing
such benefits to the employee and the employee's beneficiaries and covered
dependents, rather than expensing these benefits on a pay-as-you-go basis.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1998, and for 1998 was
9%. This rate decreases linearly each successive year until it reaches 3.8% in
2008, after which the rate remains constant.
The rate increases effective January 1, 1998 allows for the full recovery of
costs associated with the implementation of SFAS No. 106, including an
amortization over 15 years of amounts previously deferred which were in
excess of amounts previously being recovered in rates. As of December 31,
1998, the amounts that have been deferred are $3.35 million and $.13 million
for Elizabethtown and Mount Holly, respectively.
Based upon an independent actuarial study, the transition obligation,
calculated under SFAS No. 106, was $7.26 million as of January 1, 1993, the
date of adoption of SFAS No. 106. The transition obligation is being
amortized over 20 years.
<PAGE>
---Pension Plans--- Other Postretirement
--------Benefits-------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
(Thousands of Dollars)
Funded Status
Change in benefit obligation during year
Benefit obligation at beginning of year $40,172 $37,242 $6,556 $6,049
Service cost 1,391 1,302 387 383
Interest cost 2,836 2,713 482 444
Benefit payments (2,092) (1,866)
Actuarial (gain) or loss 3,231 781 452 (321)
- --------------------------------------------------------------------------------
Benefit obligation at end of year 45,538 40,172 7,877 6,555
================================================================================
Change in plan assets during year
Fair value of plan assets at
beginning of year 46,537 40,016 1,331 764
Employer contributions 174 174 731 375
Benefit payments (2,092) (1,866)
Actual return on plan assets 7,225 8,213 109 192
- --------------------------------------------------------------------------------
Fair value of plan assets at end of year 51,844 46,537 2,171 1,331
================================================================================
Reconciliation of funded status at end of year
Funded status 6,306 6,365 (5,706) (5,224)
Unrecognized net transition (asset)
or obligation (1,358) (1,624) 5,061 5,423
Unrecognized prior service cost 2,391 2,723
Unrecognized net (gain) or loss (7,577) (7,905) (3,064) (3,967)
- --------------------------------------------------------------------------------
Accumulated postretirement benefits * (238) (441) (3,709) (3,768)
================================================================================
* Recognized in the Consolidated Balance Sheets
------Pension Plans----- -----Other Postretirement---
------------Benefits--------
1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
(Thousands of Dollars)
Net periodic benefit cost
recognized for year
Service cost $1,391 $1,302 $1,341 $387 $383 $416
Interest cost 2,836 2,713 2,777 482 444 425
Expected return on
plan assets (4,101) (3,520) (4,569) (109) (57) (72)
Net amortization and
deferral (155) 65 1,229 157 138 417
Deferred amount for
regulated companies
pending recovery (273) (565)
- --------------------------------------------------------------------------------
Net periodic benefit cost (29) 560 778 917 635 621
================================================================================
Weighted-average assumptions
for year
Discount rate 7.25% 7.50% 7.00% 7.25% 7.50% 7.00%
Rate of compensation
increases 4.00% 4.00% 4.00%
Expected long-term rate
of return on plan assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Weighted-average assumptions
at end of year
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Rate of compensation
increases 4.00% 4.00% 4.00%
A single percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit
obligation as of December 31, 1998, and the net postretirement service and
interest cost by approximately $.84 million and $.19 million, respectively.
11. Related Party Transactions
Utility Billing Services, Inc., a subsidiary of NUI Corporation, of which
John Kean, who is an Elizabethtown Director, is Chairman of the Board and a
Director, provides data processing and related services to Elizabethtown and
Mount Holly. The charges for all services totaled $.72 million, $.67 million
and $.65 million for 1998, 1997 and 1996, respectively. The current contract
expires December 31, 2000.
Elizabethtown had a line of credit in the amount of $10 million with Summit
Bank of which Anne Estabrook, who is Chairman of Elizabethtown, is a
Director, which expired on June 30, 1998. Total interest charges paid to
Summit Bank by Elizabethtown were $.07 million, $.35 million and $.14 million
for 1998, 1997 and 1996, respectively. Summit Bank also serves as a bond
trustee for Elizabethtown for which Elizabethtown paid fees of less than $.10
million in 1998, 1997 and 1996.
12. Quarterly Financial Data (Unaudited)
A summary of financial data for each quarter of 1998 and 1997 follows:
Earnings
Operating Operating Net Applicable
Quarter Revenues Income Income to Common Stock
- --------------------------------------------------------
(Thousands of Dollars ExceptPer Share Amounts)
- --------------------------------------------------------
1998
1st $30,507 $ 8,402 $ 4,645 $ 4,442
2nd 32,739 9,334 5,687 5,484
3rd 38,821 12,226 8,689 8,486
4th 32,780 9,636 5,747 5,543
- --------------------------------------------------------
Total $134,847 $39,598 $24,768 $23,955
========================================================
1997
1st $ 30,013 $ 8,092 $ 3,885 $ 3,682
2nd 32,333 8,981 4,862 4,659
3rd 37,815 11,926 7,982 7,779
4th 31,627 8,067 4,176 3,972
- --------------------------------------------------------
Total $131,788 $37,066 $20,905 $20,092
========================================================
Water utility revenues are subject to seasonal fluctuation due to normal
increased water consumption during the third quarter of each year.
<PAGE>
Exhibit 3b
BY-LAWS
OF
E'TOWN CORPORATION
ARTICLE I
STOCKHOLDERS
<PAGE>
-1-
Section 1. Annual Meeting. A meeting of the
stockholders of the company shall be held annually in the
State of New Jersey at a location selected by the Chairman
and approved by the Board of Directors between the hours of
eleven and twelve o'clock in the forenoon, on the first
Monday of May in each year, if not a legal holiday, and if a
legal holiday, then on the next succeeding Monday not a
legal holiday or at such other time and place during regular
business hours as may be fixed by the Board of Directors,
for the purpose of electing directors and for the
transaction of such other business as may be properly
brought before the meeting.
Written notice of the Annual Meeting, stating the
day, hour and place thereof, and the business to be
transacted thereat, shall be mailed at least 10 days prior
to the meeting to each stockholder of record at his address
as the same appears on the stock books of the company. A
failure to mail such notice, or any irregularity in such
notice, shall not affect the validity of any annual meeting,
or of any proceedings at any such meeting.
Section 2. Notice of Stockholder Business.
(1) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been brought
before the meeting (a) pursuant to the company's notice of
meeting, (b) by or at the direction of the Board of
Directors or (c) by any stockholder of the company who is a
stockholder of record at the time of giving of the notice
provided for in this By-law, who shall be entitled to vote
at such meeting and who complies with the notice procedures
set forth in this By-law.
(2) For business to be properly brought before an
annual meeting by a stockholder pursuant to clause (c) of
paragraph 1 of this By-law, the stockholder must have given
timely notice thereof in writing to the Secretary of the
company. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal office
of the company not less than 60 days nor more than 90 days
prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that
the date of the meeting is changed by more than 30 days from
such anniversary date, notice by the stockholder to be
timely must be received no later than the close of business
on the 10th day following the earlier of the day on which
notice of the date of the meeting was mailed or public
disclosure was made. A stockholder's notice to the
Secretary shall set forth as to each matter the stockholder
proposes to bring before the meeting (a) a brief description
of the business desired to be brought before the meeting and
the reasons for conducting such business at the meeting, (b)
the name and address, as they appear on the company's books,
of the stockholder proposing such business, and the name and
address of the beneficial owner, if any, on whose behalf the
proposal is made, (c) the class and number of shares of the
company which are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any,
on whose behalf the proposal is made, together with
documentary support for any claim of beneficial ownership,
and (d) any material interest of such stockholder of record
and the beneficial owner, if any, on whose behalf the
proposal is made in such business.
(3) Notwithstanding anything in these By-laws to
the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth
in this By-law. The Chairman of the meeting shall, if the
facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting and in
accordance with the procedures prescribed by these By-laws,
and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before
the meeting shall not be transacted. Notwithstanding the
foregoing provisions of this By-law, a stockholder shall
also comply with all applicable requirements of the
Securities Exchange Act of 1934, as amended, and the rules
and regulations thereunder with respect to the matters set
forth in this By-law.
<PAGE>
Section 3. Special Meetings. Special meetings of
the stockholders of the company may be held in the State of
New Jersey at a location selected by the Chairman and
approved by the Board of Directors, or at such other place
as may be fixed by the Board of Directors, whenever called
in writing by the Chairman, by a vote of the Board of
Directors, or upon written request addressed to the
Secretary by stockholders holding at least forty per cent
(40%) of the capital stock. Such request shall state the
purpose or purposes of the proposed meeting.
Written notice of each special meeting, stating
the day, hour and place thereof, and the business to be
transacted thereat, shall be mailed at least 10 days prior
to the meeting to each stockholder of record at his address
as the same appears on the stock books of the company.
Business transacted at any special meeting of stockholders
shall be limited to the purposes stated in the notice.
Section 4. Quorum. At any meeting of the
stockholders the holders of the majority of the capital
stock issued and outstanding, present in person or
represented by proxy, shall constitute a quorum for all
purposes.
If the holders of the amount of stock necessary to
constitute a quorum shall fail to attend in person or by
proxy at the time and place fixed by these By-laws for an
annual meeting, or fixed by notice as above provided for a
special meeting, a majority in interest of the stockholders
present in person or by proxy may adjourn, from time to
time, until holders of the amount of stock requisite to
constitute a quorum shall attend.
Section 5. Voting. At each meeting of the
stockholders every stockholder shall be entitled to vote in
person, or by proxy appointed by instrument in writing,
subscribed by said stockholder or by his duly authorized
attorney, and delivered to the inspectors at the meeting;
and each stockholder shall have one vote for each share of
capital stock having voting powers standing registered in
his name, but no share of capital stock shall be voted on at
any meeting which has been transferred on the books of the
company subsequent to the record date fixed by the Board of
Directors.
All voting for election of Directors shall be by
ballot.
At each meeting of the stockholders a full, true
and complete list in alphabetical order of all stockholders
entitled to vote at such meeting, and indicating the number
of shares held by each, certified by the Secretary or by the
Treasurer, shall be furnished for the inspection of any
stockholder for reasonable periods during the meeting. Only
the persons in whose names shares of capital stock stand on
the books of the company, as evidenced by the list of the
stockholders so furnished, shall be entitled to vote in
person or by proxy on the shares so standing in their names.
Section 6. Inspectors. At each meeting of the
stockholders the polls shall be opened and closed, the
proxies and ballots shall be received and taken in charge,
and all questions touching the qualifications of voters and
the validity of proxies and the acceptance or rejection of a
voter, shall be decided upon by one or more inspectors. The
inspectors shall be appointed by the Chairman of the meeting
and the inspectors shall be sworn to faithfully perform
their duties, and shall, in writing, certify the returns
showing the result of the election or ballot. The
inspectors may or may not be stockholders, but any inspector
may not be a candidate for the office of Director. In case
of failure to appoint inspectors, the stockholders at any
meeting may elect an inspector or inspectors to act at the
meeting. The Board of Directors may also appoint one or
more inspectors to discharge the duties set forth above in
respect of the qualification and tabulation of written
consents of stockholders without a meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Management of Company. The property,
business, and affairs of the company shall be managed and
controlled by its Board of Directors.
The Directors shall act only as a board and the
individual Directors shall have no power as such.
Section 2. Number, Term of Office and
Qualifications of Board. The Board of Directors shall
consist of not less than eleven (11) persons nor more than
fifteen (15) persons, subject to change from time to time by
the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors
(whether or not there exist any vacancies in previously
authorized directorships at the time any such resolution is
presented to the Board for adoption). Directors need not be
stockholders. No person who has reached age 72 shall stand
for election or re-election as a Director.
The term of office of the various Directors shall
be as provided in Article Fourth of the Corporation's
Certificate of Incorporation.
Section 3. Nominations of Directors. (1) Only
persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible to serve as
Directors. Nominations of persons for election to the Board
of Directors of the company may be made at a meeting of
stockholders (a) by or at the direction of the Board of
Directors or (b) by any stockholder of the company who is a
stockholder of record at the time of giving of notice
provided for in this By-law, who shall be entitled to vote
for the election of Directors at the meeting and who
complies with the notice procedures set forth in this By-
law.
(2) Nominations by stockholders shall be made
pursuant to timely notice in writing to the Secretary. To
be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal office of the company
(a) in the case of an annual meeting, not less than 60 days
nor more than 90 days prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is changed by
more than 30 days from such anniversary date, notice by the
stockholder to be timely must be so received not later than
the close of business on the 10th day following the earlier
of the day on which notice of the date of the meeting was
mailed or public disclosure was made, and (b) in the case of
a special meeting at which Directors are to be elected, not
later than the close of business on the 10th day following
the earlier of the day on which notice of the date of the
meeting was mailed or public disclosure was made. Such
stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or
reelection as a Director all information relating to such
person that is required to be disclosed in solicitations of
proxies for election of Directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a
nominee and to serving as a Director if elected); (b) as to
the stockholder giving the notice (i) the name and address,
as they appear on the company's books, of such stockholder
and (ii) the class and number of shares of the company which
are beneficially owned by such stockholder and also which
are owned of record by such stockholder; and (c) as to the
beneficial owner, if any, on whose behalf the nomination is
made, (i) the name and address of such person, (ii) the
class and number of shares of the company which are
beneficially owned by such person, and (iii) documentary
support for such claim of beneficial ownership. At the
request of the Board of Directors, any person nominated by
the Board of Directors for election as a Director shall
furnish to the Secretary that information required to be set
forth in a stockholder's notice of nomination which pertains
to the nominee.
(3) Except as provided in Section 4 of this
Article II, no person shall be eligible to serve as a
Director of the company unless nominated in accordance with
the procedures set forth in this By-law. The Chairman of
the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by these By-laws,
and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Notwithstanding the foregoing provisions of this By-law, a
stockholder shall also comply with all applicable
requirements of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder with
respect to the matters set forth in this By-law.
Section 4. Vacancies. Whenever any vacancy shall
occur in the Board, including a vacancy caused by an
increase in the number of Directors, it may be filled by a
majority of the remaining Directors, even though less than a
quorum.
Section 5. Place of Meeting. The Directors may
hold their meetings, and keep the books of the company at
the office of the company in Westfield, New Jersey, or at
such other place or places as the Board from time to time
may lawfully determine.
Section 6. Regular Meetings. Regular meetings of
the Board of Directors shall be held monthly on the third
Thursday of each month, if not a legal holiday, and if a
legal holiday, then on the next succeeding Thursday not a
legal holiday (or at such other time as may be fixed by the
Board of Directors). No notice shall be required for any
such regular meetings of the Board.
Section 7. Special Meetings. Special meetings of
the Board of Directors shall be held whenever called by the
Chairman, President, or by not less than one-third of the
Directors for the time being in office.
The Secretary shall give notice of each special
meeting by mailing the same at least two days before the
meeting or by telegraphing the same at least one day before
the meeting to each Director, but such notice may be waived
by any Director. At any time at which every Director shall
be present, even though without notice, any business may be
transacted.
Section 8. Quorum. A majority of the Board of
Directors for the time being in office shall constitute a
quorum for the transaction of business, but if at any
meeting of the Board there be less than a quorum present a
majority of those present may adjourn the meeting from time
to time until a quorum shall be present.
Section 9. Committees. The Board of Directors
may delegate, from time to time, to suitable committees any
duties that are required to be executed during the intervals
between the meetings of the Board, and such committee shall
report to the Board of Directors when and as required.
Section 10. Designation of Depositories. The
Board of Directors shall designate the trust company, or
trust companies, bank or banks in which shall be deposited
the money or securities of the company.
Section 11. Contracts with Directors, etc.
Inasmuch as the Directors of this company are or may be
persons of large and diversified business interest, and are
likely to be connected with other corporations with which
from time to time this company must have business dealings,
no material contract or other transaction between this
company and any other corporation shall be affected by the
fact that Directors of this company are interested in, or
are Directors or Officers of, such other corporation.
The Board of Directors in its discretion may
submit any contract or act for approval or ratification at
any annual meeting of the stockholders, or at any meeting of
the stockholders called for the purpose of considering any
such act or contract; and any contract or act that shall be
approved or be ratified by the vote of the holders of a
majority of the capital stock of the company which is
represented in person or by proxy at such meeting (provided
that a lawful quorum of stockholders be there represented in
person or by proxy) shall be valid and as binding upon the
company and upon all the stockholders as though it had been
approved or ratified by every stockholder of the company.
Section 12. Compensation of Directors. For
attendance at any meeting of the Board of Directors or
participation in such meeting as provided in Section 13
hereof, every Director may receive reasonable Director's
fees to be fixed by the Board for attendance at each
meeting. The Board may provide for the payments to
committee members of reasonable fees for attendance at a
meeting of a committee.
Section 13. Compensation of Officers and
Employees. The compensation of all Officers shall be fixed
by the Board of Directors and of all employees not mentioned
in these By-laws by the Officer or Officers so authorized by
the Board of Directors.
Section 14. Telephone Meetings. Any regular or
special meeting of the Board or any committee may be held
entirely or partially by telephone conference call or
similar communication equipment provided that all members of
the Board or any committee are able to hear each other at
one time.
ARTICLE III
OFFICERS
Section 1. Enumeration of, Election, Removal of.
The Officers of the company shall be a Chairman, President,
Secretary, Treasurer, and such other Officers as shall from
time to time be provided for by the Board of Directors. The
Chairman and President shall be Directors of the company and
any one person may hold any two or more of the offices
enumerated above, as the Board of Directors may provide.
The Officers of the company shall be appointed at the first
meeting of the Board of Directors after the annual election
of Director's, which may be on the day of the annual
election, and they shall hold office for one year, and until
their respective successors shall have been duly appointed
and qualified, provided, however, that all Officers, agents
and employees of the company shall be subject to removal at
any time by the affirmative vote of a majority of the whole
Board of Directors. In its discretion, the Board of
Directors, by a vote of the majority thereof, may leave
unfilled for such period as it may fix by resolution any
office.
Section 2. Powers and Duties of Chairman. The
Chairman shall preside at all meetings of the stockholders
and the Board of Directors. He shall have general charge
and supervision of the business of the company. He may sign
and execute all authorized bonds, debentures, contracts,
notes or obligations in the name of the company, and with
the Treasurer, and Assistant Treasurer, or Secretary, or
Assistant Secretary, may sign all certificates of the share
in the capital stock of the company. He shall from time to
time make such reports of the affairs of the company as the
Board of Directors may require and shall annually present a
report of the preceding year's business to the Board of
Directors, which report may be read at the annual meeting of
the stockholders. He shall do and perform such other duties
as may be from time to time assigned to him by the Board of
Directors.
Section 3. Powers and Duties of President. The
President shall possess the powers and may perform the
duties of the Chairman in his absence or disability. He
shall have charge of the general management of the company
under the supervision of the Chairman. He may sign and
execute all authorized bonds, debentures, contracts, and
with the Treasurer, Assistant Treasurer, Secretary or
Assistant Secretary, may sign all certificates of the shares
of the capital stock of the company. He shall do and
perform such other duties as may be from time to time
assigned to him by the Board of Directors.
Section 4. Powers and Duties of Secretary. The
Secretary shall keep the minutes of all meetings of the
stockholders and all meetings of the Board of Directors. He
shall attend to the giving and service of all notices of the
company; he may sign with the Chairman, President, Executive
Vice President or Vice President in the name of the company
all contracts authorized by the Board of Directors and when
required by the Board of Directors, or permitted by these
By-laws he shall affix the seal of the company thereto; he
shall have charge of all books and papers as the Board of
Directors may direct, all of which shall, at all reasonable
times, be open to the examination of any Director, upon
application at the office of the company during business
hours; he may sign with the Chairman, President, Executive
Vice President or a Vice President, all certificates of
shares of capital stock; he shall in general perform all of
the duties incident to the office of the Secretary, subject
to the control of the Board of Directors and shall do and
perform such other duties as may from time to time be
assigned to him by the Board of Directors.
Section 5. Powers and Duties of Treasurer. The
Treasurer shall have custody of all funds and securities of
the company; when necessary or proper, he shall endorse on
behalf of the company for collection, checks, notes and
other obligations, and shall deposit the same to the credit
of the company in such bank, or banks, or depository as the
Board of Directors may designate; he shall execute jointly
with such other Officer as may be designated by By-law or by
resolution of the Board of Directors, all bills of exchange
and promissory notes of the company; he may sign with the
Chairman, President, Executive Vice President, or a Vice
President, all certificates of shares in capital stock;
whenever required by the Board of Directors, he shall render
a statement of his cash account; he shall regularly in books
of the company to be kept by him for the purpose, keep a
full and accurate amount of all moneys received and paid by
him on account of the company; he shall, at all reasonable
times, exhibit his books and accounts to any Director of the
company upon application at the office of the company during
business hours; he shall perform all acts incident to the
position of Treasurer, subject to the control of the Board
of Directors; and he shall have such other powers and he
shall perform such other duties as may be assigned to him by
the Board of Directors, from time to time. He shall give
bond for the faithful performance of his duties as Treasurer
as the Board of Directors may direct.
Section 6. Indemnification of Directors and
Officers. The company shall indemnify each Director or
Officer of the company and any person who, at the request of
the company, has served as a Director, Officer, or trustee
of another corporation in which the company has a financial
interest against reasonable costs, expenses and counsel fees
paid or incurred (including any judgments, fines or
reasonable settlements exclusive of any amount paid to the
company in settlement) in connection with the defense of any
action, suit or proceeding in which such person is named as
a party by reason of having been such Director, Officer, or
trustee or by reason of any action taken or not taken in
such capacity unless such Officer, Director or trustee is
finally adjudged to have been derelict in the performance of
his duties as Director, Officer or trustee. If any action,
suit or proceeding is settled or otherwise terminated as
against such Director, Officer or trustee without a final
determination on the merits and the Board of Directors of
the company shall determine that such Director, Officer or
trustee has not in any substantial way been derelict in the
performance of his duties as charged in such action, suit or
proceeding, the company shall indemnify such Director,
Officer or trustee as aforesaid.
Such rights of indemnification are not exclusive
of any rights to which a Director or Officer of the company
may have pursuant to statute or otherwise.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificate of Shares. Each holder of
capital stock of the company shall be entitled to a stock
certificate signed by the Chairman, President, or a Vice
President and either the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him in the
company. However, when the certificate is signed by the
transfer agent, or an assistant transfer agent, or by a
transfer clerk on behalf of the company and a registrar, the
signature of the Chairman, President, Vice President,
Treasurer, Assistant Treasurer, Secretary or Assistant
Secretary may be facsimiles.
All certificates shall be consecutively numbered.
The name of the person owning the shares represented
thereby, with the number of such shares and the date of
issue, shall be entered in the company's books.
No certificate shall be valid unless it is signed
as provided above in this Section 1 of Article IV of the
By-laws.
All certificates surrendered to the company shall
be canceled, and no new certificate shall be issued until
the former certificate shall have been surrendered and
canceled, or such proof that the certificate has been lost,
damaged or destroyed as the Board of Directors may require
and in such event a new certificate may be issued, but the
Board of Directors may require such security as they deem
appropriate.
Section 2. Transfer of Shares. Shares in the
capital stock of the company shall be transferred on the
books of the company by the holder thereof in person, or by
his attorney, upon surrender and cancellation of
certificates for a like number of shares.
Section 3. Rules and Regulations as to Issue,
Transfer and Registration of Shares of Stock. The Board of
Directors shall have power and authority to make all such
rules and regulations as they deem expedient concerning the
issue, transfer and registration of certificates for shares
of the capital stock of the company. The Board of Directors
may appoint a transfer agent and registrar of transfers, and
require all stock certificates to bear the signature of such
transfer agent and of such registrar of transfers.
Section 4. Closing of Transfer Books. The stock
transfer books may be closed for the meetings of the
stockholders, and for the payment of dividends, during such
periods as from time to time may be fixed by the Board of
Directors, and during such periods no stock shall be
transferrable.
Section 5. Fixing Date for Determination of
Stockholders' Rights. (1) The Board of Directors is
authorized from time to time to fix in advance a date as a
record date for the determination of the stockholders
entitled to notice of and to vote at any meeting of
stockholders, or with regard to any other corporate action
or event, as provided in the New Jersey Business Corporation
Act, and in such case only stockholders of record on the
date so fixed shall be entitled to such notice of and to
vote at any such meeting, or to participate in or otherwise
be included with respect to any other corporate action or
event, and notwithstanding any transfer of any stock on the
books of the company after any such record date fixed as
aforesaid. Any record date for determining stockholders
entitled to give a written consent to any action without a
meeting shall be fixed as provided in paragraph (2) of this
By-law.
(2) The Board of Directors may fix a record date
for determining the stockholders entitled to consent to
corporate action in writing without a meeting and may also
fix a date for tabulation of consents. Such record date
shall not be more than 60 days before the date fixed for
tabulation of the consents or, if no date has been fixed for
tabulation, more than 60 days before the last day on which
consents received may be counted as provided by the New
Jersey Business Corporation Act. Any stockholder of record
seeking to have the stockholders authorize or take corporate
action by written consent shall, by written notice to the
Secretary, request the Board of Directors to fix a record
date and a date for tabulation of consents. If no record
date has been fixed by resolution of the Board of Directors
within 10 days of the date on which such a request is
received, the record date for determining stockholders
entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
required by applicable law, shall be the first date on which
a signed written consent setting forth the action taken or
proposed to be taken is delivered to the company by delivery
to its principal place of business to the attention of the
Secretary. Delivery shall be by hand or by certified or
registered mail, return receipt requested. If no record
date has been fixed by the Board of Directors and prior
action by the Board of Directors is required by applicable
law, the record date for determining stockholders entitled
to consent to corporate action in writing without a meeting
shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior
action. If no date for the tabulation of consents has been
fixed by the Board of Directors within 10 days of the date
on which the request described above is received, such
tabulation shall be the 55th day after the record date fixed
by the Board of Directors (or otherwise established)
pursuant to this By-law; provided, however, that if such day
falls on a Saturday, Sunday or legal holiday, the tabulation
date shall be the next following day which is not a
Saturday, Sunday or legal holiday.
(3) In the event of the delivery to the company
of a written consent or consents purporting to authorize or
take corporate action and/or related revocations (each such
written consent and related revocation is referred to in
this paragraph as a "Consent"), the Secretary shall provide
for the safekeeping of such Consent and shall conduct such
reasonable investigation as such Officer deems necessary or
appropriate for the purpose of ascertaining the validity of
such Consent and all matters incident thereto, including,
without limitation, whether the holders of shares having the
requisite voting power to authorize or take the action
specified in the Consent have given consent and whether the
corporate action purported to be authorized or taken may
legally be taken by the stockholders of the company;
provided, however, that if the Board of Directors designates
one or more inspectors in connection with such matters as
provided in Article I, Section 6 of these By-laws, such
inspectors shall discharge the functions of the Secretary
under this paragraph. Notwithstanding any tabulation of
consents or investigation as described above, the Consent
shall not become effective as stockholder action until (i)
all requirements for notice to non-consenting stockholders
prescribed by the New Jersey Business Corporation Action are
met, and (ii) the final termination of any proceedings which
may have been commenced in any court of competent
jurisdiction for an adjudication of any legal issue incident
to determining the validity of the Consent has occurred,
unless such court shall have determined that such
proceedings are not being pursued expeditiously and in good
faith. In conducting the investigation required by this
paragraph, the Secretary or the inspectors (as the case may
be) may, at the expense of the company, retain special legal
counsel and any other necessary or appropriate professional
advisors, and such other personnel as they may deem
necessary or appropriate, to assist them.
ARTICLE V
DIVIDENDS
Section 1. Dividends. Dividends may be declared
by the Board of Directors from time to time as may be
permitted by the laws of the State of New Jersey, and shall
be payable at such times as the Board may determine.
ARTICLE VI
CHECKS, NOTES, CONTRACTS, ETC.
Section 1. Checks and Notes. Payment shall be
made by checks or check voucher, all of which shall be
signed by the Chairman, or President and the Treasurer or
Assistant Treasurer, or by any two Officers of the company
as the Board of Directors may from time to time direct,
except that the Board of Directors may provide by resolution
for special subsidiary checking accounts and their manner of
operation for payroll, dividend and other purposes. Bills
receivable, drafts and other evidence of indebtedness to the
company, shall be endorsed for the purpose of discount or
collection by the Treasurer or Assistant Treasurer, or such
other Officer or Officers of the company as the Board of
Directors may from time to time by resolution designate. No
bills or notes or other evidence of indebtedness shall be
executed by or on behalf of the company unless the Board of
Directors shall authorize the same. Such authority may be
general or confined to specific instances.
Section 2. Contracts and Instruments. The Board
of Directors may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute and deliver
any conveyance or instrument in the name of and on behalf of
the company, and such authority may be general or confined
to specific instances.
When the execution of any contract, conveyance or
other instrument has been authorized without specification
of the executing Officers, the Chairman, President,
Secretary or Treasurer may execute the same in the name and
behalf of the company and may affix the corporate seal and
attest thereto, unless otherwise directed or required by the
Board of Directors, or required by law.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the
company shall begin on the first day of January in each and
every year, and all accounts shall be brought up to the
close of the year.
Section 2. Principal Office. The principal office
of this company shall be at 600 South Avenue, Westfield, New
Jersey, but the Board of Directors may at any regular or
special meeting change the place of such office, upon the
adoption of a resolution providing therefor by the votes of
at least two-thirds of its members.
This company may have other offices at such places
as the Board of Directors shall designate and the business
of this company may require.
Section 3. Officers' Voting Stock. The Chairman,
President, or a Vice President, shall have full power and
authority on behalf of this company to attend and act, and
to vote in person or by proxy at any meeting of stockholders
of any corporation in which this corporation may own and
hold stock, and at any such meeting shall possess and may
exercise any and all rights and powers incident to the
ownership of such stock and which, as the owner thereof, the
company might have possessed and exercised if present. The
Board of Directors, by resolution, from time to time, may
confer like powers upon any person or persons.
ARTICLE VIII
CORPORATE SEAL
Section 1. The corporate seal of this company
shall be as shown by the following impression:
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 1. These by-laws may be amended, altered
or repealed by the Board of Directors.
Exhibit 3(b)
INDEX
to
BY-LAWS
ARTICLE I - STOCKHOLDERS
Page
Section 1.Annual Meeting 1
Section 2.Special Meetings 1
Section 3.Quorum 2
Section 4.Voting 2
Section 5.Inspectors 3
ARTICLE II - BOARD OF DIRECTORS
Section 1. Number, Eligibility and Term
of Office 4
Section 2. Vacancies 4
Section 3. Place of Meetings 4
Section 4. Regular Meetings 5
Section 5. Special Meetings 5
Section 6. Quorum 5
Section 7. Committees 5
Section 8. Designation of Depositories 6
Section 9. Contracts with Directors, Etc. 6
Section 10. Compensation of Directors 7
Section 11. Compensation of Officers and
Employees 7
ARTICLE III - OFFICERS
Section 1. Enumeration of, Election, Removal of 7
Section 2. Powers and Duties of Chairman 8
Section 3. Powers and Duties of Vice Chairman 8
Section 4. Powers and Duties of President 8
Section 5. Powers and Duties of Executive 9
Vice President
Section 6. Powers and Duties of Vice President 9
Section 7. Powers and Duties of Secretary 9
Section 8. Powers and Duties of Assistant 10
Secretary
Section 9. Powers and Duties of Treasurer 10
Section 10. Powers and Duties of Assistant 11
Treasurer
ARTICLE IV - CAPITAL STOCK Page
Section 1. Certificate of Shares 11
Section 2. Transfer of Shares 12
Section 3. Rules and Regulations as to Issue, 12
Transfer and Registration of
Shares of Stock
Section 4. Closing Transfer Books 12
Section 5. Fixing Date for Determination
of Stockholders' Rights 12
ARTICLE V - DIVIDENDS AND WORKING CAPITAL
Section 1. Dividends 13
Section 2. Working Capital 13
ARTICLE VI - CHECKS, NOTES, CONTRACTS, ETC.
Section 1. Checks and Notes 14
Section 2. Contracts and Instruments 14
ARTICLE VII - MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year 15
Section 2. Principal Office 15
Section 3. Officers' Voting Stock 15
Section 4. Rules of Order for Meetings 15
ARTICLE VIII - CORPORATE SEAL 16
ARTICLE IX - AMENDMENT OF BY-LAWS 16
<PAGE>
BY-LAWS
OF
ELIZABETHTOWN WATER COMPANY
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. A meeting of the stockholders of the
company shall be held annually at the principal office of the company in the
State of New Jersey, between the hours of eleven and twelve o'clock in the
fore-noon, or at such other time during regular business hours as may be
stated by the notice of the meeting, on the first Monday of May in each year,
if not a legal holiday, and if a legal holiday, then on the next succeeding
Monday not a legal holiday for the purpose of electing directors and for the
transaction of such other business as may be brought before the meeting.
Written notice of the Annual Meeting shall be mailed at least twenty
(20) days prior to the meeting to each stockholder of record at his address
as the same appears on the stock books of the company. A failure to mail
such notice, or any irregularity in such notice, shall not affect the
validity of any annual meeting, or of any proceedings at any such meeting.
Section 2. Special Meetings. Special meetings of the
stockholders of the company may be held at the principal office of the
company in the State of New Jersey, whenever called in writing, by a vote of
the majority of the Board of Directors, or upon written request by
stockholders holding ten per cent (10%) of the capital stock addressed to the
Secretary.
Written notice of each special meeting, stating the day, hour and place
thereof, and in general terms the business to be transacted thereat, shall be
mailed at least ten (10) days prior to the meeting to each stockholder of
record at his address as the same appears on the stock book of the company.
If all the stockholders shall waive notice of a special meeting, no notice of
such meeting shall be required; and whenever all the stockholders shall meet
in person or by proxy, such meeting shall be valid for all purposes without
call or notice, and at such meeting any corporate action may be taken.
Section 3. Quorum. At any meeting of the stockholders the holders
of the majority of the capital stock issued and outstanding, present in
person or represented by proxy, shall constitute a quorum for all purposes.
if the holders of the amount of stock necessary to constitute a quorum shall
fail to attend in person or by proxy at the time and place fixed by these
by-laws for an annual meeting, or fixed by notice as above provided for a
special meeting called by the directors or stockholders, a majority in
interest of the stockholders present in person or by proxy may adjourn, from
time to time, without notice other than by announcement at the meeting, until
holders of the amount of stock requisite to constitute a quorum shall
attend. At any such adjourned meeting of which a quorum shall be present,
any business may be transacted which might have been transacted at the
meeting as originally notified.
Section 4. Voting. At each meeting of the stockholders every
stockholder shall be entitled to vote in person, or by proxy appointed by
instrument in writing, subscribed by said stockholder or by his duly
authorized attorney, and delivered to the inspectors at the meeting; and each
stockholder shall have one vote for each share of capital stock having voting
powers standing registered in his name, but no share of capital stock shall
be voted on at any meeting which has been transferred on the books of the
corporation subsequent to the record date fixed by the Board of Directors.
All voting for election of directors shall be by ballot. At each meeting of
the stockholders a full, true and complete list in alphabetical order of all
stockholders entitled to vote at such meeting, and indicating the number of
shares held by each, certified by the secretary or by the treasurer, shall be
furnished. Only the persons in whose names shares of capital stock stand on
the books of the company, as evidenced by the list of the stockholders so
furnished, shall be entitled to vote in person or by proxy on the shares so
standing in their names. Upon demand of any stockholder, the votes upon any
question before the meeting, shall be made by ballot.
Section 5. Inspectors. At each meeting of the stockholders the
polls shall be opened and closed, the proxies and ballots shall be received
and taken in charge, and all questions touching the qualifications of voters
and the validity of proxies and the acceptance or rejection of a voter, shall
be decided upon by two or more inspectors. The inspectors shall be appointed
by the presiding officer of the meeting and the inspectors shall be sworn to
faithfully perform their duties, and shall, in writing, certify the returns
showing the result of the election or ballot. The inspectors may or may not
be stockholders, but any inspector may not be a candidate for the office of
director. In case of failure to appoint inspectors, the stockholders at any
meeting may elect an inspector or inspectors to act at the meeting.
<PAGE>
ARTICLE II
BOARD OF DIRECTORS
Section 1. Number, Eligibility and Term of Office. The
property, business, and affairs of the company shall be managed and
controlled by its Board of Directors.
The directors shall act only as a board and the individual
directors shall have no power as such.
The Board of Directors shall consist of not less than eleven (11)
persons nor more than fifteen (15) persons, subject to change from time to
time by the Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Directors need not be
stockholders.
Section 2. Vacancies. Any vacancy in the board, including a
vacancy caused by an increase in the number of directors, may be filled by
the affirmative vote of a majority of the remaining directors, even though
less than a quorum of the Board, or by a sole remaining director.
Section 3. Place of Meeting. The directors may hold their
meetings, and keep the books of the company at the office of the company in
the City of Elizabeth, County of Union, State of New Jersey, or at such other
place or places as the Board from time to time may lawfully determine.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held monthly on the third Thursday of each month, if not a
legal holiday, and if a legal holiday, then at the next succeeding Thursday
not a legal holiday. No notice shall be required for any such regular
meetings of the Board.
The Board of Directors may designate some other day for the regular
monthly meeting in which case notice of the meeting shall be given as
provided for Special Meetings, but such notice may be waived by any director.
Section 5. Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the chairman, president or by not
less than one-third of the directors for the time being in office.
The secretary shall give notice of each special meeting by mailing
the same at least two days before the meeting or by telegraphing the same at
least one day before the meeting to each director, but such notice may be
waived by any director. At any time at which every director shall be
present, even though without notice, any business may be transacted.
Section 6. Quorum. A majority of the Board of Directors for the
time being in office shall constitute a quorum for the transaction of
business, but if at any meeting of the Board there be less than a quorum
present a majority of these present may adjourn the meeting from time to time
until a quorum shall be present.
Section 7. Committees. The Board of Directors, by Resolution
adopted by a majority of the entire Board may appoint from among its members,
an executive committee and one or more other committees. Except as otherwise
provided by law, the executive committee shall have and may exercise all the
authority of the Board of Directors when the Board is not in session, and
each such other committee of the Board shall have and may exercise the
authority of the Board to the extent provided in the resolution of
appointment. The Chairman and President shall be ex officio members of all
committees.
The Board of Directors shall be kept informed of the actions taken by
any Committee.
Section 8. Designation of Depositories. The Board of Directors
shall designate the trust company, or trust companies, bank or banks in which
shall be deposited the money or securities of the company.
Section 9. Contracts and Directors, etc. Inasmuch as the
directors of this company are or may be men of large and diversified business
interests, and are likely to be connected with other corporations with which
from time to time this company must have business dealings, no material
contract or other transaction between this company and any other corporation
shall be affected by the fact that directors of this company are interested
in, or are directors or officers of, such other corporation.
The Board of Directors in its discretion may submit any contract or
act for approval or ratification at any annual meeting of the stockholders,
or at any meeting of the stockholders called for the purpose of considering
any such act or contract; and any contract or act that shall be approved or
be ratified by the vote of the holders of a majority, of the capital stock of
the company which is represented in person or by proxy at such meeting
(provided that a lawful quorum of stockholders be there represented in person
or by proxy) shall be valid and as binding upon the company and upon all the
stockholders as though it had been approved or ratified by every stockholder
of the company.
Section 10. Compensation of Directors. For his attendance at any
meeting of the Board of Directors, or committee every director shall receive
reasonable director's fees to be fixed by the Board for attendance at each
meeting.
Section 11. Compensation of Officers and Employees. The
compensation of all officers shall be fixed by the Board of Directors and of
all employees not mentioned in these by-laws by the officer or officers so
authorized by the Board of Directors.
ARTICLE III
OFFICERS
Section 1. Enumeration of, Election, Removal of. The officers
of the company shall be a chairman, president, executive vice president, one
or more vice presidents, secretary, an assistant secretary, treasurer, an
assistant treasurer, and such other officers as shall from time to time be
provided for by the Board of Directors. The chairman and president shall be
directors of the company and any one person may hold any two or more of the
offices enumerated above, as the Board of Directors may provide. The
officers of the company shall be appointed at the first meeting of the Board
of Directors after the annual election of directors, which may be on the day
of the annual election, and they shall hold office for one year, and until
their respective successors shall have been duly appointed and qualified,
provided, however, that all officers, agents and employees of the company
shall be subject to removal at any time by the affirmative vote of a majority
of the whole Board of Directors. In its discretion, the Board of Directors,
by a vote of the majority thereof, may leave unfilled for such period as it
may fix by resolution any office.
Section 2. Powers and Duties of Chairman. The Chairman shall
preside at all meetings of the stockholders and the Board of Directors. He
shall have general charge and supervision of the business of the company. He
may sign and execute all authorized bonds, debentures, contracts, notes or
obligations in the name of the company, and with the treasurer, an assistant
treasurer, or secretary, or assistant secretary, may sign all certificates of
the shares in the capital stock of the company. He shall from time to time
make such reports of the affairs of the company as the Board of Directors may
require and shall annually present a report of the preceding year's business
to the Board of Directors, which report may be read at the annual meeting of
the stockholders. He shall do and perform such other duties as may be from
time to time assigned to him by the Board of Directors.
Section 3. Powers and Duties of Vice Chairman. The Vice
chairman shall have all the powers as the Chairman enumerated in Section 2
above in his absence or disability. He shall have such other powers and
shall perform such other duties as may from time to time be assigned to him
by the Board of Directors.
Section 4. Powers and Duties of President. The president shall
possess the powers and may perform the duties of the chairman in his absence
or disability. He shall have charge of the general management of the company
under the supervision of the chairman. He may sign and execute all
authorized bonds, debentures, contracts, notes or obligations in the name of
the company, and with the treasurer, assistant treasurer, secretary, or
assistant secretary, may sign all certificates of the shares of the capital
stock of the company. He shall do and perform such other duties as may be
from time to time assigned to him by the Board of Directors.
Section 5. Powers and Duties of Executive Vice President. The
executive vice president shall possess the powers and may perform the duties
of the president in his absence or inability.
He shall assist the president in the general management of the company. He
may sign and execute all authorized bonds, debentures, contracts, notes or
obligations in the name of the company, and with the treasurer, assistant
treasurer, secretary or assistant secretary, may sign all certificates of the
shares of the capital stock of the company. He shall do and perform such
other duties as may be from time to time assigned to him by the Board of
Directors.
Section 6. Powers and Duties of Vice President. A vice
president shall have all the powers as the executive vice president
enumerated in Section 5 above in his absence or disability. He shall have
such other powers and shall perform such other duties as may from time to
time be assigned to him by the Board of Directors.
Section 7. Powers and Duties of Secretary. The secretary shall
keep the minutes of all meetings of the stock holders and all meetings of the
Board of Directors. He shall attend to the giving and service of all notices
of the company; he may sign with the chairman, president, executive vice
president or vice president in the name of the company all contracts
authorized by the Board of Directors and when required by the Board of
Directors, or permitted by these by-laws he shall affix the seal of the
company thereto; he shall have charge of all books and papers as the Board of
Directors may direct, all of which shall, at all reasonable times, be open to
the examination of any director, upon application at the office of the
company during business hours, he may sign with the chairman, president,
executive vice president or a vice president, all certificates of shares of
capital stock; he shall in general perform all of the duties incident to the
office of the secretary, subject to the control of the Board of Directors and
shall do and perform such other duties as may from time to time be assigned
to him by the Board of Directors.
Section 8. Powers and Duties of Assistant Secretary. The
assistant secretary shall have the same powers as the secretary in his
absence or disability, and he shall have such other powers, and he shall
perform such other duties as may be assigned to him from time to time by the
Board of Directors.
Section 9. Powers and Duties of Treasurer. The treasurer shall
have custody of all funds and securities of the company which may have come
into his hands; when necessary or proper, he shall endorse on behalf of the
company for collection, checks, notes and other obligations, and shall
deposit the same to the credit of the company in such bank, or banks, or
depository as the Board of Directors may designate; jointly with such other
officer as may be designated by by-law or by resolution of the Board of
Directors, all bills of exchange and promissory notes of the company; he may
sign with the chairman, president, executive vice president, or a vice
president, all certificates of shares in the capital stock; whenever required
by the Board of Directors, he shall render a statement of his cash account,
he shall regularly in books of the company to be kept by him for the purpose,
keep a full and accurate amount of all moneys received and paid by him on
account of the company; he shall, at all reasonable times, exhibit his books
and accounts to any director of the company upon application at the office of
the company during business hours; he shall perform all acts incident to the
position of treasurer, subject to the control of the Board of Directors; and
he shall have such other powers and he shall perform such other duties as may
be assigned to him by the Board of Directors, from time to time. He shall
give bond for the faithful performance of his duties as treasurer as the
Board of Directors may direct.
Section 10. Powers and Duties of Assistant Treasurer. The
assistant treasurer shall have the same powers as the treasurer in his
absence or disability, and he shall have such other powers and he shall
perform such other duties as may be assigned to him by the Board of Directors
from time to time. He shall give bond for the faithful performance of his
duties as assistant treasurer as the Board of Directors may direct.
ARTICLE IV
CAPITAL STOCK
Section 1. Certificate of Shares. Each holder of capital stock
of the company shall be entitled to a stock certificate signed by the
chairman, president, or a vice president and either the treasurer or an
assistant treasurer, or the secretary or an assistant secretary, certifying
the number of shares owned by him in the company. However, when the
certificate is signed by the transfer agent, or an assistant transfer agent,
or by a transfer clerk on behalf of the company and a registrar, the
signature of the chairman, president, vice president, treasurer, assistant
treasurer, secretary or assistant secretary may be facsimiles.
All certificates shall be consecutively numbered. The name of the
person owning the shares represented thereby, with the -number of such shares
and the date of issue, shall be entered in the company's books.
No certificate shall be valid unless it be signed as provided above
in this Section I of Article IV of the by-laws.
All certificates surrendered to the company shall be cancelled, and
no new certificate shall be issued until the former certificate shall have
been surrendered and cancelled, or such proof that the certificate has been
lost, damaged or destroyed as the Board of Directors may require,
and in that event a new certificate may be issued, but the Board of Directors
may require such security as they deem appropriate.
Section 2. Transfer of Shares. Shares in the capital stock of
the company shall be transferred on the books of the company by the holder
thereof in person, or by his attorney, upon surrender and cancellation of
certificates for a like number of shares.
Section 3. Rules and Regulations as to Issue, Transfer and
Registration of Shares of Stock. The Board of Directors shall have power
and authority to make all such rules and regulations as they deem expedient
concerning the issue, transfer and registration of certificates for shares of
the capital stock of the company. The Board of Directors may appoint a
transfer agent and registrar of transfers, and require all stock certificates
to bear the signature of such transfer agent and of such registrar of
transfers.
Section 4. Closing of Transfer Books. The stock transfer books
may be closed for the meetings of the stockholders, and for the payment of
dividends, during such periods as from time to time may be fixed by the Board
of Directors, and during such periods no stock shall be transferable.
Section 5. Fixing Date for Determination of Stockholders' Rights.
The Board of Directors is authorized from time to time to fix in advance a
date not exceeding sixty (60) nor less than ten (10) days preceding the date
of any meeting of stockholders, or the date for the payment of any dividend,
or the date of allotment of rights, or the date when any change or conversion
or exchange of capital stock shall go into effect, as a record date for the
determination of the stockholders entitled to notice of and to vote at any
such meeting, or any such allotment of rights, or to exercise the rights in
respect to any such change, conversion or exchange of capital stock, and in
such case only stockholders of record on the date so fixed shall be entitled
to such notice of and vote at any such meeting, or to receive payment of such
dividend, or allotment of rights, or exercise such rights, as the case may
be, and notwithstanding any transfer of any stock on the books of the company
after any such record date fixed as aforesaid.
ARTICLE V
DIVIDENDS AND WORKING CAPITAL
Section 1. Dividends. Dividends may be declared by the Board of
Directors from time to time out of the surplus or net profits of the company,
and shall be payable at such times as the Board may determine.
Section 2. Working Capital. Before payment of any dividends or
making any distribution of profits, there may be set aside out of the net
profits of the company such sum or sums as the Board of Directors may from
time to time in their discretion think proper as working capital or as a
reserve fund to meet contingencies, and from time to time the Board of
Directors may increase, diminish and vary such working capital or such
reserve fund in their absolute judgment and discretion.
<PAGE>
ARTICLE VI
CHECKS, NOTES, CONTRACTS, ETC.
Section 1. Checks and Notes. Payment shall be made by checks or
check voucher, all of which shall be signed by the chairman, or president and
the treasurer or assistant treasurer, or by any two officers of the company
as the Board of Directors may from time to time direct, except that the Board
of Directors may provide by resolution for special subsidiary checking
accounts and their manner of operation for payroll, dividend and other
purposes. Bills receivable, drafts and other evidence of indebtedness to the
company, shall be endorsed for the purpose of discount or collection by the
treasurer or assistant treasurer, or such other officer or officers of the
company as the Board of Directors may from time to time by resolution
designate. No bills or notes or other evidence of indebtedness shall be
executed by or on behalf of the company unless the Board of Directors shall
authorize the same. Such authority may be general or confined to specific
instances.
Section 2. Contracts and Instruments. The Board of Directors
may authorize any officer or officers, agent or agents, to enter into any
contract or execute and deliver any conveyance or instrument in the name of
and on behalf of the company, and such authority may be general or confined
to specific instances.
When the execution of any contract, conveyance or other instrument
has been authorized without specification of the executing officers, the
chairman, president or a vice president and the secretary or assistant
secretary, may execute the same in the name and behalf of the company and may
affix the corporate seal and attest thereto, unless otherwise directed or
required by the Board of Directors.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the company shall
begin on the first day of January in each and every year, and all accounts
shall be brought up to the close of the year.
Section 2. Principal Office. The principal office of this
company shall be at One Elizabethtown Plaza, City of Elizabeth, County of
Union, State of New Jersey, but the Board of Directors may at any regular or
special meeting change the place of such office, upon the adoption of a
resolution providing therefor by the votes of at least two thirds of its
members.
This company may have other offices at such places as the Board of
Directors shall designate and the business of this company may require.
Section 3. Officers' Voting Stock. The chairman, president, or
a vice president, shall have full power and authority on behalf of this
company to attend and act, and to vote in person or by proxy at any meeting
of stockholders of any corporation in which this corporation may own and hold
stock, and at any such meeting shall possess and may exercise any and all the
rights and powers incident to the ownership of such stock and which, as the
owner thereof, the company might have possessed and exercised if present.
The Board of Directors, by resolution, from time to time, may confer like
powers upon any person or persons.
Section 4. Rules of Order for Meetings. Robert's Rules of Order
Revised, Seventy-fifth Anniversary Edition, are adopted as rules of order for
all meetings of the company where not in conflict with law, the corporate
charter and these by-laws, but these rules of order may be suspended by a
majority vote of those entitled to vote at the meeting, either in person or
by proxy.
ARTICLE VIII
CORPORATE SEAL
Section 1. The corporate seal of this company shall be as shown by
the following impression:
ARTICLE IX
AMENDMENT OF BY-LAWS
Section 1. These by-laws may be amended by the Board of Directors as
provided in section (a) of Article IV of the Joint Agreement of
Consolidation, or as provided by law.
Exhibit 4(k)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
LOAN AGREEMENT
NWK3: 352222.02
BY AND BETWEEN
NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST
AND
THE MOUNT HOLLY WATER COMPANY
DATED AS OF NOVEMBER 1, 1998
<PAGE>
-ii-
TABLE OF CONTENTS
Page
EXHIBIT A (1) Description of Project and Environmental Infrastructure System
A-1-1
(2) Description of Loan A-2-1
EXHIBIT B Basis for Determination of Allowable Project Costs B-1
EXHIBIT C Estimated Disbursement Schedule C-1
EXHIBIT D Specimen Borrower Bond D-1
EXHIBIT E Opinions of Borrower's Bond and General Counsels E-1
EXHIBIT F Additional Covenants and Requirements F-1
EXHIBIT G General Administrative Requirements for the State
Environmental Infrastructure Financing ProgramG-1
EXHIBIT H Form of Continuing Disclosure Agreement H-1
<PAGE>
-3-
NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into as of this 1st day of
November, 1998, by and between NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE TRUST,
a public body corporate and politic with corporate succession, and THE MOUNT
HOLLY WATER COMPANY, a corporation duly created and validly existing under
the laws of the State of New Jersey (the "State");
WITNESSETH THAT:
WHEREAS, the Trust, in accordance with the Act, the Bond Resolution and
a financial plan approved by the State Legislature in accordance with Section
23 of the Act, will issue its Trust Bonds on or prior to the Loan Closing for
the purpose of making the Loan to the Borrower and the Loans to the Borrowers
from the proceeds of the Trust Bonds to finance a portion of the cost of
Environmental Infrastructure Facilities (as each of the foregoing terms is
defined in Section 1.01 hereof; all capitalized terms used in this Loan
Agreement shall have, unless the context otherwise requires, the meanings set
forth in said Section 1.01);
WHEREAS, the Borrower has, in accordance with the Act and the
Regulations, made timely application to the Trust for a Loan to finance a
portion of the Cost of the Project;
WHEREAS, the State Legislature, in accordance with Section 20 of the
Act, has in the form of an appropriations act approved a project priority
list that includes the Project and that authorizes an expenditure of proceeds
of the Trust Bonds to finance a portion of the Cost of the Project;
WHEREAS, the Trust has approved the Borrower's application for a Loan
from available proceeds of the Trust Bonds to finance a portion of the Cost
of the Project;
WHEREAS, in accordance with the "Wastewater Treatment Bond Act of 1985",
P.L. 1985, c. 329, as amended, and the Regulations, the Borrower has been
awarded a Fund Loan for a portion of the Cost of the Project; and
WHEREAS, the Borrower, in accordance with the Act, the Regulations, the
Business Corporation Law and all other applicable law, will issue a Borrower
Bond to the Trust evidencing said Loan at the Loan Closing.
NOW, THEREFORE, for and in consideration of the award of the Loan by the
Trust, the Borrower agrees to complete the Project and to perform under this
Loan Agreement in accordance with the conditions, covenants and procedures
set forth herein and attached hereto as part hereof, as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms as used in this Loan
Agreement shall, unless the context clearly requires otherwise, have the
following meanings:
"Act" means the "New Jersey Environmental Infrastructure Trust Act",
constituting Chapter 334 of the Pamphlet Laws of 1985 of the State (codified
at N.J.S.A. 58:11B-1 et seq.), as the same may from time to time be amended
and supplemented.
"Administrative Fee" means that portion of Interest on the Loan or
Interest on the Borrower Bond payable hereunder as an annual fee of up to
three-tenths of one percent (.30%) of the initial principal amount of the
Loan or such lesser amount, if any, as may be authorized by any act of the
State Legislature and as the Trust may approve from time to time.
"Authorized Officer" means, in the case of the Borrower, any person or
persons authorized pursuant to a resolution of the board of directors of the
Borrower to perform any act or execute any document relating to the Loan, the
Borrower Bond or this Loan Agreement.
"Bond Counsel" means a law firm appointed or approved by the Trust, as
the case may be, having a reputation in the field of municipal law whose
opinions are generally acceptable by purchasers of municipal bonds.
"Bond Resolution" means the "Environmental Infrastructure Bond
Resolution, Series 1998B", as adopted by the Board of Directors of the Trust
on or about September 21, 1998, authorizing the issuance of the Trust Bonds,
and all further amendments and supplements thereto adopted in accordance with
the provisions thereof.
"Borrower" means the corporation that is a party to and is described in
the first paragraph of this Loan Agreement, and its successors and assigns.
"Borrower Bond" means the general obligation bond, note, debenture or
other evidence of indebtedness authorized, executed, attested and delivered
by the Borrower to the Trust to evidence the Loan, a specimen of which is
attached hereto as Exhibit D and made a part hereof.
"Borrowers" means any other Local Government Unit or Private Entity (as
such terms are defined in the Regulations) authorized to construct, operate
and maintain Environmental Infrastructure Facilities that have entered into
Loan Agreements with the Trust pursuant to which the Trust will make Loans to
such recipients from moneys on deposit in the Project Fund, excluding the
Project Loan Account.
"Business Corporation Law" means the "New Jersey Business Corporation
Act", constituting Chapter 263 of the Pamphlet Laws of 1968 of the State
(codified at N.J.S.A. 14A:1-1 et seq.), as the same may from time to time be
amended and supplemented.
"Code" means the Internal Revenue Code of 1986, as the same may from
time to time be amended and supplemented, including any regulations
promulgated thereunder, any successor code thereto and any administrative or
judicial interpretations thereof.
"Cost" means those costs that are eligible, reasonable, necessary,
allocable to the Project and permitted by generally accepted accounting
principles, including Allowances and Building Costs (as defined in the
Regulations), as shall be determined on a project-specific basis in
accordance with the Regulations as set forth in Exhibit B hereto, as the same
may be amended by subsequent eligible costs as evidenced by a certificate of
an authorized officer of the Trust.
"Debt Service Reserve Fund" means the Debt Service Reserve Fund as
defined in the Bond Resolution.
"Environmental Infrastructure Facilities" means Wastewater Treatment
Facilities, Stormwater Management Facilities or Water Supply Facilities (as
such terms are defined in the Regulations).
"Environmental Infrastructure System" means the Environmental
Infrastructure Facilities of the Borrower, including the Project, described
in Exhibit A-1 attached hereto and made a part hereof for which the Borrower
is borrowing the Loan under this Loan Agreement.
"Event of Default" means any occurrence or event specified in Section
5.01 hereof.
"Fund Loan" means the loan made to the Borrower by the State, acting by
and through the New Jersey Department of Environmental Protection, pursuant
to the loan agreement dated as of November 1, 1998 by and between the
Borrower and the State, acting by and through the New Jersey Department of
Environmental Protection, to finance or refinance a portion of the Cost of
the Project.
"Guarantor" means Elizabethtown Water Company, a New Jersey corporation.
"Interest on the Loan" or "Interest on the Borrower Bond" means the sum
of (i) the Interest Portion, (ii) the Administrative Fee, and (iii) any late
charges incurred hereunder.
"Interest Portion" means that portion of Interest on the Loan or
Interest on the Borrower Bond payable hereunder that is necessary to pay the
Borrower's proportionate share of interest on the Trust Bonds (i) as set
forth in Exhibit A-2 hereof under the column heading entitled "Interest", or
(ii) with respect to any prepayment of Trust Bond Loan Repayments in
accordance with Section 3.07 or 5.03 hereof, to accrue on any principal
amount of Trust Bond Loan Repayments to the date of the optional redemption
or acceleration, as the case may be, of the Trust Bonds allocable to such
prepaid or accelerated Trust Bond Loan Repayment.
"Loan" means the loan made by the Trust to the Borrower to finance or
refinance a portion of the Cost of the Project pursuant to this Loan
Agreement. For all purposes of this Loan Agreement, the amount of the Loan
at any time shall be the initial aggregate principal amount of the Borrower
Bond (which amount equals the amount actually deposited in the Project Loan
Account at the Loan Closing plus the Borrower's allocable share of (i)
certain costs of issuance and underwriter's discount for all Trust Bonds
issued to finance the Loan, (ii) capitalized interest during the Project
construction period, and (iii) that portion of the Debt Service Reserve Fund
attributable to the cost of funding reserve capacity for the Project) less
any amount of such principal amount that has been repaid by the Borrower
under this Loan Agreement and less any adjustment made pursuant to the
provisions of the Bond Resolution, including, without limitation, Section
5.02(4) thereof, N.J.A.C. 7:22-4.26 and the appropriations act of the State
Legislature authorizing the expenditure of Trust Bond proceeds to finance a
portion of the Cost of the Project.
"Loan Agreement" means this Loan Agreement, including the Exhibits
attached hereto, as it may be supplemented, modified or amended from time to
time in accordance with the terms hereof and of the Bond Resolution.
"Loan Agreements" means any other loan agreements entered into by and
between the Trust and one or more of the Borrowers pursuant to which the
Trust will make Loans to such Borrowers from moneys on deposit in the Project
Fund, excluding the Project Loan Account, financed with the proceeds of the
Trust Bonds.
"Loan Closing" means the date upon which the Trust shall issue and
deliver the Trust Bonds and the Borrower shall deliver its Borrower Bond, as
previously authorized, executed and attested, to the Trust.
"Loan Repayments" means the sum of (i) Trust Bond Loan Repayments, (ii)
the Administrative Fee, and (iii) any late charges incurred hereunder.
"Loan Servicer" means, initially, First Union National Bank, the loan
servicer for the Loan and the Fund Loan, duly appointed and designated as
"Loan Servicer" pursuant to the Loan Servicing and Trust Bonds Security
Agreement dated as of November 1, 1998 by and among the Trust, the State,
acting by and through the Treasurer of the State on behalf of the New Jersey
Department of Environmental Protection, and First Union National Bank, and
any successors as "Loan Servicer" under such agreement, as the same may be
modified, amended or supplemented from time to time in accordance with its
terms.
"Loan Term" means the term of this Loan Agreement provided in Sections
3.01 and 3.03 hereof and in Exhibit A-2 attached hereto and made a part
hereof.
"Loans" means the loans made by the Trust to the Borrowers under the
Loan Agreements from moneys on deposit in the Project Fund, excluding the
Project Loan Account.
"Master Program Trust Agreement" means that certain Master Program Trust
Agreement dated as of November 1, 1995 by and among the Trust, the State,
United States Trust Company of New York, as Master Program Trustee
thereunder, The Bank of New York (NJ), in several capacities thereunder, and
First Fidelity Bank, N.A. (predecessor to First Union National Bank), in
several capacities thereunder, as the same may be amended and supplemented
from time to time in accordance with its terms.
"Official Statement" means the Official Statement relating to the
issuance of the Trust Bonds.
"Preliminary Official Statement" means the Preliminary Official
Statement relating to the issuance of the Trust Bonds.
"Prime Rate" means the prevailing commercial interest rate announced by
the Trustee from time to time in the State as its prime lending rate.
"Project" means the Environmental Infrastructure Facilities of the
Borrower described in Exhibit A-1 attached hereto and made a part hereof,
which constitutes a project for which the Trust is permitted to make a loan
to the Borrower pursuant to the Act, the Regulations and the Bond Resolution,
all or a portion of the Cost of which is financed or refinanced by the Trust
through the making of the Loan under this Loan Agreement.
"Project Fund" means the Project Fund as defined in the Bond Resolution.
"Project Loan Account" means the project loan account established on
behalf of the Borrower in the Project Fund in accordance with the Bond
Resolution to finance all or a portion of the Cost of the Project.
"Regulations" means the rules and regulations, as applicable, now or
hereafter promulgated under N.J.A.C. 7:22-3 et seq., 7:22-4 et seq., 7:22-5
et seq., 7:22-6 et seq., 7:22-7 et seq., 7:22-8 et seq., 7:22-9 et seq. and
7:22-10 et seq., as the same may from time to time be amended and
supplemented.
"State" means the State of New Jersey.
"Trust" means the New Jersey Environmental Infrastructure Trust, a
public body corporate and politic with corporate succession duly created and
validly existing under and by virtue of the Act.
"Trust Bond Loan Repayments" means the repayments of the principal
amount of the Loan plus the payment of any premium associated with prepaying
the principal amount of the Loan in accordance with Section 3.07 hereof plus
the Interest Portion.
"Trust Bonds" means bonds authorized by Section 2.03 of the Bond
Resolution, together with any refunding bonds authenticated and delivered
pursuant to Section 2.04 of the Bond Resolution, in each case issued in order
to finance (i) the portion of the Loan deposited in the Project Loan Account,
(ii) the portion of the Loans deposited in the balance of the Project Fund,
(iii) any capitalized interest related to such bonds, (iv) a portion of the
costs of issuance related to such bonds, and (v) that portion of the Debt
Service Reserve Fund, if any, allocable to the Loan or Loans, as the case may
be, a portion of which includes the funding of reserve capacity for the
Environmental Infrastructure Facilities of the Borrower or Borrowers, as the
case may be, or to refinance any or all of the above.
"Trustee" means, initially, First Union National Bank, the Trustee
appointed by the Trust and its successors as Trustee under the Bond
Resolution, as provided in Article X of the Bond Resolution.
Except as otherwise defined herein or where the context otherwise
requires, words importing the singular number shall include the plural number
and vice versa, and words importing persons shall include firms,
associations, corporations, agencies and districts. Words importing one
gender shall include the other gender.
<PAGE>
ARTICLE II
REPRESENTATIONS AND COVENANTS OF BORROWER
SECTION 2.01. Representations of Borrower. The Borrower represents for
the benefit of the Trust, the Trustee and the holders of the Trust Bonds as
follows:
(a) Organization and Authority.
(i) The Borrower is a corporation duly created and validly existing
under and pursuant to the Constitution and statutes of the State,
including the Business Corporation Law.
(ii) The acting officers of the Borrower who are contemporaneously
herewith performing or have previously performed any action contemplated
in this Loan Agreement either are or, at the time any such action was
performed, were the duly appointed or elected officers of such Borrower
empowered by applicable State law and, if applicable, authorized by
resolution of the Borrower to perform such actions. To the extent any
such action was performed by an officer no longer the duly acting
officer of such Borrower, all such actions previously taken by such
official are still in full force and effect.
(iii) The Borrower has full legal right and authority and all
necessary licenses and permits required as of the date hereof to own,
operate and maintain its Environmental Infrastructure System, to carry
on its activities relating thereto, to execute, attest and deliver this
Loan Agreement and the Borrower Bond, to sell the Borrower Bond to the
Trust, to undertake and complete the Project and to carry out and
consummate all transactions contemplated by this Loan Agreement.
(iv) The Borrower's board of directors has taken all necessary
action to authorize the execution, attestation and delivery of this Loan
Agreement and the Borrower Bond, the sale of the Borrower Bond to the
Trust and the Borrower's undertaking and completion of the Project.
(v) The Borrower has duly authorized, approved and consented to all
necessary action to be taken by the Borrower for: (A) the execution,
attestation, delivery and performance of this Loan Agreement and the
transactions contemplated hereby; (B) the issuance of the Borrower Bond
and the sale thereof to the Trust upon the terms set forth herein; (C)
the approval of the inclusion, if such inclusion is deemed necessary in
the sole discretion of the Trust, in the Preliminary Official Statement
and the Official Statement of all statements and information relating to
the Borrower set forth in "APPENDIX B" thereto (the "Borrower
Appendices") and any amendment thereof or supplement thereto; and (D)
the execution, delivery and due performance of any and all other
certificates, agreements and instruments that may be required to be
executed, delivered and performed by the Borrower in order to carry out,
give effect to and consummate the transactions contemplated by this Loan
Agreement, including, without limitation, the designation of the
Borrower Appendices portion of the Preliminary Official Statement, if
any, as "deemed final" for the purposes and within the meaning of Rule
15c2-12 ("Rule 15c2-12") of the Securities and Exchange Commission
("SEC") promulgated under the Securities Exchange Act of 1934, as
amended or supplemented, including any successor regulation or statute
thereto.
(vi) This Loan Agreement and the Borrower Bond have each been duly
authorized by the Borrower and duly executed, attested and delivered by
Authorized Officers of the Borrower, and the Borrower Bond has been duly
sold by the Borrower to the Trust; and assuming that the Trust has all
the requisite power and authority to authorize, execute, attest and
deliver, and has duly authorized, executed, attested and delivered, this
Loan Agreement, and assuming further that this Loan Agreement is the
legal, valid and binding obligation of the Trust, enforceable against
the Trust in accordance with its terms, each of this Loan Agreement and
the Borrower Bond constitutes a legal, valid and binding obligation of
the Borrower, enforceable against the Borrower in accordance with its
respective terms, except as the enforcement thereof may be affected by
bankruptcy, insolvency or other laws or the application by a court of
legal or equitable principles affecting creditors' rights; and the
information contained under "Description of Loan" in Exhibit A-2
attached hereto and made a part hereof is true and accurate in all
respects.
(b) Full Disclosure. There is no fact that the Borrower has not
disclosed to the Trust in writing on the Borrower's application for the Loan
or otherwise that materially adversely affects or (so far as the Borrower can
now foresee) that will materially adversely affect the properties,
activities, prospects or condition (financial or otherwise) of the Borrower
or its Environmental Infrastructure System, or the ability of the Borrower to
make all Loan Repayments and any other payments required under this Loan
Agreement or otherwise to observe and perform its duties, covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond.
(c) Pending Litigation. There are no proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower in
any court or before any governmental authority or arbitration board or
tribunal that, if adversely determined, would materially adversely affect (i)
the undertaking or completion of the Project, (ii) the properties,
activities, prospects or condition (financial or otherwise) of the Borrower
or its Environmental Infrastructure System, (iii) the ability of the Borrower
to make all Loan Repayments or any other payments required under this Loan
Agreement, (iv) the authorization, execution, attestation or delivery of this
Loan Agreement or the Borrower Bond, (v) the issuance of the Borrower Bond
and the sale thereof to the Trust, or (vi) the Borrower's ability otherwise
to observe and perform its duties, covenants, obligations and agreements
under this Loan Agreement and the Borrower Bond, which proceedings have not
been previously disclosed in writing to the Trust either in the Borrower's
application for the Loan or otherwise.
(d) Compliance with Existing Laws and Agreements. (i) The
authorization, execution, attestation and delivery of this Loan Agreement and
the Borrower Bond by the Borrower, (ii) the sale of the Borrower Bond to the
Trust, (iii) the observation and performance by the Borrower of its duties,
covenants, obligations and agreements hereunder and thereunder, (iv) the
consummation of the transactions provided for in this Loan Agreement and the
Borrower Bond, and (v) the undertaking and completion of the Project will not
(A) other than the lien, charge or encumbrance created hereby, by the
Borrower Bond and by any other outstanding debt obligations of the Borrower
that are at parity with the Borrower Bond as to lien on, and source and
security for payment thereon from, the revenues of the Borrower's
Environmental Infrastructure System, result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of the Borrower
pursuant to, (B) result in any breach of any of the terms, conditions or
provisions of, or (C) constitute a default under, any existing resolution,
outstanding debt or lease obligation, trust agreement, indenture, mortgage,
deed of trust, loan agreement or other instrument to which the Borrower is a
party or by which the Borrower, its Environmental Infrastructure System or
any of its properties or assets may be bound, nor will such action result in
any violation of the provisions of the charter or other document pursuant to
which the Borrower was established or any laws, ordinances, injunctions,
judgments, decrees, rules, regulations or existing orders of any court or
governmental or administrative agency, authority or person to which the
Borrower, its Environmental Infrastructure System or its properties or
operations is subject.
(e) No Defaults. No event has occurred and no condition exists that,
upon the authorization, execution, attestation and delivery of this Loan
Agreement and the Borrower Bond, the issuance of the Borrower Bond and the
sale thereof to the Trust or the receipt of the amount of the Loan, would
constitute an Event of Default hereunder. Since December 31, 1975 and as of
the date of delivery of this Loan Agreement, the Borrower has not been, and
is not now, in default in the payment of the principal of or interest on any
of its bonds, notes, lease purchase agreements or other debt obligations.
The Borrower is not in violation of, and has not received notice of any
claimed violation of, any term of any agreement or other instrument to which
it is a party or by which it, its Environmental Infrastructure System or its
properties may be bound, which violation would materially adversely affect
the properties, activities, prospects or condition (financial or otherwise)
of the Borrower or its Environmental Infrastructure System or the ability of
the Borrower to make all Loan Repayments, to pay all principal and redemption
premiums, if any, of and interest on the Borrower Bond or otherwise to
observe and perform its duties, covenants, obligations and agreements under
this Loan Agreement and the Borrower Bond.
(f) Governmental Consent. The Borrower has obtained all permits and
approvals required to date by any governmental body or officer for the
authorization, execution, attestation and delivery of this Loan Agreement and
the Borrower Bond, for the issuance of the Borrower Bond and the sale thereof
to the Trust, for the making, observance and performance by the Borrower of
its duties, covenants, obligations and agreements under this Loan Agreement
and the Borrower Bond and for the undertaking or completion of the Project
and the financing or refinancing thereof, including, but not limited to, the
approval by the New Jersey Board of Public Utilities (the "BPU") of the
issuance by the Borrower of the Borrower Bond to the Trust, as required by
Section 9a of the Act, and any other approvals required therefor by the BPU;
and the Borrower has complied with all applicable provisions of law requiring
any notification, declaration, filing or registration with any governmental
body or officer in connection with the making, observance and performance by
the Borrower of its duties, covenants, obligations and agreements under this
Loan Agreement and the Borrower Bond or with the undertaking or completion of
the Project and the financing or refinancing thereof. No consent, approval
or authorization of, or filing, registration or qualification with, any
governmental body or officer that has not been obtained is required on the
part of the Borrower as a condition to the authorization, execution,
attestation and delivery of this Loan Agreement and the Borrower Bond, the
issuance of the Borrower Bond and the sale thereof to the Trust, the
undertaking or completion of the Project or the consummation of any
transaction herein contemplated.
(g) Compliance with Law. The Borrower:
(i) is in compliance with all laws, ordinances, governmental rules
and regulations to which it is subject, the failure to comply with which
would materially adversely affect (A) the ability of the Borrower to
conduct its activities or to undertake or complete the Project or (B)
the condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System; and
(ii) has obtained all licenses, permits, franchises or other
governmental authorizations presently necessary for the ownership of its
properties or for the conduct of its activities that, if not obtained,
would materially adversely affect (A) the ability of the Borrower to
conduct its activities or to undertake or complete the Project or (B)
the condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System.
(h) Use of Proceeds. The Borrower will apply the proceeds of the Loan
from the Trust as described in Exhibit B attached hereto and made a part
hereof (i) to finance or refinance a portion of the Cost of the Borrower's
Project; and (ii) where applicable, to reimburse the Borrower for a portion
of the Cost of the Borrower's Project, which portion was paid or incurred in
anticipation of reimbursement by the Trust and is eligible for such
reimbursement under and pursuant to the Regulations, the Code and any other
applicable law. All of such costs constitute Costs for which the Trust is
authorized to make Loans to the Borrower pursuant to the Act and the
Regulations.
(i) Official Statement. The descriptions and information set forth in
the Borrower Appendices, if any, contained in the Official Statement relating
to the Borrower, its operations and the transactions contemplated hereby, as
of the date of the Official Statement, were and, as of the date of delivery
hereof, are true and correct in all material respects, and did not and do not
contain any untrue statement of a material fact or omit to state a material
fact that is necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading.
(j) Preliminary Official Statement. As of the date of the Preliminary
Official Statement, the descriptions and information set forth in the
Borrower Appendices, if any, contained in the Preliminary Official Statement
relating to the Borrower, its operations and the transactions contemplated
hereby were "deemed final" by the Borrower for the purposes and within the
meaning of Rule 15c2-12.
SECTION 2.02. Particular Covenants of Borrower.
(a) Promise to Pay. The Borrower unconditionally promises to make
punctual payment of the principal and redemption premium, if any, of the Loan
and the Borrower Bond, the Interest on the Loan, the Interest on the Borrower
Bond and all other amounts due under this Loan Agreement and the Borrower
Bond according to their respective terms.
(b) Performance Under Loan Agreement. The Borrower covenants and
agrees (i) to comply with all applicable State and federal laws, rules and
regulations in the performance of this Loan Agreement; (ii) to maintain its
Environmental Infrastructure System in good repair and operating condition;
and (iii) to cooperate with the Trust in the observance and performance of
the respective duties, covenants, obligations and agreements of the Borrower
and the Trust under this Loan Agreement.
(c) Revenue Obligation; No Prior Pledges. The Borrower shall not be
required to make payments under this Loan Agreement except from the revenues
of its Environmental Infrastructure System and from such other funds of such
Environmental Infrastructure System legally available therefor and from any
other sources pledged to such payment pursuant to subsection (a) of this
Section 2.02. In no event shall the Borrower be required to make payments
under this Loan Agreement from any revenues or receipts not derived from its
Environmental Infrastructure System or pledged pursuant to subsection (a) of
this Section 2.02. Except for (i) loan repayments required with respect to
the Fund Loan, (ii) the debt service on any future bonds of the Borrower
issued at parity with the Borrower Bond, and (iii) the debt service on any
bonds, notes or evidences of indebtedness of the Borrower at parity with the
Borrower Bond and currently outstanding or issued on the date hereof, the
revenues derived by the Borrower from its Environmental Infrastructure
System, after the payment of all costs of operating and maintaining the
Environmental Infrastructure System, are and will be free and clear of any
pledge, lien, charge or encumbrance thereon or with respect thereto prior to,
or of equal rank with, the obligation of the Borrower to make Loan Repayments
under this Loan Agreement and the Borrower Bond, and all corporate or other
action on the part of the Borrower to that end has been and will be duly and
validly taken.
(d) Completion of Project and Provision of Moneys Therefor. The
Borrower covenants and agrees (i) to exercise its best efforts in accordance
with prudent environmental infrastructure utility practice to complete the
Project and to accomplish such completion on or before the estimated Project
completion date set forth in Exhibit G hereto and made a part hereof; (ii) to
comply with the terms and provisions contained in Exhibit G hereto; and (iii)
to provide from its own fiscal resources all moneys, in excess of the total
amount of loan proceeds it receives under the Loan and Fund Loan, required to
complete the Project.
(e) Disposition of Environmental Infrastructure System. Neither the
Borrower nor the Guarantor shall permit the disposition of all or
substantially all of the Borrower's Environmental Infrastructure System,
directly or indirectly, including, without limitation, by means of sale,
lease, abandonment, sale of stock, statutory merger or otherwise
(collectively, a "Disposition"), except on ninety (90) days' prior written
notice to the Trust, and, in any event, shall not permit a Disposition unless
the following conditions are met: (i) the Borrower shall, in accordance with
Section 4.02 hereof, assign this Loan Agreement and the Borrower Bond and its
rights and interests hereunder and thereunder to the purchaser or lessee of
the Environmental Infrastructure System, and such purchaser or lessee shall
assume all duties, covenants, obligations and agreements of the Borrower
under this Loan Agreement and the Borrower Bond; and (ii) the Trust shall by
appropriate action determine, in its sole discretion, that such sale, lease,
abandonment or other disposition will not adversely affect (A) the Trust's
ability to meet its duties, covenants, obligations and agreements under the
Bond Resolution, (B) the value of this Loan Agreement or the Borrower Bond as
security for the payment of Trust Bonds and the interest thereon, or (C) the
excludability from gross income for federal income tax purposes of the
interest on Trust Bonds then outstanding or that could be issued in the
future.
(f) Exclusion of Interest from Federal Gross Income and Compliance with
Code.
(i) The Borrower covenants and agrees that it shall not take any
action or omit to take any action that would result in the loss of the
exclusion of the interest on any Trust Bonds now or hereinafter issued
from gross income for purposes of federal income taxation as that status
is governed by Section 103(a) of the Code.
(ii) The Borrower shall not directly or indirectly use or permit
the use of any proceeds of the Trust Bonds (or amounts replaced with
such proceeds) or any other funds or take any action or omit to take any
action that would cause the Trust Bonds (assuming solely for this
purpose that the proceeds of the Trust Bonds loaned to the Borrower
represent all of the proceeds of the Trust Bonds) to be "arbitrage
bonds" within the meaning of Section 148(a) of the Code.
(iii) The Borrower shall not directly or indirectly use or permit
the use of any proceeds of the Trust Bonds to pay the principal of or
the interest or redemption premium on or any other amount in connection
with the retirement or redemption of any issue of state or local
governmental obligations ("refinancing of indebtedness"), unless the
Borrower shall (A) establish to the satisfaction of the Trust, prior to
the issuance of the Trust Bonds, that such refinancing of indebtedness
will not adversely affect the exclusion from gross income for federal
income tax purposes of the interest on the Trust Bonds, and (B) provide
to the Trust an opinion of Bond Counsel to that effect in form and
substance satisfactory to the Trust.
(iv) The Borrower shall not directly or indirectly use or permit
the use of any proceeds of the Trust Bonds to reimburse the Borrower for
an expenditure with respect to a Cost of the Borrower's Project paid by
the Borrower prior to the issuance of the Trust Bonds, unless (A) the
allocation by the Borrower of the proceeds of the Trust Bonds to
reimburse such expenditure complies with the requirements of Treasury
Regulations 1.150-2 necessary to enable the reimbursement allocation to
be treated as an expenditure of the proceeds of the Trust Bonds for
purposes of applying Sections 103 and 141-150, inclusive, of the Code,
or (B) such proceeds of the Trust Bonds will be used for refinancing of
indebtedness that was used to pay Costs of the Borrower's Project or to
reimburse the Borrower for expenditures with respect to Costs of the
Borrower's Project paid by the Borrower prior to the issuance of such
indebtedness in accordance with a reimbursement allocation for such
expenditures that complies with the requirements of Treasury Regulations
1.150-2.
(v) The Borrower shall not directly or indirectly use or permit the
use of any proceeds of the Trust Bonds to pay any Cost of the Borrower's
Project that does not constitute a "capital expenditure" within the
meaning of Treasury Regulations 1.150-1.
(vi) The Borrower shall not use the proceeds of the Trust Bonds
(assuming solely for this purpose that the proceeds of the Trust Bonds
loaned to the Borrower represent all of the proceeds of the Trust Bonds)
in any manner that would cause the Trust Bonds to be considered
"federally guaranteed" within the meaning of Section 149(b) of the Code
or "hedge bonds" within the meaning of Section 149(g) of the Code.
(vii) Neither the Borrower nor any "related party" (within the
meaning of Treasury Regulations 1.150-1) shall purchase Trust Bonds in
an amount related to the amount of the Loan.
(viii) The Borrower will not issue or permit to be issued
obligations that will constitute an "advance refunding" of the Borrower
Bond within the meaning of Section 149(d)(5) of the Code without the
express written consent of the Trust, which consent may only be
delivered by the Trust after the Trust has received notice from the
Borrower of such contemplated action no later than sixty (60) days prior
to any such contemplated action, and which consent is in the sole
discretion of the Trust.
(ix) The Borrower will not have a reserve or replacement fund
(within the meaning of Section 148(d)(1) of the Code) allocable to the
Borrower Bond evidencing the Loan.
(x) No "gross proceeds" of the Trust Bonds held by the Borrower
(other than amounts in a "bona fide debt service fund") will be held in
a "commingled fund" (as such terms are defined in Treasury Regulations
1.148-1(b)).
(xi) Based upon all of the objective facts and circumstances in
existence on the date of issuance of the Trust Bonds used to finance the
Project, (A) within six months of the date of issuance of the Trust
Bonds used to finance the Project, the Borrower will incur a substantial
binding obligation to a third party to expend on the Project at least
five percent (5%) of the "net sale proceeds" (within the meaning of
Treasury Regulations 1.148-1) of the Loan used to finance the Project
(treating an obligation as not being binding if it is subject to
contingencies within the control of the Borrower, the Trust or a
"related party" (within the meaning of Treasury Regulations 1.150-1)),
(B) completion of the Project and the allocation to expenditures of the
"net sale proceeds" of the Loan used to finance the Project will proceed
with due diligence, and (C) all of the proceeds of the Loan used to
finance the Project (other than amounts deposited into the Debt Service
Reserve Fund allocable to that portion of the Loan used to finance
reserve capacity, if any) and investment earnings thereon will be spent
prior to the period ending three (3) years subsequent to the date of
issuance of the Trust Bonds used to finance the Project. Accordingly,
the proceeds of the Loan deposited in the Project Loan Account used to
finance the Project will be eligible for the 3-year arbitrage temporary
period since the expenditure test, time test and due diligence test, as
set forth in Treasury Regulations 1.148-2(e)(2), will be satisfied.
(xii) The weighted average maturity of the Loan does not exceed
120% of the average reasonably expected economic life of the Project
financed or refinanced with the Loan, determined in the same manner as
under Section 147(b) of the Code. Accordingly, the term of the Loan
will not be longer than is reasonably necessary for the governmental
purposes of the Loan within the meaning of Treasury Regulations
1.148-1(c)(4).
For purposes of this subsection and subsection (h) of this Section 2.02,
quoted terms shall have the meanings given thereto by Section 148 of the
Code, including, particularly, Treasury Regulations 1.148-1 through
1.148-11, inclusive, as supplemented or amended, to the extent applicable to
the Trust Bonds, and any successor Treasury Regulations applicable to the
Trust Bonds.
(g) Operation and Maintenance of Environmental Infrastructure System.
The Borrower covenants and agrees that it shall, in accordance with prudent
environmental infrastructure utility practice, (i) at all times operate the
properties of its Environmental Infrastructure System and any business in
connection therewith in an efficient manner, (ii) maintain its Environmental
Infrastructure System in good repair, working order and operating condition,
and (iii) from time to time make all necessary and proper repairs, renewals,
replacements, additions, betterments and improvements with respect to its
Environmental Infrastructure System so that at all times the business carried
on in connection therewith shall be properly and advantageously conducted.
(h) Records and Accounts.
(i) The Borrower shall keep accurate records and accounts for its
Environmental Infrastructure System (the "System Records"). Such System
Records shall be part of the annual audit of the general records of the
Guarantor. Such System Records and general records of the Guarantor
shall be made available for inspection by the Trust at any reasonable
time upon prior written notice, and a copy of such annual audit,
including all written comments and recommendations, shall be furnished
to the Trust within 150 days of the close of the fiscal year being so
audited or, with the consent of the Trust, such additional period as may
be provided by law.
(ii) Unless otherwise advised in writing by the Trust, in
furtherance of the covenant of the Borrower contained in subsection (f)
of this Section 2.02 not to cause the Trust Bonds to be arbitrage bonds,
the Borrower shall keep, or cause to be kept, accurate records of each
investment it makes in any "nonpurpose investment" acquired with, or
otherwise allocated to, "gross proceeds" of the Trust Bonds not held by
the Trustee and each "expenditure" it makes allocated to "gross
proceeds" of the Trust Bonds. Such records shall include the purchase
price, including any constructive "payments" (or in the case of a
"payment" constituting a deemed acquisition of a "nonpurpose investment"
(e.g., a "nonpurpose investment" first allocated to "gross proceeds" of
the Trust Bonds after it is actually acquired because it is deposited in
a sinking fund for the Trust Bonds)), the "fair market value" of the
"nonpurpose investment" on the date first allocated to the "gross
proceeds" of the Trust Bonds, nominal interest rate, dated date,
maturity date, type of property, frequency of periodic payments, period
of compounding, yield to maturity, amount actually or constructively
received on disposition (or in the case of a "receipt" constituting a
deemed disposition of a "nonpurpose investment" (e.g., a "nonpurpose
investment" that ceases to be allocated to the "gross proceeds" of the
Trust Bonds because it is removed from a sinking fund for the Trust
Bonds)), the "fair market value" of the "nonpurpose investment" on the
date it ceases to be allocated to the "gross proceeds" of the Trust
Bonds, the purchase date and disposition date of the "nonpurpose
investment" and evidence of the "fair market value" of such property on
the purchase date and disposition date (or deemed purchase or
disposition date) for each such "nonpurpose investment". The purchase
date, disposition date and the date of determination of "fair market
value" shall be the date on which a contract to purchase or sell the
"nonpurpose investment" becomes binding, i.e., the trade date rather
than the settlement date. For purposes of the calculation of purchase
price and disposition price, brokerage or selling commissions,
administrative expenses or similar expenses shall not increase the
purchase price of an item and shall not reduce the amount actually or
constructively received upon disposition of an item, except to the
extent such costs constitute "qualified administrative costs".
(iii) Within thirty (30) days of the last day of the fifth and each
succeeding fifth "bond year" (which, unless otherwise advised by the
Trust, shall be the five-year period ending on the date five years
subsequent to the date immediately preceding the date of issuance of the
Trust Bonds and each succeeding fifth "bond year") and within thirty
(30) days of the date the last bond that is part of the Trust Bonds is
discharged (or on any other periodic basis requested in writing by the
Trust), the Borrower shall (A) calculate, or cause to be calculated, the
"rebate amount" as of the "computation date" or "final computation date"
attributable to any "nonpurpose investment" (not held by the Trustee)
made by the Borrower and (B) remit the following to the Trust: (1) an
amount of money that when added to the "future value" as of the
"computation date" of any previous payments made to the Trust on account
of rebate equals the "rebate amount", (2) the calculations supporting
the "rebate amount" attributable to any "nonpurpose investment" made by
the Borrower allocated to "gross proceeds" of the Trust Bonds, and (3)
any other information requested by the Trust relating to compliance with
Section 148 of the Code (e.g., information related to any "nonpurpose
investment" of the Borrower for purposes of application of the
"universal cap").
(iv) The Borrower covenants and agrees that it will account for
"gross proceeds" of the Trust Bonds, investments allocable to the Trust
Bonds and expenditures of "gross proceeds" of the Trust Bonds in
accordance with Treasury Regulations 1.148-6. All allocations of
"gross proceeds" of the Trust Bonds to expenditures will be recorded on
the books of the Borrower kept in connection with the Trust Bonds no
later than 18 months after the later of the date the particular Cost of
the Borrower's Project is paid or the date the portion of the project
financed by the Trust Bonds is placed in service. All allocations of
proceeds of the Trust Bonds to expenditures will be made no later than
the date that is 60 days after the fifth anniversary of the date the
Trust Bonds are issued or the date 60 days after the retirement of the
Trust Bonds, if earlier. Such records and accounts will include the
particular Cost paid, the date of the payment and the party to whom the
payment was made.
(i) Inspections; Information. The Borrower shall permit the Trust and
the Trustee and any party designated by any of such parties, at any and all
reasonable times during construction of the Project and thereafter upon prior
written notice, to examine, visit and inspect the property, if any,
constituting the Project and to inspect and make copies of any accounts,
books and records, including (without limitation) its records regarding
receipts, disbursements, contracts, investments and any other matters
relating thereto and to its financial standing, and shall supply such reports
and information as the Trust and the Trustee may reasonably require in
connection therewith.
(j) Insurance. The Borrower shall maintain or cause to be maintained,
in force, insurance policies with responsible insurers or self-insurance
programs providing against risk of direct physical loss, damage or
destruction of its Environmental Infrastructure System at least to the extent
that similar insurance is usually carried by utilities constructing,
operating and maintaining Environmental Infrastructure Facilities of the
nature of the Borrower's Environmental Infrastructure System, including
liability coverage, all to the extent available at reasonable cost but in no
case less than will satisfy all applicable regulatory requirements.
(k) Cost of Project. The Borrower certifies that the building cost of
the Project, as listed in Exhibit B hereto and made a part hereof, is a
reasonable and accurate estimation thereof, and it will supply to the Trust a
certificate from a licensed professional engineer authorized to practice in
the State stating that such building cost is a reasonable and accurate
estimation and that the useful life of the Project exceeds twenty (20) years
from the expected date of the Loan Closing.
(l) Delivery of Documents. Concurrently with the delivery of this Loan
Agreement (as previously authorized, executed and attested) at the Loan
Closing, the Borrower will cause to be delivered to the Trust and the Trustee
each of the following items:
(i) an opinion of the Borrower's bond counsel substantially in the
form of Exhibit E hereto; provided, however, that the Trust may permit
portions of such opinion to be rendered by general counsel to the
Borrower and may permit variances in such opinion from the form set
forth in Exhibit E if, in the opinion of the Trust, such variances are
not to the material detriment of the interests of the holders of the
Trust Bonds;
(ii) counterparts of this Loan Agreement as previously executed and
attested by the parties hereto;
(iii) copies of those resolutions finally adopted by the board of
directors of the Borrower and requested by the Trust, including, without
limitation, resolutions of the Borrower authorizing the execution,
attestation and delivery of this Loan Agreement and the execution,
attestation, sale and delivery of the Borrower Bond to the Trust, and
certified copies of orders of the BPU approving the issuance by the
Borrower of the Borrower Bond to the Trust and setting forth any other
approvals required therefor by the BPU;
(iv) if the Loan is being made to reimburse the Borrower for all or
a portion of the Costs of the Borrower's Project or to refinance
indebtedness or reimburse the Borrower for the repayment of indebtedness
previously incurred by the Borrower to finance all or a portion of the
Costs of the Borrower's Project, an opinion of Bond Counsel, in form and
substance satisfactory to the Trust, to the effect that such
reimbursement or refinancing will not adversely affect the exclusion
from gross income for federal income tax purposes of the interest on the
Trust Bonds; and
(v) the certificates of insurance coverage as required pursuant to
the terms of Section 3.06(d) hereof and such other certificates,
documents, opinions and information as the Trust may require in Exhibit
F hereto, if any.
(m) Execution and Delivery of Borrower Bond. Concurrently with the
delivery of this Loan Agreement at the Loan Closing, the Borrower shall also
deliver to the Trust the Borrower Bond, as previously executed and attested,
upon the receipt of a written certification of the Trust that a portion of
the net proceeds of the Trust Bonds shall be deposited in the Project Loan
Account simultaneously with the delivery of the Borrower Bond.
(n) Notice of Material Adverse Change. The Borrower shall promptly
notify the Trust of any material adverse change in the properties,
activities, prospects or condition (financial or otherwise) of the Borrower
or its Environmental Infrastructure System, or in the ability of the Borrower
to make all Loan Repayments and otherwise to observe and perform its duties,
covenants, obligations and agreements under this Loan Agreement and the
Borrower Bond.
(o) Continuing Representations. The representations of the Borrower
contained herein shall be true at the time of the execution of this Loan
Agreement and at all times during the term of this Loan Agreement.
(p) Continuing Disclosure Covenant. To the extent that the Trust, in
its sole discretion, determines, at any time prior to the termination of the
Loan Term, that the Borrower is a material "obligated person", as the term
"obligated person" is defined in Rule 15c2-12, with materiality being
determined by the Trust pursuant to criteria established, from time to time,
by the Trust in its sole discretion and set forth in a bond resolution or
official statement of the Trust, the Borrower hereby covenants that it will
authorize and provide to the Trust, for inclusion in any preliminary official
statement or official statement of the Trust, all statements and information
relating to the Borrower deemed material by the Trust for the purpose of
satisfying Rule 15c2-12 as well as Rule 10b-5 promulgated pursuant to the
Securities Exchange Act of 1934, as amended or supplemented, including any
successor regulation or statute thereto ("Rule 10b-5"), including
certificates and written representations of the Borrower evidencing its
compliance with Rule 15c2-12 and Rule 10b-5; and the Borrower hereby further
covenants that, if the Trust determines that the Borrower is a material
"obligated person", upon request of the Trust, the Borrower shall execute and
deliver the Continuing Disclosure Agreement, in substantially the form
attached hereto as Exhibit H, with such revisions thereto prior to execution
and delivery thereof as the Trust shall determine to be necessary, desirable
or convenient, in its sole discretion, for the purpose of satisfying Rule
15c2-12 and the purposes and intent thereof, as Rule 15c2-12, its purposes
and intent may hereafter be interpreted from time to time by the SEC or any
court of competent jurisdiction; and pursuant to the terms and provisions of
the Continuing Disclosure Agreement, the Borrower shall thereafter provide
on-going disclosure with respect to all statements and information relating
to the Borrower in satisfaction of the requirements set forth in Rule 15c2-12
and Rule 10b-5, including the provision of certificates and written
representations of the Borrower evidencing its compliance with Rule 15c2-12
and Rule 10b-5.
(q) Additional Covenants and Requirements. No later than the Loan
Closing and, if necessary, in connection with the Trust's issuance of the
Trust Bonds or the making of the Loan, additional covenants and requirements
have been included in Exhibit F hereto and made a part hereof. Such
covenants and requirements may include, but need not be limited to, the
maintenance of specified levels of Environmental Infrastructure System rates,
the issuance of additional debt of the Borrower, the use by or on behalf of
the Borrower of certain proceeds of the Trust Bonds as such use relates to
the exclusion from gross income for federal income tax purposes of the
interest on any Trust Bonds, the transfer of revenues and receipts from the
Borrower's Environmental Infrastructure System, compliance with Rule 15c2-12,
Rule 10b-5 and any other applicable federal or State securities laws, and
matters in connection with the appointment of the Trustee under the Bond
Resolution and any successors thereto. The Borrower agrees to observe and
comply with each such additional covenant and requirement, if any, included
in Exhibit F hereto.
<PAGE>
ARTICLE III
LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS
SECTION 3.01. Loan; Loan Term. The Trust hereby agrees to make the
Loan as described in Exhibit A-2 hereof and to disburse proceeds of the Loan
to the Borrower in accordance with Section 3.02 and Exhibit C hereof, and the
Borrower hereby agrees to borrow and accept the Loan from the Trust upon the
terms set forth in Exhibit A-2 attached hereto and made a part hereof;
provided, however, that the Trust shall be under no obligation to make the
Loan if (a) at the Loan Closing, the Borrower does not deliver to the Trust a
Borrower Bond and such other documents required under Section 2.02(l) hereof,
or (b) an Event of Default has occurred and is continuing under the Bond
Resolution or this Loan Agreement. Although the Trust intends to disburse
proceeds of the Loan to the Borrower at the times and up to the amounts set
forth in Exhibit C to pay a portion of the Cost of the Project, due to
unforeseen circumstances there may not be a sufficient amount on deposit in
the Project Fund on any date to make the disbursement in such amount.
Nevertheless, the Borrower agrees that the amount actually deposited in the
Project Loan Account at the Loan Closing plus the Borrower's allocable share
of (i) certain costs of issuance and underwriter's discount for all Trust
Bonds issued to finance the Loan, (ii) capitalized interest during the
Project construction period, and (iii) that portion of the Debt Service
Reserve Fund attributable to the cost of funding reserve capacity for the
Project shall constitute the initial principal amount of the Loan (as the
same may be adjusted downward in accordance with the definition thereof), and
neither the Trust nor the Trustee shall have any obligation thereafter to
loan any additional amounts to the Borrower.
The Borrower shall use the proceeds of the Loan strictly in accordance
with Section 2.01(h) hereof.
The payment obligations created under this Loan Agreement and the
obligations to pay the principal of the Borrower Bond, Interest on the
Borrower Bond and other amounts due under the Borrower Bond are each direct,
general, irrevocable and unconditional obligations of the Borrower payable
from any source legally available to the Borrower.
SECTION 3.02. Disbursement of Loan Proceeds. (a) The Trustee, as the
agent of the Trust, shall disburse the amounts on deposit in the Project Loan
Account to the Borrower upon receipt of a requisition executed by an
Authorized Officer of the Borrower, and approved by the Trust, in a form
meeting the requirements of Section 5.02(3) of the Bond Resolution.
(b) The Trust and Trustee shall not be required to disburse any Loan
proceeds to the Borrower under this Loan Agreement, unless:
(i) the proceeds of the Trust Bonds shall be available for
disbursement, as determined solely by the Trust;
(ii) in accordance with the "Wastewater Treatment Bond Act of
1985", P.L. 1985, c. 329, as amended, and the Regulations, the Borrower
shall have timely applied for, shall have been awarded and, prior to or
simultaneously with the Loan Closing, shall have closed a Fund Loan for
a portion of the Allowable Costs (as defined in such regulations) of the
Project in an amount not in excess of the amount of Allowable Costs of
the Project covered by the Loan from the Trust;
(iii) the Borrower shall have on hand or otherwise available moneys
to pay for the greater of (A) that portion of the total cost of the
Project that is not eligible to be funded from the Fund Loan or the
Loan, or (B) that portion of the total cost of the Project that exceeds
the actual amounts of the loan commitments made by the State and the
Trust, respectively, for the Fund Loan and the Loan; and
(iv) no Event of Default nor any event that, with the passage of
time or service of notice or both, would constitute an Event of Default
shall have occurred and be continuing hereunder.
SECTION 3.03. Amounts Payable. (a) The Borrower shall repay the Loan
in installments payable to the Loan Servicer as follows:
(i) the principal of the Loan shall be repaid annually on August 1,
commencing August 1, 2000, in accordance with the schedule set forth in
Exhibit A-2 attached hereto and made a part hereof, as the same may be
amended or modified by any credits applicable to the Borrower as set
forth in the Bond Resolution;
(ii) the Interest Portion described in clause (i) of the definition
thereof shall be paid semiannually on February 1 and August 1,
commencing August 1, 2000, in accordance with the schedule set forth in
Exhibit A-2 attached hereto and made a part hereof, as the same may be
amended or modified by any credits applicable to the Borrower as set
forth in the Bond Resolution; and
(iii) the Interest Portion described in clause (ii) of the
definition thereof shall be paid upon the date of optional redemption or
acceleration, as the case may be, of the Trust Bonds allocable to any
prepaid or accelerated Trust Bond Loan Repayment.
The obligations of the Borrower under the Borrower Bond shall be deemed
to be amounts payable under this Section 3.03. Each Loan Repayment, whether
satisfied through a direct payment by the Borrower to the Loan Servicer or
(with respect to the Interest Portion) through the use of Trust Bond proceeds
and income thereon on deposit in the Interest Account (as defined in the Bond
Resolution) to pay interest on the Trust Bonds, shall be deemed to be a
credit against the corresponding obligation of the Borrower under this
Section 3.03 and shall fulfill the Borrower's obligation to pay such amount
hereunder and under the Borrower Bond. Each payment made to the Loan
Servicer pursuant to this Section 3.03 shall be applied first to the Interest
Portion then due and payable, second to the principal of the Loan then due
and payable, third to the payment of the Administrative Fee, and, finally, to
the payment of any late charges hereunder.
(b) The Interest on the Loan described in clause (iii) of the
definition thereof shall (i) consist of a late charge for any Trust Bond Loan
Repayment that is received by the Loan Servicer later than the tenth (10th)
day following its due date and (ii) be payable immediately thereafter in an
amount equal to the greater of twelve percent (12%) per annum or the Prime
Rate plus one half of one percent per annum on such late payment from its due
date to the date it is actually paid; provided, however, that the rate of
Interest on the Loan, including, without limitation, any late payment charges
incurred hereunder, shall not exceed the maximum interest rate permitted by
law.
(c) The Borrower shall receive, as a credit against its semiannual
payment obligations of the Interest Portion, the amounts certified by the
Trust pursuant to Section 5.10 of the Bond Resolution. Such amounts shall
represent the Borrower's allocable share of the interest earnings on certain
funds and accounts established under the Bond Resolution, calculated in
accordance with Section 5.10 of the Bond Resolution.
(d) In accordance with the provisions of the Bond Resolution, the
Borrower shall receive, as a credit against its Trust Bond Loan Repayments,
the amounts set forth in the certificate of the Trust filed with the Trustee
pursuant to Section 5.02(4) of the Bond Resolution.
(e) The Interest on the Loan described in clause (ii) of the definition
thereof shall be paid by the Borrower in the amount of one-half of the
Administrative Fee, if any, to the Loan Servicer semiannually on each
February 1 and August 1, commencing February 1, 1999, during the term of the
Loan.
SECTION 3.04. Unconditional Obligations. The obligation of the
Borrower to make the Loan Repayments and all other payments required
hereunder and the obligation to perform and observe the other duties,
covenants, obligations and agreements on its part contained herein shall be
absolute and unconditional, and shall not be abated, rebated, set-off,
reduced, abrogated, terminated, waived, diminished, postponed or otherwise
modified in any manner or to any extent whatsoever while any Trust Bonds
remain outstanding or any Loan Repayments remain unpaid, for any reason,
regardless of any contingency, act of God, event or cause whatsoever,
including (without limitation) any acts or circumstances that may constitute
failure of consideration, eviction or constructive eviction, the taking by
eminent domain or destruction of or damage to the Project or Environmental
Infrastructure System, commercial frustration of the purpose, any change in
the laws of the United States of America or of the State or any political
subdivision of either or in the rules or regulations of any governmental
authority, any failure of the Trust or the Trustee to perform and observe any
agreement, whether express or implied, or any duty, liability or obligation
arising out of or connected with the Project, this Loan Agreement or the Bond
Resolution, or any rights of set-off, recoupment, abatement or counterclaim
that the Borrower might otherwise have against the Trust, the Trustee, the
Loan Servicer or any other party or parties; provided, however, that payments
hereunder shall not constitute a waiver of any such rights. The Borrower
shall not be obligated to make any payments required to be made by any other
Borrowers under separate Loan Agreements or the Bond Resolution.
The Borrower acknowledges that payment of the Trust Bonds by the Trust,
including payment from moneys drawn by the Trustee from the Debt Service
Reserve Fund, does not constitute payment of the amounts due under this Loan
Agreement and the Borrower Bond. If at any time the amount in the Debt
Service Reserve Fund shall be less than the Debt Service Reserve Requirement
as the result of any transfer of moneys from the Debt Service Reserve Fund to
the Debt Service Fund (as all such terms are defined in the Bond Resolution)
as the result of a failure by the Borrower to make any Trust Bond Loan
Repayments required hereunder, the Borrower agrees to replenish (i) such
moneys so transferred and (ii) any deficiency arising from losses incurred in
making such transfer as the result of the liquidation by the Trust of
Investment Securities (as defined in the Bond Resolution) acquired as an
investment of moneys in the Debt Service Reserve Fund, by making payments to
the Trust in equal monthly installments for the lesser of six (6) months or
the remaining term of the Loan at an interest rate to be determined by the
Trust necessary to make up any loss caused by such deficiency.
The Borrower acknowledges that payment of the Trust Bonds from moneys
that were originally received by the Loan Servicer from repayments by the
Borrowers of loans made to the Borrowers by the State, acting by and through
the New Jersey Department of Environmental Protection, pursuant to loan
agreements dated as of November 1, 1998 by and between the Borrowers and the
State, acting by and through the New Jersey Department of Environmental
Protection, to finance or refinance a portion of the cost of the
Environmental Infrastructure Facilities of the Borrowers, and which moneys
were upon such receipt by the Loan Servicer deposited in the Trust Bonds
Security Account (as defined in the Bond Resolution), does not constitute
payment of the amounts due under this Loan Agreement and the Borrower Bond.
SECTION 3.05. Loan Agreement to Survive Bond Resolution and Trust
Bonds. The Borrower acknowledges that its duties, covenants, obligations and
agreements hereunder shall survive the discharge of the Bond Resolution
applicable to the Trust Bonds and shall survive the payment of the principal
and redemption premium, if any, of and the interest on the Trust Bonds until
the Borrower can take no action or fail to take any action that could
adversely affect the exclusion from gross income of the interest on the Trust
Bonds for purposes of federal income taxation, at which time such duties,
covenants, obligations and agreements hereunder shall, except for those set
forth in Sections 3.06(a) and (b) hereof, terminate.
SECTION 3.06. Disclaimer of Warranties and Indemnification. (a) The
Borrower acknowledges and agrees that (i) neither the Trust nor the Trustee
makes any warranty or representation, either express or implied, as to the
value, design, condition, merchantability or fitness for particular purpose
or fitness for any use of the Environmental Infrastructure System or the
Project or any portions thereof or any other warranty or representation with
respect thereto; (ii) in no event shall the Trust or the Trustee or their
respective agents be liable or responsible for any incidental, indirect,
special or consequential damages in connection with or arising out of this
Loan Agreement or the Project or the existence, furnishing, functioning or
use of the Environmental Infrastructure System or the Project or any item or
products or services provided for in this Loan Agreement; and (iii) during
the term of this Loan Agreement and to the fullest extent permitted by law,
the Borrower shall indemnify and hold the Trust and the Trustee harmless
against, and the Borrower shall pay any and all, liability, loss, cost,
damage, claim, judgment or expense of any and all kinds or nature and however
arising and imposed by law, which the Trust and the Trustee may sustain, be
subject to or be caused to incur by reason of any claim, suit or action based
upon personal injury, death or damage to property, whether real, personal or
mixed, or upon or arising out of contracts entered into by the Borrower, the
Borrower's ownership of the Environmental Infrastructure System or the
Project, or the acquisition, construction or installation of the Project.
(b) It is mutually agreed by the Borrower, the Trust and the Trustee
that the Trust and its officers, agents, servants or employees shall not be
liable for, and shall be indemnified and saved harmless by the Borrower in
any event from, any action performed under this Loan Agreement and any claim
or suit of whatsoever nature, except in the event of loss or damage resulting
from their own negligence or willful misconduct. It is further agreed that
the Trustee and its directors, officers, agents, servants or employees shall
not be liable for, and shall be indemnified and saved harmless by the
Borrower in any event from, any action performed pursuant to this Loan
Agreement, except in the event of loss or damage resulting from their own
negligence or willful misconduct.
(c) The Borrower and the Trust agree that all claims shall be subject
to and governed by the provisions of the New Jersey Contractual Liability
Act, N.J.S.A. 59:13-1 et seq. (except for N.J.S.A. 59:13-9 thereof), although
such Act by its express terms does not apply to claims arising under contract
with the Trust.
(d) In connection with its obligation to provide the insurance required
under Section 2.02(j) hereof: (i) the Borrower shall include, or cause to be
included, the Trust and its directors, employees and officers as additional
"named insureds" on (A) any certificate of liability insurance procured by
the Borrower (or other similar document evidencing the liability insurance
coverage procured by the Borrower) and (B) any certificate of liability
insurance procured by any contractor or subcontractor for the Project, and
from the latter of the date of the Loan Closing or the date of the initiation
of construction of the Project until the date the Borrower receives the
written certificate of Project completion from the Trust, the Borrower shall
maintain said liability insurance covering the Trust and said directors,
employees and officers in good standing; and (ii) the Borrower shall include
the Trust as an additional "named insured" on any certificate of insurance
providing against risk of direct physical loss, damage or destruction of the
Environmental Infrastructure System, and during the Loan Term the Borrower
shall maintain said insurance covering the Trust in good standing.
The Borrower shall provide the Trust with a copy of each of any such
original, supplemental, amendatory or reissued certificates of insurance (or
other similar documents evidencing the insurance coverage) required pursuant
to this Section 3.06(d).
SECTION 3.07. Option to Prepay Loan Repayments. The Borrower may
prepay the Trust Bond Loan Repayments, in whole or in part (but if in part,
in the amount of $100,000 or any integral multiple thereof), upon prior
written notice to the Trust and the Trustee not less than ninety (90) days in
addition to the number of days' advance notice to the Trustee required for
any optional redemption of the Trust Bonds, and upon payment by the Borrower
to the Trustee of amounts that, together with investment earnings thereon,
will be sufficient to pay the principal amount of the Trust Bond Loan
Repayments to be prepaid plus the Interest Portion described in clause (ii)
of the definition thereof on any such date of redemption; provided, however,
that any such full or partial prepayment may only be made (i) if the Borrower
is not then in arrears on its Fund Loan, (ii) if the Borrower is
contemporaneously making a full or partial prepayment of the Fund Loan such
that, after the prepayment of the Loan and the Fund Loan, the Trust, in its
sole discretion, determines that the interests of the owners of the Trust
Bonds are not adversely affected by such prepayments, and (iii) upon the
prior written approval of the Trust. In addition, if at the time of such
prepayment the Trust Bonds may only be redeemed at the option of the Trust
upon payment of a premium, the Borrower shall add to its prepayment of Trust
Bond Loan Repayments an amount, as determined by the Trust, equal to such
premium allocable to the Trust Bonds to be redeemed as a result of the
Borrower's prepayment. Prepayments shall be applied first to the Interest
Portion that accrues on the portion of the Loan to be prepaid until such
prepayment date as described in clause (ii) of the definition thereof and
then to principal payments (including premium, if any) on the Loan in inverse
order of their maturity.
SECTION 3.08. Priority of Loan and Fund Loan. (a) The Borrower hereby
agrees that, to the extent allowed by law, any Loan Repayments then due and
payable on the Loan shall be satisfied by the Borrower before any loan
repayments on the Borrower's Fund Loan shall be satisfied by the Borrower.
(b) The Borrower hereby acknowledges that in the event the Borrower
fails or is unable to pay promptly to the Trust in full any Trust Bond Loan
Repayments under this Loan Agreement when due, then any (i) Administrative
Fee paid hereunder, (ii) late charges paid hereunder, and (iii) loan
repayments paid by the Borrower on its Fund Loan under the related loan
agreement therefor, any of which payments shall be received by the Loan
Servicer during the time of any such Trust Bond Loan Repayment deficiency,
shall first be applied by the Loan Servicer to satisfy such Trust Bond Loan
Repayment deficiency as a credit against the obligations of the Borrower to
make payments of the Interest Portion under the Loan and the Borrower Bond,
second, to the extent available, to make Trust Bond Loan Repayments of
principal hereunder and payments of principal under the Borrower Bond, third,
to the extent available, to pay the Administrative Fee, fourth, to the extent
available, to pay any late charges hereunder, fifth, to the extent available,
to satisfy the repayment of the Borrower's Fund Loan under its related loan
agreement therefor, and, finally, to the extent available, to satisfy the
repayment of the administrative fee under any such related loan agreement.
(c) The Borrower hereby further acknowledges that any loan repayments
paid by the Borrower on its Fund Loan under the related loan agreement
therefor shall be applied (i) according to Section 3(c) of the Loan Servicing
and Trust Bonds Security Agreement (as defined in the definition of Loan
Servicer herein) and (ii) according to the provisions of the Master Program
Trust Agreement.
<PAGE>
ARTICLE IV
ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND
SECTION 4.01. Assignment and Transfer by Trust. (a) The Borrower
hereby expressly acknowledges that, other than the provisions of Section
2.02(d)(ii) hereof, the Trust's right, title and interest in, to and under
this Loan Agreement and the Borrower Bond have been assigned to the Trustee
as security for the Trust Bonds as provided in the Bond Resolution, and that
if any Event of Default shall occur, the Trustee or any Bond Insurer (as such
term may be defined in the Bond Resolution), if applicable, pursuant to the
Bond Resolution, shall be entitled to act hereunder in the place and stead of
the Trust. The Borrower hereby acknowledges the requirements of the Bond
Resolution applicable to the Trust Bonds and consents to such assignment and
appointment. This Loan Agreement and the Borrower Bond, including, without
limitation, the right to receive payments required to be made by the Borrower
hereunder and to compel or otherwise enforce observance and performance by
the Borrower of its other duties, covenants, obligations and agreements
hereunder, may be further transferred, assigned and reassigned in whole or in
part to one or more assignees or subassignees by the Trustee at any time
subsequent to their execution without the necessity of obtaining the consent
of, but after giving prior written notice to, the Borrower.
The Trust shall retain the right to compel or otherwise enforce
observance and performance by the Borrower of its duties, covenants,
obligations and agreements under Section 2.02(d)(ii) hereof; provided,
however, that in no event shall the Trust have the right to accelerate the
Borrower Bond in connection with the enforcement of Section 2.02(d)(ii)
hereof.
(b) The Borrower hereby approves and consents to any assignment or
transfer of this Loan Agreement and the Borrower Bond that the Trust deems to
be necessary in connection with any refunding of the Trust Bonds or the
issuance of additional bonds under the Bond Resolution or otherwise, all in
connection with the pooled loan program of the Trust.
SECTION 4.02. Assignment by Borrower. Neither this Loan Agreement nor
the Borrower Bond may be assigned by the Borrower (except to the Guarantor,
which shall occur pursuant to N.J.S.A. 14A:10-5.1 or such successor
provision, upon notice to the Trust and the Trustee) for any reason, unless
the following conditions shall be satisfied: (i) the Trust and the Trustee
shall have approved said assignment in writing; (ii) the assignee shall have
expressly assumed in writing the full and faithful observance and performance
of the Borrower's duties, covenants, obligations and agreements under this
Loan Agreement and, to the extent permitted under applicable law, the
Borrower Bond; (iii) immediately after such assignment, the assignee shall
not be in default in the observance or performance of any duties, covenants,
obligations or agreements of the Borrower under this Loan Agreement or the
Borrower Bond; and (iv) the Trust shall have received an opinion of Bond
Counsel to the effect that such assignment will not adversely affect the
security of the holders of the Trust Bonds or the exclusion of the interest
on the Trust Bonds from gross income for purposes of federal income taxation
under Section 103(a) of the Code.
<PAGE>
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01. Events of Default. If any of the following events occur,
it is hereby defined as and declared to be and to constitute an "Event of
Default":
(a) failure by the Borrower to pay, or cause to be paid, any Trust Bond
Loan Repayment required to be paid hereunder when due, which failure shall
continue for a period of fifteen (15) days;
(b) failure by the Borrower to pay, or cause to be paid, the
Administrative Fee or any late charges incurred hereunder or any portion
thereof when due or to observe and perform any duty, covenant, obligation or
agreement on its part to be observed or performed under this Loan Agreement,
other than as referred to in subsection (a) of this Section 5.01 or other
than the obligations of the Borrower contained in Section 2.02(d)(ii) hereof
and in Exhibit F hereto, which failure shall continue for a period of thirty
(30) days after written notice, specifying such failure and requesting that
it be remedied, is given to the Borrower by the Trustee, unless the Trustee
shall agree in writing to an extension of such time prior to its expiration;
provided, however, that if the failure stated in such notice is correctable
but cannot be corrected within the applicable period, the Trustee may not
unreasonably withhold its consent to an extension of such time up to 120 days
from the delivery of the written notice referred to above if corrective
action is instituted by the Borrower within the applicable period and
diligently pursued until the Event of Default is corrected;
(c) any representation made by or on behalf of the Borrower contained
in this Loan Agreement, or in any instrument furnished in compliance with or
with reference to this Loan Agreement or the Loan, is false or misleading in
any material respect;
(d) a petition is filed by or against the Borrower under any federal or
state bankruptcy or insolvency law or other similar law in effect on the date
of this Loan Agreement or thereafter enacted, unless in the case of any such
petition filed against the Borrower such petition shall be dismissed within
thirty (30) days after such filing and such dismissal shall be final and not
subject to appeal; or the Borrower shall become insolvent or bankrupt or
shall make an assignment for the benefit of its creditors; or a custodian
(including, without limitation, a receiver, liquidator or trustee) of the
Borrower or any of its property shall be appointed by court order or take
possession of the Borrower or its property or assets if such order remains in
effect or such possession continues for more than thirty (30) days;
(e) the Borrower shall generally fail to pay its debts as such debts
become due; and
(f) failure of the Borrower to observe or perform such additional
duties, covenants, obligations, agreements or conditions as are required by
the Trust and specified in Exhibit F attached hereto and made a part hereof.
SECTION 5.02. Notice of Default. The Borrower shall give the Trustee
and the Trust prompt telephonic notice of the occurrence of any Event of
Default referred to in Section 5.01(d) or (e) hereof and of the occurrence of
any other event or condition that constitutes an Event of Default at such
time as any senior administrative or financial officer of the Borrower
becomes aware of the existence thereof.
SECTION 5.03. Remedies on Default. Whenever an Event of Default
referred to in Section 5.01 hereof shall have occurred and be continuing, the
Borrower acknowledges the rights of the Trustee and of any Bond Insurer to
direct any and all remedies in accordance with the terms of the Bond
Resolution, and the Borrower also acknowledges that the Trust shall have the
right to take, or to direct the Trustee to take, any action permitted or
required pursuant to the Bond Resolution and to take whatever other action at
law or in equity may appear necessary or desirable to collect the amounts
then due and thereafter to become due hereunder or to enforce the observance
and performance of any duty, covenant, obligation or agreement of the
Borrower hereunder.
In addition, if an Event of Default referred to in Section 5.01(a)
hereof shall have occurred and be continuing, the Trust shall, to the extent
allowed by applicable law and to the extent and in the manner set forth in
the Bond Resolution, have the right to declare, or to direct the Trustee to
declare, all Loan Repayments and all other amounts due hereunder (including,
without limitation, payments under the Borrower Bond) together with the
prepayment premium, if any, calculated pursuant to Section 3.07 hereof to be
immediately due and payable, and upon notice to the Borrower the same shall
become due and payable without further notice or demand.
SECTION 5.04. Attorneys' Fees and Other Expenses. The Borrower shall
on demand pay to the Trust or the Trustee the reasonable fees and expenses of
attorneys and other reasonable expenses (including, without limitation, the
reasonably allocated costs of in-house counsel and legal staff) incurred by
either of them in the collection of Trust Bond Loan Repayments or any other
sum due hereunder or in the enforcement of the observation or performance of
any other duties, covenants, obligations or agreements of the Borrower upon
an Event of Default.
SECTION 5.05. Application of Moneys. Any moneys collected by the Trust
or the Trustee pursuant to Section 5.03 hereof shall be applied (a) first, to
pay any attorneys' fees or other fees and expenses owed by the Borrower
pursuant to Section 5.04 hereof, (b) second, to the extent available, to pay
the Interest Portion then due and payable, (c) third, to the extent
available, to pay the principal due and payable on the Loan, (d) fourth, to
the extent available, to pay the Administrative Fee, any late charges
incurred hereunder or any other amounts due and payable under this Loan
Agreement, and (e) fifth, to the extent available, to pay the Interest
Portion and the principal on the Loan and other amounts payable hereunder as
such amounts become due and payable.
SECTION 5.06. No Remedy Exclusive; Waiver; Notice. No remedy herein
conferred upon or reserved to the Trust or the Trustee is intended to be
exclusive, and every such remedy shall be cumulative and shall be in addition
to every other remedy given under this Loan Agreement or now or hereafter
existing at law or in equity. No delay or omission to exercise any right,
remedy or power accruing upon any Event of Default shall impair any such
right, remedy or power or shall be construed to be a waiver thereof, but any
such right, remedy or power may be exercised from time to time and as often
as may be deemed expedient. In order to entitle the Trust or the Trustee to
exercise any remedy reserved to it in this Article V, it shall not be
necessary to give any notice other than such notice as may be required in
this Article V.
SECTION 5.07. Retention of Trust's Rights. Notwithstanding any
assignment or transfer of this Loan Agreement pursuant to the provisions
hereof or of the Bond Resolution, or anything else to the contrary contained
herein, the Trust shall have the right upon the occurrence of an Event of
Default to take any action, including (without limitation) bringing an action
against the Borrower at law or in equity, as the Trust may, in its
discretion, deem necessary to enforce the obligations of the Borrower to the
Trust pursuant to Section 5.03 hereof.
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed
given when hand delivered or mailed by registered or certified mail, postage
prepaid, to the Borrower at the address specified in Exhibit A-1 attached
hereto and made a part hereof and to the Trust, the Trustee and the Loan
Servicer at the following addresses:
(a) Trust:
New Jersey Environmental Infrastructure Trust
P.O. Box 440
Trenton, New Jersey 08625
Attention: Executive Director
(b) Trustee:
First Union National Bank
765 Broad Street
Newark, New Jersey 07102
Attention: Corporate Trust Department
(c) Loan Servicer:
First Union National Bank
765 Broad Street
Newark, New Jersey 07102
Attention: Corporate Trust Department
Any of the foregoing parties may designate any further or different
addresses to which subsequent notices, certificates or other communications
shall be sent by notice in writing given to the others.
SECTION 6.02. Binding Effect. This Loan Agreement shall inure to the
benefit of and shall be binding upon the Trust and the Borrower and their
respective successors and assigns.
SECTION 6.03. Severability. In the event any provision of this Loan
Agreement shall be held illegal, invalid or unenforceable by any court of
competent jurisdiction, such holding shall not invalidate, render
unenforceable or otherwise affect any other provision hereof.
SECTION 6.04. Amendments, Supplements and Modifications. Except as
otherwise provided in this Section 6.04, this Loan Agreement may not be
amended, supplemented or modified without the prior written consent of the
Trust and the Borrower and without the satisfaction of all conditions set
forth in Section 11.12 of the Bond Resolution. Notwithstanding the
conditions set forth in Section 11.12 of the Bond Resolution, (i) Section
2.02(p) hereof may be amended, supplemented or modified upon the written
consent of the Trust and the Borrower and without the consent of the Trustee,
any Bond Insurer or any holders of the Trust Bonds, and (ii) Exhibit H hereto
may be amended, supplemented or modified prior to the execution and delivery
thereof as the Trust, in its sole discretion, shall determine to be
necessary, desirable or convenient for the purpose of satisfying Rule 15c2-12
and the purpose and intent thereof as Rule 15c2-12, its purpose and intent
may hereafter be interpreted from time to time by the SEC or any court of
competent jurisdiction, and such amendment, supplement or modification shall
not require the consent of the Borrower, the Trustee, any Bond Insurer or any
holders of the Trust Bonds.
SECTION 6.05. Execution in Counterparts. This Loan Agreement may be
executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument.
SECTION 6.06. Applicable Law and Regulations. This Loan Agreement
shall be governed by and construed in accordance with the laws of the State,
including the Act and the Regulations, which Regulations are, by this
reference thereto, incorporated herein as part of this Loan Agreement.
SECTION 6.07. Consents and Approvals. Whenever the written consent or
approval of the Trust shall be required under the provisions of this Loan
Agreement, such consent or approval may only be given by the Trust unless
otherwise provided by law or by rules, regulations or resolutions of the
Trust or unless expressly delegated to the Trustee and except as otherwise
provided in Section 6.09 hereof.
SECTION 6.08. Captions. The captions or headings in this Loan
Agreement are for convenience only and shall not in any way define, limit or
describe the scope or intent of any provisions or sections of this Loan
Agreement.
SECTION 6.09. Benefit of Loan Agreement; Compliance with Bond
Resolution. This Loan Agreement is executed, among other reasons, to induce
the purchase of the Trust Bonds. Accordingly, all duties, covenants,
obligations and agreements of the Borrower herein contained are hereby
declared to be for the benefit of and are enforceable by the Trust, the
holders of the Trust Bonds and the Trustee. The Borrower covenants and
agrees to observe and comply with, and to enable the Trust to observe and
comply with, all duties, covenants, obligations and agreements contained in
the Bond Resolution.
SECTION 6.10. Further Assurances. The Borrower shall, at the request
of the Trust, authorize, execute, attest, acknowledge and deliver such
further resolutions, conveyances, transfers, assurances, financing statements
and other instruments as may be necessary or desirable for better assuring,
conveying, granting, assigning and confirming the rights, security interests
and agreements granted or intended to be granted by this Loan Agreement and
the Borrower Bond.
<PAGE>
[Signature Page]
IN WITNESS WHEREOF, the Trust and the Borrower have caused this Loan
Agreement to be executed, sealed and delivered as of the date first above
written.
NEW JERSEY ENVIRONMENTAL
INFRASTRUCTURE TRUST
[SEAL]
ATTEST: By:_______________________
Barton E. Harrison
Vice-Chairman
_____________________________
Robert A. Briant, Sr.
Secretary
THE MOUNT HOLLY WATER
COMPANY
[SEAL]
ATTEST: By:_______________________
Authorized Officer
_____________________________
Authorized Officer
Approval of New Jersey State
Treasurer required pursuant
to Section 9a of the Act
By:_______________________
James A. DiEleuterio, Jr.
New Jersey State Treasurer
<PAGE>
A-1-36
EXHIBIT A-1
Description of Project and Environmental Infrastructure System
<PAGE>
A-2-37
EXHIBIT A-2
Description of Loan
<PAGE>
B-38
EXHIBIT B
Basis for Determination of Allowable Project Costs
<PAGE>
C-39
EXHIBIT C
Estimated Disbursement Schedule
<PAGE>
D-40
EXHIBIT D
Specimen Borrower Bond
<PAGE>
(Except for assignment page, to be supplied by Borrower's
bond counsel in substantially the following form)
IMPORTANT NOTE: The next three pages set forth the form of the Borrower
Bond prepared by the Trust's Bond Counsel for municipal/county Borrowers.
Although the Trust recognizes that each corporate Borrower has its own bond
form as required pursuant to its Borrower Bond Resolution, please incorporate
in the bond form the pertinent information from this municipal/county bond
form (e.g., amounts payable under the Borrower Bond set forth in the first
paragraph, assignment in the second paragraph, disbursement language in the
third paragraph, unconditional obligation in the fourth paragraph, optional
prepayment provisions in the fifth paragraph and the date of the Borrower
Bond).
<PAGE>
SEE IMPORTANT NOTE ON PRIOR PAGE
FOR VALUE RECEIVED, The Mount Holly Water Company, a corporation duly
created and validly existing under the Constitution and laws of the State of
New Jersey (the "Borrower"), hereby promises to pay to the order of the New
Jersey Environmental Infrastructure Trust (the "Trust") (i) the principal
amount of __________________________ Dollars ($__________), or such lesser
amount as shall be determined in accordance with Section 3.01 of the Loan
Agreement (as hereinafter defined), at the times and in the amounts
determined as provided in the Loan Agreement, together with (ii) Interest on
the Loan constituting the Interest Portion, the Administrative Fee and any
late charges incurred under the Loan Agreement (as such terms are defined in
the Loan Agreement) in the amount calculated as provided in the Loan
Agreement, payable on the days and in the amounts and as provided in the Loan
Agreement, which principal amount and Interest Portion of the Interest on the
Loan shall, unless otherwise provided in the Loan Agreement, be payable on
the days and in the amounts as also set forth in Exhibit A attached hereto
under the column headings respectively entitled "Principal" and "Interest",
plus (iii) any other amounts due and owing under the Loan Agreement at the
times and in the amounts as provided therein. The Borrower irrevocably
pledges its full faith and credit for the punctual payment of the principal
of and the Interest on this Borrower Bond (as defined in the Loan Agreement)
and for the punctual payment of all other amounts due under this Borrower
Bond and the Loan Agreement according to their respective terms.
This Borrower Bond is issued pursuant to the Loan Agreement dated as of
November 1, 1998 by and between the Trust and the Borrower (the "Loan
Agreement"), and is issued in consideration of the loan made thereunder (the
"Loan") and to evidence the payment obligations of the Borrower set forth in
the Loan Agreement. This Borrower Bond has been assigned to First Union
National Bank, as trustee (the "Trustee") under the "Environmental
Infrastructure Bond Resolution, Series 1998B", adopted by the Trust on
September 21, 1998, as the same may be amended and supplemented in accordance
with the terms thereof (the "Bond Resolution"), and payments hereunder shall,
except as otherwise provided in the Loan Agreement, be made directly to the
Loan Servicer (as defined in the Loan Agreement) for the account of the Trust
pursuant to such assignment. Such assignment has been made as security for
the payment of the Trust Bonds (as defined in the Loan Agreement) issued to
finance or refinance the Loan and as otherwise described in the Loan
Agreement. This Borrower Bond is subject to further assignment or
endorsement in accordance with the terms of the Bond Resolution and the Loan
Agreement. All of the terms, conditions and provisions of the Loan Agreement
are, by this reference thereto, incorporated herein as part of this Borrower
Bond.
Pursuant to the Loan Agreement, disbursements shall be made by the
Trustee to the Borrower, in accordance with written instructions of the
Trust, upon receipt by the Trust and the Trustee of requisitions from the
Borrower executed and delivered in accordance with the requirements set forth
in Section 3.02 of the Loan Agreement.
This Borrower Bond is entitled to the benefits and is subject to the
conditions of the Loan Agreement. The obligations of the Borrower to make
the payments required hereunder shall be absolute and unconditional, without
any defense or right of set-off, counterclaim or recoupment by reason of any
default by the Trust under the Loan Agreement or under any other agreement
between the Borrower and the Trust or out of any indebtedness or liability at
any time owing to the Borrower by the Trust or for any other reason.
This Borrower Bond is subject to optional prepayment under the terms and
conditions, and in the amounts, provided in Section 3.07 of the Loan
Agreement. To the extent allowed by applicable law, this Borrower Bond may
be subject to acceleration under the terms and conditions, and in the
amounts, provided in Section 5.03 of the Loan Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Borrower Bond to be
duly executed, sealed and delivered as of this 15th day of October, 1998.
THE MOUNT HOLLY WATER
COMPANY
[SEAL]
By:___________________
ATTEST: _____________
_____________________ By:___________________
_______________ _____________
<PAGE>
New Jersey Environmental Infrastructure Trust hereby assigns the
foregoing Borrower Bond to First Union National Bank, as Trustee under the
"Environmental Infrastructure Bond Resolution, Series 1998B", adopted on
September 21, 1998, as amended and supplemented, all as of the date of this
Borrower Bond, as security for the Trust Bonds issued or to be issued under
the Bond Resolution to finance or refinance the Project Fund (as defined in
the Bond Resolution).
NEW JERSEY ENVIRONMENTAL
INFRASTRUCTURE TRUST
[SEAL]
ATTEST: By:_______________________
Barton E. Harrison
Vice-Chairman
_____________________________
Robert A. Briant, Sr.
Secretary
<PAGE>
E-45
EXHIBIT E
Opinions of Borrower's Bond and General Counsels
See Closing Item No. 11.04
<PAGE>
[LETTERHEAD OF COUNSEL TO BORROWER]
November 5, 1998
New Jersey Environmental Infrastructure Trust
P.O. Box 440
Trenton, New Jersey 08625
First Union National Bank
765 Broad Street
Newark, New Jersey 07102
Ladies and Gentlemen:
I have acted as counsel to The Mount Holly Water Company, a corporation
duly organized and validly existing under the laws of the State of New Jersey
(the "Borrower"), which has entered into a Loan Agreement (as hereinafter
defined) with the New Jersey Environmental Infrastructure Trust (the
"Trust"), and have acted as such in connection with the authorization,
execution, attestation and delivery by the Borrower of its Loan Agreement and
Borrower Bond (as hereinafter defined) pursuant to the New Jersey Business
Corporation Act, P.L. 1968, c. 263, as amended (the "Business Corporation
Law"), and resolutions of the Board of Directors of the Borrower adopted on
________, 1998 (the "Resolutions"). All capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Loan
Agreement.
In so acting, I have examined the Constitution and laws of the State of
New Jersey, including, without limitation, the Business Corporation Law, and
the certificate of incorporation and by-laws of the Borrower. I have also
examined originals, or copies certified or otherwise identified to my
satisfaction, of the following:
(a) the Trust's "Environmental Infrastructure Bond Resolution, Series
1998B", adopted by the Board of Directors of the Trust on September 21, 1998;
(b) the Loan Agreement dated as of November 1, 1998 (the "Loan
Agreement") by and between the Trust and the Borrower;
(c) the Resolutions and the proceedings of the Board of Directors of
the Borrower relating to the undertaking and completion of the Project;
(d) the Borrower Bond dated as of October 15, 1998 (the "Borrower
Bond") issued by the Borrower to the Trust to evidence the Loan; and
(e) the proceedings of the Board of Directors of the Borrower,
including, without limitation, the Resolutions, relating to the authorization
of the Borrower Bond and the sale, execution, attestation and delivery
thereof to the Trust (the Loan Agreement and the Borrower Bond are referred
to herein collectively as the "Loan Documents").
I have also examined and relied upon originals, or copies certified or
otherwise authenticated to my satisfaction, of such other records, documents,
certificates and other instruments, and have made such investigation of law
as in my judgment I have deemed necessary or appropriate, to enable me to
render the opinions expressed below.
I am of the opinion that:
1. The Borrower is a corporation duly created and validly existing
under and pursuant to the Constitution and statutes of the State of New
Jersey, including the Business Corporation Law, with the legal right to carry
on the business of its Environmental Infrastructure System as currently being
conducted and as proposed to be conducted.
2. The Borrower has full legal right and authority to execute, attest
and deliver the Loan Documents, to sell the Borrower Bond to the Trust, to
observe and perform its duties, covenants, obligations and agreements under
the Loan Documents and to undertake and complete the Project.
3. The acting officers of the Borrower who are contemporaneously
herewith performing or have previously performed any action contemplated in
the Loan Agreement are, and at the time any such action was performed were,
the duly appointed or elected officers of the Borrower empowered by
applicable New Jersey law and authorized by resolution of the Borrower to
perform such actions.
4. The proceedings of the Borrower's board of directors (i) approving
the Loan Documents, (ii) authorizing their execution, attestation and
delivery on behalf of the Borrower, (iii) with respect to the Borrower Bond
only, authorizing its sale by the Borrower to the Trust, (iv) authorizing the
Borrower to consummate the transactions contemplated by the Loan Documents,
(v) authorizing the Borrower to undertake and complete the Project, and (vi)
authorizing the execution and delivery of all other certificates, agreements,
documents and instruments in connection with the execution, attestation and
delivery of the Loan Documents, have each been duly and lawfully adopted and
authorized in accordance with applicable law, including, without limitation,
the Business Corporation Law.
5. The Loan Documents have been duly authorized, executed, attested
and delivered by the Authorized Officers of the Borrower and the Borrower
Bond has been duly sold by the Borrower to the Trust; and assuming in the
case of the Loan Agreement that the Trust has the requisite power and
authority to authorize, execute, attest and deliver, and has duly authorized,
executed, attested and delivered, the Loan Agreement, the Loan Documents
constitute the legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
subject, however, to the effect of, and to restrictions and limitations
imposed by or resulting from, bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting creditors' rights generally.
No opinion is rendered as to the availability of any particular remedy.
6. The authorization, execution, attestation and delivery of the Loan
Documents by the Borrower and, in the case of the Borrower Bond only, the
sale thereof to the Trust, the observation and performance by the Borrower of
its duties, covenants, obligations and agreements thereunder, the
consummation of the transactions contemplated therein, and the undertaking
and completion of the Project do not and will not (i) other than the lien,
charge or encumbrance created by the Loan Documents and by any other
outstanding debt obligations of the Borrower that are at parity with the
Borrower Bond as to lien on, and source and security for payment thereon
from, the revenues of the Borrower, result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of the Borrower
pursuant to, (ii) result in any breach of any of the terms, conditions or
provisions of, or (iii) constitute a default under, any outstanding debt or
lease obligation, trust agreement, indenture, mortgage, deed of trust, loan
agreement or other instrument to which the Borrower is a party or by which
the Borrower, its Environmental Infrastructure System or any of its
properties or assets may be bound, nor will such action result in any
violation of the provisions of the charter or other document pursuant to
which the Borrower was established or any laws, ordinances, injunctions,
judgments, decrees, rules, regulations or existing orders of any court or
governmental or administrative agency, authority or person to which the
Borrower, its Environmental Infrastructure System or its properties or
operations is subject.
7. All approvals, consents or authorizations of, or registrations of
or filings with, any governmental or public agency, authority or person
required to date on the part of the Borrower in connection with the
authorization, execution, attestation, delivery and performance of the Loan
Documents, the sale of the Borrower Bond and the undertaking and completion
of the Project have been obtained or made.
8. There is no litigation or other proceeding pending or, to my
knowledge, after due inquiry, threatened in any court or other tribunal of
competent jurisdiction (either State or federal) (i) questioning the
creation, organization or existence of the Borrower, (ii) questioning the
validity, legality or enforceability of the Resolutions, the Loan or the Loan
Documents, (iii) questioning the undertaking or completion of the Project,
(iv) otherwise challenging the Borrower's ability to consummate the
transactions contemplated by the Loan or the Loan Documents, or (v) that, if
adversely decided, would have a materially adverse impact on the financial
condition of the Borrower.
9. The Borrower has no bonds, notes or other debt obligations
outstanding that are superior or senior to the Borrower Bond as to lien on,
and source and security for payment thereof from, the revenues of the
Borrower.
10. To the best of my knowledge, upon due inquiry, (i) all
representations made by the Borrower contained within subsections (f) and (h)
of Section 2.02 and, if applicable, Exhibit F of the Loan Agreement are true,
accurate and complete, and (ii) all expectations contained therein are
reasonable, and I know of no reason why the Borrower would be unable to
comply on a continuing basis with the covenants contained within subsections
(f) and (h) of Section 2.02 and, if applicable, Exhibit F of the Loan
Agreement.
11. Assuming that (i) the Borrower complies on a continuing basis with
the covenants contained in subsections (f) and (h) of Section 2.02 and, if
applicable, Exhibit F of the Loan Agreement, (ii) interest on the Trust Bonds
is otherwise excluded from gross income of the holders thereof for federal
income tax purposes under the Internal Revenue Code of 1986, as amended, and
(iii) the proceeds of the Trust Bonds loaned to the Borrower represent all of
the proceeds of the Trust Bonds, the application of the proceeds of the Loan
for their intended purposes will not adversely affect the exclusion from
gross income for federal income tax purposes of the interest on the Trust
Bonds.
I hereby authorize McCarter & English, LLP, acting as bond counsel to
the Trust, and the Attorney General of the State of New Jersey, acting as
general counsel to the Trust, to rely on this opinion as if I had addressed
this opinion to them in addition to you.
Very truly yours,
<PAGE>
F-50
EXHIBIT F
Additional Covenants and Requirements
Guaranty of Loan:
The repayment of the Loan will be guaranteed by the Guarantor pursuant
to the terms and conditions as set forth in that certain Guaranty made and
delivered as of November 1, 1998 by the Guarantor, a copy of which is
attached hereto.
<PAGE>
G-51
EXHIBIT G
General Administrative Requirements for the
State Environmental Infrastructure Financing Program
<PAGE>
H-52
EXHIBIT H
Form of Continuing Disclosure Agreement
Exhibit 4L
LOAN AGREEMENT
NWK3: 352223.02
BY AND BETWEEN
THE STATE OF NEW JERSEY,
ACTING BY AND THROUGH THE NEW JERSEY
DEPARTMENT OF ENVIRONMENTAL PROTECTION,
AND
THE MOUNT HOLLY WATER COMPANY
DATED AS OF NOVEMBER 1, 1998
<PAGE>
-ii-
TABLE OF CONTENTS
Page
EXHIBIT A (1) Description of Project and Environmental
Infrastructure System A-1-1
(2) Description of Loan A-2-1
EXHIBIT B Basis for Determination of Allowable Project Costs B-1
EXHIBIT C Estimated Disbursement Schedule C-1
EXHIBIT D Specimen Borrower Bond D-1
EXHIBIT E Opinions of Borrower's Bond and General Counsels E-1
EXHIBIT F Additional Covenants and Requirements F-1
EXHIBIT G General Administrative Requirements for the State
Environmental Infrastructure Financing ProgramG-1
<PAGE>
-3-
NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE FUND LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into as of this 1st
day of November, 1998, by and between THE STATE OF NEW JERSEY,
acting by and through the New Jersey Department of Environmental
Protection, and THE MOUNT HOLLY WATER COMPANY, a corporation duly
created and validly existing under the laws of the State of New
Jersey;
WITNESSETH THAT:
WHEREAS, the Borrower has, in accordance with the
Regulations, made timely application to the State for a Loan to
finance a portion of the Cost of the Project (as each of the
foregoing terms is defined in Section 1.01 hereof; all
capitalized terms used in this Loan Agreement shall have, unless
the context otherwise requires, the meanings set forth in said
Section 1.01);
WHEREAS, the State has approved the Borrower's application
for a Loan from Federal Funds, if and when received by and
available to the State, and moneys from repayments of loans
previously made from such Federal Funds, in an amount not to
exceed Five Million Eight Hundred Ninety-Four Thousand Nine
Hundred Nine Dollars ($5,894,909) to finance a portion of the
Cost of the Project;
WHEREAS, the New Jersey State Legislature has approved an
appropriations act that authorizes an expenditure of said
proceeds, Federal Funds or related moneys to finance a portion of
the Cost of the Project;
WHEREAS, the Borrower, in accordance with the Business
Corporation Law and all other applicable law, will issue a
Borrower Bond to the State evidencing said Loan at the Loan
Closing; and
WHEREAS, in accordance with the New Jersey Environmental
Infrastructure Trust Act, P.L. 1985, c. 334, as amended, and the
Regulations, the Borrower has been awarded a Trust Loan for a
portion of the Cost of the Project plus, if applicable to the
Borrower, capitalized interest on the Trust Loan, certain costs
of issuance and bond insurance premium related thereto.
NOW, THEREFORE, for and in consideration of the award of the
Loan by the State, the Borrower agrees to complete the Project
and to perform under this Loan Agreement in accordance with the
conditions, covenants and procedures set forth herein and
attached hereto as part hereof, as follows:
<PAGE>
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms as used in
this Loan Agreement shall, unless the context clearly requires
otherwise, have the following meanings:
"Administrative Fee" means an annual fee of up to one
percent (1.0%) of the initial principal amount of the Loan or
such lesser amount, if any, as may be authorized by any act of
the New Jersey State Legislature and as the State may approve
from time to time.
"Authorized Officer" means, in the case of the Borrower, any
person or persons authorized pursuant to a resolution of the
board of directors of the Borrower to perform any act or execute
any document relating to the Loan, the Borrower Bond or this Loan
Agreement.
"Borrower" means the corporation that is a party to and is
described in the first paragraph of this Loan Agreement, and its
successors and assigns.
"Borrower Bond" means the general obligation bond, note,
debenture or other evidence of indebtedness authorized, executed,
attested and delivered by the Borrower to the State to evidence
the Loan, a specimen of which is attached hereto as Exhibit D and
made a part hereof.
"Borrowers" means any other Local Government Unit or Private
Entity (as such terms are defined in the Regulations) authorized
to construct, operate and maintain Environmental Infrastructure
Facilities that have entered into Loan Agreements with the State
pursuant to which the State will make Loans to such recipients
from Federal Funds.
"Business Corporation Law" means the "New Jersey Business
Corporation Act", constituting Chapter 263 of the Pamphlet Laws
of 1968 of the State of New Jersey (codified at N.J.S.A. 14A:1-1
et seq.), as the same may from time to time be amended and
supplemented.
"Code" means the Internal Revenue Code of 1986, as the same
may from time to time be amended and supplemented, including any
regulations promulgated thereunder, any successor code thereto
and any administrative or judicial interpretations thereof.
"Cost" means those costs that are eligible, reasonable,
necessary, allocable to the Project and permitted by generally
accepted accounting principles, including Allowances and Building
Costs (as defined in the Regulations), as shall be determined on
a project-specific basis in accordance with the Regulations as
set forth in Exhibit B hereto, as the same may be amended by
subsequent eligible costs as evidenced by a certificate of an
authorized officer of the State.
"Environmental Infrastructure Facilities" means Water Supply
Facilities (as such term is defined in the Regulations).
"Environmental Infrastructure System" means the
Environmental Infrastructure Facilities of the Borrower,
including the Project, described in Exhibit A-1 attached hereto
and made a part hereof for which the Borrower is borrowing the
Loan under this Loan Agreement.
"Event of Default" means any occurrence or event specified
in Section 5.01 hereof.
"Federal Funds" means those funds awarded to the State
pursuant to the Clean Water Act (33 U.S.C. 1251 et seq.) or the
Safe Drinking Water Act (42 U.S.C. 300f et seq.), as the same
may from time to time be amended and supplemented.
"Guarantor" means Elizabethtown Water Company, a New Jersey
corporation.
"Loan" means the loan made by the State to the Borrower to
finance or refinance a portion of the Cost of the Project
pursuant to this Loan Agreement. For all purposes of this Loan
Agreement, the principal amount of the Loan at any time shall be
the amount of the loan commitment set forth in Exhibit A-2
attached hereto and made a part hereof (such amount being also
specified as the initial aggregate principal amount of the
Borrower Bond) less any amount of such principal amount that has
been repaid by the Borrower under this Loan Agreement and less
any adjustment made for low bid or final building costs pursuant
to the provisions of N.J.A.C. 7:22-3.26 and the appropriations
act of the New Jersey State Legislature authorizing the
expenditure of moneys to finance a portion of the Cost of the
Project.
"Loan Agreement" means this Loan Agreement, including the
Exhibits attached hereto, as it may be supplemented, modified or
amended from time to time in accordance with the terms hereof.
"Loan Agreements" means any other loan agreements entered
into by and between the State and one or more of the Borrowers
pursuant to which the State will make Loans to such Borrowers
from Federal Funds.
"Loan Closing" means the date upon which the Borrower shall
deliver its Borrower Bond, as previously authorized, executed and
attested, to the State.
"Loan Repayments" means the repayments of the principal
amount of the Loan payable by the Borrower pursuant to Section
3.03 of this Loan Agreement, including payments payable under the
Borrower Bond, but excluding the Administrative Fee.
"Loan Servicer" means, initially, First Union National Bank,
the loan servicer for the Loan and the Trust Loan, duly appointed
and designated as "Loan Servicer" pursuant to the Loan Servicing
and Trust Bonds Security Agreement dated as of November 1, 1998
by and among the Trust, the State of New Jersey, acting by and
through the Treasurer of the State of New Jersey on behalf of the
New Jersey Department of Environmental Protection, and First
Union National Bank, and any successors as "Loan Servicer" under
such agreement, as the same may be modified, amended or
supplemented from time to time in accordance with its terms.
"Loan Term" means the term of this Loan Agreement provided
in Sections 3.01 and 3.03 hereof and in Exhibit A-2 attached
hereto and made a part hereof.
"Loans" means the loans made by the State to the Borrowers
under the Loan Agreements from Federal Funds.
"Master Program Trust Agreement" means that certain Master
Program Trust Agreement dated as of November 1, 1995 by and among
the Trust, the State of New Jersey, United States Trust Company
of New York, as Master Program Trustee thereunder, The Bank of
New York (NJ), in several capacities thereunder, and First
Fidelity Bank, N.A. (predecessor to First Union National Bank),
in several capacities thereunder, as the same may be amended and
supplemented from time to time in accordance with its terms.
"Prime Rate" means the prevailing commercial interest rate
announced by the Loan Servicer from time to time in the State of
New Jersey as its prime lending rate.
"Project" means the Environmental Infrastructure Facilities
of the Borrower described in Exhibit A-1 attached hereto and made
a part hereof, which constitutes a project for which the State is
permitted to make a loan to the Borrower pursuant to the
Regulations, all or a portion of the Cost of which is financed or
refinanced by the State through the making of the Loan under this
Loan Agreement.
"Regulations" means the rules and regulations, as
applicable, now or hereafter promulgated under N.J.A.C. 7:22-3 et
seq., 7:22-4 et seq., 7:22-5 et seq., 7:22-9 et seq. and 7:22-10
et seq., as the same may from time to time be amended and
supplemented.
"State" means the State of New Jersey, acting, unless
otherwise specifically indicated, by and through the New Jersey
Department of Environmental Protection, and its successors and
assigns.
"Trust" means the New Jersey Environmental Infrastructure
Trust, a public body corporate and politic with corporate
succession duly created and validly existing under and by virtue
of P.L. 1985, c. 334, as amended (N.J.S.A. 58:11B-1 et seq.).
"Trust Loan" means the loan made to the Borrower by the
Trust pursuant to the Trust Loan Agreement.
"Trust Loan Agreement" means the loan agreement by and
between the Borrower and the Trust dated as of November 1, 1998
to finance or refinance a portion of the Cost of the Project.
Except as otherwise defined herein or where the context
otherwise requires, words importing the singular number shall
include the plural number and vice versa, and words importing
persons shall include firms, associations, corporations, agencies
and districts. Words importing one gender shall include the
other gender.
<PAGE>
ARTICLE II
REPRESENTATIONS AND COVENANTS OF BORROWER
SECTION 2.01. Representations of Borrower. The Borrower
represents for the benefit of the State as follows:
(a) Organization and Authority.
(i) The Borrower is a corporation duly created and
validly existing under and pursuant to the Constitution and
statutes of the State of New Jersey, including the Business
Corporation Law.
(ii) The acting officers of the Borrower who are
contemporaneously herewith performing or have previously
performed any action contemplated in this Loan Agreement
either are or, at the time any such action was performed,
were the duly appointed or elected officers of such Borrower
empowered by applicable New Jersey law and, if applicable,
authorized by resolution of the Borrower to perform such
actions. To the extent any such action was performed by an
officer no longer the duly acting officer of such Borrower,
all such actions previously taken by such official are still
in full force and effect.
(iii) The Borrower has full legal right and authority
and all necessary licenses and permits required as of the
date hereof to own, operate and maintain its Environmental
Infrastructure System, to carry on its activities relating
thereto, to execute, attest and deliver this Loan Agreement
and the Borrower Bond, to sell the Borrower Bond to the
State, to undertake and complete the Project and to carry
out and consummate all transactions contemplated by this
Loan Agreement.
(iv) The Borrower's board of directors has taken all
necessary action to authorize the execution, attestation and
delivery of this Loan Agreement and the Borrower Bond, the
sale of the Borrower Bond to the State and the Borrower's
undertaking and completion of the Project.
(v) The Borrower has duly authorized, approved and
consented to all necessary action to be taken by the
Borrower for: (A) the execution, attestation, delivery and
performance of this Loan Agreement and the transactions
contemplated hereby; (B) the issuance of the Borrower Bond
and the sale thereof to the State upon the terms set forth
herein; and (C) the execution, delivery and due performance
of any and all other certificates, agreements and
instruments that may be required to be executed, delivered
and performed by the Borrower in order to carry out, give
effect to and consummate the transactions contemplated by
this Loan Agreement.
(vi) This Loan Agreement and the Borrower Bond have
each been duly authorized by the Borrower and duly executed,
attested and delivered by Authorized Officers of the
Borrower, and the Borrower Bond has been duly sold by the
Borrower to the State; and assuming that the State has all
the requisite power and authority to authorize, execute,
attest and deliver, and has duly authorized, executed,
attested and delivered, this Loan Agreement, and assuming
further that this Loan Agreement is the legal, valid and
binding obligation of the State, enforceable against the
State in accordance with its terms, each of this Loan
Agreement and the Borrower Bond constitutes a legal, valid
and binding obligation of the Borrower, enforceable against
the Borrower in accordance with its respective terms, except
as the enforcement thereof may be affected by bankruptcy,
insolvency or other laws or the application by a court of
legal or equitable principles affecting creditors' rights;
and the information contained under "Description of Loan" in
Exhibit A-2 attached hereto and made a part hereof is true
and accurate in all respects.
(b) Full Disclosure. There is no fact that the Borrower
has not disclosed to the State in writing on the Borrower's
application for the Loan or otherwise that materially adversely
affects or (so far as the Borrower can now foresee) that will
materially adversely affect the properties, activities, prospects
or condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System, or the ability of the
Borrower to make all Loan Repayments or otherwise to observe and
perform its duties, covenants, obligations and agreements under
this Loan Agreement and the Borrower Bond.
(c) Pending Litigation. There are no proceedings pending
or, to the knowledge of the Borrower, threatened against or
affecting the Borrower in any court or before any governmental
authority or arbitration board or tribunal that, if adversely
determined, would materially adversely affect (i) the undertaking
or completion of the Project, (ii) the properties, activities,
prospects or condition (financial or otherwise) of the Borrower
or its Environmental Infrastructure System, (iii) the ability of
the Borrower to make all Loan Repayments, (iv) the authorization,
execution, attestation or delivery of this Loan Agreement or the
Borrower Bond, (v) the issuance of the Borrower Bond and the sale
thereof to the State, or (vi) the Borrower's ability otherwise to
observe and perform its duties, covenants, obligations and
agreements under this Loan Agreement and the Borrower Bond, which
proceedings have not been previously disclosed in writing to the
State either in the Borrower's application for the Loan or
otherwise.
(d) Compliance with Existing Laws and Agreements. (i) The
authorization, execution, attestation and delivery of this Loan
Agreement and the Borrower Bond by the Borrower, (ii) the sale of
the Borrower Bond to the State, (iii) the observation and
performance by the Borrower of its duties, covenants, obligations
and agreements hereunder and thereunder, (iv) the consummation of
the transactions provided for in this Loan Agreement and the
Borrower Bond, and (v) the undertaking and completion of the
Project will not (A) other than the lien, charge or encumbrance
created hereby, by the Borrower Bond and by any other outstanding
debt obligations of the Borrower that are at parity with the
Borrower Bond as to lien on, and source and security for payment
thereon from, the revenues of the Borrower's Environmental
Infrastructure System, result in the creation or imposition of
any lien, charge or encumbrance upon any properties or assets of
the Borrower pursuant to, (B) result in any breach of any of the
terms, conditions or provisions of, or (C) constitute a default
under, any existing resolution, outstanding debt or lease
obligation, trust agreement, indenture, mortgage, deed of trust,
loan agreement or other instrument to which the Borrower is a
party or by which the Borrower, its Environmental Infrastructure
System or any of its properties or assets may be bound, nor will
such action result in any violation of the provisions of the
charter or other document pursuant to which the Borrower was
established or any laws, ordinances, injunctions, judgments,
decrees, rules, regulations or existing orders of any court or
governmental or administrative agency, authority or person to
which the Borrower, its Environmental Infrastructure System or
its properties or operations is subject.
(e) No Defaults. No event has occurred and no condition
exists that, upon the authorization, execution, attestation and
delivery of this Loan Agreement and the Borrower Bond, the
issuance of the Borrower Bond and the sale thereof to the State
or the receipt of the amount of the Loan, would constitute an
Event of Default hereunder. Since December 31, 1975 and as of
the date of delivery of this Loan Agreement, the Borrower has not
been, and is not now, in default in the payment of the principal
of or interest on any of its bonds, notes, lease purchase
agreements or other debt obligations. The Borrower is not in
violation of, and has not received notice of any claimed
violation of, any term of any agreement or other instrument to
which it is a party or by which it, its Environmental
Infrastructure System or its properties may be bound, which
violation would materially adversely affect the properties,
activities, prospects or condition (financial or otherwise) of
the Borrower or its Environmental Infrastructure System or the
ability of the Borrower to make all Loan Repayments, to pay all
principal of the Borrower Bond or otherwise to observe and
perform its duties, covenants, obligations and agreements under
this Loan Agreement and the Borrower Bond.
(f) Governmental Consent. The Borrower has obtained all
permits and approvals required to date by any governmental body
or officer for the authorization, execution, attestation and
delivery of this Loan Agreement and the Borrower Bond, for the
issuance of the Borrower Bond and the sale thereof to the State,
for the making, observance and performance by the Borrower of its
duties, covenants, obligations and agreements under this Loan
Agreement and the Borrower Bond and for the undertaking or
completion of the Project and the financing or refinancing
thereof, including, but not limited to, the approval by the New
Jersey Board of Public Utilities (the "BPU") of the issuance by
the Borrower of the Borrower Bond to the State and any other
approvals required therefor by the BPU; and the Borrower has
complied with all applicable provisions of law requiring any
notification, declaration, filing or registration with any
governmental body or officer in connection with the making,
observance and performance by the Borrower of its duties,
covenants, obligations and agreements under this Loan Agreement
and the Borrower Bond or with the undertaking or completion of
the Project and the financing or refinancing thereof. No
consent, approval or authorization of, or filing, registration or
qualification with, any governmental body or officer that has not
been obtained is required on the part of the Borrower as a
condition to the authorization, execution, attestation and
delivery of this Loan Agreement and the Borrower Bond, the
issuance of the Borrower Bond and the sale thereof to the State,
the undertaking or completion of the Project or the consummation
of any transaction herein contemplated.
(g) Compliance with Law. The Borrower:
(i) is in compliance with all laws, ordinances,
governmental rules and regulations to which it is subject,
the failure to comply with which would materially adversely
affect (A) the ability of the Borrower to conduct its
activities or to undertake or complete the Project or (B)
the condition (financial or otherwise) of the Borrower or
its Environmental Infrastructure System; and
(ii) has obtained all licenses, permits, franchises or
other governmental authorizations presently necessary for
the ownership of its properties or for the conduct of its
activities that, if not obtained, would materially adversely
affect (A) the ability of the Borrower to conduct its
activities or to undertake or complete the Project or (B)
the condition (financial or otherwise) of the Borrower or
its Environmental Infrastructure System.
(h) Use of Proceeds. The Borrower will apply the proceeds
of the Loan from the State as described in Exhibit B attached
hereto and made a part hereof (i) to finance or refinance a
portion of the Cost of the Borrower's Project; and (ii) where
applicable, to reimburse the Borrower for a portion of the Cost
of the Borrower's Project, which portion was paid or incurred in
anticipation of reimbursement by the State and is eligible for
such reimbursement under and pursuant to the Regulations, the
Code and any other applicable law. All of such costs constitute
Costs for which the State is authorized to make Loans to the
Borrower pursuant to the Regulations.
SECTION 2.02. Particular Covenants of Borrower.
(a) Promise to Pay. The Borrower unconditionally promises
to make punctual payment of the principal of the Loan and the
Borrower Bond and all other amounts due under this Loan Agreement
and the Borrower Bond according to their respective terms.
(b) Performance Under Loan Agreement. The Borrower
covenants and agrees (i) to comply with all applicable State of
New Jersey and federal laws, rules and regulations in the
performance of this Loan Agreement; (ii) to maintain its
Environmental Infrastructure System in good repair and operating
condition; and (iii) to cooperate with the State in the
observance and performance of the respective duties, covenants,
obligations and agreements of the Borrower and the State under
this Loan Agreement.
(c) Revenue Obligation; No Prior Pledges. The Borrower
shall not be required to make payments under this Loan Agreement
except from the revenues of its Environmental Infrastructure
System and from such other funds of such Environmental
Infrastructure System legally available therefor and from any
other sources pledged to such payment pursuant to subsection (a)
of this Section 2.02. In no event shall the Borrower be required
to make payments under this Loan Agreement from any revenues or
receipts not derived from its Environmental Infrastructure System
or pledged pursuant to subsection (a) of this Section 2.02.
Except for (i) loan repayments required with respect to the Trust
Loan, (ii) the debt service on any future bonds of the Borrower
issued at parity with the Borrower Bond, and (iii) the debt
service on any bonds, notes or evidences of indebtedness of the
Borrower at parity with the Borrower Bond and currently
outstanding or issued on the date hereof, the revenues derived by
the Borrower from its Environmental Infrastructure System, after
the payment of all costs of operating and maintaining the
Environmental Infrastructure System, are and will be free and
clear of any pledge, lien, charge or encumbrance thereon or with
respect thereto prior to, or of equal rank with, the obligation
of the Borrower to make Loan Repayments under this Loan Agreement
and the Borrower Bond, and all corporate or other action on the
part of the Borrower to that end has been and will be duly and
validly taken.
(d) Completion of Project and Provision of Moneys
Therefor. The Borrower covenants and agrees (i) to exercise its
best efforts in accordance with prudent environmental
infrastructure utility practice to complete the Project and to
accomplish such completion on or before the estimated Project
completion date set forth in Exhibit G hereto and made a part
hereof; (ii) to comply with the terms and provisions contained in
Exhibit G hereto; and (iii) to provide from its own fiscal
resources all moneys, in excess of the total amount of loan
proceeds it receives under the Loan and Trust Loan, required to
complete the Project.
(e) Disposition of Environmental Infrastructure System.
Neither the Borrower nor the Guarantor shall permit the
disposition of all or substantially all of the Borrower's
Environmental Infrastructure System, directly or indirectly,
including, without limitation, by means of sale, lease,
abandonment, sale of stock, statutory merger or otherwise
(collectively, a "Disposition"), except on ninety (90) days'
prior written notice to the State, and, in any event, shall not
permit a Disposition unless the Borrower shall, in accordance
with Section 4.02 hereof, assign this Loan Agreement and the
Borrower Bond and its rights and interests hereunder and
thereunder to the purchaser or lessee of the Environmental
Infrastructure System, and such purchaser or lessee shall assume
all duties, covenants, obligations and agreements of the Borrower
under this Loan Agreement and the Borrower Bond.
(f) [Reserved.]
(g) Operation and Maintenance of Environmental
Infrastructure System. The Borrower covenants and agrees that it
shall, in accordance with prudent environmental infrastructure
utility practice, (i) at all times operate the properties of its
Environmental Infrastructure System and any business in
connection therewith in an efficient manner, (ii) maintain its
Environmental Infrastructure System in good repair, working order
and operating condition, and (iii) from time to time make all
necessary and proper repairs, renewals, replacements, additions,
betterments and improvements with respect to its Environmental
Infrastructure System so that at all times the business carried
on in connection therewith shall be properly and advantageously
conducted.
(h) Records and Accounts. The Borrower shall keep accurate
records and accounts for its Environmental Infrastructure System
(the "System Records"). Such System Records shall be part of the
annual audit of the general records of the Guarantor. Such
System Records and general records of the Guarantor shall be made
available for inspection by the State at any reasonable time upon
prior written notice, and a copy of such annual audit, including
all written comments and recommendations, shall be furnished to
the State within 150 days of the close of the fiscal year being
so audited or, with the consent of the State, such additional
period as may be provided by law.
(i) Inspections; Information. The Borrower shall permit
the State and any party designated by the State, at any and all
reasonable times during construction of the Project and
thereafter upon prior written notice, to examine, visit and
inspect the property, if any, constituting the Project and to
inspect and make copies of any accounts, books and records,
including (without limitation) its records regarding receipts,
disbursements, contracts, investments and any other matters
relating thereto and to its financial standing, and shall supply
such reports and information as the State may reasonably require
in connection therewith.
(j) Insurance. The Borrower shall maintain or cause to be
maintained, in force, insurance policies with responsible
insurers or self-insurance programs providing against risk of
direct physical loss, damage or destruction of its Environmental
Infrastructure System at least to the extent that similar
insurance is usually carried by utilities constructing, operating
and maintaining Environmental Infrastructure Facilities of the
nature of the Borrower's Environmental Infrastructure System,
including liability coverage, all to the extent available at
reasonable cost but in no case less than will satisfy all
applicable regulatory requirements.
(k) Cost of Project. The Borrower certifies that the
building cost of the Project, as listed in Exhibit B hereto and
made a part hereof, is a reasonable and accurate estimation
thereof, and it will supply to the State a certificate from a
licensed professional engineer authorized to practice in the
State of New Jersey stating that such building cost is a
reasonable and accurate estimation and that the useful life of
the Project exceeds twenty (20) years from the expected date of
the Loan Closing.
(l) Delivery of Documents. Concurrently with the delivery
of this Loan Agreement (as previously authorized, executed and
attested) at the Loan Closing, the Borrower will cause to be
delivered to the State each of the following items:
(i) an opinion of the Borrower's bond counsel
substantially in the form of Exhibit E hereto; provided,
however, that the State may permit portions of such opinion
to be rendered by general counsel to the Borrower and may
permit variances in such opinion from the form set forth in
Exhibit E if such variances are acceptable to the State;
(ii) counterparts of this Loan Agreement as previously
executed and attested by the parties hereto;
(iii) copies of those resolutions finally adopted by
the board of directors of the Borrower and requested by the
State, including, without limitation, resolutions of the
Borrower authorizing the execution, attestation and delivery
of this Loan Agreement and the execution, attestation, sale
and delivery of the Borrower Bond to the State, and
certified copies of orders of the BPU approving the issuance
by the Borrower of the Borrower Bond to the State and
setting forth any other approvals required therefor by the
BPU; and
(iv) the certificates of insurance coverage as required
pursuant to the terms of Section 3.06(c) hereof and such
other certificates, documents, opinions and information as
the State may require in Exhibit F hereto, if any.
(m) Execution and Delivery of Borrower Bond. Concurrently
with the delivery of this Loan Agreement at the Loan Closing, the
Borrower shall also deliver to the State the Borrower Bond, as
previously executed and attested.
(n) Notice of Material Adverse Change. The Borrower shall
promptly notify the State of any material adverse change in the
properties, activities, prospects or condition (financial or
otherwise) of the Borrower or its Environmental Infrastructure
System, or in the ability of the Borrower to make all Loan
Repayments and otherwise to observe and perform its duties,
covenants, obligations and agreements under this Loan Agreement
and the Borrower Bond.
(o) Continuing Representations. The representations of the
Borrower contained herein shall be true at the time of the
execution of this Loan Agreement and at all times during the term
of this Loan Agreement.
(p) Additional Covenants and Requirements. No later than
the Loan Closing and, if necessary, in connection with the making
of the Loan, additional covenants and requirements have been
included in Exhibit F hereto and made a part hereof. Such
covenants and requirements may include, but need not be limited
to, the maintenance of specified levels of Environmental
Infrastructure System rates, the issuance of additional debt of
the Borrower and the transfer of revenues and receipts from the
Borrower's Environmental Infrastructure System. The Borrower
agrees to observe and comply with each such additional covenant
and requirement, if any, included in Exhibit F hereto.
<PAGE>
ARTICLE III
LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS
SECTION 3.01. Loan; Loan Term. The State hereby agrees to
make the Loan as described in Exhibit A-2 hereof and to disburse
proceeds of the Loan to the Borrower in accordance with Section
3.02 and Exhibit C hereof, and the Borrower hereby agrees to
borrow and accept the Loan from the State upon the terms set
forth in Exhibit A-2 attached hereto and made a part hereof;
provided, however, that the State shall be under no obligation to
make the Loan if (a) at the Loan Closing, the Borrower does not
deliver to the State a Borrower Bond and such other documents
required under Section 2.02(l) hereof, or (b) an Event of Default
has occurred and is continuing under this Loan Agreement.
Although the State intends to disburse proceeds of the Loan to
the Borrower at the times and up to the amounts set forth in
Exhibit C to pay a portion of the Cost of the Project, due to
unforeseen circumstances there may not be sufficient Federal
Funds on deposit on any date to make the disbursement in such
amount. Nevertheless, the Borrower agrees that the aggregate
principal amount set forth in Exhibit A-2 hereto shall constitute
the initial principal amount of the Loan (as the same may be
adjusted downward in accordance with the definition thereof), and
the State shall have no obligation thereafter to loan any
additional amounts to the Borrower.
The Borrower shall have no legal or equitable interest in
the Federal Funds received by and available to the State or in
moneys from repayments of loans previously made from Federal
Funds by the State.
The Borrower shall use the proceeds of the Loan strictly in
accordance with Section 2.01(h) hereof.
The payment obligations created under this Loan Agreement
and the obligations to pay the principal of and other amounts due
under the Borrower Bond are each direct, general, irrevocable and
unconditional obligations of the Borrower payable from any source
legally available to the Borrower.
SECTION 3.02. Disbursement of Loan Proceeds. (a) The State
shall disburse Federal Funds earmarked for the Loan to the
Borrower in accordance with the terms hereof. Before each and
every disbursement of the proceeds of the Loan by the State to
the Borrower, the Borrower shall in accordance with the
procedures set forth in the Regulations submit to the State a
requisition executed by an Authorized Officer of the Borrower.
(b) The State shall not be under any obligation to disburse
any Loan proceeds to the Borrower under this Loan Agreement,
unless:
(i) the Loan Closing shall have occurred on the date
established therefor by the State;
(ii) there shall be Federal Funds available from time
to time to fund the Loan, as determined solely by the State;
(iii) in accordance with the "New Jersey Environmental
Infrastructure Trust Act", P.L. 1985, c. 334, as amended
(N.J.S.A. 58:11B-1 et seq.), and the Regulations, the
Borrower shall have timely applied for, shall have been
awarded and, prior to or simultaneously with the Loan
Closing, shall have closed a Trust Loan for a portion of the
Allowable Costs (as defined in such regulations) of the
Project in an amount not in excess of the amount of
Allowable Costs of the Project covered by the Loan from the
State, plus the amount of: (i) capitalized interest during
the Project construction period, if any, (ii) the cost of
funding reserve capacity for the Project, if any, as well as
that portion of the Debt Service Reserve Fund (as defined in
the Trust Loan Agreement) attributable to the cost of
funding such reserve capacity for the Project, and (iii)
certain issuance expenses related thereto, including, if
applicable, a municipal bond insurance policy premium;
(iv) the Borrower shall have on hand or otherwise
available moneys to pay for the greater of (A) that portion
of the total cost of the Project that is not eligible to be
funded from the Loan or the Trust Loan, or (B) that portion
of the total cost of the Project that exceeds the actual
amounts of the loan commitments made by the State and the
Trust, respectively, for the Loan and the Trust Loan; and
(v) no Event of Default nor any event that, with the
passage of time or service of notice or both, would
constitute an Event of Default shall have occurred and be
continuing hereunder.
SECTION 3.03. Amounts Payable. (a) The Borrower shall
repay the Loan at zero-interest in principal installments payable
to the Loan Servicer semiannually on February 1 and August 1,
commencing August 1, 2000, in accordance with the schedule set
forth in Exhibit A-2 attached hereto and made a part hereof, as
the same may be amended or modified by the State, in particular,
without limitation, to make any adjustments to the amount of the
Loan in accordance with the definition thereof; provided,
however, that the amount of any reduction in the principal amount
of the Loan pursuant to N.J.A.C. 7:22-3.26 shall be credited to
the principal payments set forth in Exhibit A-2 in inverse order
of their maturity. The obligations of the Borrower under the
Borrower Bond shall be deemed to be amounts payable under this
Section 3.03. Each payment made to the Loan Servicer pursuant to
the Borrower Bond shall be deemed to be a credit against the
corresponding obligation of the Borrower under this Section 3.03,
and any such payment made to the Loan Servicer shall fulfill the
Borrower's obligation to pay such amount hereunder and under the
Borrower Bond. Each payment made to the Loan Servicer pursuant
to this Section 3.03 shall be applied to the principal of the
Loan.
(b) In addition to the principal payments on the Loan
required by subsection (a) of this Section 3.03, the Borrower
shall pay a late charge for any such payment that is received by
the Loan Servicer later than the tenth (10th) day following its
due date in an amount equal to the greater of twelve percent
(12%) per annum or the Prime Rate plus one half of one percent
per annum on such late payment from its due date to the date
actually paid; provided, however, that such late charge payable
on the Loan shall not be in excess of the maximum interest rate
permitted by law.
(c) In addition to the Loan Repayments payable under
subsections (a) and (b) of this Section 3.03, the Borrower shall
pay one-half of the Administrative Fee, if any, to the Loan
Servicer semiannually on each February 1 and August 1, commencing
February 1, 1999 or such later date as the State authorizes,
during the term of the Loan.
SECTION 3.04. Unconditional Obligations. The obligation of
the Borrower to make the Loan Repayments and all other payments
required hereunder and the obligation to perform and observe the
other duties, covenants, obligations and agreements on its part
contained herein shall be absolute and unconditional, and shall
not be abated, rebated, set-off, reduced, abrogated, terminated,
waived, diminished, postponed or otherwise modified in any manner
or to any extent whatsoever while any Loan Repayments remain
unpaid, for any reason, regardless of any contingency, act of
God, event or cause whatsoever, including (without limitation)
any acts or circumstances that may constitute failure of
consideration, eviction or constructive eviction, the taking by
eminent domain or destruction of or damage to the Project or
Environmental Infrastructure System, commercial frustration of
the purpose, any change in the laws of the United States of
America or of the State of New Jersey or any political
subdivision of either or in the rules or regulations of any
governmental authority, any failure of the State to perform and
observe any agreement, whether express or implied, or any duty,
liability or obligation arising out of or connected with the
Project or this Loan Agreement, or any rights of set-off,
recoupment, abatement or counterclaim that the Borrower might
otherwise have against the State, the Loan Servicer or any other
party or parties; provided, however, that payments hereunder
shall not constitute a waiver of any such rights. The Borrower
shall not be obligated to make any payments required to be made
by any other Borrowers under separate Loan Agreements.
SECTION 3.05. Loan Agreement to Survive Loan. The Borrower
acknowledges that its duties, covenants, obligations and
agreements set forth in Sections 3.06(a) and (b) hereof shall
survive the payment in full of the Loan.
SECTION 3.06. Disclaimer of Warranties and
Indemnification. (a) The Borrower acknowledges and agrees that:
(i) the State does not make any warranty or representation,
either express or implied, as to the value, design, condition,
merchantability or fitness for particular purpose or fitness for
any use of the Environmental Infrastructure System or the Project
or any portions thereof or any other warranty or representation
with respect thereto; (ii) in no event shall the State or its
agents be liable or responsible for any incidental, indirect,
special or consequential damages in connection with or arising
out of this Loan Agreement or the Project or the existence,
furnishing, functioning or use of the Environmental
Infrastructure System or the Project or any item or products or
services provided for in this Loan Agreement; and (iii) during
the term of this Loan Agreement and to the fullest extent
permitted by law, the Borrower shall indemnify and hold the State
harmless against, and the Borrower shall pay any and all,
liability, loss, cost, damage, claim, judgment or expense of any
and all kinds or nature and however arising and imposed by law,
which the State may sustain, be subject to or be caused to incur
by reason of any claim, suit or action based upon personal
injury, death or damage to property, whether real, personal or
mixed, or upon or arising out of contracts entered into by the
Borrower, the Borrower's ownership of the Environmental
Infrastructure System or the Project, or the acquisition,
construction or installation of the Project.
(b) It is mutually agreed by the Borrower and the State
that the State and its commissioners, officers, agents, servants
or employees shall not be liable for, and shall be indemnified
and saved harmless by the Borrower in any event from, any action
performed under this Loan Agreement and any claim or suit of
whatsoever nature, except in the event of loss or damage
resulting from their own negligence or willful misconduct.
(c) In connection with its obligation to provide the
insurance required under Section 2.02(j) hereof: (i) the
Borrower shall include, or cause to be included, the State and
its employees and officers as additional "named insureds" on (A)
any certificate of liability insurance procured by the Borrower
(or other similar document evidencing the liability insurance
coverage procured by the Borrower) and (B) any certificate of
liability insurance procured by any contractor or subcontractor
for the Project, and from the latter of the date of the Loan
Closing or the date of the initiation of construction of the
Project until the date the Borrower receives the written
certificate of Project completion from the State, the Borrower
shall maintain said liability insurance covering the State and
said employees and officers in good standing; and (ii) the
Borrower shall include the State as an additional "named insured"
on any certificate of insurance providing against risk of direct
physical loss, damage or destruction of the Environmental
Infrastructure System, and during the Loan Term the Borrower
shall maintain said insurance covering the State in good standing.
The Borrower shall provide the State with a copy of each of
any such original, supplemental, amendatory or reissued
certificates of insurance (or other similar documents evidencing
the insurance coverage) required pursuant to this Section 3.06(c).
SECTION 3.07. Option to Prepay Loan Repayments. The
Borrower may prepay the Loan Repayments, in whole or in part,
upon not less than ninety (90) days' prior written notice to the
State; provided, however, that any such full or partial
prepayment may only be made (i) if the Borrower is not then in
arrears on its Trust Loan, (ii) if the Borrower is
contemporaneously making a full or partial prepayment of the
Trust Loan such that, after the prepayment of the Loan and the
Trust Loan, the Trust gives its consent required under Section
3.07(iii) of the Trust Loan Agreement, and (iii) upon the prior
written approval of the State. Prepayments shall be applied to
the principal payments on the portion of the Loan to be prepaid
in inverse order of their maturity.
SECTION 3.08. Priority of Loan and Trust Loan. (a) The
Borrower hereby agrees that, to the extent allowed by law,
including, without limitation, the appropriations act of the New
Jersey State Legislature authorizing the expenditure of Trust
bond proceeds to finance a portion of the Cost of the Project,
any loan repayments then due and payable on the Borrower's Trust
Loan, including, without limitation, any administrative fees and
any late payment charges then due and payable under the Trust
Loan Agreement, shall be satisfied by the Borrower before any
Loan Repayments then due and payable hereunder on the Loan shall
be satisfied by the Borrower.
(b) The Borrower hereby acknowledges that in the event the
Borrower fails or is unable to pay promptly to the Trust in full
any loan repayments on the Trust Loan, then any Loan Repayments
paid by the Borrower on the Loan under this Loan Agreement and
received by the Loan Servicer during the time of any such loan
repayment deficiency under the Trust Loan Agreement shall first
be applied by the Loan Servicer to satisfy such Trust Loan
Agreement loan repayment deficiency as a credit against the
obligations of the Borrower to make loan repayments of that
portion of interest under the Trust Loan Agreement that is
allocable to the interest payable on the Trust Bonds (as defined
in the Trust Loan Agreement) and to make payments of that portion
of interest under the bond issued by the Borrower to the Trust
that is allocable to the interest payable on the Trust Bonds,
second, to the extent available, to make loan repayments of
principal under the Trust Loan Agreement and payments of
principal on the bond issued by the Borrower to the Trust
pursuant to the Trust Loan Agreement, third, to the extent
available, to the payment of the administrative fee payable under
the Trust Loan Agreement and to make payments of that portion of
interest under the bond issued by the Borrower to the Trust that
is allocable to the administrative fee payable under the Trust
Loan Agreement, fourth, to the extent available, to the payment
of late charges payable under the Trust Loan Agreement and to
make payments of that portion of interest under the bond issued
by the Borrower to the Trust that is allocable to the late
charges payable under the Trust Loan Agreement, and, finally, to
the extent available, to make Loan Repayments on the Loan.
(c) The Borrower hereby further acknowledges that any Loan
Repayments paid by the Borrower on the Loan under this Loan
Agreement shall be applied (i) according to Section 3(c) of the
Loan Servicing and Trust Bonds Security Agreement (as defined in
the definition of Loan Servicer herein) and (ii) according to the
provisions of the Master Program Trust Agreement.
<PAGE>
ARTICLE IV
ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND
SECTION 4.01. Assignment and Transfer by State. The
Borrower hereby approves and consents to any assignment or
transfer of this Loan Agreement and the Borrower Bond that the
State deems to be necessary in connection with the environmental
infrastructure loan program of the State under the Regulations.
SECTION 4.02. Assignment by Borrower. Neither this Loan
Agreement nor the Borrower Bond may be assigned by the Borrower
(except to the Guarantor, which shall occur pursuant to N.J.S.A.
14A:10-5.1 or such successor provision, upon notice to the State)
for any reason, unless the following conditions shall be
satisfied: (i) the State shall have approved said assignment in
writing; (ii) the assignee shall have expressly assumed in
writing the full and faithful observance and performance of the
Borrower's duties, covenants, obligations and agreements under
this Loan Agreement and, to the extent permitted under applicable
law, the Borrower Bond; and (iii) immediately after such
assignment, the assignee shall not be in default in the
observance or performance of any duties, covenants, obligations
or agreements of the Borrower under this Loan Agreement or the
Borrower Bond.
<PAGE>
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01. Events of Default. If any of the following
events occur, it is hereby defined as and declared to be and to
constitute an "Event of Default":
(a) failure by the Borrower to pay, or cause to be paid,
any Loan Repayment required to be paid hereunder when due, which
failure shall continue for a period of fifteen (15) days;
(b) failure by the Borrower to pay, or cause to be paid,
any late charges incurred hereunder or any portion thereof when
due or to observe and perform any duty, covenant, obligation or
agreement on its part to be observed or performed under this Loan
Agreement, other than as referred to in subsection (a) of this
Section 5.01 or other than the obligations of the Borrower
contained in Section 2.02(d)(ii) hereof and in Exhibit F hereto,
which failure shall continue for a period of thirty (30) days
after written notice, specifying such failure and requesting that
it be remedied, is given to the Borrower by the State, unless the
State shall agree in writing to an extension of such time prior
to its expiration; provided, however, that if the failure stated
in such notice is correctable but cannot be corrected within the
applicable period, the State may not unreasonably withhold its
consent to an extension of such time up to 120 days from the
delivery of the written notice referred to above if corrective
action is instituted by the Borrower within the applicable period
and diligently pursued until the Event of Default is corrected;
(c) any representation made by or on behalf of the Borrower
contained in this Loan Agreement, or in any instrument furnished
in compliance with or with reference to this Loan Agreement or
the Loan, is false or misleading in any material respect;
(d) a petition is filed by or against the Borrower under
any federal or state bankruptcy or insolvency law or other
similar law in effect on the date of this Loan Agreement or
thereafter enacted, unless in the case of any such petition filed
against the Borrower such petition shall be dismissed within
thirty (30) days after such filing and such dismissal shall be
final and not subject to appeal; or the Borrower shall become
insolvent or bankrupt or shall make an assignment for the benefit
of its creditors; or a custodian (including, without limitation,
a receiver, liquidator or trustee) of the Borrower or any of its
property shall be appointed by court order or take possession of
the Borrower or its property or assets if such order remains in
effect or such possession continues for more than thirty (30)
days;
(e) the Borrower shall generally fail to pay its debts as
such debts become due; and
(f) failure of the Borrower to observe or perform such
additional duties, covenants, obligations, agreements or
conditions as are required by the State and specified in Exhibit
F attached hereto and made a part hereof.
SECTION 5.02. Notice of Default. The Borrower shall give
the State prompt telephonic notice of the occurrence of any Event
of Default referred to in Section 5.01(d) or (e) hereof and of
the occurrence of any other event or condition that constitutes
an Event of Default at such time as any senior administrative or
financial officer of the Borrower becomes aware of the existence
thereof.
SECTION 5.03. Remedies on Default. Whenever an Event of
Default referred to in Section 5.01 hereof shall have occurred
and be continuing, the State shall have the right to take
whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to
become due hereunder or to enforce the observance and performance
of any duty, covenant, obligation or agreement of the Borrower
hereunder.
In addition, if an Event of Default referred to in Section
5.01(a) hereof shall have occurred and be continuing, the State
shall, to the extent allowed by applicable law, have the right to
declare all Loan Repayments and all other amounts due hereunder
(including, without limitation, payments under the Borrower Bond)
to be immediately due and payable, and upon notice to the
Borrower the same shall become due and payable without further
notice or demand.
SECTION 5.04. Attorneys' Fees and Other Expenses. The
Borrower shall on demand pay to the State the reasonable fees and
expenses of attorneys and other reasonable expenses (including,
without limitation, the reasonably allocated costs of in-house
counsel and legal staff) incurred by the State in the collection
of Loan Repayments or any other sum due hereunder or in the
enforcement of the observation or performance of any other
duties, covenants, obligations or agreements of the Borrower upon
an Event of Default.
SECTION 5.05. Application of Moneys. Any moneys collected
by the State pursuant to Section 5.03 hereof shall be applied (a)
first, to pay any attorneys' fees or other fees and expenses owed
by the Borrower pursuant to Section 5.04 hereof, (b) second, to
the extent available, to pay principal due and payable on the
Loan, (c) third, to the extent available, to pay any other
amounts due and payable hereunder, and (d) fourth, to the extent
available, to pay principal on the Loan and other amounts payable
hereunder as such amounts become due and payable.
SECTION 5.06. No Remedy Exclusive; Waiver; Notice. No
remedy herein conferred upon or reserved to the State is intended
to be exclusive, and every such remedy shall be cumulative and
shall be in addition to every other remedy given under this Loan
Agreement or now or hereafter existing at law or in equity. No
delay or omission to exercise any right, remedy or power accruing
upon any Event of Default shall impair any such right, remedy or
power or shall be construed to be a waiver thereof, but any such
right, remedy or power may be exercised from time to time and as
often as may be deemed expedient. In order to entitle the State
to exercise any remedy reserved to it in this Article V, it shall
not be necessary to give any notice other than such notice as may
be required in this Article V.
SECTION 5.07. Retention of State's Rights. Notwithstanding
any assignment or transfer of this Loan Agreement pursuant to the
provisions hereof, or anything else to the contrary contained
herein, the State shall have the right upon the occurrence of an
Event of Default to take any action, including (without
limitation) bringing an action against the Borrower at law or in
equity, as the State may, in its discretion, deem necessary to
enforce the obligations of the Borrower to the State pursuant to
Section 5.03 hereof.
<PAGE>
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be
deemed given when hand delivered or mailed by registered or
certified mail, postage prepaid, to the Borrower at the address
specified in Exhibit A-1 attached hereto and made a part hereof
and to the State and the Loan Servicer at the following addresses:
(a) State:
New Jersey Department of Environmental Protection
Municipal Finance and Construction Element
401 East State Street 3rd Floor
Trenton, New Jersey 08625-0425
Attention: Assistant Director
New Jersey Department of the Treasury
Office of Public Finance
State Street Square 5th Floor
Trenton, New Jersey 08625-0002
Attention: Director
(b) Loan Servicer:
First Union National Bank
765 Broad Street
Newark, New Jersey 07102
Attention: Corporate Trust Department
Any of the foregoing parties may designate any further or
different addresses to which subsequent notices, certificates or
other communications shall be sent by notice in writing given to
the others.
SECTION 6.02. Binding Effect. This Loan Agreement shall
inure to the benefit of and shall be binding upon the State and
the Borrower and their respective successors and assigns.
SECTION 6.03. Severability. In the event any provision of
this Loan Agreement shall be held illegal, invalid or
unenforceable by any court of competent jurisdiction, such
holding shall not invalidate, render unenforceable or otherwise
affect any other provision hereof.
SECTION 6.04. Amendments, Supplements and Modifications.
This Loan Agreement may not be amended, supplemented or modified
without the prior written consent of the State and the Borrower.
SECTION 6.05. Execution in Counterparts. This Loan
Agreement may be executed in several counterparts, each of which
shall be an original and all of which shall constitute but one
and the same instrument.
SECTION 6.06. Applicable Law and Regulations. This Loan
Agreement shall be governed by and construed in accordance with
the laws of the State of New Jersey, including the Regulations,
which Regulations are, by this reference thereto, incorporated
herein as part of this Loan Agreement.
SECTION 6.07. Consents and Approvals. Whenever the written
consent or approval of the State shall be required under the
provisions of this Loan Agreement, such consent or approval may
only be given by the State.
SECTION 6.08. Captions. The captions or headings in this
Loan Agreement are for convenience only and shall not in any way
define, limit or describe the scope or intent of any provisions
or sections of this Loan Agreement.
SECTION 6.09. Further Assurances. The Borrower shall, at
the request of the State, authorize, execute, attest, acknowledge
and deliver such further resolutions, conveyances, transfers,
assurances, financing statements and other instruments as may be
necessary or desirable for better assuring, conveying, granting,
assigning and confirming the rights, security interests and
agreements granted or intended to be granted by this Loan
Agreement and the Borrower Bond.
<PAGE>
[Signature Page]
IN WITNESS WHEREOF, the State and the Borrower have caused
this Loan Agreement to be executed, sealed and delivered as of
the date first above written.
THE STATE OF NEW JERSEY,
ACTING BY AND THROUGH THE
NEW JERSEY DEPARTMENT OF
ENVIRONMENTAL PROTECTION
[SEAL]
By:________________________
ATTEST: Robert C. Shinn, Jr.
Commissioner,
Department of
Environmental Protection
_____________________________
Nicholas G. Binder, P.E., P.P.
Assistant Director,
Municipal Finance and Construction Element,
Department of Environmental Protection
[SEAL] THE MOUNT HOLLY WATER
COMPANY
ATTEST:
By:________________________
Authorized Officer
_____________________________
Authorized Officer
Approval of New Jersey State
Treasurer
By:________________________
James A. DiEleuterio,
Jr.
New Jersey State
Treasurer
<PAGE>
A-1-1
EXHIBIT A-1
Description of Project and Environmental Infrastructure System
<PAGE>
A-2-1
EXHIBIT A-2
Description of Loan
<PAGE>
B-1
EXHIBIT B
Basis for Determination of Allowable Project Costs
<PAGE>
C-1
EXHIBIT C
Estimated Disbursement Schedule
<PAGE>
D-31
EXHIBIT D
Specimen Borrower Bond
<PAGE>
(To be supplied by Borrower's
bond counsel in substantially the following form)
IMPORTANT NOTE: The next two pages set forth the form of
the Borrower Bond prepared by the Trust's Bond Counsel for
municipal/county Borrowers. Although the Trust recognizes that
each corporate Borrower has its own bond form as required
pursuant to its Borrower Bond Resolution, please incorporate in
the bond form the pertinent information from this
municipal/county bond form (e.g., include the concept of
principal amount or lesser amount under Section 3.01, reference
to payments to the Loan Servicer, disbursement process,
unconditional nature, prepayment, security and date).
<PAGE>
SEE IMPORTANT NOTE ON PRIOR PAGE
FOR VALUE RECEIVED, The Mount Holly Water Company, a
corporation duly created and validly existing under the
Constitution and laws of the State of New Jersey (the
"Borrower"), hereby promises to pay to the order of the State of
New Jersey (the "State") the principal amount of Five Million
Eight Hundred Ninety-Four Thousand Nine Hundred Nine Dollars
($5,894,909), or such lesser amount as shall be determined in
accordance with Section 3.01 of the Loan Agreement (as
hereinafter defined), at the times and in the amounts determined
as provided in the Loan Agreement, plus any other amounts due and
owing under the Loan Agreement at the times and in the amounts as
provided therein. The Borrower irrevocably pledges its full
faith and credit for the punctual payment of the principal of,
and all other amounts due under, this Borrower Bond and the Loan
Agreement according to their respective terms.
This Borrower Bond is issued pursuant to the Loan Agreement
dated as of November 1, 1998 by and between the State, acting by
and through the New Jersey Department of Environmental
Protection, and the Borrower (the "Loan Agreement"), and is
issued in consideration of the loan made thereunder (the "Loan")
and to evidence the payment obligations of the Borrower set forth
in Section 3.03(a) thereof. Payments under this Borrower Bond
shall, except as otherwise provided in the Loan Agreement, be
made directly to the Loan Servicer (as defined in the Loan
Agreement) for the account of the State. This Borrower Bond is
subject to assignment or endorsement in accordance with the terms
of the Loan Agreement. All of the terms, conditions and
provisions of the Loan Agreement are, by this reference thereto,
incorporated herein as part of this Borrower Bond.
Pursuant to the Loan Agreement, disbursements shall be made
by the State to the Borrower upon receipt by the State of
requisitions from the Borrower executed and delivered in
accordance with the requirements set forth in Section 3.02 of the
Loan Agreement.
This Borrower Bond is entitled to the benefits and is
subject to the conditions of the Loan Agreement. The obligations
of the Borrower to make the payments required hereunder shall be
absolute and unconditional, without any defense or right of
set-off, counterclaim or recoupment by reason of any default by
the State under the Loan Agreement or under any other agreement
between the Borrower and the State or out of any indebtedness or
liability at any time owing to the Borrower by the State or for
any other reason.
This Borrower Bond is subject to optional prepayment under
the terms and conditions, and in the amounts, provided in Section
3.07 of the Loan Agreement. To the extent allowed by applicable
law, this Borrower Bond may be subject to acceleration under the
terms and conditions, and in the amounts, provided in Section
5.03 of the Loan Agreement.
To the extent provided by law, this Borrower Bond is junior
and subordinate in all respects to any bonds of the Borrower
issued on even date herewith to the New Jersey Environmental
Infrastructure Trust as to lien on, and source and security for
payment from, the revenues of the Borrower.
IN WITNESS WHEREOF, the Borrower has caused this Borrower
Bond to be duly executed, sealed and delivered as of this 15th
day of October, 1998.
THE MOUNT HOLLY WATER
COMPANY
[SEAL]
By:_______________________
ATTEST: _____________
_______________________
By:_______________________
_______________ _____________
<PAGE>
E-35
EXHIBIT E
Opinions of Borrower's Bond and General Counsels
See Closing Item No. 11.04
<PAGE>
[LETTERHEAD OF COUNSEL TO BORROWER]
November 5, 1998
State of New Jersey
Department of Environmental Protection
401 East State Street
Trenton, New Jersey 08625
Ladies and Gentlemen:
I have acted as counsel to The Mount Holly Water Company, a
corporation duly organized and validly existing under the laws of
the State of New Jersey (the "Borrower"), which has entered into
a Loan Agreement (as hereinafter defined) with the State of New
Jersey, acting by and through the New Jersey Department of
Environmental Protection (the "State"), and have acted as such in
connection with the authorization, execution, attestation and
delivery by the Borrower of its Loan Agreement and Borrower Bond
(as hereinafter defined) pursuant to the New Jersey Business
Corporation Act, P.L. 1968, c. 263, as amended (the "Business
Corporation Law"), and resolutions of the Board of Directors of
the Borrower adopted on ________, 1998 (the "Resolutions"). All
capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Loan Agreement.
In so acting, I have examined the Constitution and laws of
the State of New Jersey, including, without limitation, the
Business Corporation Law, and the certificate of incorporation
and by-laws of the Borrower. I have also examined originals, or
copies certified or otherwise identified to my satisfaction, of
the following:
(a) the Loan Agreement dated as of November 1, 1998 (the
"Loan Agreement") by and between the State and the Borrower;
(b) the Resolutions and the proceedings of the Board of
Directors of the Borrower relating to the undertaking and
completion of the Project;
(c) the Borrower Bond dated as of October 15, 1998 (the
"Borrower Bond") issued by the Borrower to the State to evidence
the Loan; and
(d) the proceedings of the Board of Directors of the
Borrower, including, without limitation, the Resolutions,
relating to the authorization of the Borrower Bond and the sale,
execution, attestation and delivery thereof to the State (the
Loan Agreement and the Borrower Bond are referred to herein
collectively as the "Loan Documents").
I have also examined and relied upon originals, or copies
certified or otherwise authenticated to my satisfaction, of such
other records, documents, certificates and other instruments, and
have made such investigation of law as in my judgment I have
deemed necessary or appropriate, to enable me to render the
opinions expressed below.
I am of the opinion that:
1. The Borrower is a corporation duly created and validly
existing under and pursuant to the Constitution and statutes of
the State of New Jersey, including the Business Corporation Law,
with the legal right to carry on the business of its
Environmental Infrastructure System as currently being conducted
and as proposed to be conducted.
2. The Borrower has full legal right and authority to
execute, attest and deliver the Loan Documents, to sell the
Borrower Bond to the State, to observe and perform its duties,
covenants, obligations and agreements under the Loan Documents
and to undertake and complete the Project.
3. The acting officers of the Borrower who are
contemporaneously herewith performing or have previously
performed any action contemplated in the Loan Agreement are, and
at the time any such action was performed were, the duly
appointed or elected officers of the Borrower empowered by
applicable New Jersey law and authorized by resolution of the
Borrower to perform such actions.
4. The proceedings of the Borrower's Board of Directors
(i) approving the Loan Documents, (ii) authorizing their
execution, attestation and delivery on behalf of the Borrower,
(iii) with respect to the Borrower Bond only, authorizing its
sale by the Borrower to the State, (iv) authorizing the Borrower
to consummate the transactions contemplated by the Loan
Documents, (v) authorizing the Borrower to undertake and complete
the Project, and (vi) authorizing the execution and delivery of
all other certificates, agreements, documents and instruments in
connection with the execution, attestation and delivery of the
Loan Documents, have each been duly and lawfully adopted and
authorized in accordance with applicable law, including, without
limitation, the Business Corporation Law.
5. The Loan Documents have been duly authorized, executed,
attested and delivered by the Authorized Officers of the Borrower
and the Borrower Bond has been duly sold by the Borrower to the
State; and assuming in the case of the Loan Agreement that the
State has the requisite power and authority to authorize,
execute, attest and deliver, and has duly authorized, executed,
attested and delivered, the Loan Agreement, the Loan Documents
constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with
their respective terms, subject, however, to the effect of, and
to restrictions and limitations imposed by or resulting from,
bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally. No opinion
is rendered as to the availability of any particular remedy.
6. The authorization, execution, attestation and delivery
of the Loan Documents by the Borrower and, in the case of the
Borrower Bond only, the sale thereof to the State, the
observation and performance by the Borrower of its duties,
covenants, obligations and agreements thereunder, the
consummation of the transactions contemplated therein, and the
undertaking and completion of the Project do not and will not (i)
other than the lien, charge or encumbrance created by the Loan
Documents and by any other outstanding debt obligations of the
Borrower that are at parity with the Borrower Bond as to lien on,
and source and security for payment thereon from, the revenues of
the Borrower, result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the
Borrower pursuant to, (ii) result in any breach of any of the
terms, conditions or provisions of, or (iii) constitute a default
under, any outstanding debt or lease obligation, trust agreement,
indenture, mortgage, deed of trust, loan agreement or other
instrument to which the Borrower is a party or by which the
Borrower, its Environmental Infrastructure System or any of its
properties or assets may be bound, nor will such action result in
any violation of the provisions of the charter or other document
pursuant to which the Borrower was established or any laws,
ordinances, injunctions, judgments, decrees, rules, regulations
or existing orders of any court or governmental or administrative
agency, authority or person to which the Borrower, its
Environmental Infrastructure System or its properties or
operations is subject.
7. All approvals, consents or authorizations of, or
registrations of or filings with, any governmental or public
agency, authority or person required to date on the part of the
Borrower in connection with the authorization, execution,
attestation, delivery and performance of the Loan Documents, the
sale of the Borrower Bond and the undertaking and completion of
the Project have been obtained or made.
8. There is no litigation or other proceeding pending or,
to my knowledge, after due inquiry, threatened in any court or
other tribunal of competent jurisdiction (either State or
federal) (i) questioning the creation, organization or existence
of the Borrower, (ii) questioning the validity, legality or
enforceability of the Resolutions, the Loan or the Loan
Documents, (iii) questioning the undertaking or completion of the
Project, (iv) otherwise challenging the Borrower's ability to
consummate the transactions contemplated by the Loan or the Loan
Documents, or (v) that, if adversely decided, would have a
materially adverse impact on the financial condition of the
Borrower.
9. Other than its bond dated as of October 15, 1998 issued
to the New Jersey Environmental Infrastructure Trust, the
Borrower has no bonds, notes or other debt obligations
outstanding that are superior or senior to the Borrower Bond as
to lien on, and source and security for payment thereof from, the
revenues of the Borrower.
I hereby authorize McCarter & English, LLP, acting as bond
counsel to the State in connection with the Loan, and the
Attorney General of the State of New Jersey, acting as general
counsel to the State in connection with the Loan, to rely on this
opinion as if I had addressed this opinion to them in addition to
you.
Very truly yours,
<PAGE>
F-39
EXHIBIT F
Additional Covenants and Requirements
Guaranty of Loan:
The repayment of the Loan will be guaranteed by the
Guarantor pursuant to the terms and conditions as set forth in
that certain Guaranty made and delivered as of November 1, 1998
by the Guarantor, a copy of which is attached hereto.
<PAGE>
G-40
EXHIBIT G
General Administrative Requirements for the
State Environmental Infrastructure Financing Program
Exhibit 10(l)
AMENDMENT TO THE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN OF
ELIZABETHTOWN WATER COMPANY
This ("Amendment") to the Supplemental Executive Retirement Plan
("SERP") of Elizabethtown Water Company ("EWC") is made as of this 20th day of
August, 1998 by and among EWC and the individuals whose name and signatures
are set forth below (collectively, the "Executives").
WITNESSETH:
WHEREAS, each of the boards of directors (collectively, the "Board") of
E'Town Corporation ("E'Town" and, collectively with EWC, referred to herein as
the "Company") has determined that, 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, it is imperative that it and the
Company be able to rely on certain of the key executives of the Company
(collectively, the "Executives") to continue to serve in their respective
positions and that the Board and the Company be able to rely upon the
Executives' advice as being in the best interests of the Company and its
shareholders without concern that the Executives might be distracted by the
personal uncertainties and risks that such a proposal or discussions might
otherwise create; and
WHEREAS, the Board desires to reward the Executives for their valuable,
dedicated service to the Company should the services of the Executives be
terminated under circumstances described above; and
WHEREAS, the Company has entered into agreements (the "Agreements") with
each of the Executives which set forth the terms and conditions of benefits
and payments to be made by the Company to the Executives upon any such
termination of services in the event of a change in control of the Company as
defined in the Agreements; and
WHEREAS, the Board and the Executives consider it in their respective
best interests and the best interests of the shareholders of the Company that
certain provisions of the SERP be amended to conform to the terms and
conditions of the Agreements; and
WHEREAS, the Board also desires to amend the SERP in order to clarify
the requirements of the SERP with respect to the designation by the Executive
Compensation Committee of the Board (the "Committee") of those executives who
are eligible to receive benefits under the SERP, and to amend Schedule A of
the SERP to include the names of the executives who have been designated as
eligible to receive benefits under the SERP as of the date of this Amendment;
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 SERP as
follows:
1. Section 3.5 of the SERP is amended by changing the definition
of "Change in Control" to the following:
"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 3.5 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 the Plan, 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 3.5) 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 such other percentage amount as the Board may
approve from time to time with respect to one or more Key
Employees), 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. Section 3.16 of the SERP is amended by changing the definition
of "Key Employee" to the following:
"Key Employee" shall mean a corporate officer of E'Town Corporation
or the Company who is employed on a full time basis and who holds the
position of Vice President or higher."
3. Section 4.2 of the SERP is amended by adding to the end of
subsection (a) thereof the following:
"On and after the date of this Amendment, the Committee shall
update, from time to time during the term of this Plan, Schedule "A" to
reflect the names and titles of those Employees who become Key Employees
eligible to participate under the Plan. A Key Employee shall become
eligible immediately upon the election or appointment by the Board and
commencement of full-time employment of such Employee as a Key
Employee. The Committee shall attach of copy of the revised Schedule
"A" to this Plan each time any Employee becomes eligible as a Key
Employee under this Section 4.2."
Section 4.2 of the SERP is further amended by deleting subsections
(b) and (c) of Section 4.2 in their entirety.
4. Section 8.2 of the SERP is amended by replacing Section 8.2 in
its entirety with the following:
"8.2 Upon Other Termination of Employment
(a) In the event that a Participant's employment is terminated
prior to his or her Normal, Early or Deferred Retirement Date or prior
to his or her death, there shall be no Benefits payable under the Plan
except as specifically set forth in Article 7 with respect to the death
of the Participant, unless any of the events described in Section 3.5
hereof constituting a Change in Control of the Company shall have
occurred. If any of the events described in Section 3.5 hereof
constituting a Change in Control of the Company shall have occurred, the
Participant shall be entitled to the Benefits payable under this Plan
upon the subsequent termination of the Participant's employment within
the applicable period set forth in Section 8.3 hereof following such
Change in Control of the Company unless such termination is (i) due to
the Participant's death; or (ii) by the Company by reason of the
Participant's Disability (as hereinafter defined) or for Cause (as
hereinafter defined); or (iii) by the Participant other than for Good
Reason (as hereinafter defined).
(b) If, following a Change in Control of the Company, the
Participant's employment is terminated by reason of the Participant's
death, the Participant shall be entitled to receive Benefits in
accordance with the provisions of Article 7 hereof and if, following a
Change in Control of the Company, the Participant's employment is
terminated by reason of the Participant's Disability or by the Company
for Cause or by the Participant other than for Good Reason, the
Participant shall not be entitled to receive Benefits.
(c) For purposes of this Plan:
(i) "Disability" shall mean the Participant's incapacity due
to physical or mental illness such that the Participant 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 Participant pursuant to any other plan or agreement,
whichever is applicable.
(ii) "Cause" shall mean:
(A) the conviction of the Participant for a felony, or the
willful commission by the Participant 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 Participant of an act of fraud in
the performance of such Participant'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 Participant to
perform the Participant's duties, as such duties were performed by
the Participant prior to the day of the Change in Control of the
Company (other than any such failure resulting from the
Participant'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 Participant by the Committee.
For purposes of this Section 8.2(c)(ii) , no act, or failure
to act, on the Participant's part shall be considered "willful"
unless done, or omitted to be done, by the Participant not in good
faith and without reasonable belief that the Participant'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 Participant of
duties without the Participant's express written consent, which (i)
are materially different or require travel significantly more time
consuming or extensive than the Participant'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 Participant'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 Participant
at any time during the six (6) month period prior to the Change in
Control of the Company, or (iii) the removal of the Participant
from, or any failure to reappoint or reelect the Participant 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 Participant's employment by the Company for
Cause, or by reason of the Participant's death or Disability;
(B) A reduction by the Company of the Participant's Salary
(as hereinafter defined), or the failure to grant increases in the
Participant'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 Participant relocate (except
for required travel on the Company's business to an extent
substantially consistent with the Participant'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 (or
such other distance as may be agreed to by the Company and the
Participant) from the Participant'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
Participant expressly consents in writing to any such relocation of
the Participant outside such one hundred mile radius or the State
of New Jersey, the failure by the Company to pay (or reimburse the
Participant for) all reasonable moving expenses incurred by the
Participant relating to a change of principal residence in
connection with such relocation and to indemnify the Participant
against any loss realized in the sale of the Participant's
principal residence in connection with any such change of
residence, all to the effect that the Participant shall incur no
loss upon such sale on an after tax basis;
(D) The failure by the Company to continue to provide the
Participant with substantially the same welfare benefits (which for
purposes of this Plan 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 Participant 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
Participant 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 the obligations of the
Company under any Change in Control Agreement between the Company
and the Participant or this Plan by any successor.
(iv) "Dispute" shall mean (i) in the case of termination of
employment of the Participant with the Company by the Company for
Disability or Cause, that the Participant challenges the existence
of Disability or Cause and (ii) in the case of the termination of
the Participant's employment with the Company by the Participant
for Good Reason, that the Company challenges the existence of Good
Reason.
(v) "Salary" shall mean the Participant's average annual
compensation reported on United States Internal Revenue Service
Form W-2 ("Form W-2") plus any of the following amounts which are
not reported on the Participant's Form W-2: (i) any restricted
stock of the Company awarded to the Participant, or which the
Participant 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").
(d) Any purported termination of the Participant's employment by
the Company by reason of the Participant's Disability or for Cause, or
by the Participant for Good Reason shall be communicated by written
Notice of Termination (as hereinafter defined) to the other party
hereto. For purposes of this Plan, a "Notice of Termination" shall mean
a notice given by the Participant 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 Plan.
The Participant shall not be entitled to give a Notice of Termination
that the Participant is terminating the Participant'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
Participant's actual employment by the Company shall cease on the Date
of Termination (as hereinafter defined) specified in the Notice of
Termination, even though such Date of Termination for all other purposes
of this Plan may be extended in the manner contemplated in the second
sentence of Section 8.2(e) below.
(e) For purposes of this Plan, the "Date of Termination" shall
mean 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. 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 Benefits hereunder shall continue to
accrue consistent with the terms and conditions of this Plan in effect
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 Participant from the date of termination
specified in the Notice of Termination until final resolution of the
Dispute pursuant to this Section 8.2(e) shall be repaid promptly by the
Participant to the Company, with interest at the average prime rate
generally prevailing from time to time among major New York City banks.
The Participant shall not be obligated to pay to the Company the cost of
providing the Participant with Benefits for such period unless the final
judgment, order or decree of a court or other body resolving the Dispute
determines that the Participant acted in bad faith in giving a notice of
Dispute. Should a Dispute ultimately be determined in favor of the
Participant, then the Participant shall be entitled to retain all sums
paid to the Participant under this Plan pending resolution of the
Dispute.
8.3 Payments Upon Termination After Change in Control
If within three (3) years after a Change in Control of the Company,
the Company shall terminate the Participant's employment other than by reason
of the Participant's death, Disability or for Cause, or if the Participant
shall terminate the Participant's employment for Good Reason, then the
Participant's Benefits in effect immediately prior to the date on which a
Change in Control of the Company occurs under this Plan, or any successor
plan in effect on the date on which a Change in Control of the Company
occurred, shall become fully vested and nonforfeitable on the Date of
Termination and (i) if the Participant has not attained the age of 65 as of
the Date of Termination, the Participant 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 Participant 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 this Plan, in addition to
the number of years of service already accumulated by the Participant as of
the Date of Termination; provided, however, that the President of E'town
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
this Plan, in addition to the number of years of service already accumulated
by the President as of the Date of Termination. In satisfaction of the
Company's obligations under this Section 8.3, the Company shall purchase an
annuity or similar instrument owned by the Participant and payable to the
Participant (or the Participant's beneficiaries, as the case may be) which
provides for payment of the Benefits payable to the Participant under this
Section 8.3 consistent with the payment provisions of Section 6.1 of the
Plan. Such annuity or other instrument shall be purchased and delivered to
the Participant by the Company within thirty (30) days after the Date of
Termination."
5. Section 9.1 of the SERP is amended by adding to the end of
that Section the following language: "except as expressly set forth in
Section 8.3 of the Plan."
6. Section 9.2 of the SERP is amended by adding to the end of the
first sentence of that Section the following language: "except as expressly
set forth in Section 8.3 of the Plan."
7. Section 10.4 is amended by adding to the end of that Section
the following subsection:
"(e) Notwithstanding the foregoing, with respect to any dispute
regarding Benefits payable in connection with a Change in Control, the
dispute provisions set forth in Section 8.2 shall apply."
8. Attached hereto is a copy of the revised Schedule "A" which
reflects all of the Key Employees who are eligible to participate under the
Plan as of the date of this Amendment.
9. If any of the terms and conditions of the SERP are
inconsistent with this Amendment, the terms and conditions of this Amendment
shall supercede such inconsistent terms and conditions of the SERP. Except
to the extent changed or modified herein, all terms and conditions of the
SERP shall remain unchanged and be in full force and effect.
10. The Company and the Executives acknowledge that, by execution
and delivery of the respective Agreements by each of the Executives, the
Executives acknowledged that, on or before the effective date of the
Agreements, the Executives received and had an opportunity to read, and the
Executives understand, this Amendment and that the amendments, modifications
and supplements in and to the SERP set forth in this Amendment are in the
best interests of the Executives and are necessary and appropriate to conform
the terms and conditions of the SERP to the terms and conditions of the
Agreements and the Executives thereby agree to the amendments, modifications
and supplements in and to the provisions of the SERP in accordance with the
terms and conditions set forth in this Amendment to be effective as of the
date of the Agreements in satisfaction of the terms and conditions of the
SERP, and that a copy of this Amendment shall be attached as an exhibit to
and incorporated by reference into the SERP as of the date of the Agreements.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of this 20th day of August, 1998.
E'TOWN CORPORATION
By:
Anne Evans Estabrook, Chairman of the Board
<PAGE>
-SCHEDULE A
Gail P. Brady
Walter M. Braswell
Andrew Chapman
James Cowley
Dennis W. Doll
Beth Gates
Robert W. Kean III
Edward D. Mullen
Henry S. Patterson III
Joseph E. Stroin, Jr.
Norbert Wagner
Exhibit 10(o)
AGREEMENT
THIS AGREEMENT 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 (see list at end),
residing at _______________________ (the "Executive").
W I T N E S S E T H:
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 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
(as hereinafter defined), 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 average annual
compensation reported on United States Internal Revenue
Service Form W-2 ("Form W-2") plus any of the following
amounts which are not reported on the Executive's 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 (as hereinafter defined) specified in the Notice 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 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. 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.
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 the
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:
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.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date set forth above.
E'TOWN CORPORATION
By:
-------------------------------
Name:
Title:
EXECUTIVE
--------------------------------------
Name:
Address:
Above form of agreement executed for the following executives.
Gail P. Brady
Henry S. Patterson, III
Norbert Wagner
Walter M. Braswell
James E. Cowley
Dennis W. Doll
Beth Gates
Edward D. Mullen
Joseph E. Stroin Jr.
Robert W. Kean, III
Exhibit 12
E'TOWN CORPORATION AND SUBSIDIARIES
Computation of Ratio of Earnings to Fixed Charges
(In Thousands Except Ratios)
Year Ended December 31,
1998 1997 1996
EARNINGS:
Net Income $ 22,330 $ 19,260 $ 15,073
Federal income taxes 12,226 10,895 8,361
Interest charges 17,826 17,340 13,316
--------------------------------
Earnings available to cover fixed charges 52,382 47,495 36,750
--------------------------------
FIXED CHARGES:
Interest on long-term debt 16,217 14,807 13,800
Other interest 1,641 2,560 2,645
Amortization of debt discount - net 438 411 395
--------------------------------
Total fixed charges 18,296 17,778 16,840
--------------------------------
Ratio of Earnings to Fixed Charges 2.86 2.67 2.18
================================
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.
ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY Exhibit 12(a)
Computation of Ratio of Earnings to Fixed Charges
(In Thousands Except Ratios)
Year Ended December 31,
1998 1997 1996
EARNINGS:
Net Income $ 24,768 $ 20,905 $ 16,755
Federal income taxes 13,101 11,274 8,822
Interest charges 15,616 16,622 12,804
--------------------------------
Earnings available to cover fixed charges 53,485 48,801 38,381
--------------------------------
FIXED CHARGES:
Interest on long-term debt 14,721 14,030 13,011
Other interest 960 2,382 2,640
Amortization of debt discount - net 391 376 361
--------------------------------
Total fixed charges 16,072 16,788 16,012
--------------------------------
Ratio of Earnings to Fixed Charges 3.33 2.91 2.40
================================
Earnings to Fixed Charges 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 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)
Year Ended December 31,
1998 1997 1996
EARNINGS:
Net Income $ 24,768 $ 20,905 $ 16,755
Federal income taxes 13,101 11,274 8,822
Interest charges 15,616 16,622 12,804
--------------------------------
Earnings available to cover fixed charges 53,485 48,801 38,381
--------------------------------
FIXED CHARGES AND PREFERRED DIVIDENDS:
Interest on long-term debt 14,721 14,030 13,011
Preferred dividend requirement (1) 1,243 1,251 1,241
Other interest 960 2,382 2,640
Amortization of debt discount - net 391 376 361
--------------------------------
Total fixed charges 17,315 18,039 17,253
--------------------------------
Ratio of Earnings to Fixed Charges
and Preferred Dividends 3.09 2.71 2.22
================================
(1) Preferred Dividend Requirement:
Preferred dividends 813 813 813
Effective tax rate 34.60% 35.04% 34.49%
--------------------------------
Preferred dividend requirement $ 1,243 $ 1,251 $ 1,241
================================
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.
Portion of the 1998 Annual Report to Shareholders for the year ended
December 31, 1998 which is incorporated by reference in this filing
on Form 10-K.
E'TOWN CORPORATION AND SUBSIDIARIES
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 14 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 December 31, 1998, and the results of operations for the years ended
December 31, 1998 and 1997.
LIQUIDITY AND CAPITAL RESOURCES
CAPITAL EXPENDITURES PROGRAM
In 1998 capital expenditures, including concession fees in connection
with privatization contracts, were $67.2 million, of which $19.9 million was for
the Liberty privatization contract (as discussed below), $2.7 million was for
construction expenditures for the Edison privatization contract and $44.6
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. See "Economic Outlook" for a
discussion of Contract Operations and the acquisition of AWM and AWWM. These
estimates do not include any amounts for possible additional acquisitions or
privatization activities in the three-year period
REGULATED UTILITIES SEGMENT
ELIZABETHTOWN
While Elizabethtow'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 later in 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 of the aquifer. Mount Holly designed a
project to obtain water from outside the affected part of the aquifer for
delivery into the Mount Holly system. In August 1998 the New Jersey Board of
Public Utilities (BPU) adopted a Stipulation among Mount Holly and other parties
concluding that this project (the "Mansfield Project") is the most cost-
effective method for Mount Holly to comply with the state regulations.
To settle an appeal initiated by New Jersey-American Water Company (NJAM)
concerning the diversion rights for the Mansfield Project, Mount Holly signed a
Stipulation with NJAM, the New Jersey Department of Environmental Protection
(DEP) and other parties, requiring Mount Holly to purchase one million gallons
per day from NJAM during the period that the Mansfield Project is being
constructed. Purchases began during March of 1998, after completion of an
interconnection.
In September 1997 Mount Holly filed a petition with the BPU to establish a
Purchased Water Adjustment Clause (PWAC) to reflect the cost of water purchased
from NJAM under the agreement discussed above. On May 27, 1998, the BPU adopted
a Stipulation signed by the parties to the PWAC case for an increase in annual
revenues under Mount Holly's PWAC of $1.3 million or 38.9%. Mount Holly deferred
the increase in purchased water cost between March 19 and May 27 as other
unamortized expenses. Recovery of this amount has been requested in the rate
increase discussed below. As of December 31, 1998, Mount Holly has deferred $.1
million of these costs.
Mount Holly filed for a rate increase in January 1999 to reflect a portion of
these expenditures, as well as to increase the rates of return realized and,
therefore, the contribution to E'town's earnings per share.
AWWM
In 1998 E'town exercised an option to acquire the Applied Wastewater Group
(AWG), its joint venture partner for the past three years, in a stock-for-stock
transaction. E'town established new subsidiaries, AWM and AWWM, which offer
"one-stop shopping" for water and wastewater services to residential and
commercial developers. These services include the design, construction and
operation by AWM 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. 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
Effective July 1, 1998, E'town, through Liberty, has 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 June 1999 and $19
million in June 2000, which have been included in non-utility property and other
investments as concession fees on privatization contracts, net of amortization.
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.
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. E'town paid the township $6.3 million at closing in concession
fees and 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.
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 in the first half of 1999 to repay
short-term debt incurred to finance concession fees for Liberty.
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%.
In December 1997 E'town signed an agreement to issue $12 million of 6.79% Senior
Notes due December 15, 2007. E'town issued $4 million of these notes in December
1997, $6 million in January 1998 and $2 million in May 1998. The proceeds were
used to finance capital additions for Edison as well as to meet working capital
needs.
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.
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. As of December 31,
1998, a hypothetical single percentage point change in interest rates would
result in a $.9 million change in interest costs and earnings before tax related
to short-term and variable rate debt.
RESULTS OF OPERATIONS
NET INCOME for 1998 was $22.3 million or $2.70 per share on a basic basis as
compared to $19.3 million or $2.44 per share for 1997. Net income increased by
$3.1 million or $.26 per share, comprised of (i) $.6 million or $.07 per share
due to an extended dry period in the summer of 1998 resulting in higher water
consumption than in 1997 (ii) $1.1 million or $.13 per share was from lower
operating expenses due to a combination of a mild winter in 1998, more efficient
use of our work force, lower employee benefit costs and success with our ongoing
cost control efforts and (iii) earnings of $.5 million or $.06 per share from
the Contract Operations and Engineering/Operations/Construction segments, which
are new operations. Capitalized construction interest accounted for an increase
in net income of $.5 million or $.06 per share. These increases in earnings per
share were partially offset by an increase in the number of outstanding shares.
Net Income for 1997 was $19.3 million or $2.44 per share on a basic basis as
compared to $15.1 million or $1.96 per share for 1996. The increase in net
income and earnings per share from the Regulated Utilities segment is
attributable to the $21.8 million rate increase for the new Canal Road Water
Treatment Plant (Plant) in October 1996, which was offset by the operating and
financing costs of the Plant. Net income also increased $1.4 million, or $.17
per share, primarily due to variations in the weather, specifically the dry
summer of 1997, as compared to the wet summer of 1996.
OPERATING REVENUES increased $11.7 million or 8.7% in 1998 over the comparable
1997 amount. The increase from the Regulated Utilities segment is primarily
comprised of $1.4 million from water service to residential and wholesale
customers attributable to increased water consumption as a result of warmer,
drier weather in the summer of 1998 than in 1997. The revenue increase includes
$3.3 million (net of intercompany sales) from the Contract Operations segment,
comprised of Edison and Liberty. The Engineering/ Operations/Construction
segments, comprised of AWM, contributed $5.2 million to operating revenues. New
customers and the PWAC rate increase for Mount Holly account for the remainder
of the increase.
Operating Revenues increased $23.4 million or 21.2% in 1997 over the comparable
1996 amount. The increase is primarily comprised of $17.7 million from a rate
increase for Elizabethtown effective October 1996, $1.5 million from the
operation of Edison Water Company (net of water purchased from Elizabethtown)
and $3.1 million from increased water consumption due to the dry summer of 1997.
OPERATION EXPENSES increased $5.9 million or 12.2% in 1998 over 1997. The
operating expenses (net of intercompany expenses) of the Contract Operations and
Engineering/ Operations/Construction segments, which are newly established
businesses, accounted for $7.1 million of the increase. The Regulated Utilities
segment experienced decreases of $1.0 million from lower operating costs due to
a mild winter, greater work force utilization, ongoing cost control efforts and
decreased employee benefit costs. These decreases were partially offset by
increased cost of labor, purchased water for Mount Holly and variable costs for
the higher water sales.
Operation expenses increased $3.2 million or 7.1% in 1997 over the comparable
1996 amount. An increase of $.9 million resulted from the operations of Edison
Water Company, which was formed in July 1997. Increases resulting from variable
costs associated with the increase in water consumption totaled $.3 million.
Other increases included costs associated with Applied Watershed Management
(E'town's joint venture) of $.5 million and labor costs of $.6 million.
The remainder of the increase is attributable to various items,
including operating costs for the Plant, information technology and other
administrative costs.
MAINTENANCE EXPENSES decreased $.1 million or 1.0% in 1998, as compared to 1997
due to improved procurement procedures and preventive maintenance programs.
Maintenance expenses increased $.7 million or 12.7% in 1997 over the comparable
1996 amount. This increase is primarily attributable to costs associated with
the maintenance of the Plant. The increase also includes $.4 million related to
the costs of determining the most cost-effective method for disposing of
byproducts generated from the water treatment process at the Raritan-Millstone
Plant.
DEPRECIATION AND AMORTIZATION EXPENSE increased $1.3 million or 10.4% in 1998
compared to 1997 of which $.9 million represents amortization of initial
concession fees and capital expenditures for the Contract Operation segment. The
balance represents depreciation on utility plant additions for the Regulated
Utility segment.
Depreciation and amortization expense increased $2.5 million or 25.3% in 1997
compared to 1996. The increase includes $2.1 million for the Plant and $.8
million for other utility plant additions. A decrease of $.6 million resulted
from Elizabethtown no longer being required by the BPU to depreciate utility
plant acquired through Contributions In Aid of Construction and Customers'
Advances for Construction. This change was agreed to by the parties to
Elizabethtown's last rate case effective in October 1996.
REVENUE TAXES increased $.2 million or 1.2% in 1998 and $2.7 million or 19.8% in
1997 due to the taxes on increases in operating revenues discussed above.
REAL ESTATE, PAYROLL AND OTHER TAXES decreased $.1 million or 4.0% in 1998. This
overall decrease was comprised of additional payroll taxes due to additional
labor costs, which were offset by decreases from lower-than-anticipated property
taxes on the Plant. These taxes increased $.2 million or 6.8% in 1997 due to
additional labor costs, as well as additional property taxes.
FEDERAL INCOME TAXES as a component of operating expenses increased $1.2 million
or 11.4% and $3.7 million or 54.4% as compared to 1997 and 1996, respectively,
due to the changes in the components of taxable income for all segments
discussed herein.
OTHER INCOME (EXPENSE) increased $.2 million or 32.4% due to a $.4 million
increase in Allowance for Funds Used During Construction (AFUDC), primarily for
Elizabethtown's western operations center. Federal income taxes increased $.1
million for the taxes on the AFUDC.
Other income decreased $2.2 million or 73.9% compared to the 1996 amount. A
decrease in the equity component of AFUDC of $3.5 million resulted from no
longer capitalizing the financing costs associated with the Plant as the
facility was placed in service in October 1996. An increase of $.2 million for
other miscellaneous items, as well as the offsetting federal income taxes
associated with the Other Income (Expense), account for the remainder of the
decrease.
TOTAL INTEREST CHARGES increased $.5 million or 2.8% due to increased borrowing
for utility plant expenditures for the Regulated Utilities segment and for the
concession fee for Liberty. The debt component of AFUDC increased $.3 million,
resulting in lower interest expense, as a result of higher construction
expenditures, primarily for Elizabethtown's new western operations center. This
decrease in interest charges was offset by the absence in 1998 of capitalized
interest on real estate investments for Properties of $.3 million.
Total interest charges increased $4.0 million or 30.2% in 1997 over the
comparable 1996 amount. The increase includes $3.1 million due to a reduction in
capitalized interest as a result of the Plant being placed in service in October
1996. Interest expense also increased due to increased borrowings incurred to
finance capital expenditures, the Edison contract and working capital needs.
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, future acquisitions and
privatization activities, increases in operating expenses due to factors beyond
the Corporation's control, changes in environmental regulation and associated
costs of compliance and other claims or assessments made upon the Corporation.
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 investments
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 a gain on the sale of a parcel of land located in Green
Brook, New Jersey in February 1999 of $2.08 million or approximately $.25 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 ongoing
litigation with NJAM.
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 water supply system of the city of Elizabeth. Liberty
is expected to realize a return on its capital in an amount similar to that
currently earned by E'town's regulated operations.
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 is
particularly interested in opportunities where it may have a competitive
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 $11.3 million at December 31, 1998. 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. 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 or
approximately $.25 per share to be reflected in earnings in the first quarter of
1999. Cash proceeds from this sale of $1.5 million were received in 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 that were effective in 1998.
YEAR 2000
STATE OF READINESS
The Corporation has assessed its significant business systems, as well
as non-critical, peripheral support system for compliance with the Year 2000.
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.
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 SSOCIATED 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 complete
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.
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands Except Per Share Amounts)
Year Ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------
Operating Revenues $ 145,480 $ 133,826 $ 110,409
- ------------------------------------------------------------------------------
Operating Expenses:
Operation 53,844 47,982 44,807
Maintenance 6,539 6,606 5,859
Depreciation and amortization 13,679 12,396 9,893
Revenue taxes 16,743 16,550 13,820
Real estate, payroll and other taxes 3,027 3,152 2,952
Federal income taxes (Note 3) 11,685 10,487 6,791
- ------------------------------------------------------------------------------
Total operating expenses 105,517 97,173 84,122
- ------------------------------------------------------------------------------
Operating Income 39,963 36,653 26,287
- ------------------------------------------------------------------------------
Other Income (Expense):
Allowance for equity funds used during
construction (Note 2) 607 215 3,725
Federal income taxes (Note 3) (541) (408) (1,570)
Other - net 940 953 760
- ------------------------------------------------------------------------------
Total other income (expense) 1,006 760 2,915
- ------------------------------------------------------------------------------
Total Operating and Other Income 40,969 37,413 29,202
- ------------------------------------------------------------------------------
Interest Charges:
Interest on long-term debt 16,217 14,807 13,800
Other interest expense - net 1,641 2,560 2,645
Capitalized interest (Note 2) (470) (438) (3,524)
Amortization of debt discount and expense-net 438 411 395
- ------------------------------------------------------------------------------
Total interest charges 17,826 17,340 13,316
- ------------------------------------------------------------------------------
Income Before Preferred Stock Dividends
of Subsidiary 23,143 20,073 15,886
Preferred Stock Dividends 813 813 813
- ------------------------------------------------------------------------------
Net Income $ 22,330 $ 19,260 $ 15,073
==============================================================================
Earnings Per Share of Common Stock (Note 2):
- ------------------------------------------------------------------------------
Basic $ 2.70 $ 2.44 $ 1.96
Diluted $ 2.66 $ 2.41 $ 1.96
- ------------------------------------------------------------------------------
Average Number of Shares Outstanding for
the Calculation of Earnings Per Share:
- ------------------------------------------------------------------------------
Basic 8,263 7,891 7,668
Diluted 8,567 8,215 7,966
- ------------------------------------------------------------------------------
Dividends Paid Per Common Share $ 2.04 $ 2.04 $ 2.04
==============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
Assets 1998 1997
- ------------------------------------------------------------------------------
Utility Plant-At Original Cost:
Utility plant in service $ 717,985 $ 677,909
Construction work in progress 16,580 9,300
- ------------------------------------------------------------------------------
Total utility plant 734,565 687,209
Less accumulated depreciation and amortization 125,262 114,424
- ------------------------------------------------------------------------------
Utility plant-net 609,303 572,785
- ------------------------------------------------------------------------------
Non-utility Property and Other
Investments - Net (Note 7) 84,945 20,570
- ------------------------------------------------------------------------------
Current Assets:
Cash and cash equivalents 5,909 6,233
Short-term investments 31 31
Customer and other accounts receivable
(less reserve: 1998, $1,065, 1997, $612) 24,720 17,539
Unbilled revenues 12,198 10,412
Infrastructure loan funds receivable (Note 4) 5,895
Materials and supplies-at average cost 2,538 1,966
Prepaid insurance, taxes, other 2,484 3,733
- ------------------------------------------------------------------------------
Total current assets 53,775 39,914
- ------------------------------------------------------------------------------
Deferred Charges (Note 9):
Waste residual management 1,371 936
Unamortized debt and preferred stock expenses 10,050 10,263
Taxes recoverable through future rates (Note 3) 14,226 21,439
Postretirement benefit expense (Note 12) 3,490 3,738
Other unamortized expenses 1,582 1,259
- ------------------------------------------------------------------------------
Total deferred charges 30,719 37,635
- ------------------------------------------------------------------------------
Total $ 778,742 $ 670,904
==============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31,
Capitalization and Liabilities 1998 1997
- ------------------------------------------------------------------------------
Capitalization (Notes 4 and 5):
Common shareholders' equity $ 215,472 $ 193,923
Mandatory Redeemable Cumulative Preferred Stock 12,000 12,000
Redeemable preferred stock 227
Long-term debt - net 286,908 247,298
- ------------------------------------------------------------------------------
Total capitalization 514,607 453,221
- ------------------------------------------------------------------------------
Current Liabilities:
Notes payable - banks (Note 6) 44,022 23,000
Long-term debt - current portion (Note 4) 30 30
Accounts payable and other liabilities 19,469 11,569
Contract obligations payable 12,000
Customers' deposits 248 272
Municipal and state taxes accrued 16,789 16,817
Interest accrued 3,675 3,456
Preferred stock dividends accrued 59 59
- ------------------------------------------------------------------------------
Total current liabilities 96,292 55,203
- ------------------------------------------------------------------------------
Deferred Credits:
Customers' advances for construction 41,102 39,131
Federal income taxes (Note 3) 66,487 69,916
State income taxes 207 196
Unamortized investment tax credits 7,839 8,042
Accumulated postretirement benefits (Note 12) 4,090 4,332
- ------------------------------------------------------------------------------
Total deferred credits 119,725 121,617
- ------------------------------------------------------------------------------
Contributions in Aid of Construction 48,118 40,863
- ------------------------------------------------------------------------------
Commitments and Contingent Liabilities (Note 11)
- ------------------------------------------------------------------------------
Total $ 778,742 $ 670,904
==============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CAPITALIZATION
(In Thousands Except Share Amounts)
December 31,
1998 1997
- ------------------------------------------------------------------------------
Common Shareholders' Equity:
E'town Corporation:
Common stock without par value, authorized,
15,000,000 shares, issued 1998, 8,504,344 shares;
1997, 8,054,461 share $ 169,324 $ 153,162
Paid-in capital 1,315 1,315
Capital stock expense (5,160) (5,160)
Retained earnings 50,961 45,560
Less cost of treasury stock; 1998, 32,554 shares;
1997, 32,208 shares (968) (954)
- ------------------------------------------------------------------------------
Total common shareholders' equity 215,472 193,923
- ------------------------------------------------------------------------------
Preferred Shareholders' Equity (Note 4)
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
- ------------------------------------------------------------------------------
Total preferred shareholders' equity 12,227 12,000
- ------------------------------------------------------------------------------
Long-Term Debt (Notes 4 and 8):
E'town Corporation:
6 3/4% Convertible Subordinated Debentures, due 2012 10,499 11,354
6.79% Senior Notes, due 2007 12,000 4,000
Liberty Water Company:
Contract Obligations Payable 19,000
Applied Wastewater/Applied Water Management:
Notes Payable 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
New Jersey Department of Environmental Protection Notes 5,895
Notes Payable (due serially through 2000) 30 57
- ------------------------------------------------------------------------------
Total long-term debt 287,980 248,411
Unamortized (discount) premium-net (1,072) (1,113)
- ------------------------------------------------------------------------------
Total long-term debt-net 286,908 247,298
- ------------------------------------------------------------------------------
Total Capitalization $ 514,607 $ 453,221
==============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
(In Thousands Except Share Amounts)
Year Ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------
Common Stock:
Balance at Beginning of Year $ 153,162 $ 145,661 $ 138,668
Common stock issued under Dividend Reinvestment
and Stock Purchase Plan (1998, 213,568 shares;
1997, 227,992 shares; 1996, 258,673 shares) 7,861 6,980 6,993
Redemption of Convertible Debentures (1998,
18,100 shares) 724
Issuance of restricted stock under compensation
programs (1998, 9,590 shares; 1997, 4,033 shares) 332 123
Issuance of restricted stock for acquisitions
(1998, 186,310 shares) (Note 7) 6,653
Exercise of stock options (1998, 22,315 shares;
1997, 14,685 shares) 592 398
- ------------------------------------------------------------------------------
Balance at End of Year 169,324 153,162 145,661
- ------------------------------------------------------------------------------
Paid-in Capital: 1,315 1,315 1,315
- ------------------------------------------------------------------------------
Capital Stock Expense: (5,160) (5,160) (5,160)
- ------------------------------------------------------------------------------
Retained Earnings:
Balance at Beginning of Year 45,560 42,434 42,995
Net Income 22,330 19,260 15,073
Dividends on common stock (1998, 1997 and
1996, $2.04) (16,929) (16,134) (15,634)
- ------------------------------------------------------------------------------
Balance at End of Year 50,961 45,560 42,434
- ------------------------------------------------------------------------------
Treasury Stock:
Balance at Beginning of Year (954) (737) (737)
Cost of shares redeemed to exercise stock
options (1998, 346 shares; 1997, 6,332 shares) (14) (217)
- ------------------------------------------------------------------------------
Balance at End of Year (968) (954) (737)
- ------------------------------------------------------------------------------
Total Common Shareholders' Equity $ 215,472 $ 193,923 $ 183,513
==============================================================================
See Notes to Consolidated Financial Statements.
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands)
Year Ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------
Cash Flows Provided by Operating Activities:
Net Income $ 22,330 $ 19,260 $ 15,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 13,679 12,396 9,893
(Increase) decrease in deferred charges (736) 699 (638)
Deferred income taxes and investment tax
credits-net 3,592 2,778 4,917
Capitalized interest and AFUDC (1,077) (653) (7,249)
Other operating activities-net (1,227) 382 305
Change in current assets and current liabilities
excluding cash, short-term investments and
current portion of debt:
Customer and other accounts receivable (7,181) (1,352) (203)
Unbilled revenues (1,786) (1,056) (1,912)
Accounts payable and other liabilities 7,876 (4,656) (634)
Accrued/prepaid interest and taxes 1,440 3,088 (1,755)
Other (572) 99 (133)
- ------------------------------------------------------------------------------
Net cash provided by operating activities 36,338 30,985 17,664
- ------------------------------------------------------------------------------
Cash Flows Provided by Financing Activities:
Proceeds from issuance of common stock 9,163 7,284 6,993
Funds held in Trust by others (7,234)
Proceeds from issuance of debentures 54,000
Debt and preferred stock issuance and
amortization costs 213 (755) 430
Issuance of other of long-term debt 15,295
Repayment of long-term debt (1,381) (224) (233)
Contributions and advances for construction-net 9,226 4,759 2,521
Net increase (decrease) in notes
payable - banks 21,022 (46,000) 42,000
Dividends paid on common stock (16,929) (16,134) (15,634)
- ------------------------------------------------------------------------------
Net cash flows provided by
financing activities 29,375 2,930 36,077
- ------------------------------------------------------------------------------
Cash Flows Used for Investing Activities:
Utility plant and other capital expenditures
(excluding allowance for funds used
during construction) (44,634) (24,612) (55,125)
Purchase of privatization contracts (19,856) (5,810)
Capital expenditures on privatization contracts (2,747) (717)
Proceeds from sale of land 1,200 440
Development costs of land (excluding
capitalized interest) (211) (313)
- ------------------------------------------------------------------------------
Net cash flows used for investing activities (66,037) (30,910) (55,438)
- ------------------------------------------------------------------------------
Net (Decrease) Increase in Cash
and Cash Equivalents (324) 3,005 (1,697)
Cash and Cash Equivalents at
Beginning of Period 6,233 3,228 4,925
- ------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Period $ 5,909 $ 6,233 $ 3,228
==============================================================================
Supplemental Disclosures of Cash
Flow Information:
Cash paid during the year for:
Interest (net of amount capitalized) $ 16,532 $ 16,719 $ 8,966
Income taxes $ 7,723 $ 6,023 $ 5,723
Preferred stock dividends $ 708 $ 708 $ 708
- ------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
<PAGE>
1. ORGANIZATION
E'town Corporation (E'town or Corporation), a New Jersey holding company, is the
parent company of Elizabethtown Water Company (Elizabethtown or Company), E'town
Properties, Inc. (Properties), Edison Water Company (Edison), Liberty Water
Company, (Liberty), Applied Water Management, Inc. (AWM) and Applied Wastewater
Management, Inc. (AWWM). The Mount Holly Water Company (Mount Holly) is a wholly
owned subsidiary of Elizabethtown.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include E'town and its subsidiaries.
Significant intercompany accounts and transactions have been eliminated.
Elizabethtown and Mount Holly are regulated water utilities. AWWM is a regulated
wastewater utility. All three companies follow the Uniform System of Accounts,
as adopted by the New Jersey Board of Public Utilities (BPU).
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions.
These estimates and assumptions 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.
UTILITY PLANT AND DEPRECIATION
Income is charged with the cost of labor, materials and other expenses incurred
in making repairs and minor replacements, and in maintaining the properties.
Utility plant accounts are charged with the cost of improvements and major
replacements of property. When depreciable property is retired or otherwise
disposed of, the cost thereof, plus the cost of removal net of salvage, is
charged to accumulated depreciation.
Depreciation is generally computed on a straight-line basis at functional rates
for all classes of assets. The provision for depreciation, as a percentage of
average depreciable property, was 1.81% for 1998, 1.85% for 1997 and 1.73% for
1996.
ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION
Elizabethtown, Mount Holly and AWWM capitalize, as an appropriate cost of
utility plant, an Allowance for Funds Used During Construction (AFUDC), which
represents the cost of financing major projects during construction. AFUDC, a
non-cash credit on the Statements of Consolidated Income, is added to the
construction cost of the project and included in rate base and then recovered
through depreciation charges in rates during the assets' useful lives. AFUDC is
comprised of a debt component (credited to Interest Charges) and an equity
component (credited to Other Income) in the Statements of Consolidated Income.
AFUDC totaled $1.08 million, $.38 million and $6.93 million for 1998, 1997 and
1996, respectively. AFUDC in 1996 was larger than other years due to the
construction of Elizabethtown's Canal Road Water Treatment Plant.
NON-UTILITY PROPERTY
Ongoing costs associated with real estate parcels are being expensed, as
incurred. Properties had capitalized direct costs, real estate taxes and
interest costs associated with certain real estate parcels as they were being
developed. All the parcels were available for sale as of November 1997 and
therefore, no interest was capitalized in 1998. The amount of interest
capitalized for 1997 and 1996 was $.27 million and $.32 million, respectively
(see Note 7).
REVENUES
Water revenues are recorded based on the amounts of water delivered to customers
through the end of each accounting period. This includes an accrual for unbilled
revenues for water delivered from the time meters were last read to the end of
the respective accounting periods.
The construction division of AWM engages in fixed-price and modified fixed-price
contracts for the construction of wastewater facilities. These revenues are
recognized on the percentage-of-completion method, measured by the cost-to-cost
method.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as tools and vehicle costs. Selling,
general and administrative costs are charged to expense as incurred.
FEDERAL INCOME TAXES
E'town files a consolidated federal tax return. Deferred income taxes are
provided for temporary differences between the bases of assets and liabilities
for tax and financial statement purposes for the non-regulated companies.
Deferred income taxes are also provided for each regulated water utility to the
extent permitted by the BPU. The regulated water utilities account for prior
years' investment tax credits by the deferral method, which amortizes the
credits over the lives of the respective assets. The non-regulated companies
utilize the flow-through method to account for investment tax credits. This
method treats the credits as a reduction of federal income taxes in the year the
credits arise.
CUSTOMERS' ADVANCES FOR CONSTRUCTION AND CONTRIBUTIONS
IN AID OF CONSTRUCTION
Customers' Advances for Construction (CAC) and Contribu-tions in Aid of
Construction (CIAC) represent capital provided by developers for main extensions
to new real estate developments. Some portion of CAC is refunded based upon the
revenues that the new developments generate. CIAC also represents CAC that,
under the terms of individual main extension agreements, are no longer subject
to refund.
SHORT-TERM INVESTMENTS
Short-term investments are stated at cost, which approximates market value.
EARNINGS PER SHARE OF COMMON STOCK
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 (see Note 5). The
calculations of basic and diluted earnings per share for the three years ended
December 31, 1998 follow:
(thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Basic:
Net Income $ 22,330 $ 19,260 $ 15,073
Average common shares
outstanding 8,263 7,891 7,668
- --------------------------------------------------------------------------------
Basic earnings per share $ 2.70 $ 2.44 $ 1.96
================================================================================
Diluted:
Net income $ 22,330 $ 19,260 $ 15,073
After tax interest expense
applicable to 6 3/4%
Convertible Subordinated
Debentures 488 500 513
- --------------------------------------------------------------------------------
Adjusted net income $ 22,818 $ 19,760 $ 15,586
- --------------------------------------------------------------------------------
Average common shares
outstanding 8,263 7,891 7,668
Additional shares from
assumed exercise of stock
options 42 40 6
Additional shares from
assumed conversion of
6 3/4% Convertible
Subordinated Debentures 262 284 292
- --------------------------------------------------------------------------------
Average common shares
outstanding as adjusted 8,567 8,215 7,966
- --------------------------------------------------------------------------------
Diluted earnings per share $ 2.66 $ 2.41 $ 1.96
================================================================================
CASH EQUIVALENTS
The Corporation considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards (SFAS) No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. The pronouncement requires disclosure of
selected information about operating segments in interim financial reports.
Although the Corporation did not meet the earnings or assets thresholds of SFAS
No. 131 in 1998, which would require segment reporting, it is expected the
Corporation will be required to report its various segments in 1999. Therefore,
the Corporation has reported such segment information in 1998 in anticipation of
meeting the requirements (see Note 14).
In February 1998 the FASB issued SFAS No. 132 "Employers' Disclosures about
Pensions and Other Postretirement Benefits," effective for fiscal years
beginning after December 15, 1997. The pronouncement revises certain disclosure
requirements for pension and other postretirement plans but does not change the
measurement or recognition of expenses under those plans. The pronouncement
standardizes the disclosure requirements for pensions and other postretirement
benefit obligations to the extent practicable; requires additional information
on changes in the benefit obligations and fair values of plan assets that will
facilitate financial analysis; and eliminates disclosures that are no longer
useful. E'town has adopted these new disclosure requirements for the year ended
December 31, 1998 (see Note 12).
In March 1998 the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP is effective for
fiscal years beginning after December 15, 1998, and establishes criteria for
capitalizing certain internal use software costs. Adoption of the SOP will not
have an effect on the Corporation's financial statements.
In April 1998 the AICPA issued SOP 98-5, "Reporting on the Costs of Start-Up
Activities" which is effective for fiscal years beginning after December 15,
1998, and provides guidance on the expensing of costs of start-up activities as
these costs are incurred. E'town adopted this SOP in January 1998 and as a
result has recognized an expense of less than $.1 million for such start-up
costs in these financial statements. All expenditures for start-up costs during
1998 have been expensed as incurred.
In June 1998 the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activity." This Statement must be adopted by the quarter
ended March 31, 2000. The Corporation does not believe this Statement will have
any impact on its financial statements.
In June 1997 the FASB issued SFAS 130, "Reporting Comprehensive Income," which
is effective for fiscal years beginning after December 15, 1997. SFAS 130
dictates that all items required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement
displayed with the same prominence as other financial statements. It also
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
E'town adopted SFAS 130 effective January 1, 1998. The effects of adoption of
SFAS 130 are not material for E'town.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
3. FEDERAL INCOME TAXES
The computation of federal income taxes and the reconciliation of the tax
provision computed at the federal statutory rate (35%) with the amount reported
in the Statements of Consolidated Income follow:
(thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Tax expense at statutory rate $ 12,378 $ 10,843 $ 8,486
Items for which deferred taxes
are not provided:
Difference between book
and tax depreciation 63 58 132
Other (12) 197 (55)
Investment tax credits (203) (203) (202)
- --------------------------------------------------------------------------------
Provision for federal income taxes $ 12,226 $ 10,895 $ 8,361
================================================================================
The provision for federal
income taxes is comprised
of the following:
Current $ 8,301 $ 6,759 $ 3,249
Tax on main extension
refunds 525 1,369 207
Deferred:
Tax depreciation 3,086 2,670 3,333
Capitalized interest 91 114 1,375
Main cleaning and lining 796 612 587
Other (189) (426) (186)
Investment tax credits - net (203) (203) (204)
Refund from IRS (181)
- --------------------------------------------------------------------------------
Total provision $ 12,226 $ 10,895 $ 8,361
================================================================================
Elizabethtown and Mount Holly provide deferred taxes at the enacted statutory
rate for all temporary differences between the financial statement carrying
amounts and the tax bases of existing assets and liabilities irrespective of the
treatment for rate-making purposes. Management believes it is probable that the
accumulated tax benefits that previously have been treated as a flow-through
item to Elizabethtown and Mount Holly's customers will be recovered from utility
customers in the future. Accordingly, offsetting regulatory assets were
established. At December 31, 1998, Elizabethtown and Mount Holly had deferred
tax liabilities of $13.7 million and $.5 million, respectively. There were also,
at December 31, 1998, offsetting regulatory assets for the same amounts
representing the future revenue expected to be recovered through rates based
upon established regulatory practices which permit recovery of current taxes
payable. These amounts were determined using the enacted federal income tax rate
of 35% and were calculated in accordance with SFAS No. 109.
The tax effect of significant temporary differences representing deferred income
tax assets and liabilities as of December 31, 1998 and 1997 is as follows:
(thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Water utility plant - net $ (47,538) $ (43,611)
Non-utility property 251 25
Other investments (787) (833)
Taxes recoverable through
future rates (14,226) (21,439)
Prepaid pension expense 2 103
Capitalized interest (3,983) (3,891)
Waste residuals (480) (322)
Other assets 560 429
Other liabilities (286) (377)
- --------------------------------------------------------------------------------
Net deferred income tax liabilities $ (66,487) $ (69,916)
================================================================================
4. CAPITALIZATION
E'town routinely makes equity contributions to Elizabethtown,
which represent the proceeds of common stock issued under E'town's Dividend
Reinvestment and Stock Purchase Plan (DRP). Such equity contributions amounted
to $7.86 million for the year ended December 31, 1998.
E'town also issued $6.65 million (186,310 shares) of common stock for the
purchase of Applied Wastewater General Partnership (AWG) (see Note 7).
The Corporation maintains a Shareholder' Rights Plan (Rights Plan). Generally,
under the Rights Plan, if a person or group acquires 10% or more of the
Corporation's common stock or announces a tender offer for the Corporation's
common stock, non-acquiring shareholders may, under certain circumstances,
exercise rights (Rights) to allow them to significantly increase their
percentage of ownership of the Corporation's common stock. Such Rights may be
redeemed by the Board of Directors.
PREFERRED STOCK
Elizabethtown's $5.90 Mandatory Redeemable Cumulative Preferred Stock is not
redeemable at the option of the Company. Elizabethtown is required to redeem the
entire issue at $100 per share on March 1, 2004.
AWWM's no par value, non-cumulative preferred stock is redeemable at the option
of the Corporation.
LONG-TERM DEBT
Elizabethtown's long-term debt indentures restrict the amount of retained
earnings available to Elizabethtown to pay cash dividends (which is the primary
source of funds available to the Corporation for payment of dividends on its
common stock) or acquire Elizabethtown's common stock, all of which is held by
E'town. At December 31, 1998, $7.56 million of Elizabethtown's retained earnings
were restricted under the most restrictive indenture provision. Therefore,
$43.40 million of E'town's consolidated retained earnings were unrestricted.
In October 1998 E'town filed a registration statement on Form S-3 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 in the first half of 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 (see Note 7).
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 10).
In December 1997 E'town signed an agreement to issue $12 million of 6.79% Senior
Notes due December 15, 2007. E'town issued $4 million of these notes in December
1997, $6 million in January 1998 and $2 million in May 1998. The proceeds were
used to finance capital additions for Edison as well as to meet working capital
needs. The 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 December 31, 1998, the fixed charges coverage ratio
was 2.8 to 1 and the debt to total capitalization ratio was .63 to 1, calculated
in accordance with the agreement.
In June 1997 Elizabethtown issued a total of $50 million of 30-year Variable
Rate Debentures due December 2027, $25 million of Series A and $25 million of
Series B, to evidence a like amount of Variable Rate Notes issued through the
New Jersey Economic Development Authority (NJEDA). The proceeds were used to
repay $50 million of balances outstanding under Elizabethtown's revolving credit
agreement. The NJEDA Notes are remarketed on a weekly basis, at which time the
interest rates on each issue are subject to change. The rates in effect as of
December 31, 1998, were 3.90% for Series A and 3.85% for Series B.
E'town's 6 3/4% Convertible Subordinated Debentures are convertible to E'town
common stock at $40 per share. At December 31, 1998, 262,475 shares of common
stock were reserved for issuance upon exercise of the conversion rights.
Liberty is obligated, under its contract with the city of Elizabeth, to make
installment payments of $12 million in June 1999, which has been recorded as
Contract Obligations Payable, and $19 million in June 2000, which has been
recorded as Long-term Debt in the financial statements (see Note 7).
5. PERFORMANCE STOCK PLAN AND STOCK OPTION PLAN
The Corporation has a Performance Stock Plan whereby, restricted stock is
awarded to key employees and is amortized over three years as compensation
expense. The Corporation recognized compensation expense of less than $.1
million for each of the three years ended December 31, 1998. The individual
share prices of restricted shares issued for 1998 and 1997 were $34.56 and
$30.50, respectively. No restricted shares were issued in 1996.
E'town has a Stock Option Plan, a qualified incentive plan, under which options
to purchase shares of E'town's common stock have been granted to key employees
at prices not less than the fair market value at the date of grant. The Stock
Option Plan provides that options may be exercised at any time after one year up
to an expiration date, not to exceed 10 years from the date of grant. There were
22,315 and 14,685 options exercised in 1998 and 1997, respectively, and none in
1996. There were 1,000 and 2,000 options forfeited in 1998 and 1997,
respectively, and none in 1996.
A summary of the details of stock option grants and
outstanding balances is presented below:
Year Options Option Options Outstanding
Granted Granted Price 12/31/98 12/31/97 12/31/96
----------------------------------------------------------
1989 7,500 $24.67 2,200 7,500 7,500
1990 7,500 $26.67 7,500 7,500 7,500
1995 77,000 $27.12 44,300 60,315 77,000
1996 4,000 $26.87 2,000 4,000 4,000
1997 25,000 $29.75 25,000 25,000
1998 4,000 $41.00 4,000
----------------------------------------------------------
Total 85,000 104,315 96,000
==========================================================
In connection with the adoption of SFAS 123 "Accounting for Stock-Based
Compensation," which was effective in 1996, the Corporation elected to continue
to account for its Stock Option Plan using the method prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
provide proforma disclosure of the effect of adopting SFAS 123. The effect of
accounting for options under SFAS 123 would be to reduce earnings by $.03
million, $.06 million and less than $.01 million for 1998, 1997 and 1996,
respectively, and $.004, $.008 and $.0003 per share for 1998, 1997 and 1996,
respectively. The actual fair values of individual options granted for 1998,
1997 and 1996 were $5.14, $3.38 and $1.09, respectively. This calculation was
based upon the Black-Scholes option pricing model. The assumptions used in the
option pricing model for 1998, 1997 and 1996, respectively were as follows:
expected volatility 30%, 30% and 8.3%; dividend yield 4.3%, 6.5% and 7.4%. The
risk-free interest rate used for each of the three years was 7%.
6. 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 as of December 31, 1998. 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.
Information relating to bank borrowings for 1998, 1997 and 1996
is as follows:
(thousands of dollars) 1998 1997 1996
- --------------------------------------------------------------------------------
Maximum amount outstanding $ 44,000 $ 69,500 $ 69,000
Average monthly amount outstanding $ 26,238 $ 43,525 $ 45,240
Average interest rate at year end 5.9% 6.2% 5.7%
Compensating balances at year end $ 0 $ 0 $ 0
Weighted average interest rate based
on average daily balances 6.0% 5.8% 5.8%
7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS
The detail of amounts included in Non-Utility Property and Other Investments at
December 31 is as follows :
(thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Concession fees on privatization
contracts - net of amortization $ 55,505 $ 5,594
Capital assets for privatization
contracts - net of amortization 3,341 700
Investments in real estate 11,341 12,788
Funds held in trust by others 7,234
Goodwill on AWM and AWWM
acquisitions - net of amortization 5,401
Investment in SEGS 1,214 1,330
Other capital assets 637
Other 272 158
- --------------------------------------------------------------------------------
Total $ 84,945 $ 20,570
================================================================================
Effective July 1, 1998, E'town, through Liberty, has 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 June 1999 and $19
million in June 2000, which have been included in Concession Fees on
Privatization contracts, net of amortization ($31 million representing a
non-cash transaction in 1998). 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
are the receivables from the customers of Elizabeth for wastewater services in
the amount of $3.37 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. Of the total,
approximately $3.61 million is expected to be expended in the next three years
of the contract. An initial payment of $5.7 million was made upon the closing in
June 1997 and has been included in concession fees on privatization contracts,
net of amortization. Performance by Edison of the contract provisions is
guaranteed by E'town.
Also included in Non-Utility Property and Other Investments at December 31,
1998, and 1997 is $11.34 million and $12.79 million, respectively, of
investments in various parcels of undeveloped land in New Jersey.
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. 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 1999 and the
remaining $4.33 million was financed with a 7.75% mortgage, to be paid over two
years. The gain will be reflected in earnings in the first quarter of 1999. 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
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 December 31, 1998.
In 1995 the Corporation entered into a three-year joint venture agreement with
the Applied Wastewater Group (AWG) to form a New Jersey limited liability
company, Applied Watershed Management, LLC. AWG was a unit of several privately
held and affiliated companies providing design, engineering, construction and
operating services for water and wastewater facilities. E'town exercised an
option to purchase the operations of AWG to provide a full complement of water
and wastewater services and consequently closed on the transaction 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 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. Had the
acquisition been consummated as of January 1, 1997, the pro-forma effect on
revenues, net income and earnings per share for the years ended December 31,
1998, and 1997 would be immaterial. A calculation of the net assets acquired in
the AWG transaction is as follows:
(thousands of dollars)
- --------------------------------------------------------------------------------
Working capital $ 1,171
Goodwill 5,460
Utility plant in service - net of CIAC 427
Other property and investments 572
Long-term debt (750)
Preferred equity (227)
- --------------------------------------------------------------------------------
Net assets acquired $ 6,653
================================================================================
Included in Non-Utility Property and Other Investments at December 31, 1998, and
1997 is an investment of $1.21 million and $1.33 million, respectively, ($.43
million and $.30 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. FINANCIAL INSTRUMENTS
The carrying amounts and the estimated fair values, as of December 31, 1998, and
1997, of financial instruments issued or held by the Corporation are as follows:
(thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Short-term investments:
Carrying amount $ 31 $ 31
Estimated fair value 69 59
Cumulative preferred stock:
Carrying amount $ 12,227 $ 12,000
Estimated fair value 13,247 11,760
Long-term debt:
Carrying amount $ 267,908 $ 247,298
Estimated fair value 280,630 254,599
Estimated fair values are based upon quoted market prices for these or similar
securities.
9. REGULATORY ASSETS AND LIABILITIES
Certain costs incurred by Elizabethtown and Mount Holly, which have been
deferred, have been recognized as regulatory assets and are being amortized over
various periods, as set forth below:
(thousands of dollars) 1998 1997
- --------------------------------------------------------------------------------
Waste residual management $ 1,371 $ 936
Unamortized debt and preferred stock expense 9,368 9,656
Taxes recoverable through future rates (Note 3) 14,226 21,439
Postretirement benefit expense (Notes 10 and 12) 3,490 3,738
Safety management expense 245 331
Business process redesign 210 284
Rate case expenses 7 80
PWAC under (over) recovery 305 (8)
- --------------------------------------------------------------------------------
Total $ 29,222 $ 36,456
================================================================================
WASTE RESIDUAL MANAGEMENT
The costs of disposing of the byproducts generated by Elizabethtown's and Mount
Holly's water treatment plants are being amortized and recovered in rates over
three- and five-year periods, respectively, for ratemaking and financial
statement purposes. No return is being earned on the deferred balances related
to these programs.
UNAMORTIZED DEBT AND PREFERRED STOCK EXPENSES
Costs incurred in connection with the issuance or redemption of long-term debt
have been deferred and are being amortized and recovered in rates over the lives
of the respective issues for ratemaking and financial statement purposes. Costs
incurred in connection with the issuance and redemption of preferred stock have
been deferred and are being amortized and recovered in rates over a 10-year
period for ratemaking and financial statement purposes.
OTHER
Safety management expenses and business process redesign expenses relate to
studies undertaken by the Company and are being amortized and recovered in rates
over five years.
PURCHASED WATER ADJUSTMENT CLAUSE
In 1994 Elizabethtown established a Purchased Water Adjustment Clause (PWAC), to
reflect the cost of water purchased from the New Jersey Water Supply Authority
(NJWSA). The current rate for the PWAC is zero since the costs of purchased
water were reflected in the 1996 rate case; however, because of the high pumpage
in the summer of 1998, Elizabethtown has underrecovered its purchased water
costs and therefore, has deferred $.23 million as of December 31, 1998. As of
December 31, 1998, Mount Holly has deferred $.08 million of PWAC costs (see Note
10).
RATE CASE EXPENSES
Rate case expenses are being substantially recovered in rates during two-year
periods. There were no regulatory liabilities at December 31, 1998, or 1997.
10. REGULATORY MATTERS
ELIZABETHTOWN
In December 1997 the BPU adopted a Stipulation for rate increases for
Elizabethtown and Mount Holly, effective January 1, 1998, for the full recovery
of costs associated with SFAS No. 106 "Accounting for Employer's Postretirement
Benefits" on an accrual basis less the costs associated with SFAS No. 106
expenses previously recovered in rates. The total increases in annual operating
revenues resulting from these Stipulations are $.39 million for Elizabethtown
and $.02 million for Mount Holly.
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 October 6, 1998, the BPU issued an Order adopting a Stipulation signed by the
parties to Mount Holly's proceeding for a review of the prudency of constructing
a new well field, treatment plant and pipeline to provide an alternate water
source required due to state mandated restrictions. This project is known as the
Mansfield Project. The Stipulation indicated that the Mansfield Project provides
the most cost-effective alternative available to Mount Holly customers for
meeting the requirements for an alternative source of supply for the Mount Holly
system. Effective in March 1998 Mount Holly began purchasing one million gallons
per day from New Jersey-American Water Company (NJAM) and will continue to
purchase this water until the later of January 1, 2000, or the date the
Mansfield Project is placed into service.
In September 1997 Mount Holly filed a petition with the BPU to establish a PWAC
to reflect the cost of water purchased from NJAM under the agreement discussed
above. On May 27, 1998, the BPU adopted a Stipulation signed by the parties to
the PWAC case for an increase in annual revenues under Mount Holly's PWAC of
$1.29 million or 38.9%. Mount Holly has deferred the increase in purchased water
cost between March 19 and May 27 as Other Unamortized Expenses. Recovery of this
amount has been requested in the rate increase discussed below. As of December
31, 1998, Mount Holly has deferred $.08 million of these costs.
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
the 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
the agreement to purchase water from NJAM and the cancellation of the PWAC.
11. COMMITMENTS AND CONTINGENT LIABILITIES
Elizabethtown is obligated, under a contract that expires in 2013, to purchase
from the NJWSA a minimum of 37 billion gallons of water annually. Effective July
1, 1997, the annual cost of water under contract is $7.86 million. The Company
purchases additional water from the NJWSA on an as-needed basis. The total cost
of water purchased from the NJWSA was $8.91 million, $8.79 million and $8.70
million for 1998, 1997 and 1996, respectively.
Mount Holly is obligated, under a contract, to purchase water from NJAM, at a
rate of one million gallons per day until the Mansfield Project is completely in
service in approximately January 2000. The annual cost of the purchased water is
$1.16 million.
In connection with E'town's agreement to operate the water systems of the
township of Edison and the city of Elizabeth, E'town has certain contractual
commitments which are set forth in Note 7.
Capital expenditures of E'town and its subsidiaries are estimated to be $150.43
million, exclusive of concession fees, through 2001, of which $140.96 million is
for Elizabethtown, Mount Holly and AWWM's utility plant and $9.47 million is for
non-utility expenditures.
Expected future minimum rental payments required under noncancelable leases with
terms in excess of one year at December 31 of each of the years 1999 through
2003 are: 1999, $.97 million; 2000, $.99 million; 2001 $1.03 million; 2002, $.90
million and 2003, $.61 million. Rent expense totaled $.83 million, $.72 million
and $.84 million in 1998, 1997 and 1996, respectively.
Elizabethtown and AWM lease vehicles and certain office equipment. The minimum
payments required under noncancelable leases with terms in excess of one year at
December 31 of each of the years 1999 through 2003 are: $1.04 million, $1.04
million, $1.03 million, $1.02 million and $1.02 million. The lease expense for
1998 was $.29 million. There were no lease expenses for 1997 or 1996 as vehicles
were not leased during that time period.
ENVIRONMENTAL, LEGAL AND OTHER MATTERS
There are environmental matters that are inherent in the production,
transmission and distribution of water as well as in the treatment of
wastewater. The Corporation is sensitive to these issues and mitigates the
environmental impact of these activities to the extent required by the laws and
regulations under which these activities are governed and makes efforts to
exceed the regulatory requirements where practical.
The Corporation, in the ordinary course of business, periodically becomes
involved in litigation. There is currently no litigation in progress regarding
environmental or other issues in which an outcome adverse to the Corporation
would have a material impact on the financial statements.
12. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS
PENSION PLAN
Elizabethtown has a trusteed, noncontributory retirement plan, which covers most
employees of Elizabethtown, Mount Holly and Properties.
SUPPLEMENTAL PENSION PLAN
The Corporation also has a supplemental retirement plan for certain management
employees that is not funded. Benefit payments under this plan are made directly
by the Corporation. The unfunded benefit obligation at December 31, 1998, and
1997 was $1.51 million and $1.45 million, respectively.
OTHER POSTRETIREMENT BENEFITS
The Corporation provides certain health care and life insurance benefits for
substantially all of its retired employees. As a result of a contract negotiated
in February 1996 with the Company's bargaining unit, all union and non-union
employees retiring after January 1, 1997, pay 25% of future increases in the
premiums the Company pays for postretirement medical benefits.
Under SFAS No. 106, the costs of postretirement benefits are accrued for each
year the employee renders service, based on the expected cost of providing such
benefits to the employee and the employee's beneficiaries and covered
dependents, rather than expensing these benefits on a pay-as-you-go basis.
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation as of December 31, 1998, and for 1998 was 9%.
This rate decreases linearly each successive year until it reaches 3.8% in 2008,
after which the rate remains constant.
The rate increases effective January 1, 1998, allow for the full recovery of
costs associated with the implementation of SFAS No. 106, including an
amortization over 15 years of amounts previously deferred which were in excess
of amounts previously being recovered in rates. As of December 31, 1998, the
amounts that have been deferred are $3.36 million and $.13 million for
Elizabethtown and Mount Holly, respectively.
Based upon an independent actuarial study, the transition obligation, calculated
under SFAS No. 106, was $7.26 million as of January 1, 1993, the date of
adoption of SFAS No. 106. The transition obligation is being amortized over 20
years.
Other Postretirement
Pension Plans Benefits
(thousands of dollars) 1998 1997 1998 1997
- --------------------------------------------------------------------------------
FUNDED STATUS
Change in benefit obligation during year
Benefit obligation at beginning of year $40,447 $37,524 $ 6,604 $ 6,122
Service cost 1,407 1,322 390 389
Interest cost 2,855 2,734 486 449
Benefit payments (2,092) (1,866)
Actuarial (gain) or loss 3,263 733 458 (356)
- --------------------------------------------------------------------------------
Benefit obligation at end of year 45,880 40,447 7,938 6,604
================================================================================
Change in plan assets during year
Fair value of plan assets at
beginning of year 46,803 40,257 1,331 764
Employer contributions 174 174 731 375
Benefit payments (2,092) (1,866)
Actual return on plan assets 7,268 8,238 109 192
- -------------------------------------------------------------------------------
Fair value of plan assets at end of year 52,153 46,803 2,171 1,331
================================================================================
Reconciliation of funded status at
end of year
Funded status 6,273 6,357 (5,767) (5,273)
Unrecognized net transition (asset)
or obligation (1,365) (1,631) 5,079 5,442
Unrecognized prior service cost 2,415 2,751
Unrecognized net (gain) or loss (7,662) (8,005) (3,063) (3,973)
- --------------------------------------------------------------------------------
Accumulated postretirement benefits* $ (339) $ (528) $ (3,751) $ (3,804)
================================================================================
*Recognized in the Consolidated Balance Sheets
<PAGE>
Other Postretirement
Pension Plans Benefits
(thousands of dollars) 1998 1997 1996 1998 1997 1996
- --------------------------------------------------------------------------------
Net periodic benefit cost
recognized for year
Service cost $ 1,407 $ 1,322 $ 1,341 $ 390 $ 389 $ 423
Interest cost 2,855 2,734 2,771 486 449 430
Expected return on plan assets (4,125) (3,542) (4,569) (109) (57) (72)
Net amortization and deferral (153) 66 1,229 158 140 419
Deferred amount for regulated
companies pending recovery (273) (564)
- --------------------------------------------------------------------------------
Net periodic benefit cost $ (16)$ 580 $ 772 $ 925 $ 648 $ 636
================================================================================
Weighted-average assumptions
for year
Discount rate 7.25% 7.50% 7.00% 7.25% 7.50% 7.00%
Rate of compensation increases 4.00% 4.00% 4.00%
Expected long-term rate of return
on plan assets 9.00% 9.00% 9.00% 9.00% 9.00% 9.00%
Weighted-average assumptions at
end of year
Discount rate 6.75% 7.25% 7.50% 6.75% 7.25% 7.50%
Rate of compensation increases 4.00% 4.00% 4.00%
- --------------------------------------------------------------------------------
A single percentage point increase in the assumed health care cost trend rate
for each year would increase the accumulated postretirement benefit obligation
as of December 31, 1998, and the net postretirement service and interest cost by
approximately $.84 million and $.19 million, respectively.
13. RELATED PARTY TRANSACTIONS
Utility Billing Services, Inc., a subsidiary of NUI Corporation, of which John
Kean, who is an E'town Director, is Chairman of the Board and a Director,
provides data processing and related services to Elizabethtown and other
subsidiaries of the Corporation. The charges for all services totaled $.93
million, $.72 million, and $.65 million, for 1998, 1997 and 1996, respectively.
The current contract expires December 31, 2000. Elizabethtown had a line of
credit in the amount of $10 million with Summit Bank of which Anne Estabrook,
who is Chairman of E'town and Elizabethtown, is a Director, which expired on
June 30, 1998. The Corporation has a line of credit in the amount of $10 million
effective November 1998. At December 31, 1998, E'town had loans outstanding with
Summit Bank in the amount of $2.5 million. Total interest charges paid to Summit
Bank by Elizabethtown and E'town were $.07 million, $.35 million and $.14
million for 1998, 1997 and 1996, respectively. Summit Bank also serves as a bond
trustee for Elizabethtown for which Elizabethtown paid fees of less than $.10
million in 1998, 1997 and 1996.
14. 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
1998 segment data is presented as follows:
Engineering/ Financing
Regulated Contract Operations/ and Elimin-
Utilities Operations Construction Investment ations Total
- --------------------------------------------------------------------------------
(thousands of dollars)
1998
Revenues $134,943 $ 12,126 $ 5,735 - $ (7,324) $145,480
Operating Expenses 95,432 10,968 5,699 $ 635 (7,217) 105,517
Interest Expense 15,619 843 (6) 1,370 - 17,826
Depreciation and
Amortization Expense 12,500 1,035 81 63 - 13,679
Net Income (Loss) 23,871 420 43 (2,192) 188 22,330
Total Assets 688,046 68,539 3,744 44,964 (26,551) 778,742
Total Debt $268,056 $31,000 $ 179 $44,499 $ (774) $342,960
================================================================================
1997
Revenues $131,788 $ 3,330 - $ 512 $ (1,804) $133,826
Operating Expenses 94,722 2,997 - 1,299 (1,845) 97,173
Interest Expense 16,622 167 - 551 - 17,340
Depreciation and
Amortization Expense 12,233 163 - - - 12,396
Net Income (Loss) 20,092 166 - (723) (275) 19,260
Total Assets 646,318 9,020 - 25,230 (9,664) 670,904
Total Debt $249,974 $ 5,841 - $20,354 $ (5,841) $270,328
================================================================================
The Regulated Utilities segment provides water and wastewater services through
Elizabethtown, Mount Holly and AWWM, acquired in June 1998. This segment is
regulated by the BPU.
The Contract Operations segment is comprised of Liberty, formed in July 1998,
and Edison, formed in July 1997, and provides water services under contract to
municipalities.
The Engineering/Operations/Construction segment is comprised of AWM, acquired in
June 1998, and provides engineering, operating and construction services,
primarily in the wastewater field.
The Financing and Investment segment is comprised of Properties and E'town.
E'town provides the equity financing for all the other segments and debt
financing for all segments other than the Regulated Utilities segment.
Properties owns real estate parcels.
Eliminations are comprised of the accounting entries necessary to eliminate
intercompany sales, expenses and investments.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
A summary of financial data for each quarter of 1998
and 1997 follows:
(thousands of dollars except per share amounts)
Basic Diluted
Operating Operating Net Earnings Earnings
Quarter Revenues Income Income Per Share Per Share
- --------------------------------------------------------------------------------
1998
1st $ 31,267 $ 8,455 $ 4,163 $ .52 $ .51
2nd 33,609 9,376 5,162 .63 .62
3rd 43,907 12,917 8,555 1.02 1.00
4th 36,697 9,215 4,450 .53 .53
- --------------------------------------------------------------------------------
Total $145,480 $39,963 $22,330 $2.70 $2.66
================================================================================
1997
1st $ 30,121 $ 8,011 $ 3,470 $ .44 $ .44
2nd 32,463 8,785 4,405 .56 .55
3rd 38,643 11,776 7,454 .93 .92
4th 32,599 8,081 3,931 .51 .50
- --------------------------------------------------------------------------------
Total $133,826 $36,653 $19,260 $2.44 $2.41
================================================================================
Water utility revenues are subject to seasonal fluctuation
due to normal increased water consumption during the
third quarter of each year.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of E'town Corporation:
We have audited the accompanying consolidated balance sheets and statements
of consolidated capitalization of E'town Corporation and its subsidiaries as
of December 31, 1998 and 1997, and the related statements of consolidated
income, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of E'town Corporation and its
subsidiaries at December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
February 24, 1999
Parsippany, New Jersey
<PAGE>
E'TOWN CORPORATION AND SUBSIDIARIES
- -------------------------------------------------------------------------------
OTHER FINANCIAL AND STATISTICAL DATA
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------
UTILITY PLANT (THOUSANDS)
Utility Plant - net $609,303 $572,785 $560,024 $507,858 437,456
Construction Expenditures
(excluding AFUDC) 47,381 25,329 55,125 73,789 69,981
CAPITALIZATION (THOUSANDS)
Shareholders' Equity 215,472 193,923 183,512 177,081 152,971
Preferred Stock 12,227 12,000 12,000 12,000 12,000
Debt (1) 342,960 270,328 262,511 220,703 177,115
Total Capitalization $570,659 $476,251 $458,023 $409,784 $342,086
CAPITALIZATION RATIOS
Common Stock 38% 41% 40% 43% 44%
Preferred Stock 2% 2% 3% 3% 4%
Debt (1) 60% 57% 57% 54% 52%
COMMON STOCK DATA
Earnings Per Share:
Basic $ 2.70 $ 2.44 $ 1.96 $ 2.16 $ 1.95
Diluted 2.66 2.41 1.96 2.14 1.94
Dividends Per Share 2.04 2.04 2.04 2.04 2.04
Book Value Per Share $ 25.43 $ 24.17 $ 23.58 $ 23.54 $ 23.17
Average Shares
Outstanding: (Thousands)
Basic 8,263 7,891 7,668 7,093 6,210
Diluted 8,567 8,215 7,966 7,394 6,519
Revenues (Thousands)
General Customers $ 87,794 $ 85,195 $ 68,797 $ 67,455 $ 62,923
Other Water Systems 22,181 21,900 18,929 18,720 18,082
Industrial Wholesale 8,148 8,451 7,869 7,947 7,458
Fire Service/Miscellaneous 16,820 16,754 14,814 14,276 13,570
Contract Operations 12,126 3,330
Engineering Operations
& Consruction 5,735
Elimination of Intercompany
Sales (7,324) (1,804)
Total Revenues $145,480 $133,826 $110,409 $108,398 $102,033
Net Income $ 22,330 $ 19,260 $ 15,073 $ 15,296 $ 12,088
WATER SALES - MILLIONS OF
GALLONS (MG)
General Customers 24,614 24,333 22,890 23,999 23,551
Other Water Systems 14,396 14,504 15,049 15,569 15,691
Industrial Wholesale 3,482 3,533 3,567 3,673 3,568
Contract Operations 5,091 1,307
System Use and Unaccounted For 6,934 6,948 6,444 6,402 6,570
Elimination of
Intercompany Sales (3,899) (1,163)
Total Water Sales 50,618 49,462 47,950 49,643 49,380
SYSTEM DELIVERY BY SOURCE - MG
Surface 48,067 42,585 41,485 42,646 42,534
Wells 1,072 6,689 6,328 6,764 6,690
Purchased 5,378 1,351 137 233 156
Elimination of Intercompany
Sales (3,899) (1,163)
Total System Delivery 50,618 49,462 47,950 49,643 49,380
MILLIONS OF GALLONS PUMPED:
Average Day 139 135 131 136 135
Maximum Day 217 205 170 183 182
CUSTOMERS
Regulated Utilities 200,536 197,663 195,482 192,617 189,440
Contract Operations 33,908 15,264
Total Customers 234,444 212,927
GENERAL INFORMATION
Miles of Main 2,955 2,926 2,899 2,869 2,828
Fire Hydrants Served 16,426 16,228 16,012 15,650 15,291
Total Employees 505 399 400 398 386
===============================================================================
(1) Includes long-term debt, notes payable, long-term debt-current portion and
contract obligations payable.
<PAGE>
Stock Price And Dividend Data - E'town's Common Stock is traded on the New York
Stock Exchange under the symbol ETW.
1998
- ------------------------------------------------
Quarter 1st 2nd 3rd 4th
Closing Price
Low: $34.38 $33.88 $36.44 $40.75
High: $39.69 $38.06 $43.75 $47.38
Dividend Paid $ 0.51 $ 0.51 $ 0.51 $ 0.51
================================================
1997
- ------------------------------------------------
Quarter 1st 2nd 3rd 4th
Closing Price
Low: $29.12 $29.50 $30.50 $31.87
High: $31.75 $34.87 $34.00 $40.50
Dividend Paid $ 0.51 $ 0.51 $ 0.51 $ 0.51
================================================
Exhibit 21
SUBSIDIARIES OF THE CORPORATION
Subsidiaries of E'town Corporation and Elizabethtown Water
Company as of December 31, 1998 are as follows:
State of
Name Incorporation
Elizabethtown Water Company New Jersey
The Mount Holly Water
Company (subsidiariy) New Jersey
E'town Properties, Inc. Delaware
Edison Water Company New Jersey
Liberty Water Company New Jersey
Applied Water Management, Inc. New Jersey
Applied Wastewater Mangement, Inc. New Jersey
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in E'town Corporation's
Registration Statement Nos. 333-69549 and 333-65951 on Forms S-3 and Nos.
33-49812, 33-44210, 33-19600 and 333-56819 on Forms S-8 of our reports dated
February 24, 1999 and to the incorporation by reference in Elizabethtown
Water Company's Registration Statement Nos. 33-68579 and 33-51917 on Forms
S-3 of our report dated February 24, 1999, appearing in or incorporated by
reference in this Annual Report on Form 10-K of E'town Corporation and
Elizabethtown Water Company for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 30, 1999
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