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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993 .
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( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.
Commission file number 1-8060.
AQUARION COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 06-0852232
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
835 Main Street, Bridgeport, Connecticut 06601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 335-2333
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Stock, New York Stock Exchange
no par value
Series A Junior New York Stock Exchange
Participating Preferred
Stock Purchase Rights
Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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
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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 IV of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant: $166,130,567 (Computed by reference to the closing price of
the Registrant's Common Stock on March 8, 1994, as reported on the New York
Stock Exchange-Composite Tape.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at March 8, 1994
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Common Stock, no par value 6,491,841
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The following documents have been incorporated by reference:
1. Annual Report to Shareholders for the year ended December 31,
1993--PART I, Item 1; PART II, Item 5, Item 6, Item 7 and Item 8;
PART IV.
2. Definitive Proxy Statement, dated March 21, 1994, for the Annual
Meeting of Shareholders to be held on April 26, 1994--PART III.
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PART I
ITEM 1. BUSINESS
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General
Aquarion Company ("Aquarion") is a holding company whose subsidiaries
are engaged both in the regulated utility business of public water supply
and in various nonutility businesses.
Aquarion's utility subsidiary, Bridgeport Hydraulic Company ("BHC"),
and its subsidiary, Stamford Water Company ("SWC", together with BHC, the
"Utilities") collect, treat and distribute water to residential, commercial
and industrial customers, to other utilities for resale and for private and
municipal fire protection. The Utilities provide water to customers in 22
communities with a population of approximately 492,000 people in Fairfield,
New Haven and Litchfield Counties in Connecticut, including communities
served by other utilities to which water is available on a wholesale basis
for back-up supply or peak demand purposes through the Regional Pipeline.
BHC is the largest investor-owned water company in Connecticut and, with
its SWC subsidiary, is among the 10 largest investor-owned water companies
in the nation. The Utilities are regulated by several Connecticut
agencies, including the Connecticut Department of Public Utility Control
(the "DPUC").
Aquarion is also engaged in various nonutility activities. The
Company conducts an environmental testing laboratory business through its
Industrial and Environmental Analysts group of subsidiaries (collectively,
"IEA"). IEA performs testing to determine the nature and quantity of
contamination in sampled materials, including hazardous wastes, soil, air
and water. IEA provides a range of environmental analytical testing
capabilities, including routine and customized analysis of organic and
inorganic contaminants. IEA's testing services are conducted at six
regional environmental testing laboratories in Connecticut, Florida,
Illinois, Massachusetts, New Jersey and North Carolina. IEA's laboratories
are subject to governmental regulation at both state and federal levels.
IEA's clients include engineering consulting firms, industrial and
commercial corporations and federal, state and local governmental entities.
The laboratories located in North Carolina, New Jersey and Connecticut
participate in the U.S. Environmental Protection Agency's Contract
Laboratory Program.
Aquarion owns Timco, Inc. ("Timco"), a small forest products and
electricity cogeneration company based in New Hampshire. At Timco's
sawmill complex, lumber is cut and packaged for sale to wholesalers and
retailers. The cogeneration plant produces electricity which is sold to a
public utility and low cost steam for drying the lumber and heating some of
the sawmill buildings. Aquarion Company is also engaged in several small
utility management service businesses through its Hydrocorp, Inc.
("Hydrocorp") and Aquarion Management Services, Inc. ("AMS") subsidiaries
and owns Main Street South Corporation ("MSSC"), a small real estate
subsidiary formed in 1969 to assist the Utilities in marketing surplus
land.
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The Company was incorporated in Delaware as The Hydraulic Company in
1969 to become the parent company to BHC, a Connecticut corporation founded
in 1857. The corporate name was changed to Aquarion Company in April 1991.
The Company's executive offices are located at 835 Main Street, Bridgeport,
Connecticut 06601-2353 and its telephone number is (203) 335-2333.
Recent Developments
Rates. In filing its rate application with the Connecticut Department
of Public Utility Control (DPUC) in February 1993, BHC had requested a
35 percent water service rate increase designed to provide a $17,500,000
increase in annual water service revenues and a return on common equity of
12.75 percent. Prior to the final decision, BHC lowere
request by a total of $1,400,000 by restructuring long-term debt to reduce
annual interest costs and by reducing property taxes and other
miscellaneous expenses. The request included the replacement of a
construction work in progress water service rate surcharge (CWIP rate
surcharge) previously granted to BHC pursuant to DPUC regulations to
recover 90 percent of the carrying costs of capital used in its Easton Lake
Filtration Construction Project mandated by the federal Safe Drinking Water
Act of 1974 (the "SDWA"). During 1993 and 1992, BHC derived revenues of
$1,937,000 and $1,532,000, respectively, from the CWIP rate surcharge.
Effective August 1, 1993, the DPUC awarded BHC a 20.7 percent water service
rate increase designed to provide a $10,400,000 annual increase in revenues
and a 11.6 percent return on common equity. The DPUC approved a 22.5
percent water services rate increase for SWC effective August 28, 1991,
designed to increase annual revenues by $2,276,000 and provide a 12.85
percent return on its common equity. Effective January 1, 1991, BHC was
awarded a 15 percent rate increase designed to increase annual revenues by
$6,983,000 and provide a 13.25 percent return on its common equity. There
is no certainty that any given rate increase will produce the intended
level of revenues or the allowed return on equity. See "Public Water
Supply--Rates and Regulation."
Pending Utility Acquisition. Aquarion has proposed to acquire The New
Canaan Water Company and Ridgefield Water Supply Company for Aquarion
common stock with a market value of $3,500,000 on or about the closing
date. The acquisition and a related property exchange have been approved
by the DPUC but remain contingent upon certain other regulatory approvals
satisfactory to the parties. Proceedings to obtain the regulatory
approvals are pending. The parties have agreed to extend their acquisition
agreement and the related property exchange agreement until March 31, 1994.
There is no certainty that the parties will agree to further extensions if
the transaction has not closed by that time. See "Industry Segment
Information."
Sale of Facilities. On March 15, 1993 IEA sold its Vermont laboratory
which performed qualification and certification of and consulting for high
purity gas delivery systems and ultrapure water systems, as well as some
microbiological testing. In addition, in October 1993 IEA sold the assets
of its air testing division to TRC, Inc. of Hartford, Connecticut. See
"Environmental Laboratories."
Other. Native Americans who allege that they constitute the Golden
Hill Paugussett Tribe of Indians (the "Paugussett Indians") have taken an
appeal to the U.S. Court of
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Appeals for the Second Circuit for the
dismissal by the U.S. District Court in Connecticut of their suit seeking
to restore claimed rights to certain lands in various towns in Fairfield
and New Haven Counties. Newspaper reports during 1993 indicated that they
have announced plans to claim further lands, including all land in the
municipalities of Monroe, Shelton and Trumbull. BHC, which has not been
named as a defendant to date, owns land in these communities, including
land it considers surplus. It is not possible at this time to determine
whether any further suit will be filed or, if so, whether BHC will be named
a defendant, nor is it possible to determine what effect, if any, the
filing of any such suit might have on the marketability of real property in
these communities or, should the Paugussett Indians prevail, whether there
would be any effect on the operations of BHC.
Utility Construction Program
The Utilities are engaged in a continuing construction program
mandated by legislative and regulatory requirements, as well as for
infrastructure replacements. The Utilities expended $16,300,000,
$21,727,000 and $13,969,000 in 1993, 1992 and 1991, respectively, for plant
additions and modifications of existing plant facilities, excluding an
allowance for funds used during construction ("AFUDC"). The expenditures
were made primarily for installations of water mains, service connections
and meters and such special projects as the Easton Lake
and the Litchfield Division supply and distribution system improvements.
Utility capital expenditures for 1993 aggregated $16,300,000 and
budgeted expenditures for 1994, most of which management believes should
not be postponed, are approximately $34,200,000. Approximately half of
these expenditures will be devoted to compliance with the SDWA, which
requires filtration or alternative water treatment measures for BHC's
major, unfiltered surface water supplies. The total capital cost of water
filtration or alternative treatment measures for such supplies through
December 31, 1993 was approximately $28,400,000, of which $26,800,000
related to construction of the Easton Lake filtration facility. Management
estimates that the total of such costs from 1994 through 1996 will
approximate $50,000,000, without adjustment for inflation, including
$15,300,000 expected to be incurred in 1994. Approximately $48,000,000 of
the projected 1994 through 1996 water treatment costs will be incurred in
construction of the filtration facility for the Hemlocks reservoir. The
remaining $2,000,000 of estimated filtration expenditures over the next
four years is budgeted for SDWA-related facilities for BHC's Lakeville and
Norfolk Reservoirs. Part of the cost associated with the Hemlocks facility
is expected to be offset by CWIP rate surcharges which, at the DPUC's
discretion, permit the recovery of 90 percent of the carrying cost of
capital used in construction of SDWA-mandated water treatment facilities.
Management cannot predict whether future federal, state or local regulation
may require additional capital expenditures.
The Company's ability to finance its future construction programs
depends in part on future rate relief and the level of CWIP rate
surcharges. In light of the Company's substantial need for additional
funds, the Company will need additional debt and equity capital to finance
future utility construction. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Capital
Resources and Liquidity" and "Business--Public Water Supply--Rates and
Regulation."
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Industry Segment Information
The Company's operations are grouped into four industry segments:
public water supply; environmental laboratories and utility management
services; forest products; and real estate. The consolidated operating
revenues of the Company for the year ended December 31, 1993 were derived
from the following sources: 66 percent from public water supply, 22 percent
from environmental laboratories and utility management services, 12 percent
from forest products, and less than 1 percent from real estate, including
both MSSC and surplus utility land sales. For additional information
concerning each segment for each of the years ended December 31, 1993, 1992
and 1991, see "Note 11" of "Notes to Consolidated Financial Statements" and
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Public Water Supply
Service Area. The Utilities are engaged in the collection, treatment
and distribution of water for public and private use to residential,
commercial, and industrial users, and for municipal and private fire
protection services in 22 communities in parts of Fairfield, Litchfield and
New Haven counties in Connecticut. The Utilities also sell, as requested,
water for redistribution to customers of the First and Second Taxing
Districts' Water Departments of the City of Norwalk, Connecticut,
Connecticut-American Water Company, and NCWC through the Southwest Regional
Pipeline in Fairfield County.
The communities served by the Utilities as of December 31, 1993, have
a population of approximately 492,000, and the total number of customer
accounts as of that date was approximately 123,900. The Utilities' service
areas, primarily residential in nature, have experienced an average growth
in accounts of approximately 1 percent per year over the last ten years.
Industrial use has declined significantly in that time period, and the
residential characteristics of the area have changed, indicating an
increase in the percentage of apartment dwellings and condominium units.
Management does not anticipate any significant growth in residential
consumption in the foreseeable future, and expects continued decline in
industrial use.
The operating revenues of the Utilities for the twelve months ended
December 31, 1993 were derived from the following sources: 59 percent from
residential customers, 17 percent from commercial customers, 5 percent from
industrial customers, 14 percent from fire protection customers, and
5 percent from other sources.
Seasonality. The business of the Utilities is subject to seasonal
fluctuations and weather variations. The demand for water during the
warmer months is generally greater than during the cooler months, primarily
due to additional water requirements of industrial and residential cooling
systems, and various private and public outdoor uses such as lawn and golf
course sprinkling. From year to year and season to season, demand will
vary with rainfall and temperature levels.
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Water Supply. Water is available from both surface and subsurface
sources. During 1993, approximately 97 percent of the water supplied by
the Utilities was provided by impounding reservoirs, 2 percent by producing
wells and 1 percent by purchased water. As of December 31, 1993, the
Utilities' reservoirs, well fields and interconnections with other water
utilities had an aggregate safe daily yield of 112.3 million gallons. Safe
yield is an estimate of the supply capability during an extended drought.
The average daily demand for water from the Utilities in 1993 was 69.3
million gallons per day ("MGD"). The reservoirs of the Utilities have an
aggregate storage capacity of 29.4 billion gallons.
All of the Utilities' reservoirs and active wells are located on
property owned by the Utilities. Management believes it has an adequate
water supply to satisfy the current and projected needs of its customers
within its territorial service area through at least the year 2040. During
historical drought periods in the northeastern United States, the Utilities
have been able to accommodate the needs of their own customers and to offer
relief to supplement the supplies to neighboring communities by water sales
to utilities with which it has pipeline interconnections. Supply and
distribution needs of the Utilities undergo constant review, and the
Utilities continue to explore and develop additional ground water supplies
and study alternative surface water sources to meet anticipated future
water requirements.
The Connecticut Water Diversion Policy Act, enacted in 1982, prohibits
any future diversions of surface or ground water without a permit from the
DEP. Although this law "grandfathers" existing surface and ground water
supplies which existed when it was enacted, any subsequent water diversion
which might be effected by the Utilities is subject to a lengthy permit
application process and approval by the DEP. Diversion permits granted
pursuant to this law are subject to renewal when their terms, which
typically run from five to ten years, expire.
Rates and Regulation. The Utilities are incorporated under and
operate as public water utilities by virtue of authority granted by Special
Acts adopted by the Connecticut legislature (the "Acts"). These Acts have
granted a non-exclusive franchise, unlimited in duration, to provide public
water supply to private and public customers in designated municipalities
and adjacent areas. The Acts also authorize the Utilities to lay their
mains and conduits in any public street, highway, or public ground; to use
the water of certain rivers, streams, or other waters in Fairfield,
Litchfield and New Haven counties and from certain locations along and in
the Housatonic River and its tributaries, subject to such consents and
approvals as may be required by law; and to exercise the po
domain in connection with lands, springs, streams or ponds and any rights
or interests therein which are expedient to or necessary for furnishing
public water supply. In the event of the exercise of such condemnation
powers, the Utilities must pay appropriate compensation to those
injuriously affected by such taking.
The Utilities are subject to regulation by the DPUC, which has
jurisdiction with respect to rates, service, accounting procedures,
issuance of securities, dispositions of utility property and other related
matters.
Rates charged by each of BHC and SWC are subject to approval by the
DPUC. The Utilities continually review the need for increases of water
rates, and historically have sought
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rate relief in a timely manner in light
of increases in operating costs, additional investment in utility plant and
related financing costs, as well as other factors. For information
concerning rate increases granted in 1993 and 1991, see "Item 1. Business.
Recent Developments, Rates.", above.
<TABLE>
The following table sets forth information as to rate requests by BHC
and SWC and increases granted by the DPUC in the last three rate cases.
<CAPTION>
% Total % Return On Allowed
Date of Amount Increase Effective Increase Increase Utility Return on
Application Requested Requested Date Granted Granted Common Equity Rate Base
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<S> <C> <C> <C> <C> <C> <C> <C>
BHC:
2/5/93 $16,100,000* 32% 8/1/93 $10,400,000 21% 11.6% 9.62%
6/29/90 9,819,000 22 1/1/91 6,983,000 15 13.25 10.95
11/21/88 7,600,000 18 6/1/89 3,383,000 8 12.90 10.90
SWC:
2/8/91 $3,646,000 36.5% 8/28/91 $2,276,000 22.5% 12.85% 10.69%
8/1/86 3,849,000 56 12/30/86 3,706,000 54 14.80 11.39
3/22/85 4,959,000 43 7/29/85 450,000 7 14.80 11.39
* Original request of $17,500,000, or 35 percent, was
subsequently lowered prior to the final decision by
$1,400,000 by restructuring long-term debt to reduce annual
interest costs and by reducing property taxes and other
miscellaneous expenses.
</TABLE>
The DPUC may allow a surcharge to be applied to rates in
order to provide a current cash return to water utilities on the
major portions of CWIP applicable to facilities, including
filtration plants, required for compliance with the SDWA. See
"Environmental Regulations." The surcharge is adjusted
quarterly, subject to DPUC approval, to reflect increased CWIP
expenditures for SDWA facilities. In connection with BHC's
construction of filtration facilities at its Easton Lake
Reservoir, the DPUC granted BHC an initial .94 percent CWIP rate
surcharge in September 1990, which amount was incrementally
increased on a quarterly basis to 7.35 percent at the time new
rates became effective and the Easton facility became operational
and subject to general ratemaking regulations. There is no CWIP
surcharge in effect at present, although BHC intends to apply for
a CWIP surcharge with respect to its planned filtration
facilities when appropriate.
Aquarion is neither an operating utility company nor a
"public service company" within the meaning of the Connecticut
General Statutes and is not presently subject to general
regulation by the DPUC. DPUC approval is necessary, however,
before Aquarion may acquire or exercise control over any
Connecticut public service company. DPUC approval is also
required before any other entity can acquire or exercise, or
attempt to exercise, control of Aquarion.
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Connecticut regulations govern the sale of water company
land and treatment of land sale proceeds. See "Item 2.
Properties."
Environmental Regulations. The Utilities are subject to
regulation by the DPHAS with respect to water quality matters,
use of water from surface and subsurface sources, the location,
construction and operation of water supply facilities and the
sale of certain utility property. Plans for new water supply
systems or enlargement of existing water supply systems also must
be submitted to the DPHAS for approval. The DEP is authorized to
regulate the operations of the Utilities with respect to water
pollution abatement, diversion of water from surface and
subsurface sources, and the location, construction and alteration
of dams and other water obstructions.
The Federal Clean Water Act of 1972, as amended (the "Clean
Water Act"), regulates for discharges of effluents into navigable
waters. A joint Federal and state permit system has been
established to ensure that applicable effluent limitations and
water quality standards are met in connection with the
construction and operation of facilities which affect or
discharge into state or interstate waters.
The Utilities are subject to regulation of water quality
under the SDWA, which provides for the establishment of uniform
minimum national quality standards by the Environmental
Protection Agency (the "EPA"), as well as governmental authority
to specify the type of treatment process to be used for public
drinking water. EPA regulations issued pursuant to the SDWA set
limits for, among other things, certain organic and inorganic
chemical contaminants, odor, turbidity, microbiological
contaminants and radioactivity. The SDWA provides that the
states have the primary enforcement responsibility for public
drinking water systems, as long as the states' regulations are no
less stringent than those adopted pursuant to SDWA. For certain
of these water quality standards the DPHAS has adopted
regulations which in some instances impose standards more
stringent than those imposed under the Federal regulations.
EPA regulations pursuant to SDWA include the Surface Water
Treatment Rule ("SWTR"), the Total Coliform Rule ("TCR") and the
Lead and Copper Rule ("LCR"). The water treatment requirements
of SWTR mandate the construction of filtration plants at BHC's
Hemlocks, Lakeville and Norfolk Reservoirs. BHC has entered into
consent agreements with DPHAS establishing timetables for
construction of filtration facilities at the Hemlock, Lakeville
and Norfolk reservoirs and penalties if the facilities are not
completed within such timetables. The Hemlocks plant must be
completed by June 29, 1998 or a $250,000 penalty will be imposed.
Lesser penalties apply to the smaller facilities for Lakeville
and Norfolk, if not completed by June 29, 1997 and June 29, 1996,
respectively. The Company anticipates that it will be able to
meet the construction timetables. The TCR affects the Utilities
by the imposition of requirements for additional biological
sampling and monitoring. The stringent requirements of the TCR
may also result in increased public notification relating to
water quality. The LCR establishes corrosion control techniques
and requires monitoring to determine compliance with prescribed
lead and copper levels in drinking water. If such levels are
exceeded, a multi-year program involving additional monitoring,
public notification, state-supervised corrosion control and
treatment and replacement of lead service lines could result.
After the first two required testing periods, the Utilities were
found to be
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in compliance with the LCR. Further SDWA-related
regulations are anticipated for such water quality parameters as
organics, inorganics and disinfection by-products. It is
impossible to determine at this time the ultimate impact these
regulations will have on the Utilities.
The Company currently estimates that future capital costs of
SWTR-mandated filtration facilities will approximate $50,000,000
for the period 1994 through 1996, without adjustment for
inflation, in addition to the $28,400,000 which has been expended
through December 31, 1993, mostly for construction of the Easton
Reservoir plant. That plant is located in Easton, Connecticut
and was completed in June 1993 at an aggregate cost of
$26,800,000.
Water quality tests are made continuously at all of the
Utilities' water supply sources, and the Utilities believe they
are in substantial compliance with regulations promulgated by the
organic chemical, inorganic chemical, physical, and
bacteriological standards for drinking water. BHC has been
voluntarily monitoring for giardia and cryptosporidium, water
quality concerns addressed by the SWTR. Positive samples (low
levels) have been found in the three unfiltered surface water
supplies. When the filtration plants become operational, they
will remedy such concerns, which are now being addressed by
interim treatment techniques approved by the DPHAS.
Connecticut has established seven public water supply
management areas to coordinate the comprehensive planning of
public water systems and provide for the centralized regulation
by the DPHAS of water resources for water supply and other public
purposes. Each area has a water utility coordinating committee
("WUCC") comprised of representatives of the various public water
systems and regional planning agencies in the area. BHC
operations fall under four of the State's seven WUCCs, and SWC
operations fall under two WUCCs. Each WUCC is required to
establish exclusive service areas for each public water system in
the area. The DPHAS is authorized to resolve any disagreements
among members of the respective committees. It is not possible
at this time to predict the full impact on the Utilities of the
WUCC system and the associated regulations and proceedings.
Aquifer protection legislation in Connecticut requires each
water utility to conduct extensive groundwater data collection
and groundwater mapping of critical wellfield areas. The DEP is
also proposing land use regulations within these critical areas.
The proposed legislation mandates that each municipality
designate an aquifer protection agency to regulate land use in
these areas. Finally, the DEP, in consultation with the DPHAS and
DPUC, is preparing guidelines for acquisition of lands for
proposed public water supply wellfields. Regulations are still
being prepared for this program and the effect of this
legislation and related regulations cannot be determined at this
time. If BHC were required to purchase additional land around
its wellfields, the cost could be substantial.
Developments with respect to the identification and
measurement of various elements in water supplies and concern
about the effect of such elements on public health, together with
possible contamination of water sources, may in the future
require the Utilities to modify all or portions of their various
water supplies, to develop replacement supplies or to implement
new treatment techniques. Any such developments would
significantly increase
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the Utilities' operating costs and capital
requirements. The Company expects that all such expenditures and
costs should ultimately be recoverable through rates for water
service, but there can be no assurance that this will be the
case.
Certain dams owned by the Utilities are subject to
inspection under the National Dam Inspection Act as well as the
Connecticut Dam Registration Act, and dams owned by SWC in New
York are subject to inspection by the New York State Department
of Environmental Conservation. The Utilities own 29 dams, 16 of
which are subject to federal inspection. Although certain
modifications and further studies have been required, no material
problems with respect to these dams have been reported to the
Company.
The Utilities are required to obtain permits from the DEP
for the location, construction or alteration of any dam or
reservoir, and to secure the approval of the DEP for the
diversion and use of water from any surface or ground source for
public use. The Utilities have taken all compliance actions
required to date.
SWC may be subject to health, safety and environmental
regulation by various state and local authorities in New York
State with respect to its properties located in New York. SWC
does not provide water to any customers in New York. The leasing
or sale of land around reservoirs, wellfields and some streams
may be restricted by various Connecticut statutes and
regulations. See "Item 2. Properties."
Environmental Laboratories
Laboratories. The Company conducts an environmental testing
laboratory business through IEA, which operates six laboratories
in Connecticut, Florida, Illinois, Massachusetts, New Jersey and
North Carolina through six corporate subsidiaries. IEA believes
that it is among the twenty largest environmental testing
laboratory businesses in the country. IEA is headquartered at
its Cary, North Carolina facility.
Environmental laboratories provide data to customers
concerning the nature and quantity of contaminants or hazardous
substances present in samples. IEA offers a range of
environmental analytical services, including routine and
customized testing of hazardous wastes, soil, air and water.
Additionally, IEA offers mixed waste/radiological testing at its
North Carolina laboratory. IEA also provides asbestos testing
and sample collection services.
Quality Control. The ability to deliver accurate and
precise test results consistently is essential to a successful
laboratory, and testing samples must meet rigorous
chain-of-custody requirements and testing protocols to enable the
test results to be used as evidence in legal or regulatory
proceedings. IEA performs internal quality assurance reviews to
monitor consistent performance. IEA is certified in over 20
state-operated certification programs and, through its
laboratories in North Carolina, New Jersey and Connecticut, is an
active participant in the EPA's Contract Laboratory Program
("CLP"). In order to qualify for the CLP, the laboratories must
satisfy stringent quality control standards, and are subject to
quarterly performance evaluations.
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Technology. IEA has invested in sophisticated analytical
testing equipment needed to process a large volume of tests with
accurate results. IEA laboratories are equipped with Gas
Chromatography/Mass Spectrometry instruments, which identify
specified organic and inorganic chemical compounds within a
sample by means of electron beam "fingerprinting." IEA owns
chromatograph instruments, which are used extensively to perform
organics testing. IEA laboratories contain inductively coupled
plasma instruments and atomic absorption units for organic analysis.
analysis. IEA laboratories perform wet-chemistry tests for
general chemistry parameters and also offer a range of microscopy
services including asbestos analysis.
Laboratory Employees. Experienced personnel qualified in
the use of the instruments and related computer systems used by
IEA are critical to its operations. IEA has a staff of
approximately 300, which includes 183 scientists and technicians.
IEA's laboratory services are marketed by a field and in-house
sales staff who are supported by IEA's Client Service Department
as well as by IEA's scientific and technical staff. The testing
laboratory industry, as well as the environmental services
industry as a whole, suffers from a shortage of qualified staff
at all skill levels. As a result, the market for trained
technical staff is very competitive, and IEA occasionally
experiences personnel shortages.
Customers. During 1993, IEA serviced approximately 1,500
customers. No single customer represented 10 percent or more of
IEA's revenues during that period. IEA's broad client base
includes consulting and engineering firms, public and private
water companies, large and small industrial and high-tech
companies, Federal government agencies, including the EPA, and
various state and local government bodies, including state
environmental departments, municipalities and waste treatment
facilities.
Competition. The environmental testing business is highly
competitive. Its participants compete primarily on the basis of
price and service. Many customers view environmental testing as
a commodity, and price for them is the most important factor in
purchasing decisions. Following a period of rapid growth, the
environmental testing business is now characterized by
significant overcapacity. As a result of these factors,
operating margins tend to be low.
Estimates of the number of commercial laboratory companies
range between 1,000 and 1,500, although IEA believes that the
thirty largest companies account for approximately 50 percent of
industry revenues. Most laboratory companies are
single-laboratory operations serving a local market. As the
environmental services market has matured over the past 20 years,
the trend has been toward consolidation and larger laboratory
companies that operate several laboratories. This trend has been
driven, in part, by the increasing sophistication and expense of
laboratory equipment. In addition, larger laboratory companies
can offer a wider variety of services and equipment. Some
customers, particularly larger companies with operations in
multiple locations, prefer to deal with larger laboratory
companies. In addition, some environmental service businesses
operate in-house laboratories that exclusively service their own
environmental testing needs. IEA's competitors include larger
companies that possess greater financial resources than the
Company. The three IEA laboratories that participate in the CLP
compete with approximately 50 other laboratory companies that bid
for such EPA work.
12
<PAGE>
<PAGE>
Regulatory Background. Federal and state environmental laws
and regulations have been the primary force driving the
environmental testing laboratory market. The proliferation of
environmental regulations over the past two decades has required
increasingly sophisticated analysis and remediation of a growing
range of environmental hazards. The environmental services
industry has grown rapidly in response to regulatory demands for
tests that reveal the nature and quantity of any contamination
caused during the handling, use and transportation of hazardous
substances, the treatment, storage and disposal of wastes, and
the remediation of contaminated sites. As advances in technology
have continued to make greater testing sophistication possible,
regulations have often been revised to require those more
sophisticated tests.
Environmental Regulation. IEA receives and uses various
small quantities of hazardous chemicals in its operations, and is
a licensed hazardous waste handler. IEA operates under federal
and, as applicable to the states in which various IEA
laboratories operate, various state environmental laws and
regulations that subject parties handling hazardous wastes to
potential liabilities for non-compliance, in addition to possible
civil and criminal penalties.
Contract Terms. IEA's client contracts generally contain
provisions which may impose financial penalties for inaccurate or
late test results. Contracts with governmental and private
sector clients regularly contain liquidated damage or penalty
provisions which reduce the amount paid if a test is delivered
late.
Seasonality. IEA's business is affected by seasonality.
IEA's busiest period is during the late spring, summer and early
fall, when sampling and construction activity is at its peak.
Sampling, and therefore the related testing, falls off for large
parts of IEA's service area during the winter months because of
frozen ground and water and accumulations of snow in some parts
of the country.
Utility Management Services
The Company, through Hydrocorp and its AMS subsidiary,
provides clients with an integrated range of utility management
services, including contract management and operations,
information services, water and wastewater billing and
collections and various engineering, operations and management
consulting services. AMS clients are private and municipal water
and wastewater utilities, including municipal systems engaged in
privatization initiatives.
Hydrocorp also has minority interests in small businesses
which provide security consulting services and automated mapping
and facilities management services to utilities, industry,
municipalities and government agencies.
The utility management services businesses are highly
competitive, on the basis of service and price.
13
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<PAGE>
Forest Products
The Company is engaged in the forest products industry
through Timco, which has operations in New Hampshire consisting
of a sawmill complex and a wood-waste electricity cogeneration
plant. The sawmill complex processes and markets kiln-dried,
finished Eastern White Pine and other lumber. The product is
used in the remodeling and do-it-yourself markets and, to a
lesser extent, in the construction of new homes.
in the Northeast and Mid-Atlantic regions through lumber
wholesalers, distributors and, in some instances, directly to
retailers. Wholesalers and distributors, in turn, sell the
product to the construction trade and to retail outlets. Timco
obtains the timber used in its products from independent loggers
and from purchased timber rights. A four megawatt electricity
cogeneration plant is located at the sawmill complex.
By-products of the cogeneration plant include low cost steam for
drying lumber and heating some of the sawmill buildings.
Electricity produced at Timco's cogeneration plant is sold
to Public Service Company of New Hampshire ("PSNH") under a
long-term rate order of the New Hampshire Public Utilities
Commission ("PUC") applicable to Small Power Producers (the "Rate
Order"). In January 1988, PSNH sought protection under Chapter
11 of the U.S. Bankruptcy Code. PSNH emerged from bankruptcy in
June 1991, managed by Northeast Utilities ("NU") and was acquired
by NU in June, 1992 after NU's reorganization plan received the
requisite approvals. The plan provided that after the merger, NU
would seek to restructure the Rate Order. Negotiations to
restructure the Rate Order have produced a tentative agreement
between PSNH and several small power producers, including Timco,
which has been submitted to the PUC for approval. Terms of the
agreement call for PSNH to pay Timco up to $8.6 million depending
on the timing of regulatory approval and the date of payment, in
exchange for the assignment of the Rate Order to PSNH and a
release of PSNH's obligations to buy power from Timco. There is
no assurance that it will be approved, nor is there any way to
predict what action the PUC might take if it does not approve the
agreement. Any substantial reduction in Timco's electricity
revenues ($3,515,000 in 1993) which may result from a
restructuring of the Rate Order would have an adverse impact on
the Company's forest products operations.
Traditionally, the demand for Timco's lumber is lower in the
winter months and inventories are built up in anticipation of the
busier spring and summer season. The lumber products industry is
very competitive, primarily on the basis of price. Timco faces
competition on the basis of price from domestic and foreign
forest product companies, many of which have greater resources
than the Company.
Real Estate
The Company treats real estate as a separate business
segment in order to distinguish the earnings impact from sales of
surplus utility land from the results of Utility operations. For
a discussion of the surplus non-watershed land which the
Utilities intend to market as appropriate, see "Item 2.
Properties."
14
<PAGE>
<PAGE>
Employees
As of December 31, 1993, the Company employed approximately
695 persons on a full time basis, including 289 in the Public
Water Supply business, 306 in the Environmental Laboratories and
Utility Management Services business and 100 in the Forest
Products business. None of the Company's employees are covered
by collective bargaining arrangements, and the Company believes
its relations with its employees are satisfactory.
Executive Officers
For information concerning the Company's executive officers,
see "Item 10. Directors and Executive Officers of the
Registrant".
ITEM 2. PROPERTIES
-------------------
The Company
BHC owns a 20,000 square foot headquarters building and a
44,370 square foot Operations Center in Bridgeport, and leases an
additional 22,000 square feet of office, laboratory and garage
space in Bridgeport for utility operations. SWC owns its
13,618 square foot headquarters and operations facility in
Stamford, Connecticut. Aquarion owns nonutility land totaling
approximately 99 acres in Easton and Litchfield, Connecticut.
Property
At December 31, 1993, BHC owned in the aggregate 11 active
reservoirs and approximately 1,640 miles of water mains, of which
approximately 77 miles have been laid in the past five years. In
addition, SWC owned 5 active reservoirs at year end. The rights
to locate and maintain water transmission and distribution mains
are secured by charter, easement and permit and are generally
perpetual. Water is delivered to the distribution system from
four major and several smaller reservoirs and forty-two producing
wells. Eight additional reservoirs are used for storage purposes
and are interconnected with the distribution reservoirs.
BHC owns two dual media filtration plants for treatment of
its Trap Falls and Easton Lake reservoir systems, which plants
have capacities of 25 and 20 MGD, respectively. SWC owns a 24
MGD rapid-sand and activated-carbon filtration plant for
treatment of its entire reservoir system.
BHC owns approximately 19,000 acres of real property located
in Fairfield, New Haven, and Litchfield Counties, Connecticut,
most of which consists of reservoirs and surrounding watershed.
All but 1,360 specified acres of such property are subject to the
first lien arising under the BHC Indenture securing its First
Mortgage Bonds. SWC owns approximately 2,400 acres of real
property located in Stamford and New Canaan, Connecticut, and in
Pound Ridge and Lewisboro, New York, which consist almost
15
<PAGE>
<PAGE>
exclusively of reservoirs and surrounding watershed, pumps,
standpipes and building facilities.
The DPHAS regulates public water company lands according to
a three-tiered classification system. Class I lands cannot be
sold, leased or transferred. The DPHAS may authorize a transfer
or change in use of Class II lands only upon a finding that there
will be no adverse impact upon the public water supply and that
any use restrictions required as a condition of transfer are
enforceable against subsequent owners and occupants of the lands.
Class III lands, which are non-watershed, are not presently
subject to regulation by the DPHAS. BHC has identified
approximately 2,300 acres of land it believes are surplus to its
water supply needs, and therefore would qualify as Class III
land. All of this Class III land, which includes approximately
570 acres which have never been in rate base, is available for
sale, although all of it may not be marketable. Up to 530
additional acres could become available if the DPHAS approves the
abandonment of a former reservoir system in New Haven County and
reclassifies existing watershed property as Class III land, as
requested by the Company.
Real property may not be sold or transferred by a water
utility without the prior approval of the DPUC an
with other restrictions imposed by Connecticut law. State laws
and regulations govern, among other things, to whom certain water
company lands may be transferred, with preference given to other
water companies, the municipality in which the property is
located and the State of Connecticut, in that order.
Additionally, the disposition of the proceeds of any permissible
sale is subject to state law.
Until changed by statute in 1988, it had been the practice
of the DPUC to apply gains from the sale of surplus water company
land that had ever been in the rate base as an offset against
operating expenses, thereby substituting profits from the sale of
such land for revenues which would otherwise be provided through
rates. Legislation enacted in 1988, the Equitable Sharing
Statute, required the DPUC to "equitably allocate" the economic
benefits of the net proceeds from the sales of Class III land
which was previously in the utility's rate base between the
Company's ratepayers and its shareholders. Ratepayers do not
share in gains from the sale of land which has never been in rate
base.
The Equitable Sharing Statute was clarified by a 1990
amendment which provides that the economic benefits from the sale
of former-rate-base, Class III land which promotes a perpetual
public interest in open space or recreational use shall be
allocated "substantially in favor" of shareholders when
25 percent or more of the land sold is to be used for open space
or recreational purposes.
Two decisions involving 1990 land sales, resulted in
allocations of the respective gain on the sales of 75 percent and
43 percent, respectively, to BHC's shareholder.
In November 1993 the DPUC gave BHC approval to sell 25.78
acres of surplus, off-watershed land in Shelton, Connecticut.
BHC plans to subdivide the land into eleven building lots. BHC
also received approval from the DPUC in December 1993 to sell
34.55 acres of surplus, off-watershed land in Weston,
Connecticut. BHC plans to subdivide the land into ten building
lots. Each case involves former rate base land, and 25 percent of
16
<PAGE>
<PAGE>
the land to be sold will be conveyed to the host municipality
to be preserved as open space. Under the terms of both
decisions, approximately two-thirds of the net proceeds from the
land sales will be allocated to shareholders and the remaining
one-third allocated to ratepayers through amortization into BHC's
rate base over a five year period. All such net proceeds must be
used for reinvestment in utility plant.
The Company leases all of its laboratory facilities, except
for the Massachusetts laboratory, which it owns. Aquarion owns
50 percent of Key Partners III, a partnership which owns IEA's
North Carolina laboratory and headquarters facility. The
smallest of IEA's laboratories occupies approximately
6,750 square feet. The largest, located in Cary, North Carolina,
occupies approximately 30,000 square feet. The Company believes
that the laboratory facilities owned or leased are adequate for
its present and anticipated future needs and that the amounts
paid for all the leases into which it has entered are reasonable.
ITEM 3. LEGAL PROCEEDINGS
--------------------------
The registrant has nothing to report for this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
------------------------------------------------------------
The registrant has nothing to report for this item.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
---------------------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Page 45 of the Company's Annual Report to Shareholders for
the year ended December 31, 1993 is incorporated by reference
herein pursuant to Rule 12b-23 of the Securities and Exchange Act
of 1934 (the "Act") and to Instruction G(2) to Form 10-K.
Aquarion has declared and paid quarterly dividends on its
common stock without interruption since its organization in 1969,
and prior thereto, BHC paid dividends annually on its common
stock without interruption since 1890. Dividends, when declared,
are normally paid on the 30th day of January, April, July and
October.
17
<PAGE>
<PAGE>
The earnings of Aquarion are derived from its investments in
its subsidiaries, particularly BHC. Aquarion's future ability to
pay dividends to holders of its Common Stock is dependent upon
the continued payment by BHC of dividends to Aquarion. BHC's
ability to pay dividends will depend upon timely and adequate
rate relief, compliance with restrictions under certain of the
BHC debt instruments and other factors. In addition, no
dividends on BHC's common stock can be paid during any period in
which BHC's preferred stock dividends are in arrears.
Dividends on Aquarion common stock can be paid only out of
net profits and surplus of the Company. Aquarion's ability to
pay dividends is further restricted by the terms of Aquarion's
8 1/2 percent unsecured Senior Notes due January 1994 , which
were replaced by a 5.95% unsecured Senior Note due January 1999
and 7.8 percent unsecured Senior Notes due June 1997 (the
"Aquarion Notes"). As of December 31, 1993, the applicable
restrictions would have permitted payment of additional dividends
on Aquarion's common stock of up to $31,000,000.
While Aquarion's Board of Directors intends to continue the
practice of declaring cash dividends on a quarterly basis, no
assurance can be given as to future dividends or dividend rates
since they will be determined in light of a number of factors,
including earnings, cash flow, and Aquarion and BHC's financial
requirements. See "Item 7. Management's Discussion and Analysis
of Financial Condition and Results of Operations--Capital
Resources and Liquidity."
ITEM 6. SELECTED FINANCIAL DATA
-------------------------------------
See Page 1 ("Selected Financial Data") and Pages 44 - 45
("Supplemental Financial Data") of the Company's Annual Report to
Shareholders for the year ended December 31, 1993, which is
incorporated by reference herein pursuant to Rule 12b-23 of the
Act and Instruction G(2) to Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
----------------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
See Page 1 ("Selected Financial Data") and Pages 17 - 23 of
the Company's Annual Report to Shareholders for the year ended
December 31, 1993, which is incorporated by reference herein
pursuant to Rule 12b-23 of the Act and Instruction G(2) to Form
10-K.
18
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
---------------------------------------------------------
The consolidated financial statements, together with the
report thereon of Price Waterhouse, dated January 31, 1994,
appearing on Pages 24 - 22 and Page 1 ("Selected Financial Data")
and Pages 44 - 45 ("Supplemental Financial Data") of the
accompanying 1993 Annual Report to Shareholders of Aquarion
Company are incorporated by reference herein pursuant to Rule
12b-23 of the Act and Instruction G(2) to Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
--------------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
The registrant has nothing to report for this item.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
----------------------------------------------------------------
The information as to directors required by Item 10 is set
forth at Pages 2 - 8 of the Company's Definitive Proxy Statement,
dated March 21, 1994 relating to the proposed Annual Meeting of
Shareholders to be held on April 26, 1994, filed with the
Commission pursuant to Regulation 14a under the Act, and is
incorporated by referenced herein pursuant to Rule 12b-23 of the
Act and Instruction G(3) to Form 10-K.
Executive Officers
The executive officers of the registrant are listed below.
These officers were elected to the offices indicated on April 27,
1993, except as otherwise noted, for a term expiring with the
1994 annual meeting of directors. Except as indicated, all have
been with registrant and its predecessors in an executive
capacity for more than five years. There are no family
relationships among members of the executive officers. There
were no arrangements or undertakings between any of the officers
listed below and any other person pursuant to which he or she was
selected as an officer.
19
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<PAGE>
Served
as
Office, Business Experience Officer
Executive Officer Age During Past Five Years Since
----------------- --- ------------------------ -----
Jack E. McGregor 59 President (since 1988) 1985
Chief Executive Officer
(since January 1990) Chief
Operating Officer (1988 to
January 1990) and Executive
Vice President (1985 to
1988) of the Company.
Director of People's Bank
and Physicians Health
Services, Inc. Director and
Member of Executive
Committee, National
Association of Water
Companies. Trustee of
Fairfield University and
Yale-New Haven Hospital.
Richard K. Schmidt, Ph.D 49 Senior Vice President 1992
(since April 1993) of the
Company; President and
Chief Executive Officer of
IEA (since March 1992);
formerly President and
Chief Operating Officer
(1984-1992) of Mechanical
Technology, Inc.
James S. McInerney 56 Senior Vice President 1989
(since April 1992) of the
Company; President (since
April 1991) and Chief
Operating Officer (since
January 1990) of BHC, and
Chairman and Chief
Executive Officer (since
January 1990) of Stamford
Water Company. Executive
Vice President (1990 to
April 1991) and Vice
President (1989) of BHC and
President, Stamford Water
Company (1977 to January
1990). Mr. McInerney is a
Director, President or Vice
President of certain of the
Company's other
subsidiaries.
20
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<PAGE>
Served
as
Office, Business Experience Officer
Executive Officer Age During Past Five Years Since
----------------- --- ------------------------ -----
Janet M. Hansen 51 Senior Vice President 1983
(since April 1993), Chief
Financial Officer (since
April 1992) and Treasurer
(since 1988) of the Company
and Vice President (since
1989), Chief Financial
Officer (since April 1991)
and Treasurer (since 1985)
of BHC; Mrs. Hansen is Vice
President and Treasurer
(since April 1991) of IEA
and Chairman of the Board
and Chief Executive Officer
(since April 1992) of
Timco. Mrs. Hansen is also
Vice President, Chief
Financial Officer and
Treasurer of certain of the
Company's other subsid-
iaries. Director of
Gateway Bank.
Larry L. Bingaman 43 Vice President, Corporate 1990
Relations and Secretary
(since April 1993); Vice
President, Marketing and
Communications (since 1990)
of the Company; Formerly
Director of Communications
for United Technologies'
Sikorsky Aircraft Division
(1989 to June 1990).
ITEM 11. EXECUTIVE COMPENSATION
------------------------------------
Pages 8 - 13 of the Company's Definitive Proxy Statement,
dated March 21, 1994, relating to the proposed Annual Meeting of
Shareholders to be held on April 26, 1994, filed with the
Commission pursuant to Regulation 14a under the Act are
incorporated by reference herein pursuant to Rule 12b-23 of the
Act and Instruction G(3) to Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
-----------------------------------------------------------------
MANAGEMENT
----------
Pages 5 - 6 of the Company's Definitive Proxy Statement,
dated March 21, 1994, relating to the proposed Annual Meeting of
Shareholders to be held on April 26, 1994, filed with the
Commission pursuant to Regulation 14a under the Act, are
incorporated by reference herein pursuant to Rule 12b-23 of the
Act and Instruction G(3) to Form 10-K.
21
<PAGE>
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
------------------------------------------------------------
The registrant has nothing to report for this item.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
-----------------------------------------------------------------
FORM 8-K
--------
a) The following documents are filed as part of this
report:
Page in
Annual Report*
-------------
(1) Consolidated Statements of
Income for the three years
ended December 31, 1993 24
Consolidated Balance Sheets at
December 31, 1993 and 1992 25-26
Consolidated Statements of Cash
Flows for the three years
ended December 31, 1993 27
Consolidated Statements of
Shareholders' Equity for the
three years ended
December 31, 1993 28
Notes to Consolidated Financial
Statements 29-41
Report of Independent
Accountants 42
Selected Financial Data 1
Supplemental Financial
Information 44-45
* Incorporated by reference from the indicated
pages of the 1993 Annual Report to Shareholders.
____________________
(2) Financial Statement Schedules:
Report of Independent Accountants on Financial
Statement Schedules, see Page F-2 hereto.
Index to Additional Financial Information, see
Page F-1 hereto.
The Financial Statement Schedules above should be read in
conjunction with the Consolidated Financial Statements in
the 1993 Annual Report to Shareholders. All other
schedules are omitted because they are not applicable or
the required information is shown in the consolidated
financial statements or notes thereto.
22
<PAGE>
<PAGE>
(b) Reports on Form 8-K.
The Company did not file a report on Form 8-K for the
fourth quarter of the year ended December 31, 1993.
(c) Exhibits:
Each document referred to below is incorporated by
reference to the files of the Commission, unless the
reference is preceded by an asterisk (*). Each
management contract, compensatory plan or arrangement
required to be filed as an exhibit hereto is preceded
by a double asterisk (**).
3(a) Restated Certificate of Incorporation of
Aquarion, as amended.(1)
3(b) By-laws of Aquarion, as amended. (6)
4(a) Rights Agreement between Aquarion and The
Chase Manhattan Bank, N.A. setting forth
description of Preferred Stock Purchase
Rights distributed to holders of Aquarion
Common Stock.(6)
10(a) First Mortgage Indenture of BHC dated
June 1, 1924.(2)
10(b) Seventeenth Supplemental Mortgage of BHC
dated as September 1, 1960.(2)
10(c) Nineteenth Supplemental Mortgage of BHC
dated as of August 1, 1965.(1)
10(d) Twentieth Supplemental Mortgage of BHC
dated as of November 1, 1968.(1)
10(e) Loan Agreement of BHC dated as of
October 15, 1984.(1)
10(f) Loan and Trust Agreement as of November 1,
1984.(1)
10(g) Note Agreement of Aquarion dated
December 28, 1990.(3)
10(h) Note Agreement of BHC dated January 24,
1991.(3)
10(i) Note Agreement of Aquarion dated as of
May 19, 1992.
**10(j) Aquarion Long-Term Incentive Plan.(1)
10(k) Joint Venture Agreement betwee
Brennan, Jr., William A. Brennan and Main
Street South Corporation dated February 23,
1979.(4)
**10(l) Employment Agreement between Aquarion and
James S. McInerney, dated June 1, 1990.
**10(m) Employment Agreement between Aquarion and
Janet M. Hansen dated November 1, 1992.
23
<PAGE>
<PAGE>
**10(n) Agreement between Aquarion and
William S. Warner dated October 15,
1989.(5)
**10(o) Employment Agreement between Aquarion and
Jack E. McGregor dated January 1, 1990.(5)
**10(p) Form of Stock Option Award Agreement for
options granted pursuant to Long-Term
Incentive Plan.(5)
10(q) Purchase Agreement dated July 28, 1989 by
and among Frederick T. Doane,
Heike A. Doane and Aquarion.(3)
10(r) Purchase Agreement dated July 10, 1990 by
and among Robert L. MacDonald and
Aquarion.(3)
10(s) Stock Purchase Agreement dated November 5,
1990 between Paul B. Priest,
A C Laboratories, Inc. and Aquarion.(3)
10(t) Stock Purchase Agreement dated as of
December 7, 1990 between Aquarion and the
sellers listed on Schedule 2. 1 thereof.(3)
**10(u) Employment Agreement between Aquarion and
Larry L. Bingaman dated June 11, 1990.(3)
10(v) Amendment dated September 12, 1991 to the
Stock Purchase Agreement dated as of
December 7, 1990.(1)
10(w) Purchase and Sale Agreement dated
September 12, 1991, by and among YWC
Technologies, Inc., Bird Corporation, YWC,
Inc., Interim Dewatering Services, Inc.,
Ad+Soil, Inc. and Aquarion.(1)
10(x) Agreement for Construction Management
Services dated April 18, 1991 between BHC
and Gilbane Building Company.(1)
**10(y) Employment Agreement between Industrial and
Environmental Analysts, Inc. and
Dr. Richard K. Schmidt dated April 1, 1992.
**10(z) Employment Agreement between Industrial and
Environmental Analysts, Inc. and David C.
Houle dated September 1, 1992.
10(aa) Loan Agreement of BHC dated as of June 1,
1990.(6)
10(bb) First Mortgage Bonds, Series C and
Preferred Stock, 1968 Series, Purchase
Agreement of SWC dated July 1968.
10(cc) Revolving Credit Agreement dated May 14,
1993.(7)
10(dd) Loan Agreement of BHC dated as of June 1,
1993. (7)
24
<PAGE>
<PAGE>
10(ee) Forward Purchase Agreement of BHC (1994A
Series) dated June 9, 1993.(7)
10(ff) Loan Agreement of SWC dated September 1,
1993.
*10(gg) Loan Agreement of BHC dated December 1,
1993.
*10(hh) Note Agreement of Aquarion dated January 4,
1994.
*13(a) Annual Report to Shareholders for the year
ended December 31, 1993.
*22(a) Subsidiaries of Aquarion
*24(a) Consent of Independent Accountants for
Aquarion Company is contained in Report of
Independent Accountants on page F-2 hereof.
*25(a) Power of Attorney.
____________________
(1) Filed as part of Aquarion's Form 8 Amendment to its
Form 10-Q for the quarter ended September 30, 1991, filed
February 19, 1992.
(2) Filed as an Exhibit to BHC's Registration Statement on
Form S-1, File Number 2-23434, dated April 26, 1965.
(3) Filed as part of the Annual Report of the Company on Form
10-K for the year ended December 31, 1990.
(4) Filed as part of the Amendment No. 1 to the Company's
Registration Statement as Form S-7, File No. 2-74305, dated
November 5, 1981.
(5) Filed as part of the Company's Annual Report on Form 10-K
for the year ended December 31, 1989.
(6) Filed as part of the Company's Annual Report on Form 10-K
for the year ended December 31, 1991.
(7) Filed as part of the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1993.
25
<PAGE>
<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.
Aquarion Company
________________
(Registrant)
Date
----
By /s/Janet M. Hansen March 23, 1994
------------------------------------------------
Janet M. Hansen
Senior Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
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 and on
the dates indicated.
By * March 23, 1994
------------------------------------------------
William S. Warner
Chairman of the Board of Directors
and Director
By * March 23, 1994
------------------------------------------------
Jack E. McGregor
President, Chief Executive Officer
and Director
By March 23, 1994
------------------------------------------------
George W. Edwards, Jr.
Director
26
<PAGE>
<PAGE>
By
------------------------------------------------
Geoffrey Etherington
Director
By * March 23, 1994
------------------------------------------------
Norwick R.G. Goodspeed
Director
By * March 23, 1994
------------------------------------------------
Janet D. Greenwood
Director
By * March 23, 1994
------------------------------------------------
Donald M. Halsted, Jr.
Director
By
------------------------------------------------
Eugene D. Jones
Director
By * March 23, 1994
------------------------------------------------
Larry L. Pflieger
Director
By * March 23, 1994
------------------------------------------------
G. Jackson Ratcliffe
Director
By * March 23, 1994
------------------------------------------------
John A. Urquhart
Director
*By /s/Janet M. Hansen
------------------------------------------------
Janet M. Hansen
Attorney-in-fact
27
<PAGE>
<PAGE>
F-1
INDEX TO ADDITIONAL FINANCIAL INFORMATION
-----------------------------------------
The consolidated financial statements, together with the
report of Price Waterhouse thereon, dated January 31, 1994,
appearing on Pages 24 - 45 of the accompanying 1993 Annual Report
to Shareholders are incorporated by reference in this Form 10-K
Annual Report. With the exception of the aforementioned
information and the information incorporated in Items 1, 5, 6, 7
and 8, the 1993 Annual Report to Shareholders is not to be deemed
filed as part of this report. The following financial
information should be read in conjunction with the consolidated
financial statements in such 1993 Annual Report to Shareholders.
Financial Statement Schedules not included in this Form 10-K
Annual Report have been omitted because they are not applicable
or the required information is shown in the consolidated
financial statements or notes thereto.
ADDITIONAL FINANCIAL INFORMATION
--------------------------------
Page
----
Property, plant and equipment (Schedule V)
for the years 1993, 1992 and 1991 F-3
Accumulated depreciation, depletion and
amortization of property, plant and
equipment (Schedule VI) for the years
1993, 1992 and 1991 F-4
Supplementary income statement information
(Schedule X) for the years 1993, 1992 and 1991 F-5
28
<PAGE>
<PAGE>
F-2
REPORT OF INDEPENDENT ACCOUNTANTS ON
------------------------------------
FINANCIAL STATEMENT SCHEDULES
-----------------------------
To the Board of Directors of Aquarion Company
Our audits of the consolidated financial statements referred to
in our report dated January 31, 1994 appearing on Page 42 of the
1993 Annual Report to Shareholders of Aquarion Company, (which
report and consolidated financial statements are incorporated by
reference in this Annual Report on Form 10-K) also included an
audit of the Financial Statement Schedules listed in item 14(a)
of this Form 10-K. In our opinion, these Financial Statement
Schedules present fairly, in all material respects, the
information set forth therein when read in conjunction with the
related consolidated financial statements.
/s/Price Waterhouse
---------------------
Price Waterhouse
Stamford, Connecticut
January 31, 1994
29
<PAGE>
<PAGE>
F-3
<TABLE>
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at Other Balance
Beginning Additions changes at end
of period at cost Retirements add(deduct) of period
---------- ------- ----------- ----------- ---------
Description
(In thousands)
--------------
<S> <C> <C> <C> <C> <C>
1993:
----
Organization . . . . . . . . $ 185 $ - $ - $ - $ 185
Source of supply . . . . . . 25,261 1,501 - - 26,762
Pumping . . . . . . . . . . . 11,696 1,699 - - 13,395
Water treatment . . . . . . . 30,905 22,046 (2) - - 52,951
Transmission & distribution 199,539 7,505 (1) 179 - 206,865
General plant . . . . . . . . 28,795 2,061 770 - 30,086
Construction work in progress 23,193 (17,927)(2) - - 5,266
Utility plant held for future
use . . . . . . . . . . . . . 471 - - - 471
Nonutility . . . . . . . . . 31,714 1,809 1,940(4) 31,583
-------- ------- ------ - --------
Total . . . . . . . . . . $351,759 $18,694 $2,889 $ 0 $367,564
======= ====== ===== == =======
1992:
Organization . . . . . . . . $ 185 $ - $ - $ - $ 185
Source of supply . . . . . . 24,628 558 2 77 25,261
Pumping . . . . . . . . . . . 11,598 98 - - 11,696
Water treatment . . . . . . . 30,817 88 - - 30,905
Transmission & distribution 195,173 4,632(1) 230 (36)(3) 199,539
General plant . . . . . . . . 25,981 3,444 627 (3) 28,795
Construction work in progress 9,637 13,556(2) - - 23,193
Utility plant held for future
use . . . . . . . . . . . . . 471 - - - 471
Nonutility . . . . . . . . . 28,647 3,010 62 119 31,714
-------- ------- ------ ---- --------
Total . . . . . . . . . . $327,137 $25,386 $ 921 $157 $351,759
======= ====== === === =======
1991:
Organization . . . . . . . . $ 185 $ - $ - $ - $ 185
Source of supply . . . . . . 24,508 120 - - 24,628
Pumping . . . . . . . . . . . 11,305 303 30 20 11,598
Water treatment . . . . . . . 30,574 243 - - 30,817
Transmission and distribution 189,854 5,759(1) 440 - 195,173
General plant . . . . . . . . 23,583 3,022 611 (13) 25,981
Construction work in progress 4,778 4,859(2) - - 9,637
Utility plant held for future
use . . . . . . . . . . . . . 487 - 16 - 471
Nonutility . . . . . . . . . 25,295 3,546 207 13 28,647
-------- -------- ------ ---- --------
Total $310,569 $17,852 $1,304 $ 20 $327,137
======= ====== ===== == =======
- -----------
(1) The change in transmission and distribution is due to normal plant expansion.
(2) Primarily related to filtration facilities.
(3) Contribution in aid of construction from Stamford Water Company in conjunction with
the Southwest regional pipeline.
(4) Includes the gross plant from laboratory sales.
</TABLE>
30
<PAGE>
<PAGE>
F-4
<TABLE>
SCHEDULE VI - ACCUMULATED DEPRECIATION, DEPLETION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
<CAPTION>
Balance at Balance
Beginning Other at end
of Additions changes of period
period at cost Retirements add(deduct) at cost
------- ------- ----------- ----------- ---------
Description
(In thousands)
- --------------
<S> <C> <C> <C> <C> <C>
1993:
- ----
Source of supply . . . . . . $ 8,568 $ 352 $ 3 $ - $ 8,917
Pumping . . . . . . . . . . . 5,236 393 - - 5,629
Water treatment . . . . . . . 8,242 1,182 - - 9,424
Transmission and distribution 60,118 3,829 241 - 63,706
General . . . . . . . . . . 10,790 2,284 632 - 12,442
Nonutility . . . . . . . . . 15,656 2,587 1,170 - 17,073
-------- ------- ------ --- ------
Total . . . . . . . . . . $108,610 $10,627 $2,046 $ 0 $117,191
======= ====== ===== == =======
1992:
- ----
Source of supply . . . . . . $ 8,222 $ 346 $ - $ - $ 8,568
Pumping . . . . . . . . . . . 4,844 392 - - 5,236
Water treatment . . . . . . . 7,379 863 - - 8,242
Transmission and distribution 56,610 3,716 281 73(1) 60,118
General . . . . . . . . . . 9,715 1,655 627 47 10,790
Nonutility . . . . . . . . . 12,956 2,548 50 202(2) 15,656
-------- ------- ------ ----- --------
Total . . . . . . . . . . $ 99,726 $ 9,520 $ 958 $322 $108,610
====== ===== === === =======
1991:
- ----
Source of supply . . . . . . $ 7,882 $ 340 $ - $ - $ 8,222
Pumping . . . . . . . . . . . 4,522 384 62 - 4,844
Water treatment . . . . . . . 6,506 873 - - 7,379
Transmission and distribution 53,470 3,631 500 9 56,610
General . . . . . . . . . . . 8,827 1,421 573 40 9,715
Nonutility . . . . . . . . . 10,876 2,243(2) 185 22 12,956
-------- ------ ------ ---- --------
$ 92,083 $ 8,892 $1,320 $ 71 $ 99,726
Total ====== ===== ===== == ======
- ---------------
(1) Billings to State of Connecticut for relocation of facilities.
(2) Accumulated depreciation from acquisitions.
(3) Includes accumulated depreciation from laboratory sales.
</TABLE>
31
<PAGE>
<PAGE>
F-5
<TABLE>
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
1993 1992 1991
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Maintenance and repairs . . . . . . . . . $3,295 $3,279 $3,705
Depreciation . . . . . . . . . . . . . . 10,623 9,520 8,892
Amortization . . . . . . . . . . . . . . 965 1,030 1,413
Taxes other than payroll and income taxes:
Property . . . . . . . . . . . . . . . . 6,585 6,601 6,198
Gross earnings and franchise taxes . . . 3,658 3,309 3,319
_________
Other "Supplementary Income Statement Information" that otherwise would be
required has been omitted since the amounts were less than 1% of total
consolidated revenues during each of the above years.
</TABLE>
32
<PAGE>
<PAGE>
EXHIBIT 22(a)
-------------
Subsidiaries of the Registrant
------------------------------
Bridgeport Hydraulic Company, incorporated in the State of Connecticut
Stamford Water Company, incorporated in the State of Connecticut
Main Street South Corporation, incorporated in the State of Connecticut
Timco, Inc., incorporated in the State of Connecticut
Hydrocorp, Inc., incorporated in the State of Delaware
Industrial and Environmental Analysts, Inc., incorporated in the State of
Vermont
Industrial and Environmental Analysts, Inc. - Massachusetts, incorporated
in the State of Massachusetts
Industrial and Environmental Analysts, Inc. - New Jersey, incorporated in
the State of Delaware
Industrial and Environmental Analysts, Inc. - Illinois, incorporated in the
State of Delaware
Industrial and Environmental Analysts, Inc. - Florida,incorporated in the
State of Florida
SRK Holding, Inc., incorporated in the State of Connecticut
THC Acquisition Corp., incorporated in the State of Delaware
YWC, Inc., incorporated in the State of Connecticut
Aquarion Management Services, Inc., incorporated in the State of Delaware
33
<PAGE>
<PAGE>
EXHIBIT 24(a)
-------------
Consent of Independent Accountants
----------------------------------
The Consent of Independent Accountants for Aquarion Company is contained
in the Report of Independent Accountants on page F-2 of this Form 10-K.
34
<PAGE>
EXHIBIT 13(a)
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
Management's Discussion and Analysis of Financial Condition and Results
of Operations
The terms "Aquarion Company," "Aquarion," and "the Company" are used in
this section for convenience and reading ease. These terms do not in
all cases describe exact intercompany relationships among Aquarion and
its subsidiaries.
Capital resources and liquidity
-------------------------------
Capital Expenditures. The Company invested $17,900,000 in property,
plant and equipment in 1993, compared with $24,700,000 in 1992 and
$17,450,000 in 1991. Aquarion's utility subsidiary, Bridgeport
Hydraulic Company (BHC), and BHC's subsidiary, Stamford Water Company
(SWC), (collectively, the Utilities) accounted for approximately 87
percent of plant additions during the three-year period, with the
balance being invested primarily in the Company's environmental testing
laboratories (Laboratories), IEA, and forest products and electric
cogeneration operations (Forest Products), Timco. Nonutility capital
expenditures totaled approximately $1,800,000 in 1993. Management
estimates that capital expenditures will total $36,500,000 in 1994, of
which approximately $34,200,000 will be for water utility construction
programs. Nonutility capital expenditures will approximate $2,300,000
in 1994.
- --------------------------------------------------------------------------
Actual Utility Capital Expenditures
(Dollars in thousands)
1991 1992 1993
---- ---- ----
Filtration $ 7,200 $12,200 $ 8,000
Non-Filtration 6,800 9,500 8,300
------- ------- -------
Total $14,000 $21,700 $16,300
======= ======= =======
- --------------------------------------------------------------------------
Projected Utility Capital Expenditures
(Dollars in thousands)
1994 1995 1996
---- ---- ----
Filtration $15,300 $28,700 $ 6,000
Non-Filtration 18,900 13,135 12,935
------- ------- -------
Total $34,200 $41,835 $18,935
======= ======= =======
- -------------------------------------------------------------------------
Federal Safe Drinking Water Act (SDWA) regulations require water
filtration or alternate water treatment measures for BHC's major
unfiltered water supplies. In accordance with SDWA regulations,
construction of filtration facilities for BHC's Easton Lake Reservoir
began in 1990 and those facilities were completed and placed in service
in 1993 at a total project cost of $26,800,000. Engineering for the
construction of filtration facilities at BHC's Hemlocks Reservoir
commenced during 1992 and construction is anticipated to begin in May
1994. The total expected cost of construction through completion in
1996 will approximate $50,000,000, without adjustment for inflation.
Management estimates that the future costs of construction on other
unfiltered surface water supplies, expected to be completed by 1996,
will approximate $2,400,000 without adjustment for inflation.
Expenditures totaling $28,400,000 have been made under the filtration
program through December 31, 1993. Management can not predict whether
future federal, state or local regulations will require additional
capital expenditures.
Financing Activities. Due to the magnitude of the Company's construc-
tion programs and the capital-intensive nature of the public water sup-
ply business, financing has been provided by both internal and external
sources. Historically, the Company's ability to finance its capital
expenditures has depended substantially on rate relief.
On February 5, 1993, BHC filed a rate application with the
Connecticut Department of Public Utility Control (DPUC) for a 35 percent
water service rate increase designed to provide a $17,500,000 increase
in annual water service revenues and a return on common equity of 12.75
percent. The request included the replacement of a construction work in
progress water service rate surcharge (CWIP rate surcharge) previously
granted to BHC pursuant to DPUC regulations to recover 90 percent of the
carrying costs of capital used in its SDWA-mandated Easton Lake
Filtration Construction Project. Prior to the final decision, BHC
lowered its original request by a total of $1,400,000 to $16,100,000,
based on reduced annual interest costs achieved through the
restructuring of long-term debt and on reduced property taxes and other
miscellaneous expenses. Effective August 1,
17
<PAGE>
<PAGE>
1993, the DPUC awarded BHC
a 21 percent water service rate increase designed to provide a
$10,400,000 annual increase in revenues and an 11.6 percent return on
common equity. Prior to the time the new rates became effective, the
CWIP rate surcharge was 7.35 percent of revenues. During 1993, BHC
derived revenues of $1,937,000 from the CWIP rate surcharge which ended
with respect to the Easton Filtration Project when the new rates became
effective.
On February 8, 1991, SWC filed with the DPUC an application for a
$3,646,000, 36.5 percent increase in annual water service revenues.
Effective August 28, 1991, SWC received approval from the DPUC for a
22.5 percent rate increase designed to provide increased annual revenues
of $2,276,000, and a 12.85 percent return on common equity.
The percentage of capital expenditures financed by net cash from
operating activities was 100 percent, 81 percent and 67 percent for the
years ended December 31, 1993, 1992 and 1991, respectively. (See
"Consolidated Financial Statements-Consolidated Statement of Cash
Flows.") The remainder has been provided from external financing
sources.
Funds from external sources historically have been borrowed on a
short-term basis and periodically refinanced through long-term debt or
equity issues. In May 1993, Aquarion entered into unsecured revolving
credit agreements with five banks to provide $50,000,000 ($10,000,000
with each bank) of short-term credit availability on a committed basis.
At December 31, 1993, $5,500,000 of short-term borrowings under the
agreements was outstanding at a weighted average annual interest rate of
3.49 percent (Note 8).
In June 1993, the Company completed a common stock offering of
460,000 shares at $25.875 per share. The proceeds of the issue, after
all expenses, amounted to $11,200,500. In addition, BHC issued a 5.6
percent $10,000,000 unsecured note under a tax-exempt financing with the
Connecticut Development Authority. Proceeds from both transactions were
used to reduce short-term borrowings, which had been incurred in
connection with the construction of BHC's Easton Lake Reservoir
Filtration Plant.
During 1993, the Company took advantage of lower interest rates
through several debt refinancings. BHC redeemed its $12,000,000, 7.4
percent Series T First Mortgage Bonds and its $7,700,000, 7-3/4 percent
unsecured note and issued unsecured notes of $12,000,000 and $7,700,000
at 5.5 percent and 5.8 percent, respectively. In addition, BHC entered
into a Forward Purchase Agreement to issue a $10,000,000, 6.05 percent
note which will be used to refund the $10,000,000, 10-3/4 percent note
which BHC plans to call for early redemption in October 1994. In
September 1993, SWC issued a $8,980,000 unsecured note at 5.3 percent.
SWC used the proceeds to redeem its
- ---------------------------------------------------------------------------
Total Debt
(Dollars in thousands)
1991 1992 1993
---- ---- ----
Total $136,221 $127,932 $121,153
Long-term 95,283 105,463 115,591
- ---------------------------------------------------------------------------
$3,000,000, 7-1/2 percent and $5,980,000, 7.6 percent unsecured notes.
Additionally, Aquarion issued a $10,000,000, 5.95 percent Senior Note on
January 4, 1994, the proceeds of which were used to redeem the $10,000,000,
8.5 percent Senior Notes which matured on January 1, 1994. As a result of
the above refinancings, the Company will recognize annual consolidated
interest expense savings of approximately $1,300,000.
18
<PAGE>
<PAGE>
The Utilities' financing activities are targeted over the long term
to maintain an approximate capitalization structure of 50 percent equity
and 50 percent long-term debt. At December 31, 1993, the Utilities'
combined capitalization structure approximated 55.5 percent equity and
44.5 percent debt, while the Company's consolidated capitalization
structure approximated 49.0 percent equity and 51.0 percent debt.
Future Financing Requirements. As in the past, the Company's ability to
finance future capital expenditures depends substantially on rate
relief. Rate relief has an impact on cash flow from operating
activities and consequently affects the Company's ability to obtain
external financing, since sufficient operating cash flows are necessary
to maintain debt coverage ratios to allow for the issuance of additional
debt securities. Additionally, rate relief will have an impact on the
Company's ability to generate sufficient cash flows to provide a
reasonable return in the form of dividends to Aquarion's stockholders.
In light of the Company's substantial need for additional funds, the
Company will need additional debt and equity capital to finance future
utility construction. The type, amount and timing of new financings
will be based on the Company's general financial policies regarding
capitalization, as well as on market conditions and other economic
factors.
The Company's ability to obtain funding from external sources will
be affected by the terms of certain of the Company's existing
obligations. Under BHC's First Mortgage Indenture (BHC Indenture),
approximately $9,000,000 of First Mortgage Bonds were outstanding at
December 31, 1993. No additional bonds have been issued under the BHC
Indenture since 1980. Substantially, all of BHC's properties are
subject to the lien of the BHC Indenture.
Additional long-term debt may be issued by the Company under the
terms of the Senior Notes as long as consolidated long-term debt
(including capitalized lease obligations) does not exceed 66 2/3 percent
of its consolidated total capitalization, as defined. BHC may issue
additional long-term debt under the BHC Notes if it meets a similar 66
2/3 percent long-term debt to total capitalization test.
The Company's need for future external financing may also be
affected by future net proceeds from its land disposition program. BHC
has identified in excess of 2,000 acres of off-watershed land, most of
which was previously in its rate base, as surplus to utility operations.
Under Connecticut law, net proceeds from the sale of land which has ever
been in a utility's rate base must be reinvested in the utility plant,
and profits from such transactions are allocated by the DPUC between the
utility's customers and shareholders pursuant to legislative and
regulatory criteria. Net income from sales of BHC's surplus, off-
watershed land amounted to approximately $312,000, or 5 cents per share,
in 1993.
Recent Accounting Developments.
-------------------------------
Income Taxes. In February 1992, the Financial Accounting Standards Board
(FASB)issued Statement No. 109, "Accounting for Income Taxes" (SFAS 109).
The Company adopted SFAS 109 effective for the first quarter of 1992. Prior
years' financial statements have not been restated for the adoption.
SFAS 109 requires that deferred income taxes be recorded for the
difference between the tax basis of assets and liabilities and the
amounts at which such assets and liabilities are carried in the
financial statements, based on the enacted tax rates expected to be in
effect when such temporary differences are expected to reverse. The
most significant impact of adoption on the income statement was the
recording of a cumulative reduction of deferred income taxes payable
associated with the nonutility subsidiaries, principally due to the
lowering of the federal tax rate. This reduction resulted in a credit
to income of $791,000, or 14 cents per share, in 1992. (Note 6).
Employee Benefits. In December 1990, the FASB issued Statement No. 106,
"Employers' Accounting for Post-Retirement Benefits Other Than Pensions"
(SFAS 106). The Company adopted SFAS 106 effective for the first quarter of
1993. Prior years' financial statements have not been restated for the
adoption.
SFAS No. 106 requires that an employer's obligation for
postretirement benefits expected to be provided to or for an employee be
19
<PAGE>
<PAGE>
fully accrued by the date that the employee attains full eligibility for
all benefits expected to be received by that employee, any beneficiaries
and covered dependents, even if the employee is expected to render
additional service beyond that date. Prior to adoption, the Company
recorded the costs of providing such benefits when paid. As allowed by
SFAS 106, the Company has elected to recognize the unfunded accumulated
postretirement benefit obligation of $10,471,000 at January 1, 1993 over
20 years. The annual post-retirement benefits expense for 1993 amounted
to $650,000. The remaining cost has been recorded as a regulatory
asset. BHC received approval for recovery of these costs in its water
service rates from the DPUC in the rate decision effective August 1,
1993. SWC expects recovery of these costs in future rate proceedings.
The effect on the Company's nonutility operations did not materially
impact the results of operations (Note 12).
In November 1992 the FASB issued Statement No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112), effective for fiscal
years beginning after December 15, 1993. SFAS 112 will require the
Company to accrue the cost of providing future benefits to former or
inactive employees after employment but before retirement. These
benefits would be recognized over the employees' years of service or at
the date of the event giving rise to such benefits. The impact of this
new standard is not expected to have a material effect on the Company's
financial condition or results of operations.
Other.
------
Inflation. Inflation, as measured by the Consumer Price Index, increased
2.7 percent, 2.9 percent and 3.1 percent in 1993, 1992 and 1991,
respectively, and primarily affects the Utilities. The DPUC allows the
recovery of depreciation through revenues solely on the basis of the
historical cost of plant. The replacement cost of utility plant would
be significantly higher than the historical cost. While the DPUC gives
no recognition in its ratemaking process to the current cost of
replacing utility plant, the Company believes that, based on past
practices, the Utilities will continue to be allowed to earn a return on
the increased cost of their net investment when prudent replacement of
facilities actually occurs.
Subsequent Event. Electricity produced at the cogeneration plant operated by
Timco has been sold to Public Service Company of New Hampshire (PSNH) under a
20-year rate order of the New Hampshire Public Utilities Commission
(PUC) applicable to Small Power Producers (the Rate Order). In January
1988, PSNH sought protection under Chapter 11 of the U.S. Bankruptcy
Code. PSNH emerged from bankruptcy in June 1991, managed by Northeast
Utilities (NU). As part of the PSNH reorganization plan, NU was ordered
to restructure the Rate Order. In January 1994, PSNH and Timco reached
an agreement by which PSNH, in order to terminate its obligations to buy
electricity from Timco under the Rate Order, will pay Timco $8,600,000,
subject to adjustment depending upon the date on which such payment, if
approved by the PUC, is made. In return, Timco will not be able to draw
customers from the systems of PSNH or its NU affiliates. PSNH has filed
an application with the PUC for approval of the agreement, and there is
no assurance that the agreement will be approved.
Results of operations
---------------------
1993 Overview. The Company's consolidated net income for 1993 was
$10,990,000 compared with net income of $9,400,000 in 1992. Net income
per share was $1.76 in 1993 on a weighted average of 6,237,875 common
shares outstanding, compared with $1.65 in 1992 on a weighted average of
5,690,853 common shares outstanding. Operating results during 1993 were
favorably affected by improved earnings from the Utilities and continued
effective control of expenses through various cost-containment programs
throughout the Company.
The 1992 results included a nonrecurring credit of $791,000, or 14
cents per share, from the cumulative effect of the Company's adoption of
SFAS 109, which changed its method of accounting for income taxes.
20
<PAGE>
<PAGE>
The following table sets forth information about Aquarion's
operations by industry segment for the years ended December 31, as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
(In thousands, except percentages) Amount % Amount % Amount %
________ ___ ________ ___ _______ ___
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Public water supply $ 71,280 66.4% $ 63,702 62.4% $63,829 64.5%
Environmental laboratories
and utility management
services 23,132 21.5 26,061 25.5 24,358 24.7
Forest products 12,298 11.5 12,001 11.8 10,515 10.6
Real estate 645 0.6 262 0.3 196 0.2
________ _____ ________ _____ _______ _____
Total operating revenues $107,355 100.0% $102,026 100.0% $98,898 100.0%
======= ===== ======= ===== ====== =====
Operating income (loss)(1)
Public water supply $26,475 $22,475 $22,241
Environmental laboratories
and utility management
services(2) (1,107) (431) (20,221)
Forest products 1,496 1,437 1,396
Real estate 40 170 174
_______ _______ _______
Total operating income $26,904 $ 23,651 $ 3,590
Unallocated interest, AFUDC and
other expenses, net (9,249) (9,410) (9,352)
_______ _______ _______
Income (loss) before income taxes
and cumulative effect of a change
in accounting method $17,655 $14,241 $(5,762) <PAGE>
====== ====== =====
(1) Operating income (loss) is defined as operating revenues less
total costs and expenses, other than interest expenses, income
taxes, allowance for funds used during construction (AFUDC),
subsidiary preferred dividends and unallocated corporate
(expense) income.
(2) Includes special charges of $15,000,000 in 1991 and goodwill
amortization of $474,000, $474,000 and $878,000 in 1993, 1992
and 1991, respectively. See Note 5 of Not Statements.
</TABLE>
- ----------------------------------------------------------------------------
1993 Operating Revenues Per Business Segment
(Dollars in thousands)
Amount
------
Public water supply $71,280
Environmental labs and
utility mgmt. services 23,132
Forest products 12,298
Real estate 645
- ----------------------------------------------------------------------------
1992 Operating Revenues Per Business Segment
(Dollars in thousands)
Amount
------
Public water supply $63,702
Environmental labs and
utility mgmt. services 26,061
Forest products 12,001
Real estate 262
- ----------------------------------------------------------------------------
1991 Operating Revenues Per Business Segment
(Dollars in thousands)
Amount
------
Public water supply $63,829
Environmental labs and
utility mgmt. services 24,358
Forest products 10,515
Real estate 196
- ----------------------------------------------------------------------------
21
<PAGE>
<PAGE>
1993 compared with 1992
-----------------------
Operating Revenues. Consolidated operating revenues of $107,355,000 in
1993 were $5,329,000 higher than 1992. Revenues from the Utilities
increased $7,579,000, principally due to a 21 percent water service rate
increase for BHC which became effective August 1, 1993, increased
consumption that resulted from the hot, dry summer weather and, to a
lesser extent, increased CWIP rate surcharge revenues recognized during
the first seven months of the year. Revenues from the Laboratories
decreased $2,945,000 in 1993, reflecting the revenue impact of the sale
of a laboratory in the first and the Air Services Division in the fourth
quarter of 1993 as part of a previously announced restructuring plan, as
well as increased price competition throughout the environmental testing
industry. Revenues from property sales increased $382,000 due to the
sale of surplus, off-watershed land during 1993. Forest Products
experienced increased revenues during 1993 of $297,000 principally due
to improved lumber volume and cogeneration output.
Operating Income. Operating income for 1993 increased $3,253,000 over
1992 levels. The increase consisted primarily of $4,000,000 from the
Utilities due to higher operating revenues offset by increased
operating, depreciation and property tax expenses associated with the
Easton Lake Reservoir Water Treatment Plant, increased costs associated
with the recognition of SFAS 106, as well as higher gross earnings
taxes. Operating income for 1993 was unfavorably affected by a decrease
of $676,000 at the Laboratories due to the impact of increased price
competition. The remainder was attributable to the increase of revenues
in the Forest Products and real estate segments.
Operating Expenses. Operating expenses decreased $1,401,000 in 1993.
The Laboratories had lower operating costs of $2,215,000 compared with
1992 primarily due to the sale of a laboratory in the first quarter of
1993 and general cost-containment measures. Offsetting this decrease
were increased costs of $558,000 from the Utilities including fuel costs
associated with increased pumpage during the summer months, and an
increase in water main repair costs, as well as higher chemical expenses
resulting from the operation of BHC's Easton Lake Reservoir Water
Treatment Plant, which was placed in service in June 1993. Additional
costs associated with Forest Products and real estate sales account for
the remainder of the variance.
General & Administrative Expenses. General and administrative expenses
totaled $18,205,000 in 1993, a $1,633,000 increase over 1992. Increased
expenses associated with BHC's recognition of FASB Statement No.106
effective August 1, 1993, increased property and liability insurance,
pension and payroll-related costs, partially offset by lower expenses
associated with leases for the Utilities, account for $801,000 of the
increase. An additional increase of $411,000 from real estate
operations resulted from increased expenses associated with the reserve
for an uncollectible note from a prior year sale. The Laboratories had
increased expenses of $241,000 primarily attributable to higher outside
consulting costs. Increased costs associated with unallocable legal
expenses account for the remainder of the variance.
Depreciation Expense. Depreciation expense in 1993 was $1,103,000
higher than 1992. This increase is attributable to routine utility
plant additions, a higher composite annual depreciation rate for BHC
effective August 1, 1993, and BHC's Easton Lake Reservoir Water
Treatment Plant, which was placed in service in June 1993.
Interest Expense. Interest expense for 1993 decreased $85,000 primarily
due to lower borrowing rates on relatively constant average outstanding
total debt throughout the year.
22
<PAGE>
<PAGE>
Taxes Other Than Income Taxes. Taxes other than income taxes were
$610,000 higher than 1992. Increased payroll and gross earnings taxes
of $415,000 as well as higher property taxes of $195,000 attributable to
a higher property base in 1993, account for the variance.
Income Taxes. Income taxes for 1993 were $1,033,000 higher than 1992
primarily due to higher taxable income. The Revenue Reconciliation Act
of 1993 increased the top corporate tax rate from 34 percent to 35
percent, effective for tax years beginning on or after January 1, 1993.
The higher tax rate had an immaterial effect on overall operating
results.
1992 Compared with 1991.
------------------------
Operating Revenues. Consolidated operating revenues of $102,026,000 in
1992 were $3,128,000 higher than the comparable 1991. Revenues from the
Utilities decreased by $127,000, primarily due to exceptionally cool,
wet summer weather in 1992 and the continuing erosion of the commercial
and industrial sectors, offset by an increase in the CWIP rate surcharge
revenues over 1991 levels. Revenues from the Laboratories increased
$1,488,000 due in large part to increased volume generated through the
restructuring efforts in sales and marketing undertaken in late 1991 and
early 1992. Forest Products experienced increased revenues during 1992
of $1,486,000 principally due to lumber sales in an expanding market
base. Revenues from property sales and utility management service
businesses account for the remainder of the increase.
Operating Income. Operating income for 1992 increased by $5,061,000
over 1991 levels, excluding the 1991 special charges of $15,000,000.
The increase consisted primarily of $2,724,000 from the Laboratories due
to a higher volume of revenues and various cost-containment programs.
An additional $490,000 was provided by reductions in goodwill
amortization and corporate allocations. In addition, 1991 operating
income included $1,300,000 in costs associated with the development of
WaterFacts, a home water-testing kit. The remainder was attributable to
a cost containment program company-wide.
Operating Expenses. Operating expenses decreased $538,000 from 1991.
The Utilities had lower operating expenses of $1,292,000 compared with
1991. Decreased costs associated with purchased water, purchased power
and periodic meter changes principally account for the variance. Forest
Products operating costs increased $1,352,000 due principally to higher
levels of production. The Laboratories experienced decreased operating
costs of $540,000 in 1992 due principally to the effect of various cost-
containment programs. Additional costs of $436,000 associated with the
utility management service businesses were due primarily to increased
payroll costs. This increase was offset by 1991 operating expenses of
$1,300,000 associated with the development of WaterFacts, net of a
reduction of $806,000 which represented the recognition of a previously
deferred pretax land sale gain as the result of a favorable court
ruling.
General & Administrative Expenses. General and administrative expenses
for 1992 decreased by $1,876,000 from 1991. Expenses from the Public
Water Supply segment decreased by $396,000 compared with 1991 primarily
due to reductions in conservation kit expenditures and payroll. The
Laboratories incurred lower general and administrative expenses of
$1,005,000 compared with 1991 due principally to a decrease in payroll
and related expenses. A decrease in goodwill amortization and corporate
expenses provided an additional $490,000. Increased costs associated
with Forest Products and other utility management service businesses
account for the remainder of the variance.
Depreciation Expense. Depreciation expense for 1992 was $639,000 higher
than 1991. Routine plant additions by the Utilities and the
Laboratories principally account for this variance.
Interest Expense. Interest expense was $217,000 lower than 1991
primarily due to lower short-term borrowing rates as well as lower
outstanding total debt.
Taxes Other Than Income Taxes. Taxes other than income taxes for 1992
increased $394,000 from 1991. Higher property taxes of $460,000, offset
by a decrease in payroll taxes, accounted for the variance.
Income Taxes. Income taxes for 1992 were $2,926,000 higher than 1991
due primarily to higher taxable income in 1992. The 1992 operating
results benefitted from the cumulative effect of a change in accounting
related to the adoption of SFAS 109, which contributed an additional
$791,000, or 14 cents per share, to 1992 net income.
Seasonality. The Company's operating results are subject to weather
variations and seasonal fluctuations due to an increased demand for both
water and environmental testing procedures in the warmer months (See
supplemental Financial Information to Consolidated Financial Statements
for selected quarterly data for 1993 and 1992.)
23
<PAGE>
<PAGE>
<TABLE>
Aquarion Company and Subsidiaries
Consolidated Statements of Income
<CAPTION>
In thousands, except share data
Year ended December 31 1993 1992 1991
<S> <S> <S> <S>
Operating revenues $ 107,355 $ 102,026 $ 98,898
------- ------- --------
Costs and expenses:
Operating 40,276 41,677 42,215
General and administrative 18,205 16,572 18,448
Depreciation 10,623 9,520 8,881
Interest expense 9,242 9,327 9,544
Taxes other than income 11,977 11,367 10,973
Special charges - - 15,000
------- ------ -------
Total costs and expenses 90,323 88,463 105,061
====== ====== =======
17,032 13,563 (6,163)
Allowance for funds used during
construction 623 678 401
------- ------ ------
Income (loss) before income taxes and
cumulative effect of a change in
accounting method 17,655 14,241 (5,762)
Income taxes 6,665 5,632 2,706
------- ------ ------
Income (loss) before cumulative effect
of a change in accounting method 10,990 8,609 (8,468)
Cumulative effect of a change in
accounting method - 791 -
------- ------ ------
Net income (loss) $ 10,990 $ 9,400 $ (8,468)
====== ===== =====
Per share before cumulative effect
of a change in accounting method $ 1.76 $ 1.51 $ (1.75)
Cumulative effect of a change in
accounting method - .14 -
------- ------ -------
Per share $ 1.76 $ 1.65 $ (1.75)
======= ==== ====
Weighted average common shares
outstanding 6,237,875 5,690,853 4,834,317 <PAGE>
========= ========= =========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
Aquarion Company and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Assets 1993 1992
<S> <C> <C>
In thousands
December 31,
Property, plant and equipment $367,564 $351,759
Less: accumulated depreciation 117,191 108,610
-------- --------
Net property, plant and equipment 250,373 243,149
-------- --------
Current assets:
Cash and cash equivalents 90 319
-------- --------
Accounts receivable:
Customers 14,422 16,045
Miscellaneous 2,439 3,840
-------- --------
16,861 19,885
Less: allowance for doubtful accounts 2,935 2,440
-------- --------
13,926 17,445
Accrued revenues 8,995 7,781
Inventories 2,885 3,113
Prepaid expenses 6,698 5,634
-------- --------
Total current assets 32,594 34,292
-------- --------
Goodwill 10,709 11,182
Recoverable income taxes 46,377 41,137
Other assets 22,819 18,571
-------- --------
$362,872 $348,331
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
Aquarion Company and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
Liabilities and Shareholders' Equity 1993 1992
In thousands, except share data
December 31,
------------------------------------ ------ ------
<S> <C> <C>
Shareholders' equity:
Preferred stock, no par value, authorized
2,500,000 shares not to exceed aggregate value
of $25,000,000, issuable in shares--none issued $ - $ -
Common stock, stated value: $1
Authorized--16,000,000 shares
Issued 6,564,533 shares in 1993 and 6,032,109
shares in 1992 6,565 6,032
Capital in excess of stated value 91,441 79,129
Retained earnings 15,015 14,327
------- -------
113,021 99,488
Less: treasury stock, at cost 2,540 2,323
------- -------
Total shareholders' equity 110,481 97,165
------- -------
Redeemable preferred stock of subsidiaries 375 420
------- -------
Long-term debt and other obligations 115,591 105,463
------- -------
Current liabilities:
Short-term borrowings, unsecured 5,500 17,600
Current maturities of long-term debt 62 4,869
Accounts payable and accrued liabilities 10,790 10,215
Dividends payable 2,621 2,410
Accrued interest 2,240 2,586
Taxes other than income taxes 1,354 1,104
Income taxes 976 1,121
------- -------
Total current liabilities 23,543 39,905
------- -------
Advances for construction 22,593 23,062
Contributions in aid of construction 20,883 19,433
Recoverable income taxes 6,123 6,067
Deferred income taxes 63,283 56,816
Commitments - -
-------- --------
$362,872 $348,331
======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
Aquarion Company and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
In thousands, except share data
Year ended December 31 1993 1992 1991
------------------------------- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $10,990 $ 9,400 $(8,468)
Adjustments reconciling net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 11,588 10,799 10,305
Provision for losses on accounts receivable 1,707 1,169 1,182
Deferred and prepaid net taxes 1,528 1,693 497
Cumulative effect of change in accounting method - (791) -
Proceeds from sale of surplus land, net of gains 333 120 (416)
Special charges - - 15,000
Allowance for funds used during construction (623) (678) (401)
Change in assets and liabilities (Note 16) (340) (1,621) (6,058)
------- ------- -------
Net cash provided by operating activities 25,183 20,091 11,641
------- ------- -------
Cash flows from investing activities:
Capital additions, excluding an allowance for funds
used during construction (17,898) (24,710) (17,454)
Advances and contributions in aid of construction,
net of refunds 981 747 1,111
Other investing activities (605) 1,079 (5,785)
------- ------- -------
Net cash used in investing activities (17,522) (22,884) (22,128)
------- ------- -------
Cash flows from financing activities:
Proceeds from the issuance of long-term debt 10,000 15,000 -
Proceeds from the issuance of common stock, net 12,845 21,395 1,246
Net (repayments of) proceeds from short-term
borrowings (12,100) (19,600) 12,370
Common dividends paid (10,091) (9,137) (7,795)
Principal and premium payments on long-term debt (5,241) (3,688) (2,743)
Debt issuance costs (2,174) (85) (205)
Purchase of treasury stock (1,084) - -
Payments for redemption of preferred stock (45) (1,745) (345)
------- ------ -------
Net cash (used in) provided by financing
activities (7,890) 2,140 2,528
------- ------ -------
Net (decrease) in cash and cash equivalents (229) (653) (7,959)
Cash and cash equivalents, beginning of year 319 972 8,931
------- ------- -------
Cash and cash equivalents, end of year $ 90 $ 319 $ 972
======= ======= =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
27
<PAGE>
<PAGE>
<TABLE>
Aquarion Company and Subsidiaries
Consolidated Statements of Shareholders' Equity
<CAPTION>
Capital Total
in excess share-
In thousands, except share Number Stated of stated Retained Number holders'
data of Shares value value earnings of Shares Amount equity
-------------------------- --------- ------ --------- -------- --------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1991
Balance, December 31, 1990 4,904,053 $4,904 $57,616 $30,816 101,352 $(2,833) $90,503
Net loss - - - (8,468) - - (8,468)
Dividends on common stock - - - (7,843) - - (7,843)
Dividend reinvestment plan 57,115 57 1,189 - - - 1,246
Treasury stock transactions - - - (3,167) 82 82
--------- ------ ------- ------- ------- ------- -------
Balance, December 31, 1991 4,961,168 4,961 58,805 14,505 98,185 (2,751) 75,520
--------- ------ ------- ------- ------- ------- -------
Year ended December 31, 1992
Net income - - - 9,400 - - 9,400
Proceeds from the issuance of
common stock, net 1,000,000 1,000 18,851 - - - 19,851
Dividends on common stock - - - (9,578) - - (9,578)
Dividend reinvestment plan 70,941 71 1,473 - - - 1,544
Treasury stock transactions - - - - (16,751) 428 428
--------- ------ ------- ------- ------- ------- -------
Balance, December 31, 1992 6,032,109 6,032 79,129 14,327 81,434 (2,323) 97,165
--------- ------ ------- ------- ------- ------- -------
Year ended December 31, 1993
Net income - - - 10,990 - - 10,990
Proceeds from the issuance of
common stock, net 460,000 460 10,741 - - - 11,201
Dividends on common stock - - - (10,302) - - (10,302)
Dividend reinvestment plan 72,424 73 1,571 - - - 1,644
Treasury stock transactions - - - - 10,857 (217) (217)
--------- ------ ------- ------- ------ ------- -------
Balance, December 31, 1993 6,564,533 $6,565 $91,441 $15,015 92,291 $(2,540) $110,481
========= ===== ====== ====== ====== ===== =======
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
28
<PAGE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of significant accounting policies
---------------------------------------------------
Aquarion Company (Aquarion) is a holding company whose subsidiaries are
engaged both in the regulated utility business of public water supply and in
various nonutility businesses. Aquarion's utility subsidiary, Bridgeport
Hydraulic Company (BHC) and BHC's subsidiary, Stamford Water Company (SWC),
(collectively, the Utilities) collect, treat and distribute water to
residential, commercial and industrial customers, to other utilities for
resale, and for private and municipal fire protection. The Utilities provide
water to customers in 22 communities in Fairfield, New Haven, and Litchfield
Counties in Connecticut, including communities served by other utilities to
which water is available on a wholesale basis for back-up supply and peak
demand purposes through BHC's Southwest Regional Pipeline. BHC is the
largest investor-owned water company in Connecticut and, with its SWC
subsidiary, is among the ten largest investor-owned water companies in the
nation. The Utilities are regulated by several Connecticut agencies,
including the Connecticut Department of Public Utility Control (DPUC).
Aquarion and its subsidiaries (collectively, the Company) are also engaged in
nonutility activities. The Company conducts an environmental testing
laboratory business through its Industrial and Environmental Analysts, Inc.
family of six laboratories which analyze contaminants in hazardous waste,
soil, air and water (IEA). Additionally, the Company is engaged in various
utility management service businesses through Hydrocorp, Inc. (Hydrocorp) and
Aquarion Management Services, Inc. (AMS), owns a small forest products and
electricity cogeneration business through Timco, Inc. (Timco) and owns a
small real estate subsidiary, Main Street South Corporation (MSSC).
The Company's accounting policies conform to generally accepted
accounting principles and, as applied in the case of rate-regulated public
utilities, comply with the Uniform System of Accounts and ratemaking
practices prescribed by the DPUC. A description of Aquarion's principal
accounting policies follows.
Principles of consolidation. The consolidated financial statements include
the accounts of the Company and of its majority-owned subsidiaries.
Investments in entities in which the Company owns more than 20 percent but 50
percent or less are accounted for by the equity method and investments in
entities in which the Company owns less than 20 percent are accounted for at
cost. All non majority-owned investments are included within the caption
"Other assets" in the Consolidated Balance Sheets.
All material intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified in order to
conform to the current year presentation.
Property, plant and equipment. Property, plant and equipment is stated at
cost. The costs of additions to and replacements of retired units of
property are capitalized. Costs include charges for direct material, labor
and services, and indirect charges related to construction, such as
engineering, supervision, payroll taxes and pension benefits. The Utilities
also capitalize an allowance for funds used during construction (AFUDC)
equivalent to the cost of funds devoted to plant under construction, except
for the portion of federal Safe Drinking Water Act (SDWA) projects for which
it may receive a construction work in progress water service rate surcharge
(CWIP rate surcharge).
Modifications and improvements to units of property are capitalized.
Expenditures for repairs and maintenance are charged to expense as incurred.
At the time depreciable utility property is retired or disposed of, the
book cost together with the related costs of removal, less salvage, is
charged to the reserve for depreciation in accordance with the Uniform System
of Accounts prescribed by the DPUC. Upon disposal or retirement of
depreciable nonutility property, the appropriate plant accounts and
accumulated depreciation are reduced by the related costs. Any resulting
gain or loss is recognized in the Consolidated Statement of Income.
For financial reporting purposes, depreciation is provided for
principally by use of the
29
<PAGE>
<PAGE>
straight-line method over the estimated service lives of the respective
assets. For income tax depreciation purposes, the Company, from January 1,
1981 to December 31, 1986, used the Accelerated Cost Recovery System for all
property, plant and equipment. As a result of the Tax Reform Act of 1986,
all plant additions subsequent to December 31, 1986 have used the Modified
Accelerated Cost Recovery System.
Statement of cash flows. For purposes of reporting cash flows, the Company
considers all highly liquid investments that have a maturity of three months
or less when purchased to be cash equivalents.
Earnings per share. Earnings per common share are based on the annual
weighted average number of shares outstanding and common share equivalents.
Common share equivalents consist of employee stock options, which do not have
a significant impact on the calculation.
Allowance for funds used during construction. AFUDC is recognized by the
Utilities by applying the last allowed rate of return on rate base approved
by the DPUC (9.62 percent for BHC and 10.69 percent for SWC at December 31,
1993) to construction projects exceeding $10,000 and requiring more than one
month to complete. AFUDC represents the net cost of borrowed funds used for
construction purposes for the period of construction and a reasonable rate of
return on other funds when so used. AFUDC represents a noncash credit to
income.
Utility plant under construction is not recognized as part of the
Utilities' rate base for ratemaking purposes until such facilities are placed
in service. Accordingly, the Utilities capitalize AFUDC as a portion of the
construction cost of utility plant until it is completed. Capitalized AFUDC
is recovered through water service rates over the service lives of the
facilities.
Construction work in progress surcharge. DPUC regulations allow water
utilities to implement a CWIP rate surcharge to customer water bills in order
to recover 90 percent of the carrying costs of capital used in SDWA-mandated
projects, until such time as these projects are completed. The CWIP rate
surcharge is in lieu of AFUDC and is included in water service revenues. BHC
implemented a CWIP rate surcharge in 1990 in connection with the construction
of its Easton Lake Reservoir filtration facilities in Easton, Connecticut.
The CWIP rate surcharge was replaced in August 1993 by permanent rates (Note
2).
BHC intends to file an application with the DPUC in the first quarter of
1994 to ascertain CWIP eligibility in connection with the construction of its
SDWA-mandated Hemlocks Reservoir filtration facility.
Revenue recognition. The Utilities accrue revenue for the estimated amount
of water sold but not billed at the end of each period. Certain
environmental testing laboratory revenues are recognized on a percentage-of-
completion basis. Forest products and electricity cogeneration revenues are
recognized as the related forest products are shipped or the electricity is
transmitted to customers. Revenues from sales of real estate are recognized
when the transaction is completed and title has passed.
Inventories. Inventories are valued at the lower of cost or market, with
cost being determined on the basis of the "first-in, first-out" (FIFO)
method. Materials and supplies are valued at average cost.
Other assets. Deferred charges consist primarily of financing charges, rate
case and other expenses. Other assets also include preliminary survey and
investigation costs and certain items amortized, subject to DPUC approval,
over their anticipated period of recovery.
Deferred rate case expenses are amortized over periods allowed by the
DPUC, generally one to three years. Deferred financing charges are amortized
over the lines of the related debt issues.
Goodwill. The excess of the cost of investments in subsidiaries over the
fair value of the net assets acquired at December 31, 1993 and 1992 was
$10,709,000 and $11,182,000 respectively, net of accumulated amortization of
$2,913,000 and $2,439,000. In December 1991, the Company reduced goodwill by
$12,000,000 to more appropriately reflect the then current value of its
continuing investment in the environmental testing laboratories (Note 5).
Amortization is computed on a straight-line basis over periods ranging from
10 to 30 years.
30
<PAGE>
<PAGE>
Amortization expense totaled $474,000, $474,000 and $878,000
for the years ended 1993, 1992 and 1991, respectively.
Fair value of financial instruments. The carrying amount of cash and cash
equivalents, trade accounts receivable, and short-term borrowings approximate
their fair values due to their short-term nature. The fair value of long-
term debt based on the quoted market prices for the same or similar issues or
on the current rates offered to the Company for debt of the same remaining
maturities at December 31 was as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
-------------- ------ ------
<S> <C> <C> <C>
Fair Value $104,918 $105,490
Carrying Value 115,591 105,463
</TABLE>
Advances for construction/contributions in aid of construction. The
Utilities receive cash advances from developers and customers to finance
construction of new water main extensions. These advances are partially
refunded over a 10-year contract period as water revenues are earned from
those new customers. Any remaining unrefunded balances are reclassified to
"Contributions in aid of construction" in the Consolidated Balance Sheets and
are no longer refundable.
Employee benefits. The Company and certain of its subsidiaries have
noncontributory pension programs covering qualified employees. Aquarion's
policy is to fund pension costs accrued. In addition, certain subsidiaries
have established defined contribution salary deferral plans under Section
401(k) of the Internal Revenue Code. The computation of pension costs and
other required disclosures are presented in Note 12.
In addition to providing pension benefits, the Company also provides
certain health and life insurance benefits for retired employees. BHC, SWC
and Aquarion employees may become eligible for these benefits if they reach
retirement age while working for the Company. Several different health care
plans are offered. Generally, the plans pay stated percentages of covered
expenses after a deductible is met. Both active and retired employees are
required to contribute toward the cost of these benefits.
On January 1, 1993, the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 106, "Employers' Accounting for Post-Retirement
Benefits Other than Pensions" (SFAS 106). This statement requires that an
employer's obligation for postretirement benefits expected to be provided to
or for an employee be fully accrued by the date that the employee attains
full eligibility for all benefits expected to be received by that employee
and any beneficiaries and covered dependents, even if the employee is
expected to render additional service beyond that date. Prior to adoption,
the Company recorded the costs of providing such benefits when paid. The
computation of postretirement benefit costs and other disclosures required by
SFAS 106 are also presented in Note 12.
In November 1992, the FASB issued Statement No. 112, "Employers'
Accounting for Postemployment Benefits" (SFAS 112), effective for fiscal
years beginning after December 15, 1993. SFAS 112 will require the Company
to accrue the cost of providing future benefits to former or inactive
employees after employment but before retirement. These benefits would be
recognized over the employees' years of service or at the date of the event
giving rise to such benefits. The impact of this new standard is not
expected to have a material effect on the Company's financial condition or
results of operations.
Income taxes. In accordance with FASB Statement No. 109, "Accounting for
Income Taxes,"(SFAS 109), which was adopted in the first quarter of 1992, the
Company provides deferred taxes for all temporary book-tax differences using
the liability method. The liability method requires that deferred tax
balances be adjusted to reflect enacted future tax rates that are anticipated
to be in effect when the temporary differences reverse. In accordance with
generally accepted accounting principles for regulated industries, the
Company reflects as income tax expense the amount of tax currently payable,
except for accelerated depreciation since 1981 and the tax effect of post-
1986 contributions in aid of construction, for which deferred income taxes
have been provided on an annual basis. This method, known as the flow-
through method
31
<PAGE>
<PAGE>
of accounting, is consistent with ratemaking policies of the
DPUC. The Company has established assets and liabilities that reflect
anticipated future ratemaking effects of deferred tax provisions arising from
the implementation of SFAS No. 109 for its utility subsidiaries. Deferred
investment tax credits are amortized ratably based upon the book life of
property. (Note 6)
Note 2 - Regulatory matters
---------------------------
Rates. On February 5, 1993, BHC filed a rate application with the DPUC for a
35 percent water service rate increase designed to provide a $17,500,000
increase in annual water service revenues and a return on common equity of
12.75 percent. The request included the replacement of a CWIP rate surcharge
previously granted to BHC pursuant to DPUC regulations to recover 90 percent
of the carrying costs of capital used in its SDWA-mandated Easton Lake
Filtration Construction Project. Prior to the final decision, BHC lowered
its original request by a total of $1,400,000, to $16,100,000, by
restructuring long-term debt to reduce annual interest costs and by reducing
property taxes and other miscellaneous expenses. Effective August 1, 1993,
the DPUC awarded BHC a 21 percent water service rate increase designed to
provide a $10,400,000 annual increase in revenues and an 11.6 percent return
on common equity. Prior to the time the new rates became effective, the CWIP
rate surcharge was 7.35 percent of revenues. Total revenues from the CWIP
rate surcharge were $1,937,000, $1,532,000 and $501,000 for the years ended
December 31, 1993, 1992 and 1991, respectively.
On February 8, 1991, SWC filed with the DPUC an application for a
$3,646,000, 36.5 percent water service rate increase. On July 31, 1991, a
final decision was issued by the DPUC, which became effective August 28,
1991, allowing a $2,276,000, or 22.5 percent, increase in annual water
service rate charges.
Note 3 - Sale of surplus land
-----------------------------
Proceeds from the sale of land are recorded as revenue at the time of
closing, and portions of pretax gains required to be deferred by the DPUC are
amortized as a reduction in the Utilities' operating expenses over various
time periods as stipulated by the DPUC.
In 1993, the Company sold approximately nine acres of surplus land in
three separate transactions totaling $645,000. Total gains, including
recognition of deferred gains from prior land sales of $19,000, approximated
$312,000, or 5 cents per share.
During 1992, the Company sold approximately 60 acres of surplus land in
three separate transactions for a total of $263,000. Total gains, including
recognition of deferred gains from prior land sales of $24,000, approximated
$143,000, or 2.5 cents per share.
In 1991, the Company sold approximately 10 acres of surplus land in
three separate transactions for $196,000. Total gains, including recognition
of deferred gains on prior land sales of $52,000 in accordance with decisions
previously set forth by the DPUC, amounted to $119,000, or 2 cents per share.
During 1991, the Company also recognized a gain of $493,000, or 10 cents per
share, as a result of a Connecticut superior court ruling regarding BHC's
appeal of a DPUC decision regarding the sale in 1989 of 382 acres of surplus,
off-watershed land in the Pequonnock River Valley of Trumbull, Connecticut.
As a result of the 1989 Pequonnock River Valley sale, the Company is
entitled to a charitable contribution tax deduction based on the difference
between the sales price and the fair market value of the property. Due to
annual limitations applicable to such deductions, a charitable contribution
of approximately $661,000 ($2,100,000 in 1992) has been carried forward to
reduce future taxable income. Any unused deductions expire in 1994.
Note 4 - Acquisitions
---------------------
In 1988, Aquarion acquired 25 percent of the outstanding voting equity
in SRK Holding, Inc. (SRK), an environmental services firm headquartered in
Monroe, Connecticut. In December 1990, Aquarion acquired the remaining 75
percent of SRK's voting equity. At that time, Aquarion commenced integrating
SRK's laboratories in Connecticut, New Jersey and Illinois with its existing
IEA laboratory network and announced its intention to sell the nonlaboratory
businesses of SRK.
32
<PAGE>
<PAGE>
Upon acquiring SRK, Aquarion paid $2,900,000 in cash at closing, and
accrued an additional amount, currently estimated at $6,000,000, to be made
upon final settlement of the sale of the nonlaboratory businesses (the final
settlement). All proceeds upon sale or liquidation of the nonlaboratory
businesses will be directed to the payment of assumed liabilities,
transaction expenses and working capital advanced by Aquarion.
In September 1991 and February 1992, the Company sold a majority of
SRK's nonlaboratory businesses for approximately $8,000,000 in cash and
certain contingent obligations of the buyer. In connection with this
transaction, the SRK selling shareholders were advanced $1,000,000 toward the
final settlement and the remaining cash was used to pay assumed liabilities
and transaction expenses. There was no gain or loss as a result of these
transactions.
The final settlement of this transaction and the liquidation of the
remaining SRK nonlaboratory assets are not expected to have a material effect
on the Company's future results. Advances to the SRK selling shareholders,
receivables from the buyer of SRK's nonlaboratory businesses and working
capital advances, which aggregated $443,000 at December 31, 1993, are
recorded in "Accounts receivable: Miscellaneous" in the accompanying
Consolidated Balance Sheets.
Results of operations of the acquired laboratory businesses since the
respective acquisition dates are included in the Consolidated Statements of
Income.
Note 5 - Special charges
------------------------
The Company recorded a pretax provision of $15,000,000 in the fourth
quarter of 1991, which had the effect of reducing after-tax earnings by $2.89
per share. The provision related to a write-down of goodwill accumulated in
the acquisition of environmental testing laboratories since 1988 and a
provision for restructuring certain operations within the environmental
testing laboratories business.
The write-down of goodwill, which totaled $12,000,000 and represented an
approximately 50 percent reduction in the carrying value of the goodwill
associated with the laboratories, was recorded to more properly reflect the
then current value of the Company's continuing investment in its
environmental testing laboratories. The restructuring provision, which
amounted to a pretax charge of $3,000,000, related primarily to certain
reorganization charges and, to a lesser extent, additional bad debt reserves
and the write-off of other assets.
Note 6 - Income taxes
---------------------
In 1992, the Company elected early adoption of the method of accounting
for income taxes pursuant to SFAS 109, which requires a change from the
deferred to the liability method of computing deferred income taxes.
The Company's provision for income taxes for 1993 consists of $1,391,000
in state taxes and $5,274,000 in federal income taxes.
Income tax expense for the three years ended December 31, consisted of
the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
-------------- ------ ------ ------
<S> <C> <C> <C>
Current
Federal $3,441 $2,770 $2,057
State 1,614 1,169 769
Deferred (prepaid)
Investment tax credit (152) (152) (152)
Accelerated depreciation 1,616 1,804 1,724
Contributions in aid of construction (416) (349) (479)
Alternative minimum tax 387 (122) (572)
Special charges 121 610 (1,020)
Other 54 (98) 379
------ ------ ------
Total income tax expense $6,665 $5,632 $2,706
===== ===== =====
</TABLE>
A reconciliation of income tax expense at the statutory federal income
tax rate to the actual income tax expense for the years ended December 31, is
as follows:
33
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
-------------- ----- ----- ------
<S> <C> <C> <C>
Tax at statutory rate $6,181 $4,842 $(1,959)
Increases (reductions) in taxes resulting
from:
State taxes, net of federal income
taxes 904 695 452
Contribution deduction-sale of surplus
land (131) (426) (146)
Excess depreciation and basis
amortization 630 541 496
Housing and rehabilitation tax benefits - - (137)
Bond premium costs (423) 17 17
Investment tax credit (152) (152) (152)
Developmental computer costs (235) (175) (120)
Amortization and write-down of goodwill 163 136 4,376
Other items, net (272) 154 (121)
------ ------ ------
Actual income tax expense $6,665 $5,632 $2,706
===== ===== =====
</TABLE>
<TABLE>
Deferred tax liabilities (assets) at December 31, were comprised of the
following:
<CAPTION>
1993 1992
<S> <C> <C>
Utility temporary differences $45,981 $41,137
Depreciation 14,712 12,691
Investment tax credits 1,023 1,189
Other 1,567 1,799
------ ------
Gross referenced tax liabilities 63,283 56,816
------ ------
Contributions in aid of construction (5,654) (5,309)
Alternative minimum tax (1,279) (1,403)
Other (2,215) (2,554)
------ ------
Gross deferred tax assets (9,148) (9,266)
------- ------
$54,135 $47,550
====== ======
</TABLE>
<TABLE>
Note 7 - Long-term debt
-----------------------
Long-term debt at December 31, consisted of the following:
<CAPTION>
(In thousands) 1993 1992
-------------- ------ ------
<S> <C> <C>
First mortgage bonds
Series Q, 4 5/8%, due August 1, 1995 $ 4,000 $ 4,000
Series R, 6 7/8%, due November 1, 1998 5,000 5,000
Series S, 10 1/2% due March 1, 2000 - 1,074
Series T, 7 2/5%, due September 1, 2008 - 12,000
Series B, 4 1/2%, due June 1, 1993 - 2,000
Series C, 7 1/4%, due December 1, 1993 - 1,160
Notes payable - unsecured
7.8% senior notes due June 1, 1997 15,000 15,000
8 1/2% senior note due January 1, 1994 10,000 10,000
9% note due November 1, 1993 - 500
9.55% senior notes due February 1, 2021 20,000 20,000
7 1/4% note due June 1, 2020(a) 7,000 7,000
7 3/4% note due August 1, 2019 7,700 7,700
10 3/4% note due October 15, 2014 10,000 10,000
5.5% note due June 1, 2028(b) 12,000 -
5.6% note due June 1, 2028(b) 10,000 -
5.8% note due March 1, 2029(b) 7,700 -
7 3/5% note due December 1, 2018 - $ 5,980
7 1/2% note due October 1, 2009 - 3,000
5.3% note due September 1, 2028 8,980 -
3 1/2% note due November 1, 2004(c) 5,700 5,700
7.4%-14.1% capital lease obligations 185 218
-------- --------
123,265 110,332
Less: Amounts due within one year 62 4,869
Balance of 5.8% note proceeds
held by trustee 7,612 -
-------- --------
$115,591 $105,463
======= =======
(a) BHC has the option to redeem these bonds at redemption prices ranging
from 102 percent on June 1, 2000 to 100 percent on June 1, 2002 and thereafter.
34
<PAGE>
<PAGE>
(b) These BHC financings are insured as to the payment of principal and
interest by the Municipal Bond Investors Assurance Corporation.
(c) This Timco financing bears interest at a rate adjusted each November 1
until such time as Timco elects to convert to a fixed rate. On
November 1, 1993, the interest rate was adjusted from 3 3/4 percent to
3 1/2 percent. Bondholders may elect to have their bonds redeemed at a
price equal to 100 percent of the principal amount on each November 1 until
conversion of the interest rate on the bonds to a fixed rate.
</TABLE>
In June 1993, BHC issued a $10,000,000 unsecured note in consideration
for a loan of the proceeds from the issuance by the Connecticut Development
Authority (CDA) of an equal amount of tax-exempt Water Facilities Revenue
Bonds. The tax-exempt CDA bonds bearing interest at 5.6 percent, have a 35-
year maturity and are subject to alternative minimum tax. BHC has the option
to have these bonds redeemed at a price ranging from 102 percent on June 1,
2003 to 100 percent on June 1, 2005 and thereafter. The proceeds of this
bond issuance are to be used to offset costs incurred in the construction of
the Easton Lake Reservoir Water Treatment Plant. Under the terms of the CDA
bonds, proceeds are to be requisitioned from a construction fund held by a
trustee for planned capital improvements. On June 17, 1993, the Company
requisitioned the entire amount held by the trustee and used the proceeds to
reduce short-term borrowings incurred to finance the cost of construction.
BHC's $12,000,000, 7.4 percent Series T bonds due September 1, 2008,
were redeemed on September 1, 1993 at 101.5 percent. In June 1993, BHC
issued a $12,000,000 unsecured note at 5.5 percent due in 2028 in
consideration for a loan of the proceeds by the CDA of an equal amount of
Water Facilities Refunding Revenue Bonds for the purpose of refunding the
aforementioned issue. BHC has the option to redeem the unsecured note at a
redemption price ranging from 102 percent on June 1, 2003 to 100 percent on
June 1, 2005 and thereafter.
BHC's $7,700,000, 7 3/4 percent financing contained optional and
mandatory redemption provisions. The bonds have been called for redemption
on February 1, 1994 at an early redemption price of 102 percent. On December
1, 1993, BHC issued a $7,700,000 unsecured note at 5.8 percent due in 2029
for the purpose of refunding the aforementioned issue. BHC has the option to
redeem these bonds at a redemption price ranging from 102 percent on December
1, 2003 to 100 percent on December 1, 2005 and thereafter.
In June 1993, BHC entered into a separate Forward Purchase Agreement to
issue a $10,000,000, 6.05 percent unsecured note, which provides for the
issuance of tax exempt Water Facilities Refunding Revenue Bonds of the same
amount maturing in 2029. The proceeds from the $10,000,000 transaction will
be received in August, 1994 and will be used to refund the 10 3/4 percent
$10,000,000 unsecured note which BHC plans to call for early redemption in
October 1994 at a redemption price of 103 percent.
In September 1993, SWC issued a $8,980,000 unsecured note at 5.3 percent
due in 2028 in consideration for a loan of the proceeds by the CDA of an
equal amount of Water Facilities Refunding Revenue Bonds. SWC has the option
to redeem the unsecured note at a redemption price ranging from 102 percent
on September 1, 2003 to 100 percent on September 1, 2005 and thereafter. On
October 1, 1993, SWC redeemed its $3,000,000, 7 1/2 percent unsecured note at
an early redemption price of 101 percent with a portion of the proceeds from
the aforementioned issue. The remaining proceeds were used to redeem SWC's
$5,980,000, 7.6 percent unsecured note which was redeemed on December 1,
1993, at an early redemption price of 102 percent.
Substantially all of BHC's utility plant is subject to the lien of its
first mortgage indentures. The mortgage bond and note-payable agreements
contain certain covenants typical of such agreements, the most restrictive of
which are under the 9.55 percent unsecured Senior Notes (BHC Notes) and the
8 1/2 percent and 7.8 percent unsecured Senior Notes (Aquarion Notes) and
require the maintenance of total funded debt to total capital, as defined, of
no more than 66 2/3 percent. Additionally, payment of dividends on
Aquarion's common stock is restricted under the Aquarion notes. At December
31, 1993, approximately $31,000,000 was available to pay dividends as defined
under the Aquarion notes.
35
<PAGE>
<PAGE>
On January 4, 1994, Aquarion issued a $10,000,000, 5.95 percent
unsecured Senior Note maturing January 4, 1999. The proceeds from this
transaction were used to refund its $10,000,000, 8 1/2 percent unsecured
Senior Note due January 1, 1994. Due to this refunding, the 8 1/2 percent
Senior Note is reflected as long-term debt on the 1993 balance sheet.
On May 19, 1992, Aquarion issued the $15,000,000, 7.8 percent unsecured
Senior Note due June 1, 1997. The proceeds from this financing were used to
reduce short-term borrowings.
The aggregate maturities and sinking fund requirements on long-term
debt, exclusive of capital lease obligations (Note 10), for each of the five
years succeeding December 31, 1993 are as follows: 1994-$0; 1995-$4,000,000;
1996-$0; 1997-$15,000,000; 1998-$5,000,000.
Note 8 - Short-term borrowings
------------------------------
In May 1993, the Company entered into unsecured revolving credit
agreements with five banks totaling $50,000,000. The agreements provide that
the Company may select among a variety of interest rates, including a
negotiated rate. Under the terms of the agreements, the Company must pay a
commitment fee of .225 of 1 percent on the average daily unused portion of
the commitment and a utilization fee of .075 of 1 percent on the average
daily portion of the commitment for each day the commitment equals or exceeds
50 percent or $5,000,000 at each bank. The revolving credit agreements
contain covenants similar to those under previously issued unsecured Senior
Notes of Aquarion. The lines of credit provide for automatic renewal on an
annual basis, but may be terminated at the option of the banks or the Company
upon 90 days notice by either party prior to the annual anniversary.
<TABLE>
Short-term borrowings for the years ended December 31 were as follows:
<CAPTION>
(In thousands) 1993 1992 1991
-------------- ------ ------ ------
<S> <C> <C> <C>
Borrowings outstanding at December 31 $5,500 $17,600 $37,200
Weighted average interest rate at December 31 3.49% 4.04% 5.92%
Maximum outstanding during the year $22,300 $42,200 $37,200
Average outstanding during the year $11,983 $19,358 $28,346
Weighted average interest rate during the year* 4.06% 5.34% 7.60%
* Determined by dividing annual interest expense by average amount
outstanding during the year
</TABLE>
Note 9 - Redeemable preferred stock and rights
----------------------------------------------
Preferred stock of BHC is issuable in series, and 110,000 shares in the
aggregate have been authorized. In December 1992, BHC redeemed the remaining
outstanding shares of its Series A preferred stock. The Series carried a par
value of $100 per share and was redeemed at a total cost of approximately
$1,700,000.
SWC is authorized to issue 60,000 shares of preferred stock. SWC had
outstanding 7,500 and 8,400 shares at December 31, 1993 and 1992,
respectively, of $50 par value preferred stock. Dividends are cumulative and
are limited to the fixed annual rate of 7 1/8 percent. SWC is required to
make annual sinking fund payments of $45,000 and has the option of doubling
sinking fund payments in any one year, at par value, in addition to the right
to redeem the entire issue at $50.50 per share.
SWC is also authorized to issue 400,000 shares of no par value
preference stock, of which none is outstanding.
The Company has reserved 80,000 shares of Preferred Stock for issuance
under its Preferred Stock Purchase Rights Plan. Each share of Common Stock
is entitled to one right to buy, under certain circumstances, 1/150th of a
share of Series A Junior Participating Preferred Stock, no par value ("Series
A Preferred Stock"), at $83.33 per 1/150th of a share.
Each share of Series A Preferred Stock, if issued, would have dividend,
voting and liquidation rights which are at least 150 times the equivalent
rights of one share of the Common Stock. The rights would become exercisable
only if a person or group acquires 20 percent or more
36
<PAGE>
<PAGE>
of the outstanding
Common Stock, or if a person or group announces or commences a tender or
exchange offer for 30 percent or more of the Common Stock. If the Company
were to be acquired in a merger or other business combination transaction,
each right would entitle its holder to receive, upon payment of the exercise
price, that number of shares of the acquiring company having a market value
equal to twice the exercise price. If, under certain circumstances, a 20
percent or greater shareholder acquires the Company through a transaction in
which the Company and its Common Stock survive or such shareholder engages in
certain self-dealing transactions with the Company, each right holder (other
than a 20 percent or greater shareholder) would be entitled to receive, upon
payment of the exercise price, the greater of (a) the number of shares of
Series A Preferred Stock for which such right was exercisable immediately
prior to such self-dealing transactions or (b) that number of shares of
Series A Preferred Stock having a market value equal to twice the exercise
price.
The Company may redeem the rights at $.033 per right at any time until
the tenth day after a 20 percent position has been acquired or a 30 percent
tender offer has been commenced. The redemption period is subject to
extension by the Company's Board of Directors. Until such time as these
rights become exercisable, they will have no dilutive effect on the Company's
earnings.
Note 10 - Commitments and contingencies
---------------------------------------
Future minimum rental payments required under operating leases for
leaseholds and equipment, having initial or remaining noncancellable lease
terms in excess of one year, aggregated $6,286,000 at December 31, 1993.
Certain facility leases contain renewal options. Annual payments for each of
the five succeeding fiscal years are: 1994 - $1,399,000; 1995 - $1,161,000;
1996 - $583,000; 1997 - $564,000; 1998 - $531,000; thereafter - $2,048,000.
Future minimum lease payments under capital leases approximated $286,000
at December 31, 1993.
Aquarion and BHC entered into an acquisition agreement to acquire the
net assets of The New Canaan Company (NCC), which consist primarily of NCC's
water utility subsidiaries, The New Canaan Water Company (NCWC) and
Ridgefield Water Supply Company (RWSC), for Common Stock of Aquarion with a
market value of $3,500,000 on or about the closing date. The acquisition and
a related exchange have been approved by the DPUC but remain contingent upon
certain other regulatory approvals satisfactory to the parties. The
transaction is also conditioned upon the sale of NCWC's water reservoir and
watershed lands to the Second Taxing District of the City of Norwalk
(Connecticut), a transaction which will require the approval of the State of
Connecticut Department of Public Health and Addiction Services (the DPHAS)
and the issuance of a diversion permit by the State of Connecticut Department
of Environmental Protection (the DEP). Proceedings to obtain the regulatory
approvals are pending. The parties have agreed to extend the acquisition
agreement and the related property exchange agreement until March 31, 1994.
There is no certainty that the parties will agree to further extensions if
the transaction has not closed by that time.
At December 31, 1993, Aquarion had guaranteed a mortgage indenture of
$1,500,000 and two standby letters of credit totaling $450,000 in connection
with the disposition of the SRK non-laboratory businesses (Note 4).
Note 11 - Industry segment information
--------------------------------------
The Company's operations are grouped into four industry segments as
follows:
Public water supply--collection, purification and distribution of water
for domestic commercial and industrial use, and for fire protection service;
Environmental laboratories and utility management services--
environmental testing laboratories and other nonregulated water-related
services;
Forest products--processing, marketing and distribution of lumber
products, and the generation and sale of cogenerated electricity;
Real estate--ownership and sale of real property.
37
<PAGE>
<PAGE>
The following table sets forth information about the Company's
operations by industry segment for the years ended December 31:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
-------------- ------ ------ ------
<S> <C> <C> <C>
Operating revenues:
Public water supply $ 71,280 $ 63,702 $ 63,829
Environmental laboratories and
utility management services 23,132 26,061 24,358
Forest products 12,298 12,001 10,515
Real estate 645 262 196
------- -------- --------
Total operating revenues $107,355 $102,026 $ 98,898
======= ======= =======
Operating income:
Public water supply $ 26,475 $ 22,475 $ 22,241
Environmental laboratories and
utility management services(1) (1,107) (431) (20,221)
Forest products 1,496 1,437 1,396
Real estate 40 170 174
------- ------- --------
Industry segment operating
income $ 26,904 $ 23,651 $ 3,590
Unallocated (expense) income, net (600) (574) 22
Interest expense (9,242) (9,327) (9,544)
Allowance for funds used
during construction 623 678 401
Subsidiary preferred dividends (30) (187) (231)
------- ------- -------
Income (loss) before income taxes
and cumulative effect of a
change in accounting method $ 17,655 $ 14,241 $ (5,762)
====== ====== =====
Identifiable assets:
Public water supply $321,431 $300,713 $246,603
Environmental laboratories and
utility management services 25,941 29,733 28,397
Forest products 7,718 8,526 8,525
Real estate 5,678 5,537 5,187
Corporate 2,104 3,822 5,090
-------- -------- --------
Total identifiable assets $362,872 $348,331 $293,802
======= ======= =======
Capital expenditures:
Public water supply $ 16,300 $ 21,727 $ 13,969
Environmental laboratories and
utility management services 1,072 2,303 2,953
Forest products 526 665 278
Real estate 169 154 711
-------- -------- --------
Total capital expenditures $ 18,067 $ 24,849 $ 17,911
====== ====== ======
Depreciation expense:
Public water supply $ 8,054 $ 6,973 $ 6,661
Environmental laboratories and
utility management services 1,895 1,910 1,588
Forest products 663 626 632
Real estate 11 11 11
-------- ------- --------
Total depreciation expense $ 10,623 $ 9,520 $ 8,892
====== ===== =====
(1) Includes special charges of $15,000,000 in 1991 (Note 5) and goodwill
amortization of $474,000, $474,000 and $878,000 in 1993, 1992 and
1991, respectively.
</TABLE>
Operating revenues are comprised of sales to unaffiliated customers.
The Company's operations all take place in North America and no single
customer accounted for 10 percent or more of total operating revenues.
Operating income (loss) is defined as operating revenues less total
costs and expenses, other than interest expense, unallocated (expenses)
income, income taxes, AFUDC and subsidiary preferred dividends. Identifiable
assets by industry segment are assets used in the Company's operations in
each industry segment. Corporate assets are principally cash, prepaid
expenses, receivables and deferred charges not identifiable with a specific
industry segment.
38
<PAGE>
<PAGE>
Note 12 - Employee benefit plans
--------------------------------
The following table sets forth the funded status of Aquarion's
Retirement Plan For Employees (the Plan) at December 31, the Plan's latest
valuation date:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
<S> <C> <C>
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits of
$16,673 in 1993 and $15,596 in
1992 $ 17,605 $ 16,493
====== ======
Projected benefit obligation $(22,507) $(22,237)
Plan assets at fair value 33,505 32,318
-------- --------
Plan assets in excess of projected
benefit obligation 10,998 10,081
Prior service cost 957 1,043
Unrecognized net asset existing at
January 1, 1986 (3,503) (3,961)
Unrecognized net gain (4,070) (3,694)
-------- -------
Prepaid pension cost $ 4,382 $ 3,469
===== =====
</TABLE>
<TABLE>
Net pension credit for the years ended December 31,
included the following components:
<CAPTION>
(In thousands) 1993 1992 1991
-------------- ------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during
the period $ 763 $ 860 $ 693
Interest cost on projected benefit
obligation 1,510 1,485 1,422
Actual return on plan assets (2,331) (1,961) (6,105)
Net amortization and deferral (807) (1,106) 3,470
------ ------ ------
Net pension credit $ (865) $ (722) $ (520)
=== === ===
</TABLE>
In 1993, 1992 and 1991, the weighted average discount rate was 7.25
percent and the expected long-term rate of return on assets was 8.5 percent.
The weighted average rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
was 5.9 percent in 1993 and 6.9 percent in 1992. The Plan invests in
publicly traded stocks and bonds.
Aquarion and the Utilities provide health care benefits for
substantially all retired employees. Only those employees who remain until
retirement age are eligible. On January 1, 1993, the Company adopted
SFAS 106 (Note 1). The net periodic postretirement benefit cost for the year
ended December 31, was as follows:
<TABLE>
<CAPTION>
(In thousands) 1993
<S> <C>
Service cost-benefits earned during the period $ 344
Interest cost on benefit obligation 820
Net amortization and deferral 524
------
Net periodic post-retirement benefit cost $1,688
=====
</TABLE>
Expense recognized for the 12 months ended December 31, 1993 amounted to
$650,000. The remaining cost has been recorded as a regulatory asset. BHC
received approval for recovery of these costs from the DPUC in the rate
decision effective August 1, 1993. SWC expects recovery of these costs in
future rate proceedings.
<TABLE>
The combined funded status and the related accrual for postretirement
benefits other than pensions as of December 31, 1993, the latest valuation
date, was as follows:
<CAPTION>
(In thousands) 1993
-------------- ----
<S> <C>
Accumulated postretirement benefit obligation:
Retirees $ 5,532
Active plan participants eligible for
retirement 2,300
Other active participants 4,111
-------
Net obligations 11,943
Plan Assets at Fair Value 0
-------
Accumulated postretirement obligation (11,943)
Unrecognized net obligation existing at
January 1, 1993 9,947
Unrecognized net gain 814
-------
Accrued postretirement benefit cost included
in other current liabilities $(1,182)
=====
</TABLE>
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7.5 percent at December 31, 1993.
39
<PAGE>
<PAGE>
For measurement purposes, a 10.8 percent annual increase in the per
capita cost of covered health care benefits was assumed for 1993. This rate
was assumed to decrease gradually to six percent for 2001 and remain at that
level thereafter.
If the health care cost trend rate were increased one percent, the
accumulated postretirement benefit obligation as of December 31, 1993 would
increase by 15 percent and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the 12 months
ended December 31, 1993 would increase by 20 percent.
Note 13 - Incentive Stock Plans; Dividend Reinvestment and Common Stock
-----------------------------------------------------------------------
Purchase Plan
-------------
In 1985, Shareholders adopted a long-term incentive plan (Stock Plan)
that provides for the granting of incentive stock options, nonqualified stock
options, stock appreciation rights, restricted stock and performance units to
key executives. As amended by shareholders in 1990, an aggregate of 525,000
shares of the Company's common stock may be awarded under the Stock Plan,
which expires January 30, 1995. Stock options available under the Stock Plan
are exercisable at a price equal to the market value, unless otherwise
indicated, at the date of the grant and remain exercisable for ten years,
conditional on continued employment, from the date of the grant. The
following options have been awarded to key executives:
<TABLE>
<CAPTION>
Number Option Price
of Shares per Share
--------- ------------
<S> <C> <C>
Outstanding at December 31, 1990 177,500 $22.63-$28.28
Granted in 1991 (a) 98,800 $24.625
Expired in 1991 (4,850)
Outstanding at December 31, 1991 271,450 -
Granted in 1992 (a) 106,750 $20.625-$24.625
Expired in 1992 (135,450)
Exercised in 1992 (16,400)
Outstanding at December 31, 1992 226,350 -
Granted in 1993 (a) 66,550 $25.00-$26.625
Expired in 1993 (1,850)
Exercised in 1993 (29,900)
--------
Outstanding at December 31, 1993 261,150 -
=======
(a) These options became exercisable on February 19, 1992, March 17,
1993 and January 22, 1994, respectively.
</TABLE>
As of December 31, 1993, 158,993 shares were exercisable under the Stock
Plan. In addition, 12,257 shares of restricted stock were outstanding as of
December 31, 1993.
The Company maintains a Dividend Reinvestment and Common Stock Purchase
Plan ("Reinvestment Plan") providing holders of its common stock with a
method of purchasing additional shares without payment of any brokerage or
service charges. Company common stock totaling 900,000 shares was reserved
for purchase under the Reinvestment Plan of which 780,235 shares were issued
at December 31, 1993.
Note 14 - Property, plant and equipment
---------------------------------------
<TABLE>
Net property, plant and equipment at December 31, consisted of the
following components:
<CAPTION>
(In thousands) 1993 1992
<S> <C> <C>
Organization $ 185 $ 185
Source of supply 26,762 25,261
Pumping 13,395 11,696
Water treatment 52,951 30,905
Transmission and distribution 206,865 199,539
General 30,086 28,795
Construction work in progress 5,266 23,193
Utility plant held for future use 471 471
Nonutility 31,583 31,714
-------- --------
367,564 351,759
Less: accumulated depreciation 117,191 108,610
-------- --------
$250,373 $243,149
======= =======
</TABLE>
40
<PAGE>
<PAGE>
<TABLE>
Note 15 - Inventories
---------------------
Inventories at December 31, were comprised of the following:
<CAPTION>
(In thousands) 1993 1992
-------------- ------ ------
<S> <C> <C>
Lumber and logs $1,314 $1,477
Materials and supplies 1,571 1,636
------ ------
$2,885 $3,113
===== =====
</TABLE>
<TABLE>
Note 16 - Statement of cash flows
---------------------------------
Changes in assets and liabilities for the years ended December 31, net
of effects of acquisitions, are set forth below:
<CAPTION>
(In thousands) 1993 1992 1991
-------------- ------ ------ ------
<S> <C> <C> <C>
Decrease (increase) in accounts
receivable $ 339 $ 129 $(3,454)
Decrease (increase) in inventory 228 (120) (264)
Increase in prepayments (1,064) (600) (1,210)
Increase (decrease) in accounts
payable and accrued liabilities 575 (551) (1,458)
(Increase) decrease in interest
and taxes payable (241) 340 825
Net changes in other noncurrent
balance sheet items (177) (819) (497)
------ ------- -------
$ (340) $(1,621) $(6,058)
=== ===== =====
Supplemental cash flow information:
Cash paid for:
Interest $9,810 $9,602 $8,938
Income taxes $5,066 $4,214 $3,986
</TABLE>
41
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Aquarion Company
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income of shareholders' equity and of
cash flows present fairly, in all material respects, the financial
position of Aquarion Company and its subsidiaries at December 31, 1993
and 1992, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles. 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 of these
statements in accordance with generally accepted auditing standards
which 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,
assessing the accounting principles used and significant estimates made
by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
As discussed in Notes 1, 6 and 12, the Company changed its method of
accounting for postretirement benefits other than pensions in 1993 and
income taxes in 1992.
/s/ Price Waterhouse
Price Waterhouse
Stamford, Connecticut
January 31, 1994
42
<PAGE>
<PAGE>
MANAGEMENT'S STATEMENT ON RESPONSIBILITY
Management's Statement on Responsibility for Financial Information
The management of the Company is responsible for the fairness,
integrity and objectivity of the Company's consolidated financial
statements, including all related information presented in the annual
report. These statements have been prepared in accordance with
generally accepted accounting principles and include amounts based on
management's best estimates and judgments.
Management maintains and relies on a system of internal controls,
which provides reasonable assurance that assets are safeguarded and
financial records are adequate and can be relied upon to produce
accurate financial statements. The system includes the hiring and
training of qualified personnel, written accounting and control policies
and procedures, clearly drawn lines of accountability and delegations of
authority. In addition, the Company has an internal audit function that
evaluates existing controls and recommends changes and improvements
deemed necessary.
The Board of Directors' Audit Committee, which is comprised of five
nonmanagement directors, meets periodically with the Company's senior
officers, independent accountants and the internal auditor. The Audit
Committee reviews internal audits, financial reporting and internal
control matters, as well as the nature and extent of the audit effort.
Management believes that the Company's policies and procedures, as
well as its internal control system and activities of the internal
auditor and independent accountants and the Audit Committee, provide
you, the shareholder, with reasonable assurance as to the integrity of
the Company's consolidated financial statements.
/s/ Jack E. McGregor
Jack E. McGregor
President & Chief Executive Officer
/s/ Janet M. Hansen
Janet M. Hansen
Senior Vice President,
Chief Financial Officer
& Treasurer
January 31, 1994
43
<PAGE>
<PAGE>
<TABLE>
SUPPLEMENTAL FINANCIAL INFORMATION
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Book value per share $17.07 $16.33 $15.53 $18.84 $18.95
Payout ratio (per share) 92.0% 98.2% N/A 108.1% 75.2%
Price/earnings ratio(1) 16.19 15.2 N/A 14.4 11.7
Capitalization:
Long-term debt 51.0% 51.9% 55.1% 51.8% 42.2%
Preferred stock of subsidiaries .2 .2 1.2 1.3 2.0
Common equity 48.8 47.9 43.7 46.9 55.8
----- ----- ----- ----- -----
Total 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
(1) Computed at December 31.
</TABLE>
<TABLE>
Quarterly financial data
------------------------
(Unaudited)
<CAPTION>
Income
before
Operating income Net Per
(In thousands, except share data) revenues taxes income share(1)
<S> <C> <C> <C> <C>
1993
First quarter $ 24,687 $ 3,474 $ 2,162 $.36
Second quarter 26,189 4,328 2,694 .44
Third quarter 28,914 5,894 3,772 .58
Fourth quarter 27,565 3,960 2,362 .36
-------- ------- -------
Total $107,355 $17,656 $10,990
======= ====== ======
1992
First quarter $ 24,432 $ 2,743(2) $2,492(2) $.50(2)
Second quarter 25,940 3,739 2,318 .39
Third quarter 26,474 4,744 2,941 .50
Fourth quarter 25,180 3,015 1,649 .28
-------- ------- ------
Total $102,026 $14,241 $9,400
======= ====== =====
(1) Based on a weighted average of common shares outstanding during
each quarter.
(2) Includes cumulative effect of change in accounting for the adoption of
SFAS 109 of $791 or $.14 per share.
</TABLE>
44
<PAGE>
<PAGE>
<TABLE>
Market and dividend information
-------------------------------
The following table sets forth the high and low closing sale prices of
the Company common stock as traded on the New York Stock Exchange (NYSE) and
as reported on the NYSE composite tape, along with dividends paid per share
on a quarterly basis. At December 31, 1993, there were 6,667 shareholders of
record.
<CAPTION>
Period Closing sales prices Dividends paid
--------------------
High Low
------ ------- -------- --------------
<S> <C> <C> <C>
1993
First quarter $27 3/4 $24 3/4 $.405
Second quarter 27 1/4 25 1/2 .405
Third quarter 28 25 7/8 .405
Fourth quarter 28 3/4 26 .405
1992
First quarter $24 3/4 $20 1/4 $.405
Second quarter 23 1/2 20 1/8 .405
Third quarter 24 7/8 23 1/4 .405
Fourth quarter 25 1/2 23 1/4 .405
</TABLE>
<TABLE>
Public water supply segment operations highlights
-------------------------------------------------
<CAPTION>
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Water supplied from utility
operations (millions of
gallons)
---------------------------
Residential 12,992 12,072 12,657 11,842 11,640
Commercial 4,995 5,269 5,812 5,919 5,933
Industrial 3,647 3,862 4,291 4,668 4,971
Company use and
unaccounted for 3,900 4,019 4,039 4,296 4,117
------ ------ ------ ------ ------
Total 25,534 25,222 26,799 26,725 26,661
====== ====== ====== ====== ======
Number of customer accounts 123,915 123,325 122,541 121,571 120,128
Population served 492,000 490,000 487,000 484,000 473,000
Full-time employees 289 283 285 292 288
</TABLE>
- -----------------------------------------------------------------------------
1993 Water Supplied From Utility Operations
Residential 50.9%
Commercial 19.5%
Industrial 14.3%
Company use & unaccounted for 15.3%
- -----------------------------------------------------------------------------
45
<PAGE>
<PAGE>
GRAPHICS APPENDIX LIST
----------------------
Page in 1993 Annual Report
to Shareholders where
graphic appears Description of Graphic
- -------------------------- --------------------------------------------
Page 17 Actual Utility Capital Expenditures
Page 17 Projected Utility Capital Expenditures
Page 18 Total Debt
Page 21 1993 Operating Revenues per Business Segment
Page 21 1992 Operating Revenues per Business Segment
Page 21 1991 Operating Revenues per Business Segment
Page 22 Operating Expenses
Page 22 Interest Expense
Page 45 1993 Water Supplied From Utility Operations
EXHIBIT 10(gg)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
Connecticut Development Authority
and
Bridgeport Hydraulic Company
--------------
LOAN AGREEMENT
--------------
Dated as of November 1, 1993
Connecticut Development Authority
$7,700,000 Water Facilities Refunding Revenue Bonds
(Bridgeport Hydraulic Company Project - 1993C Series)
$10,000,000 Water Facilities Refunding Revenue Bonds
(Bridgeport Hydraulic Company Project - 1994A Series)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions.......................... 4
Section 1.2. Interpretation....................... 13
ARTICLE II REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations by the Authority..... 15
Section 2.2. Representations by the Borrower...... 16
ARTICLE III THE LOAN
Section 3.1. Loan Clauses......................... 20
Section 3.2. Other Amounts Payable................ 21
Section 3.3. Manner of Payment.................... 21
Section 3.4. Obligation Unconditional............. 21
Section 3.5. Security Clauses..................... 22
Section 3.6. Issuance of Initial Bonds............ 22
Section 3.7. No Additional Bonds.................. 22
Section 3.8. Effective Date and Term.............. 22
ARTICLE IV THE PROJECT
Section 4.1. Completion of the Project............ 23
Section 4.2. No Warranty Regarding Condition,
Suitability or Cost of Project....... 25
Section 4.3. Taxes................................ 25
Section 4.4. Insurance............................ 25
Section 4.5. Compliance with Law.................. 27
Section 4.6. Maintenance and Repair............... 27
Section 4.7. Disposition of Project Realty by
Borrower............................. 27
Section 4.8. Leasing of the Project Realty and the
Project Equipment.................... 28
Section 4.9. Project Equipment................... 28
ARTICLE V CONDEMNATION DAMAGE AND DESTRUCTION
Section 5.1. No Abatement of Payments Hereunder... 29
Section 5.2. Project Disposition Upon Condemnation,
Damage or Destruction................ 29
Section 5.3. Application of Net Proceeds of
Insurance or Condemnation............ 29
-i-
<PAGE>
<PAGE>
ARTICLE VI COVENANTS
Section 6.1. The Borrower to Maintain its
Corporate Existence; Conditions under
which Exceptions Permitted........... 31
Section 6.2. Indemnification, Payment of Expenses,
and Advances......................... 31
Section 6.3. Incorporation of Tax Regulatory
Agreement; Payments Upon Taxability.. 34
Section 6.4. Further Assurances and Corrective
Instruments.......................... 35
Section 6.5. Covenant by Borrower as to Compliance
with Indenture....................... 35
Section 6.6. Assignment of Agreement or Note..... 36
Section 6.7. Inspection........................... 36
Section 6.8. Default Notification................. 36
Section 6.9. Covenant Against Discrimination...... 36
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default.................... 37
Section 7.2. Remedies on Default.................. 38
Section 7.3. No Duty to Mitigate Damages.......... 39
Section 7.4. Remedies Cumulative.................. 39
ARTICLE VIII PREPAYMENT PROVISIONS
Section 8.1. Optional Prepayment.................. 40
Section 8.2. Notice and Sources of Prepayment..... 42
Section 8.3. Mandatory Prepayment on Taxability... 43
ARTICLE IX GENERAL
Section 9.1. Indenture............................ 44
Section 9.2. Benefit of and Enforcement by
Bondholders.......................... 44
Section 9.3. Force Majeure........................ 44
Section 9.4. Amendments........................... 45
Section 9.5. Notices.............................. 45
Section 9.6. Prior Agreements Superseded.......... 45
Section 9.7. Execution of Counterparts............ 46
Section 9.8. MBIA Requirements.................... 46
APPENDICES
A - Promissory Note
B - Description of Project Realty
C - Description of Project Equipment
-ii-
<PAGE>
<PAGE>
Connecticut Development Authority
Bridgeport Hydraulic Company
LOAN AGREEMENT
THIS LOAN AGREEMENT, made and dated as of November 1, 1993
by and between the Connecticut Development Authority, a body
corporate and politic constituting a public instrumentality and
political subdivision of the State of Connecticut, and
Bridgeport Hydraulic Company, a corporation organized and
existing under the laws of the State of Connecticut,
WITNESSETH THAT:
WHEREAS, the State Commerce Act, constituting Connecticut
General Statutes, Sections 32-la through 32-23ss, as amended
(the "Act"), declares that there is a continuing need in the
State (1) for industrial development and activity to provide
and maintain employment and tax revenues and to control, abate
and prevent pollution to protect the public health and safety,
(2) for the development of recreation facilities to promote
tourism, provide and maintain employment and tax revenues, and
promote the public welfare, (3) for the development of
commercial and retail sales and service facilities in urban
areas to provide and maintain construction and permanent
employment and tax revenues, to improve conditions of
deteriorated physical development, slow economic growth and
eroded financial health of the public and private sectors in
urban areas and to revitalize the economy of urban areas, and
(4) for assistance to public service businesses providing
transportation and utility services in the State, and that the
availability of financial assistance and suitable facilities
are important inducements to industrial and commercial
enterprises to remain or locate in the State and to provide
industrial, recreation, urban and public service projects; and
WHEREAS, the Act provides that (1) the term "project" as
used therein means any facility, plant, works, system,
building, structure, utility, fixture or other real property
improvement located in the State, and the land on which it is
located or which is reasonably necessary in connection
therewith, which is of a nature or which is to be used or
occupied by any person for purposes which would constitute it
as an industrial project, recreation project, urban project,
public service project or health care project, and any real
property improvement reasonably related thereto, and (2) that a
project may also include or consist exclusively of machinery,
equipment or fixtures; and
<PAGE>
<PAGE>
WHEREAS, the Act provides that the Authority shall have
power (i) to determine the location and character of, and to
extend credit or make loans to any person for the planning,
designing, acquiring, improving and equipping of, a project,
which may be secured by loan, lease or sale agreements,
contracts and other instruments, upon such terms and
conditions as the Authority shall determine to be reasonable,
(ii) to require the inclusion in any contract, loan agreement
or other instrument such provisions for the construction,
use, operation, maintenance and financing of the project as
the Authority may deem necessary or desirable, (iii) to issue
its bonds for such purposes, subject to the approval of the
Treasurer of the State, and, (iv) as security for the payment
of the principal or redemption price, if any, of and interest
on any such bonds, to pledge or assign such a loan, lease or
sale agreement and the revenues and receipts derived by the
Authority from such a project; and
WHEREAS, by various resolutions, as amended by subsequent
resolutions, in furtherance of the purposes of the Act, the
Authority has accepted the application of Bridgeport Hydraulic
Company for assistance in the financing of various capital
projects in the State of Connecticut; and
WHEREAS, the Authority has by a further resolution adopted
November 8, 1988, authorized the issuance of $7,700,000
principal amount of its Water Facilities Refunding Revenue
Bonds (Bridgeport Hydraulic Company Project - 1988 Series) (the
"Series C Prior Obligations") the proceeds of which were loaned
to the Borrower and used for the refunding in full of
$7,700,000 principal amount of its Water Facilities Revenue
Bonds (Bridgeport Hydraulic Company Project - 1982 Series), the
proceeds of which were loaned to the Borrower and used for the
acquisition, construction and installation of certain additions
to the Water System of the Borrower; and
WHEREAS, the Authority has by a further resolution adopted
October 15, 1984, authorized the issuance of $10,000,000
principal amount of its Water Facilities Revenue Bonds
(Bridgeport Hydraulic Company Project - 1984 Series) (the
"Series A Prior Obligations"), the proceeds of which were
loaned to the Borrower and used for the acquisition,
construction and installation of certain additions to the Water
System of the Borrower; and
WHEREAS, the Authority has by a further resolution adopted
June 2, 1993, authorized the issuance of the Initial Bonds for
the purpose of providing funds for the refunding of the Series
C Prior Obligations and the Series A Prior Obligations
(together, the "Prior Obligations"); and
-2-
<PAGE>
<PAGE>
WHEREAS, pursuant to such resolution the Bonds are to be
secured by an Indenture of Trust of even date herewith, by
and between the Authority and The Chase Manhattan Bank of
Connecticut, N.A., as Trustee; and
WHEREAS, the Initial Bonds and any Additional Bonds shall be
special obligations of the Authority, payable solely from
the revenues or other receipts, funds or moneys to be derived
by the Authority under this Agreement or the Indenture and from
any amounts otherwise available under the Indenture for the
payment of the Initial Bonds; and
WHEREAS, the Authority proposes with the proceeds of the
Initial Bonds to make a loan to the Borrower and the Borrower
proposes to borrow such proceeds from the Authority for the
purpose of refunding the Prior Obligations; and
WHEREAS, the Borrower acknowledges that the Authority is
providing financing for the Project in furtherance of the
Authority's corporate purposes under the Act, that the
accomplishment of these purposes is dependent upon the
compliance of the Borrower with its covenants contained in this
Agreement that the Authority has a resulting beneficial
interest in the Project, and that the Borrower's use of and
interest in the Project as provided hereby are in furtherance
of the discharge of a public purpose; and
WHEREAS, the Connecticut Department of Public Utility
Control (the "DPUC") has approved the issuance of the Note (or
the Mortgage Bond as the case may be);
NOW, THEREFORE, in consideration of the premises and of the
mutual representations, covenants and agreements herein set
forth, the Authority and the Borrower, each binding itself, its
successors and assigns, do mutually promise, covenant and agree
as follows (provided that in the performance of the agreements
of the Authority herein contained, any obligation it may incur
for the payment of money shall not be an obligation, debt or
liability of the State or any municipality thereof and neither
the State nor any municipality thereof shall be liable on any
obligation so incurred, but any such obligation shall be
payable solely out of the revenues or other receipts, funds or
moneys to be derived by the Authority under this Agreement or
the Indenture and from any amounts otherwise available under
the Indenture for the payment of the Initial Bonds):
-3-
<PAGE>
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.1. Definitions. For the purposes of this
Agreement, the following words and terms shall have the
respective meanings set forth as follows, and any capitalized
word or term used but not defined herein is used as defined in
the Indenture:
"Act" means the State Commerce Act, constituting Connecticut
General Statutes, Sections 32-la through 32-23ss, as amended.
"Additional Bonds" means one or more series of additional
Bonds, other than the Initial Bonds, authorized and issued by
the Authority pursuant to the Indenture.
"Agreement" means this Loan Agreement and any amendments and
supplements hereto.
"Authority" means the Connecticut Development Authority, a
body corporate and politic constituting a public instrumentality
and political subdivision of the State of Connecticut duly
organized and existing under the laws of the State, and any
body, board, authority, agency or other political subdivision
or instrumentality of the State which shall hereafter succeed
to the powers, duties and functions thereof.
"Authorized Investments" means any of the following:
(A) Direct obligations of the United States of America
(including obligations issued or held in book-entry
form on the books of the Department of the Treasury)
or obligations the principal of and interest on which
are unconditionally guaranteed by the United States of
America;
(B) Bonds, debentures, notes or other evidence of
indebtedness issued or guaranteed by any of the
following federal agencies and provided such
obligations are backed by the full faith and credit of
the United States of America: U.S. Export Bank,
Farmers Home Administration, Federal Financing Bank,
Federal Housing Administration, General Services
Administration, Government National Mortgage
Association, U.S. Maritime Administration, U.S. Public
Housing Notes and Bonds, and U.S. Department of
Housing and Urban Development;
-4-
<PAGE>
<PAGE>
(C) Bonds, debentures, notes or other evidence of
indebtedness issued or guaranteed by any of the
following U.S. government agencies: Federal Home Loan
Bank System (Senior debt obligations only), Federal
Home Loan Mortgage Corporation (Participation
Certificates and Senior debt obligations only),
(D) Money Market funds registered under the Federal
Investment Company Act of 1940, whose shares are
registered under the Federal Securities Act of 1933,
and having a rating by Standard & Poor's Corporation
("S & P") of AAAm-G; AAAm; or AAm;
(E) Certificates of deposit secured at all times by
collateral described in (A) and/or (B) above. Such
certificates must be issued by commercial banks,
savings and loan associations or mutual savings banks.
The collateral must be held by a third party and
the Trustee must have a perfected first security
interest in the collateral;
(F) Certificates of deposit, savings accounts, deposit
accounts or money market deposits which are fully
insured by the Federal Deposit Insurance Corporation
or the Federal Savings and Loan Insurance Corporation;
(G) Investment Agreements, including guaranteed investment
contracts, acceptable to MBIA and the Authority;
(H) Commercial paper rated, at the time of purchase, "Prime
- 1" by Moody's Investors Service, Inc. ("Moody's")
and "A-1" or better by S&P;
(I) Bonds or notes issued by any state or municipality
which are rated by Moody's or S&P in the highest rating
category assigned by such agencies;
(J) Repurchase agreements which satisfy the requirements
of, or are otherwise satisfactory to, MBIA and the
Authority.
"Authorized Representative" means, in the case of the
Authority, the Chairman or Vice Chairman, the President, the
Executive Vice President or any Senior Vice President or any
Vice President thereof and, in the case of the Borrower, the
Chairman, President, any Vice President, Treasurer or Secretary
thereof and, when used with reference to the performance of any
act, the discharge of any duty or the execution of any
certificate or other document, any officer, employee or other
person authorized to perform such act, discharge such duty or
execute such certificate or other document.
-5-
<PAGE>
<PAGE>
"Beneficial Owner" shall have the meaning specified in
Section 2.3(F) of the Indenture. If any person claims to the
Trustee to be a Beneficial Owner, for purposes of Section
2.4(C) of the Indenture, such person shall prove such claim
to the satisfaction of the Trustee with such documentation and
signature guaranties as the Trustee may request.
"Bond" means any bond authenticated and delivered pursuant
to the Indenture, including the Initial Bonds and the Additional
Bonds.
"Bondholder", "holder" or "owner" or words of similar
import, when used with reference to Bonds, shall unless
otherwise specified, mean any person who shall be the
registered owner of any Outstanding Bond.
"Borrower" means (i) Bridgeport Hydraulic Company, a
corporation organized and existing under the laws of the State
of Connecticut, and its successors and assigns and (ii) any
surviving resulting or transferee corporation as provided in
Section 6.1 hereof.
"Business Day" means any day on which banks located in
Bridgeport Connecticut are not required or authorized to remain
closed and on which the New York Stock Exchange, Inc. is not
closed.
"Code" means the Internal Revenue Code of 1986, as amended
and regulations promulgated thereunder.
"Date of Delivery" means, with respect to each Series of
Bonds, the date that such Series of Bonds are issued, dated and
delivered.
"Debt Service Fund" means the special trust fund so
designated, established pursuant to Section 5.1 of the
Indenture.
"DTC" or "The Depository Trust Company" shall mean the
limited-purpose trust company organized under the laws of the
State of New York which shall act as securities depository for
the Bonds, and any successor thereto.
"Determination of Taxability" means with respect to each
Series of Bonds (1) a ruling by the Internal Revenue Service,
(2) the receipt by the owner of any Series of Bonds from the
Internal Revenue Service of a notice of assessment and demand
for payment and (provided the Borrower has been afforded the
opportunity to participate at its own expense in all appeals
and proceedings to which such owner of the Bonds is a party
-6-
<PAGE>
<PAGE>
relating to such assessment and demand for payment) the
expiration of the appeal period provided therein if no appeal
is taken or, if an appeal is taken by such owner as provided
in Section 6.3 of this Agreement within the applicable appeal
period which has the effect of staying the demand for
payment, a final unappealable decision by a court of
competent jurisdiction, or (3) the admission in writing by
the Borrower, in any case to the effect that the interest on
any Series of Bonds is includable in the gross income for
federal income tax purposes (other than for purposes of any
alternative minimum tax, environmental tax or foreign branch
profits tax) of an owner or former owner thereof, other than
for a period during which such owner or former owner is or was
a "Substantial User" of the portion of the Project financed
by such Series of Bonds or a "Related Person" as such terms
are defined in the Code. For purposes of this definition,
the term owner means the Beneficial Owner of the Bonds so
long as the Book-Entry System is in effect.
"DPUC" means the State Department of Public Utilities
Control.
"Event of Default" means an Event of Default as defined in
subsection 7.1 hereof.
"Financing Documents" (1), when used with respect to the
Borrower, means all documents and agreements executed and
delivered by the Borrower as security for or in connection with
the issuance of the Bonds, including this Agreement, the Tax
Regulatory Agreement, the Note and all other documents and
agreements executed and delivered by the Borrower in connection
with any of the foregoing and (2) when used with respect to the
Authority, means any of the foregoing documents and agreements
to which the Authority is a direct party. The Financing
Documents do not include any documents or agreements to which
the Borrower is not a direct party, including the Bonds or the
Indenture.
"Indenture" means the Indenture of Trust, of even date
herewith, by and between the Authority and the Trustee,
together with all indentures supplemental thereto made and
entered into in accordance therewith.
"Initial Bonds" means the Series 1993C Bonds and the Series
1994A Bonds authorized and issued pursuant to Section 2.3 of
the Indenture, provided that if one of such Series is not then
issued and outstanding the term Initial Bonds shall mean only
the Series that is then issued and outstanding.
-7-
<PAGE>
<PAGE>
"Interest Payment Date" shall mean each date on which
interest is payable on the Bonds as provided in Article II of
the Indenture (or, if such date is not a Business Day, the
immediately succeeding Business Day).
"Mortgage" means the Mortgage Trust Indenture dated as of
June 1, 1924 as has heretofore been and may be supplemented
from time to time between the Bridgeport Hydraulic Company and
The Bridgeport Trust Company, as trustee therefor.
"Mortgage Trustee" means The Chase Manhattan Bank of
Connecticut, N.A., as successor trustee to The Bridgeport Trust
Company.
"Net Proceeds" when used with respect to any insurance or
condemnation award, means the gross proceeds from such award
less all expenses (including attorney's fees and expenses and
any extraordinary expenses of the Trustee) incurred by the
Trustee in the collection thereof.
"1954 Code" means the Internal Revenue Code of 1954, as
amended, in effect on August 15, 1986, as amended, and the
temporary and permanent regulations thereunder.
"Note" means the promissory note of the Borrower to the
Authority, dated November 1, 1993, in the form attached as an
Appendix hereto, and any amendments or supplements made in
conformity with the Indenture and this Agreement.
"Outstanding", when used with reference to a Bond or Bonds,
as of any particular date, means all Bonds which have been
authenticated and delivered under the Indenture, except:
(1) any Bonds cancelled by the Trustee because of
payment or redemption prior to maturity or surrendered to
the Trustee for cancellation;
(2) any Bond (or portion of a Bond) paid or redeemed
or for the payment or redemption of which there has been
separately set aside and held in the Redemption Account
either:
(a) moneys in an amount sufficient to effect
payment of the principal or applicable Redemption Price
thereof, together with accrued interest on such
Bond to the payment or redemption date, which payment
or redemption date shall be specified in irrevocable
instructions given to the Trustee to apply such moneys
to such payment on the date so specified; or
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(b) obligations of the kind described in
subsection 12.1(B) of the Indenture in such principal
amounts, of such maturities, bearing such interest and
otherwise having such terms and qualifications as
shall be necessary to provide moneys in an amount
sufficient to effect payment of the principal or
applicable Redemption Price of such Bond, together
with accrued interest on such Bond to the payment or
redemption date, which payment or redemption date shall
be specified in irrevocable instructions given to
the Trustee to apply such obligations to such payment
on the date so specified; or
(c) any combination of (a) and (b) above;
(3) Bonds in exchange for or in lieu of which other
Bonds shall have been authenticated and delivered under
Article III of the Indenture; and
(4) any Bond deemed to have been paid as provided in
subsection 12.1(B) of the Indenture.
"Paying Agent" means any paying agent for the Bonds
appointed pursuant to subsection 9.1(B) of the Indenture (and
may include the Trustee), and its successor or successors and
any other corporation which may at any time be substituted in
its place in accordance with the Indenture.
"Permitted Encumbrances" mean, as of any particular date,
(i) the Mortgage, (ii) liens and encumbrances permitted by the
Mortgage while the Mortgage is in effect, (iii) liens for taxes
not yet due and payable, (iv) this Agreement and the Indenture,
(v) utility, access and other easements and rights-of-way, that
will not interfere with or impair the value or use of the
Project as herein provided, (vi) any mechanic's, laborer's,
materialman's, supplier's or vendor's lien or right in respect
thereof if payment is not yet due and payable and for which
statutory lien rights exist, (vii) such minor defects,
irregularities, easements, and, rights-of-way (including
agreements with any railroad the purpose of which is to service
the railroad siding) as normally exist with respect to property
similar in character to the Project and which do not materially
impair the value or use of the property affected thereby for
the purpose for which it was acquired hereunder and (viii) any
mortgage, lien, security interest or other encumbrance to which
the Authority may consent as provided in Section 4.8 hereof.
"Principal and Interest Account" means the special trust
account of the Debt Service Fund so designated, established
pursuant to Section 5.1 of the Indenture.
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"Principal User" means any principal user of the Project
within the meaning of Section 144(a)(2)(B) of the Code,
including without limitation any person who is a
greater-than-10-percent-owner (or if none, the person(s) who
holds the largest ownership interest in the Project), lessee
or user of more than 10% of the Project measured either by
occupiable space or fair rental value under any formal or
informal agreement or, under the particular facts and
circumstances, anyone who is a principal customer of the
Project. The term "principal customer" means any person, who
purchases output of the Project under a contract if the
percentage of output taken or to be taken by such person,
multiplied by a fraction the numerator of which is the term
of such contract and the denominator of which is the economic
life of the Project, exceeds 10%. In the case of a person
who purchases output of an electric or thermal energy, gas,
water or other similar facility, such person is a principal
customer if the total output purchased by such person during
any one-year period beginning with the date the facility is
placed in service is more than 10 percent of the facility's
output during each such period. Co-owners or co-lessees who
are shareholders in a corporation or who are collectively
treated as a partnership subject to subchapter K under
section 761(a) of the Code are not treated as Principal Users
merely by reason of their ownership of corporate or
partnership interests.
"Prior Obligations" means the Series C Prior Obligations and
the Series A Prior Obligations, provided that if one of the
Series of Bonds is not then issued and outstanding the term
Prior Obligations shall mean only the Prior Obligations that
were refunded by the Series of Bonds that is then issued and
outstanding.
"Project" means the Series C Project and the Series A
Project, provided that if one of the Series of Bonds is not then
issued and outstanding the term Project shall mean only the
Project refinanced in whole or in part with the proceeds of the
Series of Bonds that is then issued and outstanding.
"Project Equipment" means the Series A Project Equipment and
the Series C Project Equipment, provided that if one of the
Series of Bonds is not then issued and outstanding the term
Project Equipment shall mean only the Project Equipment
refinanced in whole or in part with the proceeds of the Series
of Bonds that is then issued and outstanding.
"Project Realty" means the Series A Project Realty and the
Series C Project Realty, provided that if one of the Series of
Bonds is not then issued and outstanding the term Project shall
mean only the Project refinanced in whole or in part with the
proceeds of the Series of Bonds that is then issued and
outstanding.
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"Redemption Price" means, when used with respect to a Bond
or a portion thereof, the principal amount of such Bond or
portion thereof plus the applicable premium, if any, payable
upon redemption thereof pursuant to the Indenture.
"Refunding Fund" means the special trust fund so designated,
established pursuant to Section 5.1 of the Indenture.
"Related Person" means, with respect to any Principal User,
a person which is a related person (as defined in Section
144(a)(3) of the Code, and by reference to Sections 267, 707(b)
and 1563(a) of the Code, except that 50% is to be substituted
for 80% in Section 1563(a)).
"Series A Forward Purchase Agreement" means the Forward
Purchase Agreement dated June 9, 1993, by and among the
Borrower, the Authority, Smith Barney, Harris Upham & Co.
Incorporated, Advest, Inc. and U.S. Securities, Inc.
"Series A Prior Obligations" means the $10,000,000 Water
Facilities Revenue Bonds (Bridgeport Hydraulic Company Project
- - 1984 Series).
"Series A Project" means the Series A Project Realty and the
Series A Project Equipment.
"Series A Project Equipment" means all personal property,
goods, leasehold improvements, machinery, equipment,
furnishings, furniture, fixtures, tools and attachments
wherever located and whether now owned or hereafter acquired,
acquired in whole or in part with the proceeds of the Series A
Prior Obligations, and any additions and accessions thereto,
substitutions therefor and replacements thereof, including
without limitation the Series A Project Equipment described in
the appendices hereto, as amended from time to time in
accordance herewith.
"Series A Project Realty" means the realty and other
interests in the real property financed in whole or in part
from the proceeds of the Series A Prior Obligations, together
with all replacements, improvements, extensions, substitutions,
restorations and additions thereto which are made pursuant
hereto including without limitation the Series A Project Realty
described in the appendices hereto, as amended from time to
time in accordance herewith.
"Series C Prior Obligations" means the $7,700,000 Water
Facilities Revenue Bonds (Bridgeport Hydraulic Project - 1988
Series).
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"Series C Project" means the Series C Project Realty and the
Series C Project Equipment.
"Series C Project Equipment" means all personal property,
goods, leasehold improvements, machinery, equipment,
furnishings, furniture, fixtures, tools and attachments
wherever located and whether now owned or hereafter acquired,
acquired in whole or in part with the proceeds of the Series C
Prior Obligations or any tax-exempt securities refunded by the
Series C Prior Obligations, and any additions and accessions
thereto, substitutions therefor and replacements thereof,
including without limitation the Series C Project Equipment
described in the appendices hereto, as amended from time to
time in accordance herewith.
Series C Project Realty" means the realty and other
interests in the real property financed in whole or in part
from the proceeds of the Series C Prior Obligations or any
tax-exempt securities refunded by the Series C Prior
Obligations, together with all replacements, improvements,
extensions, substitutions, restorations and additions thereto
which are made pursuant hereto including without limitation the
Series C Project Realty described in the apppendices hereto, as
amended from time to time in accordance herewith.
"Series 1993C Bonds" means the $7,700,000 Water Facilities
Refunding Revenue Bonds (Bridgeport Hydraulic Company Project -
1993C Series) authorized and issued pursuant to Section 2.3
hereof.
"Series 1994A Bonds" means the $10,000,000 Water Facilities
Refunding Revenue Bonds (Bridgeport Hydraulic Company Project -
1994A Series) authorized and issued pursuant to Section 2.3
hereof.
"State" means the State of Connecticut.
"Substantial User" means any substantial user of the Project
within the meaning of Section 147(a) of the Code.
"Supplemental Indenture" means any indenture supplemental to
the Indenture or amendatory of the Indenture, adopted by the
Authority in accordance with Article X of the Indenture.
"Tax Incidence Date" means the date as of which interest on
any Series of Bonds becomes or became includable in the gross
income of the recipient thereof (other than the Borrower or
another Substantial User or Related Person) for federal income
tax purposes for any cause, as determined by a Determination of
Taxability.
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"Tax Regulatory Agreements" means the Tax Regulatory
Agreements, dated as of the Date of Delivery, among the
Authority, the Borrower and the Trustee, and any amendments
and supplements thereto, provided that if one of the Series of
Bonds is not then issued and outstanding the term Tax
Regulatory Agreements shall mean only the Tax Regulatory
Agreement with respect to the Series of Bonds that is then
issued and outstanding.
"Term", when used with reference to this Agreement, means
the term of this Agreement determined as provided in Article
III hereof.
"Trustee" means The Chase Manhattan Bank of Connecticut,
N.A., Bridgeport, Connecticut, and its successor or successors
hereafter appointed in the manner provided in the Indenture.
"Water System" shall mean the plants, structures and other
real and personal property acquired, constructed or operated or
to be acquired, constructed or operated by the Borrower,
including without limitation reservoirs, basins, dams, canals,
aqueducts, tanks, elevated tanks, standpipes, conduits,
pipelines, mains, pumping stations, water distribution systems,
compensating reservoirs, waterworks or sources of water supply,
wells, purification or filtration plants or other plants and
works, connections, rights or flowage as diversion, flood
rights, and other plants, structures, boats, conveyances, and
other real and personal property and rights therein; and
appurtenances necessary or useful and convenient for the
accumulation, treatment or distribution of water.
Section 1.2. Interpretation. In this Agreement:
(1) The terms "hereby", "hereof", "hereto", "herein",
"hereunder" and any similar terms, as used in this
Agreement, refer to this Agreement, and the term
"hereafter" means after, and the term "heretofore" means
before, the date of this Agreement.
(2) Words of the masculine gender mean and include
correlative words of the feminine and neuter genders and
words importing the singular number mean and include the
plural number and vice versa.
(3) Words importing persons include firms,
associations, partnerships (including limited
partnerships), trusts, corporations and other legal
entities, including public bodies, as well as natural
persons.
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(4) Any headings preceding the texts of the several
Articles and Sections of this Agreement, and any table of
contents appended to copies hereof, shall be solely for
convenience of reference and shall not constitute a part of
this Agreement, nor shall they affect its meaning,
construction or effect.
(5) Nothing contained in this Agreement shall be
construed to cause the Borrower to become the agent for the
Authority or the Trustee for any purpose whatsoever, nor
shall the Authority or the Trustee be responsible for
any shortage, discrepancy, damage, loss or destruction of
any part of the Project wherever located or for whatever
cause.
(6) All approvals, consents and acceptances required
to be given or made by any person or party hereunder shall
be at the sole discretion of the party whose approval,
consent or acceptance is required.
(7) All notices to be given hereunder shall be given
in writing within a reasonable time unless otherwise
specifically provided.
(8) This Agreement shall be governed by and construed
in accordance with the applicable laws of the State.
(9) If any provision of this Agreement shall be ruled
invalid by any court of competent jurisdiction, the
invalidity of such provision shall not affect any of the
remaining provisions hereof.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1. Representations by the Authority. The
Authority represents and warrants that:
(1) It is a body corporate and politic constituting a
public instrumentality and political subdivision of the
State, duly organized and existing under the laws of the
State including the Act. The Authority is authorized to
issue the Bonds in accordance with the Act and to use the
proceeds thereof to refinance the Project.
(2) The Authority has complied with the provisions of
the Act and has full power and authority pursuant to the
Act to consummate all transactions contemplated by the
Bonds, the Indenture and the Financing Documents.
(3) By resolution duly adopted by the Authority and
still in full force and effect, the Authority has
authorized the execution, delivery and due performance of
the Bonds, the Indenture and the Financing Documents, and
the taking of any and all action as may be required on the
part of the Authority to carry out, give effect to and
consummate the transactions contemplated by this Agreement
and the Indenture, and all approvals necessary in
connection with the foregoing have been received.
(4) The Bonds have been duly authorized, executed,
authenticated, issued and delivered, constitute valid and
binding special obligations of the Authority payable solely
from revenues or other receipts, funds or moneys pledged
therefor under the Indenture and from any amounts otherwise
available under the Indenture, and are entitled to the
benefit of the Indenture. Neither the State nor any
municipality thereof is obligated to pay the Bonds or the
interest thereon. Neither the faith and credit nor the
taxing power of the State nor any municipality thereof is
pledged for the payment of the principal, and premium, if
any, of and interest on the Bonds.
(5) The execution and delivery of the Bonds, the
Indenture and the Financing Documents and compliance with
the provisions thereof, will not conflict with or
constitute on the part of the Authority a violation of,
breach of or default under its by-laws or any statute,
indenture, mortgage, deed of trust, note agreement or other
agreement or instrument to which the Authority is a
party
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or by which the Authority is bound, or, to the knowledge of
the Authority, any order, rule or regulation of any court
or governmental agency or body having jurisdiction over the
Authority or any of its activities or properties, and all
consents, approvals, authorizations and orders of
governmental or regulatory authorities which are required
for the consummation by the Authority of the transactions
contemplated thereby have been obtained.
(6) Subject to the provisions of this Agreement and
the Indenture, the Authority will apply the proceeds of the
Bonds to the purposes specified in the Indenture and the
Financing Documents.
(7) There is no action, suit, proceeding or
investigation at law or in equity before or by any court,
public board or body pending or threatened against or
affecting the Authority, or to the best knowledge of the
Authority, any basis therefor, wherein an unfavorable
decision, ruling or finding would adversely affect the
transactions contemplated hereby or by the Indenture, or
which, in any way, would adversely affect the validity of
the Bonds, or the validity of or enforceability of the
Indenture or the Financing Documents, or any agreement or
instrument to which the Authority is a party and which is
used or contemplated for use in consummation of the
transactions contemplated hereby and by the Indenture.
(8) It has not made any commitment or taken any action
which will result in a valid claim for any finders or
similar fees or commitments in respect of the transactions
contemplated by this Agreement.
(9) The representations of the Authority set forth in
the Tax Regulatory Agreements delivered concurrently with
the execution and delivery hereof are by this reference
incorporated in this Agreement as though fully set forth
herein.
Section 2.2. Representations by the Borrower. The
Borrower represents and warrants that:
(1) The Borrower has been duly incorporated and validly
exists as a corporation in good standing under the laws of the
State of Connecticut, is not in violation of any provision of
its certificate of incorporation or its by-laws, has corporate
power to enter into and perform the Financing Documents, and by
proper corporate action has duly authorized the execution and
delivery of the Financing Documents.
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(2) The Financing Documents constitute valid and
legally binding obligations of the Borrower, enforceable in
accordance with their respective terms, except to the
extent that such enforceability may be limited by bankruptcy
or insolvency or other laws affecting creditors' rights
generally or by general principles of equity.
(3) Neither the execution and delivery of the
Financing Documents, the consummation of the transactions
contemplated thereby, nor the fulfillment by the Borrower of
or compliance by the Borrower with the terms and
conditions thereof is prevented or limited by or conflicts
with or results in a breach of, or default under the terms,
conditions or provisions of any contractual or other
restriction on the Borrower, evidence of its indebtedness or
agreement or instrument of whatever nature to which the
Borrower is now a party or by which it is bound, or
constitutes a default under any of the foregoing. No event
has occurred and no condition exists which, upon the
execution and delivery of any Financing Documents,
constitutes an Event of Default hereunder or an event of
default thereunder or, but for the lapse of time or the
giving of notice, would constitute an Event of Default
hereunder or an event of default thereunder.
(4) There is no action or proceeding pending or, to
the knowledge of the Borrower, threatened against the
Borrower before any court, administrative agency or
arbitration board that may materially and adversely affect
the ability of the Borrower to perform its obligations
under the Financing Documents and all authorizations,
consents and approvals of governmental bodies or agencies
required in connection with the execution and delivery of
the Financing Documents and in connection with the
performance of the Borrower's obligations hereunder or
thereunder have been obtained.
(5) The execution, delivery and performance of the
Financing Documents and any other instrument delivered by
the Borrower pursuant to the terms hereof or thereof are
within the corporate powers of the Borrower and have been
duly authorized and approved by the board of directors of
the Borrower and are not in contravention of law or of the
Borrower's certificate of incorporation or by-laws, as
amended to date, or of any undertaking or agreement to which
the Borrower is a party or by which it is bound.
(6) The Borrower represents that it has not made any
commitment or taken any action which will result in a valid
claim for any finders' or similar fees or commitments in
respect of the transactions described in this Agreement.
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(7) The Project is included within the definition of a
"project" in the Act, and its estimated cost is equal to
or in excess of $17,700,000. The Borrower intends the
Project to be and continue to be an authorized project under
the Act during the Term of this Agreement.
(8) All amounts shown in Exhibit D of the Tax
Regulatory Agreements are eligible costs of a project
financed by bonds issued by the Authority under the Act,
and may be financed by amounts in the Refunding Fund under
the Indenture. None of the proceeds of the Bonds will be
used directly or indirectly as working capital or to finance
inventory.
(9) The Project is in material compliance with all
applicable material federal, State and local laws and
ordinances (including rules and regulations) relating to
zoning, building, safety and environmental quality.
(10) The Borrower has obtained all necessary material
approvals from any and all governmental agencies requisite
to the Project, and has also obtained all material occupancy
permits and authorizations from appropriate authorities
authorizing the occupancy and use of the Project for the
purposes contemplated hereby. The Borrower further
represents and warrants that it has completed the Project
in accordance with all material federal, State and local
laws, ordinances and regulations applicable thereto.
(11) The availability of financial assistance from the
Authority as provided herein and in the Indenture has
induced the Borrower to locate the Project in the State.
The Borrower does not intend to lease the project.
(12) The Borrower will not take or omit to take any
action which action or omission will in any way cause the
proceeds of the Bonds to be applied in a manner contrary to
that provided in the Indenture and the Financing Documents
as in force from time to time.
(13) The Borrower has not taken and will not take any
action and knows of no action that any other person, firm or
corporation has taken or intends to take, which would
cause interest on either Series of Bonds to be includable in
the gross income of the recipients thereof for federal
income tax purposes. The representations, certifications
and statements of reasonable expectation made by the
Borrower in the Tax Regulatory Agreements and relating to
Project description, composite issues, bond maturity and
average asset economic life, use of Bond proceeds,
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arbitrage and related matters are hereby incorporated by
this reference as though fully set forth herein.
(14) The Borrower has good and marketable title in fee
simple to the Project Realty subject only to Permitted
Encumbrances and to irregularities or defects in title which
may exist which do not materially impair the use of such
properties in the Borrower's business.
(15) The Borrower has good and merchantable title to
the Project Equipment owned by the Borrower as of the date
hereof, free and clear of liens and encumbrances other than
Permitted Encumbrances.
(16) As of the date of execution hereof, except for the
Mortgage, neither the Borrower, nor to its knowledge
anyone acting on behalf of the Borrower, has entered into
negotiations with any person for the purpose of undertaking
any borrowing concurrently with or subsequent to the
issuance of the Initial Bonds and to be secured wholly or
partially by a lien or encumbrance on the Project or any
part thereof, and the Borrower has no present intention of
undertaking any such borrowing.
(17) The Borrower will use all of the bond proceeds of
the Initial Bonds to refund the Prior Obligations.
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ARTICLE III
THE LOAN
Section 3.1. Loan Clauses. (A) Subject to the conditions
and in accordance with the terms of this Agreement, the
Authority agrees to make a loan to the Borrower from the
proceeds of the Series 1993C Bonds in the amount of $7,611,835
and to make a loan to the Borrower from the proceeds of the
Series 1994A Bonds in the amount of $9,892,400 and the Borrower
agrees to borrow such amounts from the Authority.
(B) The loan shall be made at the time of delivery of
the Initial Bonds and receipt of payment therefor by the
Authority against receipt by the Authority of the Note duly
executed and delivered to evidence the pecuniary indebtedness
of the Borrower hereunder. Any additional loan shall be made
at the time of delivery of the applicable series of Additional
Bonds and receipt of payment therefor by the Authority against
receipt by the Authority of a supplemental Note duly executed
and delivered to evidence the additional pecuniary indebtedness
of the Borrower hereunder. As and for the loan and any
additional loan the Authority shall apply the proceeds of the
Initial Bonds and any Additional Bonds as provided in the
Indenture on the terms and conditions therein prescribed.
(C) On or before 11:00 a.m. of each due date for the
payment of the principal of or interest on the Bonds, until the
principal or Redemption Price, if any, of and interest on the
Bonds shall have been fully paid or provision for the payment
thereof shall have been made in accordance with the Indenture,
the Borrower shall make loan payments to the Trustee for the
account of the Authority in an amount which, when added to any
moneys then on deposit in the Debt Service Fund and available
therefor, shall be equal to the amount payable on such due date
with respect to the Bonds as provided in Section 5.3 of the
Indenture, including amounts due for the payment of the
principal of and interest on the Bonds. In addition, the
Borrower shall pay to the Trustee, as and when the same shall
become due, all other amounts due under the Financing
Documents, together with interest thereon at the then
applicable rate as set forth herein in Section 6.2(G). The
Borrower shall have the option to prepay its loan obligation in
whole or in part at the times and in the manner provided in
Article VIII hereof.
(D) Anything herein to the contrary notwithstanding
any amount at any time held in the Principal and Interest
Account of the Debt Service Fund by the Trustee pursuant to
this Section shall be credited against the next succeeding loan
payment obligation of the Borrower as provided in subsection
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3.1(C) hereof. If, on any due date for payments with respect
to the Bonds, the balance in the Debt Service Fund is
insufficient to make such payments, the Borrower agrees
forthwith to pay to the Trustee no later than 11:00 a.m. the
amount of the deficiency. If at any time the amount held by
the Trustee in the Debt Service Fund shall be sufficient to
pay or provide for the payment of the Bonds in accordance with
Section 12.1 of the Indenture, the Borrower shall not be
obligated to make any further payments under the foregoing
provisions.
Section 3.2. Other Amounts Payable. (A) The Borrower
hereby further expressly agrees to pay to the Trustee as and
when the same shall become due, (i) an amount equal to the
initial and annual fees of the Trustee for the ordinary
services of the Trustee rendered and its ordinary expenses
incurred under the Indenture and the fees and expenses of
Trustee's counsel, including fees and expenses as registrar and
in connection with preparation and delivery of new Bonds upon
exchanges or transfers, (ii) the reasonable fees and expenses
of the Trustee and any Paying Agents on the Bonds for acting as
paying agents as provided in the Indenture, including the
reasonable fees and expenses of its counsel, and (iii) the
reasonable fees and charges of the Trustee for extraordinary
services rendered by it and extraordinary expenses incurred by
it under the Indenture, including reasonable counsel fees and
expenses.
(B) The Borrower also agrees to pay all amounts
payable by it under the Financing Documents at the time and in
the manner therein provided.
Section 3.3. Manner of Payment. The payments provided for
in Section 3.1 hereof shall be made by any reasonable method
providing immediately available funds at the time and place of
payment directly to the Trustee for the account of the
Authority and shall be deposited in the Debt Service Fund. The
additional payments provided for in Section 3.2 shall be made
in the same manner directly to the entitled party or to the
Trustee for its own use or disbursement to the Paying Agents,
as the case may be.
Section 3.4. Obligation Unconditional. The obligations of
the Borrower under the Financing Documents shall be absolute
and unconditional, irrespective of any defense or any rights of
setoff, recoupment or counterclaim it might otherwise have
against the Authority or the Trustee. The Borrower will not
suspend or discontinue any such payment or terminate this
Agreement (other than in the manner provided for hereunder) for
any cause, including, without limiting the generality of the
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foregoing, any acts or circumstances that may constitute
failure of consideration, failure of title, or commercial
frustration of purpose, or any damage to or destruction of
the Project, or the taking by eminent domain of title to or
the right of temporary use of all or any part of the Project,
or any change in the tax or other laws of the United States,
the State or any political subdivision of either thereof, or
any failure of the Authority or the Trustee to perform and
observe any agreement or covenant, whether expressed or
implied, or any duty, liability or obligation arising out of
or connected with the Financing Documents.
Section 3.5. Security Clauses. The Authority hereby
notifies the Borrower and the Borrower acknowledges that, among
other things, the Borrower's loan payments and all of the
Authority's right, title and interest under the Financing
Documents to which it is a party (except its rights under
Section 6.2 hereof) are being concurrently with the execution
and delivery hereof endorsed, pledged and assigned without
recourse by the Authority to the Trustee as security for the
Bonds as provided in the Indenture.
Section 3.6. Issuance of Initial Bonds. The Authority has
concurrently with the execution and delivery hereof sold and
delivered the Series 1993C Bonds and intends to sell and
deliver the Series 1994A Bonds, subject to the terms and
conditions of the Series A Forward Purchase Agreement, on or
about August 16, 1994, in each case under and pursuant to a
resolution adopted by the Authority on June 2, 1993,
authorizing their issuance under and pursuant to the Indenture.
The proceeds of sale of the Initial Bonds shall be applied as
provided in Articles IV and V of the Indenture.
Section 3.7. No Additional Bonds. No Additional Bonds on a
parity with the Initial Bonds may be issued under the Indenture.
Section 3.8. Effective Date and Term. (A) This Agreement
shall become effective upon its execution and delivery by the
parties hereto, shall remain in full force from such date and,
subject to the provisions hereof (including particularly
Articles VII and VIII), shall expire on such date as the
Indenture shall be discharged and satisfied in accordance with
the provisions of subsection 12.1(A) thereof. The Borrower's
obligations under Sections 6.2 and 6.3 hereof, however, shall
survive the expiration of this Agreement in accordance with the
provisions of said Sections.
(B) Within 60 days of such expiration the Authority
shall deliver to the Borrower any documents and take or cause
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the Trustee, at the Borrower's expense, to take any such
reasonable actions as may be necessary to effect the
cancellation, release and satisfaction of the Indenture and
the Financing Documents.
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ARTICLE IV
THE PROJECT
Section 4.1. Completion of the Project. (A) The Borrower
represents and warrants that the Project has been completed.
(B) The Borrower affirms that it shall bear all of the
costs and expenses in connection with the preparation of the
Financing Documents and the Indenture, the preparation and
delivery of any legal instruments and documents necessary in
connection therewith and their filing and recording, if
required, and all taxes and charges payable in connection with
any of the foregoing. Such costs and all other costs of the
Project shall be paid by the Borrower or from the Refunding
Fund in the manner and to the extent provided in the Indenture.
Section 4.2. No Warranty Regarding Condition, Suitability
or Cost of Project. Neither the Authority, nor the Trustee,
nor any Bondholder makes any warranty, either expressed or
implied, as to the Project or its condition or that it will be
suitable for the Borrower's purposes or needs, or that the
insurance required hereunder will be adequate to protect the
Borrower's business or interest, or that the proceeds of the
Bonds will be sufficient to refund the Prior Obligations.
Section 4.3. Taxes. (A) The Borrower will pay when due all
material (1) taxes, assessments, water rates and sewer use
or rental charges, (2) payments in lieu thereof which may be
required by law, and (3) governmental charges and impositions
of any kind whatsoever which may now or hereafter be lawfully
assessed or levied upon the Project Realty and the Project
Equipment or any part thereof, or upon the rents, issues, or
profits thereof, whether directly or indirectly. With respect
to special assessments or other governmental charges that may
lawfully be paid in installments over a period of years, the
Borrower shall be obligated to pay only such installments as
are required to be paid during the Term.
(B) The Borrower may, at its expense and in its own
name, in good faith contest any such taxes, assessments and
other charges and payments in lieu of taxes including
assessments and, in the event of such contest, may permit the
taxes, assessments or other charges or payments in lieu of
taxes, including assessments so contested to remain unpaid,
provided either (1) prior written notice thereof has been given
to the Trustee and reserves satisfactory to the Trustee are
maintained during the period of such contest and any appeal
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therefrom or (2) such contest is conducted in full compliance
with Connecticut General Statutes Section 12-53a(d), unless,
in either case, by nonpayment of such taxes, assessments or
other charges or payments, the Project or any part thereof
will be subject to loss or forfeiture, and as a result
thereof a lien or charge will be placed upon any payment
pursuant to this Agreement or the value or operation of the
Project Realty and the Project Equipment will be materially
impaired, in which event such taxes, assessments or other
charges or payments shall be paid forthwith. Nothing herein
shall preclude the Borrower, at its expense and in its own
name and behalf, from applying for any tax exemption allowed
by the federal government, the State or any political or
taxing subdivision thereof under any existing or future
provision of law which grants or may grant such tax exemption.
Section 4.4. Insurance. (A) The Borrower shall insure the
Project Realty and the Project Equipment against loss or damage
by fire, flood, lightning, windstorm, vandalism and malicious
mischief and other hazards, casualties, contingencies and
extended coverage risks in such amounts and in such manner as
is required by the Mortgage while the Mortgage is in effect and
thereafter as is customary with companies in the same or
similar business, and shall pay when due the premiums thereon.
In the event of loss or damage to the Project Realty or Project
Equipment the Net Proceeds of any insurance provided under this
subsection shall be deposited with the Mortgage Trustee as
required by the Mortgage while the Mortgage is in effect and
thereafter shall be applied to the manner set forth in Article
V hereof. Any excess proceeds of insurance remaining after
application as required by this Section shall be paid to the
Borrower, but only if the Borrower is not in default under this
Agreement. At least ten days prior to the expiration of any
policy required under this Section the Borrower shall furnish
evidence satisfactory to the Authority and the Trustee that
such policy has been renewed or replaced.
(B) The Borrower further agrees that it will at all
times carry public liability insurance with respect to the
Project Realty and Project Equipment to the extent required by
the Mortgage while the Mortgage is in effect and thereafter in
a minimum amount of $5,000,000. Any such policy of public
liability insurance may contain provisions for a deductible
amount not in excess of five percent of the amount of the
coverage thereunder. In the event of a public liability
occurrence, the Net Proceeds of the insurance provided under
this subsection shall be applied to satisfy or extinguish the
liability, subject to the Mortgage.
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(C) As an alternative to the hazard insurance and
public liability insurance requirements of subsections (A) or
(B) above the Borrower may self-insure against hazard or
public liability risks if (1) self-insurance is the
Borrower's customary method of insurance against such risks
in similar circumstances, and (2) the Borrower maintains
self-insurance reserves adequate and available to meet such
risks, subject to the terms of the Mortgage while the Mortgage
is in effect. Amounts available under any such
self-insurance arrangement upon the occurrence of an insured
event shall be applied in the same manner as the Net Proceeds
of any insurance maintained pursuant to such subsections
would have been applied.
(D) The insurance coverage required by this Section
may be effected under overall blanket or excess coverage
policies of the Borrower or any affiliate and may be carried
with any insurer other than an unauthorized insurer under the
Connecticut Unauthorized Insurers Act. The Borrower shall
furnish evidence satisfactory to the Authority or the Trustee,
promptly upon the request of either, that the required
insurance coverage is valid and in force.
Section 4.5. Compliance with Law. The Borrower will
observe and comply with all material laws, regulations,
ordinances, rules, and orders (including without limitation
those relating to zoning, land use, environmental protection,
air, water and land pollution, wetlands, health, equal
opportunity, minimum wages, worker's compensation and
employment practices) of any federal, state, municipal or other
governmental authority relating to the Project Realty and the
Project Equipment except during any period during which the
Borrower at its expense and in its name shall be in good faith
contesting its obligation to comply therewith.
Section 4.6. Maintenance and Repair. At its own expense,
the Borrower will keep and maintain the Project Realty and the
Project Equipment in good condition, working order and repair,
will not commit or suffer any waste thereon, and will make all
material repairs and replacements thereto which may be required
in connection therewith.
Section 4.7. Disposition of Project Realty by Borrower.
(A) The Borrower shall not sell, assign, encumber (other than
Permitted Encumbrances), convey or otherwise dispose of its
interest in the Project Realty or any part thereof during the
Term without the prior written consent of the Authority, except
as permitted hereby or by the Mortgage while the Mortgage is in
effect.
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(B) The Borrower may, however, grant such rights of
way or easements over, across, or under, the Project Realty
as shall be necessary or convenient for the operation or use
of the Project Realty, including but not limited to easements
or rights-of-way for utility, roadway, railroad or similar
purposes in connection with the Project Realty, or for the
use of the real property adjacent to or near the Project and
owned by or leased to the Borrower, but only if such
rights-of-way or easements shall not materially or adversely
affect the value and operation of the Project Realty.
(C) In the event the Authority consents to any
disposition of the Borrower's interest in the Project Realty,
the proceeds of the disposition shall be deposited with the
Mortgage Trustee while the Mortgage is in effect and thereafter
in the Redemption Account of the Debt Service Fund for the
redemption of the applicable Series of Bonds used to finance or
refinance the Project Realty then being disposed of under the
Indenture. No conveyance or release effected under the
provisions of this Section shall entitle the Borrower to any
abatement or diminution of the amounts payable hereunder or
under the Note, or relieve the Borrower of the obligation to
perform all of its covenants and agreements under the Financing
Documents.
Section 4.8. Leasing of the Project Realty and the Project
Equipment. The Borrower may not lease the Project Realty or
the Project Equipment to any person during the Term of this
Agreement without the prior written consent of the Authority,
except as may be permitted by the Mortgage while the Mortgage
is in effect. No lease shall relieve the Borrower from primary
liability for any of its obligations hereunder, and in the
event of any such lease the Borrower shall continue to remain
primarily liable for payment of the applicable amounts
specified in Article III hereof and for performance and
observance of the other agreements on its part herein provided
to be performed and observed by it to the same extent as though
no lease had been made.
Section 4.9. Project Equipment. (A) The Borrower shall
have the right to install, operate, use, remove and dispose of
the Project Equipment in the normal and ordinary course of its
business operations, and shall not be required to replace any
item of Project Equipment which is discarded or sold for scrap.
The Borrower shall not, however, either in one transaction or
a series of transactions sell, convey, transfer, remove or
otherwise dispose of more than 20% by value of the Project
Equipment without prior notice to and the consent of the
Authority, unless such Project Equipment is replaced by
property of similar value and utility, provided that such
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dispositions may be made as permitted by the Mortgage while
the Mortgage is in effect.
(B) The Borrower shall maintain with the Trustee separate
and reasonably detailed descriptions of each item of property
constituting the Series A Project Equipment and the Series C
Project Equipment, respectively. Without limiting the
foregoing, the Project Equipment list appended hereto at the
date of execution and delivery of this Agreement shall be
modified to the extent required by this Section in connection
with any replacement of material items of Project Equipment
under this Section or under Section 5.2 hereof.
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ARTICLE V
CONDEMNATION
DAMAGE AND DESTRUCTION
Section 5.1. No Abatement of Payments Hereunder. If the
Project Realty or the Project Equipment shall be damaged or
either partially or totally destroyed, or if title to or the
temporary use of the whole or any part thereof shall be taken
or condemned by a competent authority for any public use or
purpose, there shall be no abatement or reduction in the
amounts payable by the Borrower hereunder and the Borrower
shall continue to be obligated to make such payments. In any
such case the Borrower shall promptly give written notice
thereof to the Authority and the Trustee.
Section 5.2. Project Disposition Upon Condemnation, Damage
or Destruction. In the event of any such condemnation,
damage or destruction the Borrower, except as otherwise
permitted by the Mortgage while the Mortgage is in effect,
shall:
(1) At its own cost, repair, restore or reconstruct
the Project Realty and the Project Equipment to
substantially its condition immediately prior to such event
or to a condition of at least equivalent value, regardless
of whether or not the proceeds of any and all policies of
insurance covering such damage or destruction, or the amount
of the award or compensation or damages recovered on
account of such taking or condemnation, shall be available
or sufficient to pay the cost thereof;
(2) At its own cost, replace or relocate the Project
Realty and the Project Equipment at its site in such fashion
as to render the replacement or relocated structures,
improvements and items, machinery, equipment or other
property of equivalent value to the Project Realty and the
Project Equipment immediately prior to such event; or
(3) If and as permitted by Section 8.1 hereof,
exercise its option to prepay its loan obligation in full.
Section 5.3. Application of Net Proceeds of Insurance or
Condemnation. (A) The Net Proceeds from any insurance or
condemnation award with respect to the Project Realty or the
Project Equipment shall be deposited with the Mortgage Trustee
while the Mortgage is in effect and thereafter shall be
deposited either (1) in the Renewal Fund and applied to pay for
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the cost of making such repairs, restorations,
reconstructions, replacements or relocations, or to reimburse
the Borrower, the Authority or the Trustee for payment
therefor from time to time as provided in the Indenture or (2)
if prepayment of the loan is then permitted and the Borrower
exercises its option to prepay the loan, in the Debt Service
Fund and applied to the payment of the Note and redemption of
the Bonds, in each case with respect to the series of Bonds
the proceeds of which were used to finance or refinance the
Project Realty or Project Equipment which was damaged,
destroyed or condemned.
(B) Notwithstanding the provisions of subsection (A)
of this Section, any insurance or condemnation proceeds
attributable to improvements, machinery, equipment and other
property installed in or about the Project Realty and the
Project Equipment, but which do not constitute a portion of the
Project Realty and the Project Equipment, shall be paid
directly to the Borrower. The Trustee and the Authority agree
to execute such documents as may be reasonably necessary to
accomplish the purposes of this subsection.
(C) The Borrower, the Authority and the Trustee shall
cooperate and consult with each other in all matters pertaining
to the settlement or adjustment of any and all claims and
demands for damages on account of any taking or condemnation of
the Project Realty or the Project Equipment or pertaining to
the settlement, compromising or arbitration of any claim on
account of any damage or destruction thereof.
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ARTICLE VI
COVENANTS
Section 6.1. The Borrower to Maintain its Corporate
Existence; Conditions under which Exceptions Permitted.
(A) The Borrower covenants and agrees that during the Term of
this Agreement it will maintain its corporate existence, will
continue to be a corporation either organized under the laws of
or duly qualified to do business as a foreign corporation in
the State and in all jurisdictions necessary in the operation
of its business, will not dissolve or otherwise dispose of all
or substantially all of its assets and will not consolidate
with or merge into another corporation or permit one or more
other corporations to consolidate with or merge into it, except
as permitted by the Mortgage while the Mortgage is in effect.
(B) The Borrower may, however, without violating the
agreements contained in this Section, consolidate with or merge
into another corporation or permit one or more other
corporations to consolidate with or merge into it, or sell or
otherwise transfer to another corporation all or substantially
all of its assets as an entity and thereafter liquidate or
dissolve, if (a) the Borrower is the surviving, resulting or
transferee corporation, as the case may be, or (b) in the event
the Borrower is not the surviving, resulting or transferee
corporation, as the case may be, such corporation (i) is a
solvent corporation either organized under the laws of or duly
qualified to do business as a foreign corporation subject to
service of process in the State and (ii) assumes in writing all
of the obligations of the Borrower herein, and the Note.
Section 6.2. Indemnification, Payment of Expenses, and
Advances. (A) The Borrower agrees to protect, defend and
hold harmless the Authority, the State, agencies of the State,
members, servants, agents, directors, officers and employees,
now or forever, of the Authority or the State (each an
"Authority Indemnified Party"), and the Trustee, the Paying
Agent, agents, directors, officers and employees, now or
forever, of the Trustee or the Paying Agent (each an
"Indemnified Party"), from any claim, demand, suit, action or
other proceeding and any liabilities, costs, and expenses
whatsoever by any person or entity whatsoever, arising or
purportedly arising from or in connection with the Financing
Documents, the Indenture, the Mortgage, the Bonds, or the
transactions contemplated thereby or actions taken thereunder
by any person (including without limitation the filing of any
information, form or statement with the Internal Revenue
Service), except for any wilful and material misrepresentation,
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wilful misconduct or gross negligence on the part of the
Indemnified Party or the Authority Indemnified Party or any
bad faith on the part of any indemnitee other than an
Authority Indemnified Party.
The Borrower agrees to indemnify and hold harmless any
Indemnified Party against any and all claims, demands, suits,
actions or other proceedings and all liabilities, costs and
expenses whatsoever caused by any untrue statement or
misleading statement or alleged untrue statement or alleged
misleading statement of a material fact contained in the
written information provided by the Borrower in connection with
the issuance of the Bonds or incorporated by reference therein
or caused by any omission or alleged omission from such
information of any material fact required to be stated therein
or necessary in order to make the statements made therein in
the light of the circumstances under which they were made, not
misleading.
(B) The Authority and the Trustee shall not be liable
for any damage or injury to the persons or property of the
Borrower or its members, directors, officers, agents, servants
or employees, or any other person who may be about the Project
Realty and the Project Equipment due to any act or omission of
any person other than the Authority or the Trustee or their
respective members, directors, officers, agents, servants and
employees.
(C) The Borrower releases each Indemnified Party from,
agrees that no Indemnified Party shall be liable for, and
agrees to hold each Indemnified Party harmless against, any
attorney fees and expenses, expenses or damages incurred
because of any investigation, review or lawsuit commenced by
the Trustee or the Authority in good faith with respect to the
Financing Documents, the Indenture, the Bonds and the Project
Realty and the Project Equipment, and the Authority or the
Trustee shall promptly give written notice to the Borrower with
respect thereto.
(D) All covenants, stipulations, promises, agreements
and obligations of the Authority and the Trustee contained
herein shall be deemed to be the covenants, stipulations,
promises, agreements and obligations of the Authority and the
Trustee and not of any member, director, officer or employee of
the Authority or the Trustee in its individual capacity, and no
recourse shall be had for the payment of the Bonds or for any
claim based thereon or hereunder against any member, director,
officer or employee of the Authority or the Trustee or any
natural person executing the Bonds.
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(E) In case any action shall be brought against one or
more of the Indemnified Parties based upon any of the
above and in respect of which indemnity may be sought against
the Borrower, such Indemnified Party shall promptly notify
the Borrower in writing, enclosing a copy of all papers
served, but the omission so to notify the Borrower of any
such action shall not relieve it of any liability which it
may have to any Indemnified Party otherwise than under this
Section 6.2. In case any such action shall be brought against
any Indemnified Party and it shall notify the Borrower of the
commencement thereof, the Borrower shall be entitled to
participate in and, to the extent that it shall wish, to
assume the defense thereof with counsel satisfactory to such
Indemnified Party, and after notice from the Borrower to such
Indemnified Party of the Borrower's election so to assume the
defense thereof, the Borrower shall not be liable to such
Indemnified Party for any subsequent legal or other expenses
attributable to such defense, except as set forth below,
other than reasonable costs of investigation subsequently
incurred by such Indemnified Party in connection with the
defense thereof. The Indemnified Party shall have the right
to employ its own counsel in any such action, but the fees
and expenses of such counsel shall be at the expense of such
Indemnified Party unless (i) the employment of counsel by
such Indemnified Party has been authorized by the Borrower,
(ii) the Indemnified Party shall have reasonably concluded
that there may be a conflict of interest between the Borrower
and the Indemnified Party in the conduct of the defense of
such action (in which case the Borrower shall not have the
right to direct the defense of such action on behalf of the
Indemnified Party); or (iii) the Borrower shall not in fact
have employed counsel satisfactory to the Indemnified Party
to assume defense of such action; provided, however, that
Borrower shall not be responsible for the fees and expenses
of more than one such law firm unless an Indemnified Party
shall have reasonably concluded that there may be a conflict
of interest between such Indemnified Party and any other
Indemnified Party requiring the use of separate counsel, or
Borrower has not employed counsel which is satisfactory to
each Indemnified Party. The Borrower shall not be liable for
any settlement of any action or claim effected without its
consent.
(F) The Borrower also agrees to pay all reasonable or
necessary out-of-pocket expenses of the Authority in connection
with the issuance of the Bonds, the administration of the
Financing Documents and the enforcement of its rights
thereunder.
(G) In the event the Borrower fails to pay any amount
or perform any act under the Financing Documents, the Trustee
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or the Authority may pay the amount or perform the act, in
which event the costs, disbursements, expenses and reasonable
counsel fees and expenses thereof, together with interest
thereon from the date the expense is paid or incurred at the
prime interest rate generally prevailing among banks in the
State on the date of the advance plus 1% shall be an
additional obligation hereunder payable upon demand by the
Authority or the Trustee.
(H) Any obligation of the Borrower to the Authority
under this Section shall be separate from and independent of
the other obligations of the Borrower hereunder, and may be
enforced directly by the Authority against the Borrower
irrespective of any action taken by or on behalf of the owners
of the Bonds.
(I) The obligations of the Borrower under this
section, notwithstanding any other provisions contained in the
Financing Documents, shall survive the termination of this
Agreement and shall be recourse to the Borrower, and for the
enforcement thereof any Indemnified Party shall have recourse
to the general credit of the Borrower.
Section 6.3. Incorporation of Tax Regulatory Agreements;
Payments Upon Taxability. (A) For purpose of this Section, the
term owner means the Beneficial Owner of the Bonds so long
as the Book-Entry System is in effect.
(B) The representations, warranties, covenants and
statements of expectation of the Borrower set forth in the Tax
Regulatory Agreements are by this reference incorporated in
this Agreement as though fully set forth herein.
(C) If the owner of any Series of Bonds receives from
the Internal Revenue Service a notice of assessment and demand
for payment with respect to interest on such Bond (except a
notice and demand based upon the assertion that such owner of
the Bonds is a Substantial User or Related Person), an appeal
may be taken by such owner of the Bonds at the option of the
Borrower. Without limiting the generality of the foregoing,
the Borrower shall have the right to direct the Trustee to
direct such owner of the Bonds to take such appeal or not to
take such appeal. In either case all expenses of the appeal
including reasonable counsel fees and expenses shall be paid by
the Borrower, and such owner of the Bonds and the Borrower
shall cooperate and consult with each other in all matters
pertaining to any such appeal, except that no owner of the
Bonds shall be required to disclose or furnish any non-publicly
disclosed information, including, without limitation, financial
information and tax returns.
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(D) Not later than 180 days following a Determination
of Taxability, the Borrower shall pay to the Trustee an
amount sufficient, when added to the amount then in the Debt
Service Fund and available for such purpose, to retire and
redeem all Bonds of the Series affected thereby then
Outstanding, in accordance with Section 2.4 of the Indenture.
If a Determination of Taxability with respect to either or
both Series of Bonds shall have occurred directly as a result
of any event solely within the control of the Borrower, then
such Bonds shall be redeemed in the manner described above,
and there shall also be paid the Premium, as defined in
Section 2.4(C) of the Indenture.
(E) If any Bonds are paid at maturity, redeemed after
the date of a Determination of Taxability, or redeemed or sold
during the taxability period, the former owners of such Bonds,
upon establishing their then ownership of such Bonds and upon
establishing their tax liability in connection with the
interest payable on such Bonds, shall also be entitled to
receive the Premium.
(F) The obligation of the Borrower to make the
payments provided for in this Section shall be absolute and
unconditional, and the failure of the Authority or the Trustee
to execute or deliver or cause to be executed or delivered any
documents or to take any action required under this Agreement
or otherwise shall not relieve the Borrower of its obligation
under this Section. Notwithstanding any other provision of
this Agreement or the Indenture, the Borrower's obligations
under this Section shall survive the termination of this
Agreement and the Indenture.
(G) The occurrence of a Determination of Taxability
shall not be an Event of Default hereunder but shall require
only the performance of the obligations of the Borrower stated
in this Section, the breach of which shall constitute an Event
of Default as provided in Section 7.1 hereof.
Section 6.4. Further Assurances and Corrective
Instruments. The Authority and the Borrower agree that they will, from
time to time, execute, acknowledge and deliver, or cause to be
executed, acknowledged and delivered, such supplements hereto
and such further instruments as may reasonably be required for
correcting any inadequate or incorrect description of the
Project Realty or Project Equipment or for carrying out the
intention of or facilitating the performance of this Agreement.
Section 6.5. Covenant by Borrower as to Compliance with
Indenture. The Borrower covenants and agrees that it will
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comply with the provisions of the Indenture with respect to
the Borrower and that the Trustee and the Bondholders shall
have the power and authority provided in the Indenture. The
Borrower further agrees to aid in the furnishing to the
Authority or the Trustee of opinions that may be required
under the Indenture. The Borrower covenants and agrees that
the Trustee shall be entitled to and shall have all the
rights, including the right to enforce against the Borrower
the provisions of the Financing Documents, pertaining to the
Trustee notwithstanding the fact that the Trustee is not a
party to the Financing Documents.
Section 6.6. Assignment of Agreement or Note. (A) The
Borrower may not assign its rights, interests or obligations
hereunder or under the Note except as may be permitted pursuant
to Section 6.1(B) hereof.
(B) The Authority agrees that it will not assign or
transfer any of the Financing Documents or the revenues and
other receipts, funds and moneys to be received thereunder
during the Term except to the Trustee as provided in this
Agreement and the Indenture.
Section 6.7. Inspection. The Authority, the Trustee and
their duly authorized agents shall have (1) the right at all
reasonable times to enter upon and to examine and inspect the
Project Realty and the Project Equipment and (2) such rights of
access thereto as may be reasonably necessary for the proper
maintenance and repair thereof in the event of failure by the
Borrower to perform its obligations under this Agreement. The
Authority and the Trustee shall also be permitted, at all
reasonable times, to examine the books and records of the
Borrower with respect to the Project Realty and the Project
Equipment.
Section 6.8. Default Notification. Upon becoming aware of
any condition or event which constitutes, or with the giving
of notice or the passage of time would constitute, an Event
of Default, the Borrower immediately shall deliver to the
Authority and the Trustee a notice stating the existence and
nature thereof and specifying the corrective steps the Borrower
is taking with respect thereto.
Section 6.9. Covenant Against Discrimination. (A) The
Borrower in the performance of this Agreement will not
discriminate or permit discrimination against any person or
group of persons on the grounds of race, color, religion,
national origin, age, sex, sexual orientation, marital status,
physical or learning disability, political beliefs, mental
retardation or history of mental disorder in any manner
prohibited by the laws of the United States or of the State.
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(B) The Borrower will comply with the provisions of
the resolution adopted by the Authority on June 14, 1977, as
amended, and the policy of the Authority implemented pursuant
thereto concerning the promotion of equal employment
opportunity through affirmative action plans. The resolution
requires that all borrowers receiving financial assistance
from the Authority adopt and implement an affirmative action
plan prior to the closing of the loan. The plan shall be
updated annually as long as the Bonds remain Outstanding.
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ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. Events of Default. Any one or more of the
following shall constitute an "Event of Default" hereunder:
(1) Any material representation or warranty made by
the Borrower in the Financing Documents or any certificate,
statement, data or information furnished in writing to
the Authority or the Trustee by the Borrower in connection
the closing of the initial issue of the Series 1993 Bonds or
included by the Borrower in its application to the
Authority for assistance proves at any time to have been
incorrect when made in any material respect.
(2) Failure by the Borrower to pay any interest,
principal or premium, if any, that has become due and
payable with respect to the Bonds and the continuance of
such failure for more than five Business Days.
(3) Failure by the Borrower to pay any amount, other
than, principal, interest or premium with respect to the
Bonds, that has become due and payable pursuant to the
Financing Documents and the continuance of such failure for
more than thirty days.
(4) Failure by the Borrower to comply with the default
notification provisions of Section 6.8 hereof.
(5) The occurrence of an "event of default" under
Section 8.1 of the Indenture.
(6) Failure by the Borrower to observe or perform any
covenant, condition or agreement hereunder or under the
Financing Documents (except those referred to above) and
(a) continuance of such failure for a period of sixty days
after receipt by the Borrower of written notice specifying
the nature of such failure or (b) if by reason of the
nature of such failure the same cannot be remedied within
the sixty day period, the Borrower fails to proceed with
reasonable diligence after receipt of the notice to cure
the failure.
(7) The Borrower shall (a) apply for or consent to the
appointment of a receiver, trustee, liquidator or
custodian or the like of itself or of its property, (b)
admit in writing its inability to pay its debts generally as
they become due, (c) make a general assignment for the
benefit of creditors, (d) be adjudicated a bankrupt or
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insolvent, or (e) commence a voluntary case under the
Federal bankruptcy laws of the United States of America or
file a voluntary petition or answer seeking reorganization,
an arrangement with creditors or an order for relief or
seeking to take advantage of any insolvency law or file an
answer admitting the material allegations of a petition
filed against it in any bankruptcy, reorganization or
insolvency proceeding; or corporate action shall be taken
by it for the purpose of effecting any of the foregoing; or
if without the application, approval or consent of the
Borrower, a proceeding shall be instituted in any court of
competent jurisdiction, seeking in respect of the Borrower
an adjudication in bankruptcy, reorganization, dissolution,
winding up, liquidation, a composition or arrangement with
creditors, a readjustment of debts, the appointment of a
trustee, receiver, liquidator or custodian or the like of
the Borrower or of all or any substantial part of its
assets, or other like relief in respect thereof under any
bankruptcy or insolvency law, and, if such proceeding is
being contested by the Borrower in good faith, the same
shall continue undismissed, or pending and unstayed, for
any period of 75 consecutive days.
Section 7.2. Remedies on Default. (A) Whenever any Event of
Default shall have occurred, the Trustee, or the Authority
where so provided herein, may take any one or more of the
following actions:
(1) The Trustee, as and to the extent provided in
Article VIII of the Indenture, may cause all amounts payable
under the Financing Documents to be immediately due and
payable without notice or demand of any kind, whereupon the
same shall become immediately due and payable.
(2) The Authority, without the consent of the Trustee
or any Bondholder, may proceed to enforce the obligations
of the Borrower to the Authority under this Agreement.
(3) The Trustee may take whatever action at law or in
equity it may have to collect the amounts then due and
thereafter to become due, or to enforce the performance or
observance of the obligations, agreements, and covenants of
the Borrower under the Financing Documents.
(4) The Trustee may exercise any and all rights it may
have under the Financing Documents.
(B) In the event that any Event of Default or any
proceeding taken by the Authority (or by the Trustee on behalf
of the Authority) thereon shall be waived or determined
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adversely to the Authority, then the Event of Default shall be
annulled and the Authority and the Borrower shall be restored
to their former rights hereunder, but no such waiver or
determination shall extend to any subsequent or other default
or impair any right consequent thereon.
Section 7.3. No Duty to Mitigate Damages. Unless otherwise
required by law, neither the Authority, the Trustee nor any
Bondholder shall be obligated to do any act whatsoever or
exercise any diligence whatsoever to mitigate the damages to
the Borrower if an Event of Default shall occur.
Section 7.4. Remedies Cumulative. No remedy herein
conferred upon or reserved to the Authority or the Trustee is
intended to be exclusive of any other available remedy or
remedies but each and every such remedy shall be cumulative and
shall be in addition to every remedy given under this Agreement
or now or hereafter existing at law or in equity or by statute.
Delay or omission to exercise any right or power accruing upon
any default or failure by the Authority or the Trustee to
insist upon the strict performance of any of the covenants and
agreements herein set forth or to exercise any rights or
remedies upon default by the Borrower hereunder shall not
impair any such right or power or be considered or taken as a
waiver or relinquishment for the future of the right to insist
upon and to enforce, by injunction or other appropriate legal
or equitable remedy, strict compliance by the Borrower with all
of the covenants and conditions hereof, or of the right to
exercise any such rights or remedies, if such default by the
Borrower be continued or repeated.
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ARTICLE VIII
PREPAYMENT PROVISIONS
Section 8.1. Optional Prepayment. (A) The Borrower shall
have, and is hereby granted, the option to prepay its loan
obligation as a whole or in part, or by Series in whole or in
part, at any time by delivering a written notice to the Trustee
in accordance with Section 8.2 hereof, with a copy to the
Authority, setting forth the amount to be prepaid, the amount
of Bonds requested to be redeemed with the proceeds of such
payment, and the date on which such Bonds are to be redeemed,
which date with respect to the Series 1993C Bonds shall be
December 1, 2003 or any date thereafter and which date with
respect to the Series 1994A Bonds shall be August 1, 2004 or
any date thereafter; except that, in the event that at such
time the Borrower is in default under the Financing Documents,
such option may be exercised only as a whole. Such prepayment
must be sufficient to provide moneys for the payment of
interest and Redemption Price in accordance with the terms of
the Bonds requested to be redeemed with such prepayment and all
other amounts then due under the Financing Documents. In the
event of any complete prepayment of its loan obligation, the
Borrower shall, at the time of such prepayment, also pay or
provide for the payment of all reasonable or necessary fees and
expenses of the Authority, the Trustee and the Paying Agent
accrued and to accrue through the final payment of all the
Bonds. Any such prepayments shall be applied to the redemption
of Bonds in the manner provided in Section 6.2 of the
Indenture, and credited against payments due hereunder in the
same manner.
(B) (x) The Borrower shall have, and is hereby
granted, the option to prepay the portion of its loan obligation
relating to the Series 1994A Bonds in full at any time without
premium if any of the following events shall have occurred, as
evidenced in each case by the filing with the Trustee of a
certificate of an Authorized Representative of the Borrower to
the effect that one of such events has occurred and is
continuing, and describing the same:
(1) The Series A Project shall have been damaged or
destroyed to such extent that (a) the Series A Project
cannot be reasonably restored within a period of twelve
months from the date of such damage or destruction to the
condition thereof immediately preceding such damage or
destruction, or (b) the Borrower is thereby prevented or
likely to be prevented from carrying on its normal
operation of the Series A Project for a period of twelve
months from the date of such damage or destruction.
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(2) Title to or the temporary use of all or
substantially all of the Series A Project shall have been
taken or condemned by a competent authority, which taking or
condemnation results or is likely to result in the
Borrower being thereby prevented or likely to be prevented
from carrying on its normal operation of the Series A
Project for a period of twelve months.
(3) As a result of changes in the Constitution of the
United States of America or of the State or as a result of
legislative or executive action of the State or any
political subdivision thereof or by final decree or
judgment of any court after the contest thereof by the
Borrower, (a) the Agreement becomes void or unenforceable or
impossible of performance in accordance with the intent
and purpose of the parties as expressed therein or (b)
unreasonable burdens or excessive liabilities are imposed
upon the Borrower by reason of the operation of the Series A
Project.
(4) Changes in the economic availability of raw
materials, operating supplies or facilities necessary for
the operation of the Series A Project or technological or
other changes shall have occurred which the Borrower cannot
reasonably overcome or control and which in the Borrower's
reasonable judgment render the Series A Project unsuitable
or uneconomic for the purposes herein specified or any tax
shall be levied upon payments due under the Note in an
amount which the Borrower in its reasonable judgment
believes imposes an unreasonable burden upon the Borrower.
(y) The Borrower shall have, and is hereby granted, the
option to prepay the portion of its loan obligation relating to
the Series 1993C Bonds in full at any time without premium if
any of the following events shall have occurred, as evidenced
in each case by the filing with the Trustee of a certificate of
an Authorized Representative of the Borrower to the effect that
one of such events has occurred and is continuing, and
describing the same:
(1) The Series C Project shall have been damaged or
destroyed to such extent that (a) the Series C Project
cannot be reasonably restored within a period of twelve
months from the date of such damage or destruction to the
condition thereof immediately preceding such damage or
destruction, or (b) the Borrower is thereby prevented or
likely to be prevented from carrying on its normal
operation of the Series C Project for a period of twelve
months from the date of such damage or destruction.
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(2) Title to or the temporary use of all or
substantially all of the Series C Project shall have been
taken or condemned by a competent authority, which taking or
condemnation results or is likely to result in the
Borrower being thereby prevented or likely to be prevented
from carrying on its normal operation of the Series C
Project for a period of twelve months.
(3) As a result of changes in the Constitution of the
United States of America or of the State or as a result of
legislative or executive action of the State or any
political subdivision thereof or by final decree or
judgment of any court after the contest thereof by the
Borrower, (a) the Agreement becomes void or unenforceable or
impossible of performance in accordance with the intent
and purpose of the parties as expressed therein or (b)
unreasonable burdens or excessive liabilities are imposed
upon the Borrower by reason of the operation of the Series C
Project.
(4) Changes in the economic availability of raw
materials, operating supplies or facilities necessary for
the operation of the Series C Project or technological or
other changes shall have occurred which the Borrower cannot
reasonably overcome or control and which in the Borrower's
reasonable judgment render the Series C Project unsuitable
or uneconomic for the purposes herein specified or any tax
shall be levied upon payments due under the Note in an
amount which the Borrower in its reasonable judgment
believes imposes an unreasonable burden upon the Borrower.
(z) In any such case the final loan payment shall be a sum
sufficient, together with other funds deposited with Trustee
and available for such purpose, to redeem all Series 1994A
Bonds and/or all Series 1993C Bonds, as the case may be, then
outstanding under the Indenture at the redemption price of 100%
of the principal amount thereof plus accrued interest to the
redemption date and all other amounts then due under the
Financing Documents, and the Borrower shall also pay or provide
for all reasonable or necessary fees and expenses of the
Trustee and Paying Agent accrued and to accrue through final
payment for such Bonds. The Borrower shall deliver a written
notice to the Trustee, with a copy to the Authority, requesting
the redemption of such Bonds hereunder, which notice shall have
attached thereto the applicable certificate of the Authorized
Representative of the Borrower.
Section 8.2. Notice and Sources of Prepayment. To exercise
any options granted in this Article, or to consummate the
acceleration of the loan payments as set forth in this
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Article, the written notice to the Trustee shall be signed by
an Authorized Representative of the Borrower and shall
specify therein the date of prepayment, which date shall be
not less than thirty-five days nor more than ninety days from
the date the notice is mailed. A duplicate copy of any
written notice hereunder shall also be filed with the
Authority.
Section 8.3. Mandatory Prepayment on Taxability. The
Borrower shall pay or cause the prepayment of its loan
obligation, in whole or in part or by series of Bonds,
following a Determination of Taxability in the manner provided
in Section 6.3 of this Agreement.
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ARTICLE IX
GENERAL
Section 9.1. Indenture. (A) Moneys received from the sale
of the Bonds and all loan payments made by the Borrower and all
other moneys received by the Authority or the Trustee under the
Financing Documents shall be applied solely and exclusively in
the manner and for the purposes expressed and specified in the
Indenture and in the Bonds and as provided in this Agreement.
(B) The Borrower shall have and may exercise all the
rights, powers and authority given the Borrower in the Indenture
and in the Bonds, and the Indenture and the Bonds shall not be
modified, altered or amended in any manner which adversely
affects such rights, powers and authority or otherwise
adversely affects the Borrower without the prior written
consent of the Borrower.
Section 9.2. Benefit of and Enforcement by Bondholders.
The Authority and the Borrower agree that this Agreement is
executed in part to induce the purchase by others of the Bonds
and for the further securing of the Bonds, and accordingly that
all covenants and agreements on the part of the Authority and
the Borrower as to the amounts payable with respect to the
Bonds and the Mortgage Bond hereunder are hereby declared to be
for the benefit of the holders from time to time of the Bonds
and may be enforced as provided in the Indenture on behalf of
the Bondholders by the Trustee.
Section 9.3. Force Majeure. In case by reason of force
majeure either party hereto shall be rendered unable wholly or
in part to carry out its obligations under this Agreement, then
except as otherwise expressly provided in this Agreement, if
such party shall give notice and full particulars of such force
majeure in writing to the other party within a reasonable time
after occurrence of the event or cause relied on, the
obligations of the party giving such notice, other than the
obligation of the Borrower to make the payments required under
the terms hereof or of the Note, so far as they are affected by
such force majeure, shall be suspended during the continuance
of the inability then claimed which shall include a reasonable
time for the removal of the effect thereof, but for no longer
period, and such parties shall endeavor to remove or overcome
such inability with all reasonable dispatch. The term "force
majeure", as employed herein, means acts of God, strikes,
lockouts or other industrial disturbances, acts of the public
enemy, orders of any kind of the Government of the United
States, of the State or any civil or military authority,
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insurrections, riots, epidemics, landslides, lightning,
earthquakes, volcanoes, fires, hurricanes, tornadoes, storms,
floods, washouts, droughts, arrests, restraining of
government and people, civil disturbances, explosions,
partial or entire failure of utilities, shortages of labor,
material, supplies or transportation, or any other similar or
different cause not reasonably within the control of the
party claiming such inability. It is understood and agreed
that the settlement of existing or impending strikes, lockouts
or other industrial disturbances shall be entirely within the
discretion of the party having the difficulty and that the
above requirements that any force majeure shall be reasonably
beyond the control of the party and shall be remedied with
all reasonable dispatch shall be deemed to be fulfilled even
though such existing or impending strikes, lockouts and other
industrial disturbances may not be settled and could have
been settled by acceding to the demands of the opposing
person or persons.
Section 9.4. Amendments. This Agreement may be amended
only with the concurring written consent of the Trustee and, if
required by the Indenture, of the owners of the Bonds given in
accordance with the provisions of the Indenture.
Section 9.5. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall
be deemed given when delivered or when mailed by registered or
certified mail, postage prepaid, addressed as follows: if to
the Authority, at 845 Brook Street, Rocky Hill, Connecticut
06067, Attention: Program Manager - Loan Administration; if to
the Borrower, 835 Main Street, Bridgeport, Connecticut 06601,
Attention: Treasurer; and if to the Trustee, at 999 Broad
Street, Bridgeport, Connecticut 06604, Attention: Corporate
Trust Department. A duplicate copy of each notice, certificate
or other communication given hereunder by either the Authority
or the Borrower to the other shall also be given to the
Trustee. The Authority, the Borrower and the Trustee may, by
notice given hereunder, designate any further or different
addresses to which subsequent notices, certificates or other
communications shall be sent.
Section 9.6. Prior Agreements Superseded. This Agreement,
together with all agreements executed by the parties
concurrently herewith or in conjunction with the sale of the
Initial Bonds, shall completely and fully supersede all other
prior understandings or agreements, both written and oral,
between the Authority and the Borrower relating to the lending
of money and the Project, including those contained in any
commitment letter executed in anticipation of the issuance of
the Initial Bonds.
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Section 9.7. Execution of Counterparts. This Agreement may
be executed simultaneously in several counterparts each of
which shall be an original and all of which shall constitute
but one and the same instrument.
Section 9.8. MBIA Requirements. (A) The Borrower shall give
Municipal Bond Investors Assurance Corporation ("MBIA") written
notice not less than two days prior to any regularly scheduled
payment date for principal or interest on the Bonds if the
Borrower does not intend or will be unable to make the
corresponding payment to the Trustee under the Indenture.
(B) The Borrower or the Authority, as appropriate,
shall furnish to MBIA a copy of any notice that is required
to be given to a Bondholder, the Trustee, the Authority or the
Borrower pursuant to this Agreement.
(C)While either or both of the Municipal Bond
Insurance Policies (as defined in the Indenture) are in effect,
the Borrower shall not mortgage any of its real property or
issue any additional indebtedness secured by the Mortgage
unless the Bonds are equally and ratably secured thereby. The
provisions of the Mortgage which subject after-acquired
property to the terms of the Mortgage shall not constitute a
violation of this subsection (C).
IN WITNESS WHEREOF, the Authority has caused this Agreement
to be executed in its corporate name by a duly Authorized
Representative, and the Borrower has caused this Agreement to
be executed in its corporate name by its duly authorized
officer all as of the date first above written.
Connecticut Development Authority
By /s/Stanley R. Killinger
-----------------------------
Name: Stanley R. Killinger
Authorized Representative
Bridgeport Hydraulic Company
By /s/Janet M. Hansen
----------------------------
Name: Janet M. Hansen
Title: Vice President - Finance
4665Y
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APPENDIX A
Bridgeport Hydraulic Company
PROMISSORY NOTE
No. 1 $17,700,000.00
Bridgeport Hydraulic Company, a corporation organized and
existing under the laws of the State of Connecticut (the
"Borrower"), for value received, hereby promises to pay to the
order of the Connecticut Development Authority (the
"Authority"), the principal sum of $17,700,000.00 together with
interest on the unpaid principal balance thereof from the date
hereof until fully and finally paid, together with all taxes
levied or assessed on this Note or the debt evidenced hereby
against the holder hereof. This Note shall bear interest at
the rates of interest borne by, and prinicpal, premium and
interest shall be payable at the times and in the amounts
specified in, each of the respective Series of the Initial
Bonds referred to below, but only to the extent that said
Series of Bonds is issued and outstanding.
This Note has been executed under and pursuant to a Loan
Agreement dated as of November 1, 1993 between the Authority
and the Borrower (the "Agreement"). This Note is issued to
evidence the obligation of the Borrower under the Agreement to
repay the loan made by the Authority from the proceeds of its
$7,700,000 Water Facilities Refunding Revenue Bonds (Bridgeport
Hydraulic Company Project - 1993C Series) and its $10,000,000
Water Facilities Refunding Revenue Bonds (Bridgeport Hydraulic
Company Project - 1994A Series) (the "Initial Bonds"), together
with interest thereon and all other amounts, fees, penalties,
premiums, adjustments, expenses, counsel fees and other
payments of any kind required to be paid by the Borrower under
the Agreement. The Agreement includes provision for mandatory
and optional prepayment of this Note as a whole or in part.
The Agreement further provides for the payment of interest on
this Note at other rates in certain circumstances, including
the payment of a Premium in the event of Determination of
Taxability, as more fully described in Section 6.3 thereof.
Advances made pursuant to Section 6.2 of the Agreement shall
bear interest at the rate specified in accordance therewith.
The Agreement and this Note (hereinafter collectively
referred to as the "Financing Documents") have been assigned to
The Chase Manhattan Bank of Connecticut, N.A. (the "Trustee")
acting pursuant to an Indenture of Trust dated as of
November 1, 1993 (the "Indenture") between the Authority and
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the Trustee. Such assignment is made as security for the
payment of the Initial Bonds and any Additional Bonds issued
by the Authority pursuant to the Indenture.
As provided in the Agreement and subject to the provisions
thereof, payments hereon are to be made at the principal office
of the Trustee in Bridgeport, Connecticut, or at the office
designated for such payment by any successor trustee in an
amount which, together with other moneys available therefor
pursuant to the Indenture, will equal the amount payable as
principal or Redemption Price, if any, of and interest on the
Initial Bonds outstanding under the Indenture on each such due
date.
The Borrower shall make payments on this Note on the dates
and in the amounts specified herein and in the Agreement and in
addition shall make such other payments as are required
pursuant to the Financing Documents, the Indenture and the
Bonds. Upon the occurrence of an Event of Default, as defined
in any of the Financing Documents, the principal of and
interest on this Note may be declared immediately due and
payable as provided in the Agreement. Upon any such
declaration the Borrower shall pay all cost, disbursements,
expenses and reasonable counsel fees of the Authority and the
Trustee in seeking to enforce their rights under any of the
Financing Documents.
THE BORROWER ACKNOWLEDGES THAT THE LOAN EVIDENCED BY THIS
NOTE IS A COMMERCIAL TRANSACTION AND WAIVES ITS RIGHTS TO
NOTICE AND HEARING UNDER CHAPTER 903a OF THE CONNECTICUT
GENERAL STATUTES, OR AS OTHERWISE ALLOWED BY ANY STATE OR
FEDERAL LAW WITH RESPECT TO ANY PREJUDGEMENT REMEDY WHICH THE
HOLDER HEREOF MAY DESIRE TO USE. The Borrower further (1)
waives diligence, demand, presentment for payment, notice of
nonpayment, protest and notice of protest, notice of any
renewals or extension of this Note, and all rights under any
statute of limitations, (2) agrees that the time for payment of
this Note may be changed and extended at the sole discretion of
the Trustee without impairing its liability hereon, and (3)
consents to the release of all or any part of the security for
the payment thereof at the discretion of the Trustee or the
release of any party liable for this obligation without
affecting the liability of the other parties hereto. Any delay
on the part of the Authority or the Trustee in exercising any
right hereunder shall not operate as a waiver of any such
right, and any waiver granted with respect to one default shall
not operate as a waiver in the event of any subsequent default.
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IN WITNESS WHEREOF, Bridgeport Hydraulic Company has caused
this Note to be executed in its corporate name by its duly
authorized officer, all as of November 1, 1993.
Bridgeport Hydraulic Company
By:_________________________
Name:
Authorized Representative
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AUTHORITY ENDORSEMENT
Pay to the order of The Chase Manhattan Bank of Connecticut,
N.A., as Trustee, without recourse.
Connecticut Development Authority
By: _____________________________
Name:
Authorized Representative
A-4
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APPENDIX B
Description of Project Realty
<PAGE>
<PAGE>
APPENDIX C
Description of Project Equipment
4665Y
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<PAGE>
EXHIBIT 10(hh)
AQUARION COMPANY
--------------
NOTE AGREEMENT
--------------
Dated as of January 4, 1994
$10,000,000
5.95% Senior Notes due January 4, 1999
<PAGE>
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. PURCHASE AND SALE OF NOTES...................... 1
1.01 Issue of Notes.................................... 1
1.02 The Closing....................................... 1
1.03 Representations and Closing Conditions............ 2
SECTION 2. PAYMENTS........................................ 2
2.01 Required Payments................................. 2
2.02 Optional Prepayments.............................. 2
2.03 Partial Prepayment Pro Rata....................... 4
SECTION 3. INFORMATION AS TO THE COMPANY................... 4
3.01 Financial and Business Information................ 4
3.02 Officer's Certificates............................ 7
3.03 Accountant's Certificates......................... 7
3.04 Inspection........................................ 7
3.05 Delivery of Certified Financial Statements........ 8
SECTION 4. COMPANY COVENANTS...................... 8
4.01 Funded Debt....................................... 8
4.02 Liens and Encumbrances............................ 8
4.03 Distributions and Restricted Investments.......... 10
4.04 Sale of Property and Subsidiary Stock............. 11
4.05 Merger and Consolidation.......................... 12
4.06 Transactions with Affiliates; Restricted
Subsidiaries......................................13
4.07 Nature of Business................................ 13
4.08 Insurance......................................... 13
4.09 Maintenance, Etc.................................. 13
4.10 Records........................................... 13
4.11 Incorporation..................................... 14
4.12 Compliance with Laws.............................. 14
4.13 Payment of Expenses; Indemnification, Etc......... 14
4.14 Taxes............................................. 15
4.15 ERISA............................................. 15
4.16 Sale and Leaseback of Property.................... 17
4.17 Environmental Covenant............................ 18
4.18 Rule 144 Transfer................................. 18
SECTION 5. DEFAULT......................................... 18
5.01 Nature of Default................................. 18
5.02 Default Remedies.................................. 20
<PAGE>
<PAGE>
SECTION 6. INTERPRETATION OF THIS AGREEMENT................ 21
6.01 Terms Defined..................................... 21
6.02 Accounting Principles............................. 29
6.03 Directly or Indirectly............................ 29
6.04 Governing Law..................................... 29
6.05 Rank.............................................. 29
6.06 Section Headings and Table of Contents............ 29
SECTION 7. PURCHASER'S SPECIAL RIGHTS...................... 29
7.01 Direct Payment.................................... 29
7.02 Issue Taxes....................................... 30
7.03 Registration of Notes............................. 30
7.04 Exchange of Notes................................. 30
7.05 Replacement of Notes.............................. 31
SECTION 8. MISCELLANEOUS................................... 31
8.01 Notices........................................... 31
8.02 Reproduction of Documents......................... 31
8.03 Purchase for Investment; ERISA.................... 32
8.04 Successors and Assigns............................ 32
8.05 Amendment and Waiver; Acquisition of Notes........ 33
8.06 Duplicate Originals............................... 33
8.07 Payments Due on Holidays.......................... 33
ATTACHMENT A...........................Payment and Communications
ATTACHMENT B...............5.95% Senior Notes Due January 4, 1999
(Registered Notes)
ATTACHMENT C.......................Warranties and Representations
ATTACHMENT D...................................Closing Conditions
ATTACHMENT E.....Description of Company Counsel's Closing Opinion
ATTACHMENT F.....Description of Special Counsel's Closing Opinion
ATTACHMENT G.............................Designated Real Property
ATTACHMENT H..............................Restricted Subsidiaries
ATTACHMENT I.......................................Existing Liens
ii
<PAGE>
<PAGE>
AQUARION COMPANY
835 Main Street
Bridgeport, Connecticut 06601-2353
----------------------
NOTE AGREEMENT
$10,000,000
5.95% Senior Notes due January 4, 1999
----------------------
As of January 4, 1994
Nationwide Life Insurance Company
One Nationwide Plaza
Columbus, Ohio 43216
Dear Purchaser:
AQUARION COMPANY, a Delaware corporation (the "Company"),
hereby agrees with you as follows:
SECTION 1. PURCHASE AND SALE OF NOTES
1.01 Issue of Notes
The Company will authorize and issue $10,000,000 principal
amount of its 5.95% Senior Notes due January 4, 1999 (the "Notes").
The Notes will be in the form of the Notes set out in Attachment B
(the "Registered Notes").
1.02 The Closing
The Company agrees to sell to you and you agree to purchase
from the Company, in accordance with the provisions of this
Agreement, the entire $10,000,000 aggregate principal amount of the
Notes, at par. The closing of your purchase will be held at
10:00 a.m. on January 4, 1994 or such other date as shall have been
agreed to by you and the Company (the "Closing Date") at the office
of Tyler Cooper & Alcorn, New Haven, Connecticut. On the Closing
Date, the Company will deliver to you a Registered Note or
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Registered Notes, as applicable, in the principal amount or amounts
of your purchase or purchases, dated the Closing Date and payable
to you, against payment in immediately available funds.
1.03 Representations and Closing Conditions
To induce you to enter into this Agreement and to purchase the
Notes, the Company makes the warranties and representations set
forth in Attachment C, effective as of the date of the Company's
execution of this Agreement. Your obligation to purchase the Notes
at the closing is subject to the satisfaction of all of the
conditions precedent listed in Attachment D.
SECTION 2. PAYMENTS
2.01 Required Payments
Until the Notes are paid in full, the Company will pay
interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid principal amount of the Notes from the date
of the Note at the rate of 5.95% per annum, payable semi-annually
on the first day of July and of January in each year, commencing
July 1, 1994. The entire outstanding principal amount and interest
shall be due and payable on January 4, 1999.
2.02 Optional Prepayments
(a) The Company may prepay the Notes in whole or in part at
any time, at the option of the Company, by payment of the
designated principal amount to be prepaid with interest
accrued to the date of prepayment and the Make Whole
Premium Amount attributable to the amount of such
prepayment.
(b) In case:
(i) at any time the Company shall have requested in
writing the consent of each holder of the Notes for
the Company or any Subsidiary to take any action
otherwise prohibited or restricted by Sections 4.01
through 4.07 or 4.16 hereof, solely in order to
permit the Company or such Subsidiary to take such
action and not in whole or in part, directly or
indirectly, for the purpose of prepaying the Notes
or any part thereof, and shall have furnished to
the holders of the Notes at the time outstanding
such information with respect to such action as any
such holder may reasonably request; and
(ii) within forty-five (45) days after the mailing of
such request, the Company shall not have received
2.
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the written consent to such action of the holders
of at least 66-2/3% in aggregate principal amount
of all Notes at the time outstanding (excluding
Notes owned by the Company and its Affiliates), and
if such action is a sale by the Company of its
Property as an entirety or substantially as an
entirety, or a consolidation or merger to which the
Company is to be a party, then, in any such event,
at the time of giving notice of prepayment as
provided in Section 2.02(d), the Company shall have
on hand a bona fide proposal for such sale,
consolidation or merger;
then, notwithstanding Sections 4.01 through 4.07 or 4.16,
the Company may take any such action within one hundred
and ninety-five (195) days of such request if the Company
shall give the notice provided in Section 2.02(d) and
concurrently with the consummation of such action,
prepays in full the Notes held by all holders who shall
not have so given their consent, such prepayment to be
made at the principal amount of the Notes so prepaid,
together with interest accrued to the date of prepayment
and the Make Whole Premium Amount attributable to such
prepayment; provided that if such action is not
consummated within one hundred and ninety-five (195) days
after the request, such prepayment may not be made by the
Company and the principal amount of the Notes specified
for such prepayment in the notice thereof shall not, by
reason of such notice, mature and become due and payable
on the date fixed for such prepayment. If such action
involves a merger or consolidation in which the Company
is not the surviving corporation, or is a sale by the
Company of its Property as an entirety or substantially
as an entirety, then for the purposes of subdivision (ii)
of this Section 2.02(b), the consent of any holder of the
Notes shall be conditioned upon the effective assumption
in writing by the purchasing or surviving Person, as the
case may be, of all of the Company's obligations under
this Agreement and the Notes in accordance with the terms
hereof and thereof.
(c) In case the Company shall elect to rely on the last
paragraph of Section 4.04 in the event of a sale, lease,
transfer or other disposition of any Property, then
(unless the Consolidated Funded Debt to be prepaid
pursuant to such paragraph had been directly secured by
the sold, leased, transferred or disposed of assets and
such security interest was not incurred by the Company in
anticipation of such sale, lease, transfer or
disposition) the Company shall mail a notice of such
election at least forty-five (45) days prior to the date
the Company intends to use the proceeds of such sale,
3.
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lease, transfer or other disposition in accordance with
Section 4.04 to reduce outstanding Consolidated Funded
Debt. In such case each holder of Notes shall have the
option, exercisable by written notice to the Company
within thirty (30) days of the mailing of the Company's
notice, to require prepayment of the Notes held by such
holder at the principal amount of the Notes to be
prepaid, without premium, together with interest accruing
to the date of prepayment, on a pro rata basis with the
Consolidated Funded Debt being paid.
(d) The Company will give notice of any optional prepayment
of the Notes to each holder of Notes at least five (5)
days before the date fixed for prepayment, specifying
(1) such date, (2) the section of this Agreement under
which the prepayment is to be made, (3) the principal
amount of the Notes and of such holder's Notes to be
prepaid on such date, and (4) the estimated Make Whole
Premium Amount, if any, and accrued interest applicable
to the prepayment, provided that the Make Whole Premium
Amount shall be calculated as of a date not more than
thirty (30) days before the date of prepayment and the
Company will, at least two Business Days before the
prepayment, give each holder of Notes a supplemental
notice specifying the date as of which the calculation
was made and setting forth the details of such
calculation. Upon the giving of a notice of prepayment,
the principal amount of the Notes designated for
prepayment shall become due and payable on the date fixed
for prepayment in such notice.
2.03 Partial Prepayment Pro Rata
If there is more than one Note outstanding, the principal
amount of each optional partial prepayment of the Notes (except a
prepayment of some, but not all, of the Notes under Section 2.02(b)
or 2.02(c)) will be allocated among the Notes at the time
outstanding in proportion, as nearly as practicable, to the
respective outstanding principal amounts of the Notes.
SECTION 3. INFORMATION AS TO THE COMPANY
3.01 Financial and Business Information
The Company will deliver to you, if at the time you or your
nominee holds any Notes (or if you are obligated to purchase any
Notes), and to each other holder of outstanding Notes (and, upon
the request of any holder of the Notes, to any prospective
transferee of any Notes):
4.
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(a) Quarterly Statements - within forty-five (45) days after
the end of each of the first three quarterly fiscal
periods in each fiscal year of the Company, two copies of
(i) consolidated balance sheets of the Company as at
the end of such quarter; and
(ii) consolidated statements of income, shareholders'
equity, and cash flows of the Company for that
quarter and (in the case of the second and third
quarters) for the portion of the fiscal year ending
with such quarter,
accompanied by a certificate signed by the principal
financial officer of the Company stating that such
financial statements present fairly the financial
condition of the companies being reported upon and have
been prepared in accordance with generally accepted
accounting principles consistently applied, except as set
forth in such certificate;
(b) Annual Statements - within ninety (90) days after the end
of each fiscal year of the Company, four copies of:
(i) consolidated balance sheets of the Company as at
the end of that year, and
(ii) consolidated statements of income, shareholders'
equity, and cash flows of the Company for that
year,
setting forth in each case in comparative form the
figures for the previous fiscal year and, in the case of
consolidated balance sheets and statements, accompanied
by an opinion of a firm of independent certified public
accountants of recognized national standing, stating that
such financial statements present fairly the financial
condition of the companies being reported upon and have
been prepared in accordance with generally accepted
accounting principles consistently applied (except for
changes in application in which such accountants concur)
and that the examination of such accountants in
connection with such financial statements has been made
in accordance with generally accepted auditing standards,
and accordingly included such tests of the accounting
records and such other auditing procedures as were
considered necessary in the circumstances;
(c) SEC and Other Reports - promptly upon their becoming
available, one copy, if any, of each periodic report
(including Form 8-K, 10-K and 10-Q), proxy statement and
registration statement or prospectus relating to
5.
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Securities of the Company filed with, delivered to or
received in connection therewith from any securities
exchange, the Securities and Exchange Commission or any
successor agencies;
(d) Notice of Event of Default - immediately upon becoming
aware of the existence of any Event of Default, a written
notice describing its nature and any action with respect
thereto taken or contemplated to be taken by the Company,
BHC or any Restricted Subsidiary;
(e) Notice of Claimed Default; Litigation Notice -
immediately upon becoming aware that the holder of any
Note or of any other evidence of indebtedness or other
Security of the Company, BHC or any Restricted
Subsidiary has given notice (or taken any other action)
with respect to a claimed default, breach, Event of
Default, or any claim, action, or administrative
proceeding pending or, to the knowledge of the Company,
BHC or any Restricted Subsidiary, threatened against or
affecting the Company, BHC or any Restricted Subsidiary
in any court or before any governmental authority or
arbitration board or tribunal which might materially and
adversely affect the Property, business, franchises,
prospects, profits or condition (financial or otherwise)
of the Company and its Restricted Subsidiaries, taken as
a whole, the rates to be charged by BHC or the valuation
of BHC's Property for rate-making purposes, or the
ability of the Company to perform this Agreement or the
Notes, a notice describing the notice given (or action
taken) and the nature of the claimed default, breach, or
Event of Default or the claim, action or administrative
proceeding pending or threatened and any action with
respect thereto taken or contemplated to be taken by the
Company, BHC or any Restricted Subsidiary;
(f) Notice of Regulatory Action - promptly upon receipt
thereof, copies of any notices received from Federal or
state regulatory agencies relating to an order, ruling,
statute, other law or information which might materially
and adversely affect the Property, business, franchises,
prospects, profits or condition (financial or otherwise)
of the Company and its Restricted Subsidiaries, taken as
a whole, the rates to be charged by BHC or the valuation
of BHC's Property for rate-making purposes, or the
ability of the Company to perform this Agreement or the
Notes; and
(g) Requested Information - with reasonable promptness, any
other data and information which may be reasonably
requested from time to time, and any information required
by Rule 144A(d)(4) under the Act to be provided to a
holder or prospective purchaser of any Notes.
6.
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3.02 Officer's Certificates
With each set of financial statements delivered pursuant to
Section 3.01(a) or 3.01(b), the Company will deliver a certificate
signed by its principal financial officer or its Treasurer and
setting forth:
(a) Covenant Compliance - the information required in order
to establish compliance with Section 4 during the period
covered by the income statements then being furnished;
and
(b) Event of Default - that the signer has reviewed the
relevant terms of this Agreement and has made, or caused
to be made, under the signer's supervision, a good faith
review of the transactions and conditions of the Company
and its Subsidiaries during the period covered by the
income statements then being furnished and that the
review has not disclosed the existence of any Event of
Default or, if an Event of Default exists, describing its
nature and any action with respect thereto taken or
contemplated to be taken by the Company.
3.03 Accountant's Certificates
Each set of annual financial statements delivered pursuant to
Section 3.01(b) will be accompanied by a certificate of the
accountants who certify such financial statements, stating that
they have reviewed this Agreement and whether, in making their
audit, they have become aware of any Event of Default and, if an
Event of Default exists, describing its nature.
3.04 Inspection
The Company will permit your representatives, while you or
your nominee holds any Note, or the representatives of any other
holder of the Notes, at your or such holder's expense, to visit and
inspect any of the Property of the Company, BHC or any Restricted
Subsidiary, to examine and make copies and extracts of all their
books of account, records, reports and other papers, and to discuss
their respective affairs, finances and accounts with their
respective officers, employees with management duties and
independent public accountants, all at reasonable times and as
often as may be reasonably requested to the extent you or such
holder may deem necessary to familiarize yourself or themselves, as
the case may be, with the financial condition of the Company.
7.
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3.05 Delivery of Certified Financial Statements
Concurrently with the delivery to you and to each other holder
of the Notes of the certified annual financial statements pursuant
to Section 3.01, the Company will mail one further copy of each
such statement to:
Securities Valuation Office
National Association of Insurance Commissioners
195 Broadway
New York, New York 10007
SECTION 4. COMPANY COVENANTS
The Company covenants that on and after the date of this
Agreement until the Notes are paid in full:
4.01 Funded Debt
Neither the Company nor any Restricted Subsidiary will become
liable for or permit any of its Property to become subject to any
Funded Debt or Guaranty of Funded Debt (other than Funded Debt and
Guaranties of Funded Debt to the Company or any Restricted
Subsidiary, the Notes and existing Funded Debt or Guaranties of
Funded Debt as of the Closing Date or any renewals, extensions and
refinancings of Funded Debt or Guaranties of Funded Debt), if
immediately after giving effect thereto, Consolidated Funded Debt
would exceed 66-2/3% of Consolidated Total Capitalization.
4.02 Liens and Encumbrances
Neither the Company nor any Restricted Subsidiary will
(i) cause or permit, or (ii) agree or consent to cause or permit in
the future (upon the happening of a contingency or otherwise), any
of its Property (other than Designated Real Property), whether now
owned or subsequently acquired, to be subject to a Lien unless the
Notes will be secured equally and ratably with all other
obligations secured thereby, except:
(a) Liens securing the payment of taxes, assessments or
governmental charges or levies or the demands of
suppliers, mechanics, carriers, warehousers, landlords
and other like Persons, provided that all claims which
the Liens secure are not yet due or are being actively
contested in good faith and by appropriate proceedings;
(b) Liens incurred or deposits made (A) in the ordinary
course of business (including leases, zoning
restrictions, easements and similar title exceptions or
encumbrances) that are not incurred in connection with
the borrowing of money, provided such Liens do not
8.
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materially interfere with the conduct of the business of
the Company and its Subsidiaries taken as a whole, (B) in
connection with worker's compensation, unemployment
insurance, social security and other like laws which are
not currently dischargeable, or (C) to secure the
performance of letters of credit, bids, tenders, sales
contracts, leases, statutory obligations, surety, appeal
and performance bonds, deposits and other similar
obligations, security interests or transactions, in each
case not incurred in connection with the borrowing of
money, the obtaining of advances or the payment of the
deferred purchase price of Property;
(c) Attachment, judgment and other similar Liens arising in
connection with court or administrative proceedings,
provided that the Company or the Restricted Subsidiary
(A) attempts in good faith to stay the execution and
enforcement of such Liens, and (B) all claims which the
Liens secure are being actively contested in good faith
and by appropriate proceedings;
(d) Liens on Property of the Company or a Restricted
Subsidiary, provided that they secure only obligations of
the Company or a Subsidiary;
(e) Existing Liens at the Closing Date (a list of existing
Liens of the Company or a Restricted Subsidiary in excess
of $500,000 is contained in Attachment I hereto);
(f) (i) any Lien on Property or on rights relating thereto
acquired, constructed or improved by the Company or
a Restricted Subsidiary after the date of this
Agreement to secure any rights granted with respect
to such Property in connection with the provision
of all or a part of the purchase price or the cost
of acquisition, construction or improvement of such
Property, which Lien is created contemporaneously
with, or within eighteen (18) months after, such
acquisition or the completion of such construction
or improvement;
(ii)any Lien on Property existing on such Property at
the time of acquisition thereof by the Company or a
Restricted Subsidiary;
(iii) any Lien existing on the Property of a Person at
the time such Person becomes a Restricted
Subsidiary; or
(iv) any Lien on Property or the capital stock of a
Subsidiary created at the time of its acquisition
9.
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by the Company or a Restricted Subsidiary to secure
all or a part of the purchase price;
provided, however, that with respect to Liens described
in clauses (i) and (iv) above, (A) each such Lien is
confined solely to the Property so acquired, constructed
or improved, and (B) the aggregate amount of the
obligations secured by all such Liens on any particular
Property at any time acquired, constructed or improved by
the Company or such Restricted Subsidiary, as applicable,
shall not exceed the lesser of the fair market value of
such Property at such time or the actual price of
acquiring, constructing or improving such Property;
(g) Inchoate Liens arising under ERISA;
(h) Liens incurred in connection with industrial revenue
bonds, pollution control bonds, water facility bonds or
similar financings; or
(i) Liens securing any Debt of any Utility Subsidiary.
If any Property is subjected to a Lien in violation of this
Section, the Notes shall have the benefit (to the full extent that,
and with such priority as, the holders may be entitled thereto
under applicable law) of an equitable Lien on such Property
securing the Notes, except where the effect thereof would in any
way limit a Noteholder's rights under this Agreement. Such
violation of this Section shall constitute, on the terms set forth
in Section 5.01, an Event of Default hereunder, whether or not any
such provision is made pursuant to this Section.
4.03 Distributions and Restricted Investments
Neither the Company nor any Restricted Subsidiary will
declare, make or incur any liability to make any Distribution or
make any Restricted Investment if, immediately after giving effect
thereto, the sum of such Distributions and Restricted Investments
(valued immediately after such action as provided in the definition
thereof) would exceed the amount obtained by adding
(a) Consolidated Net Income accumulated after September 30, 1990,
plus (b) $16,000,000, plus (c) the net cash proceeds received by
the Company after September 30, 1990 from the issuance of
additional shares of capital stock, or other Securities
subsequently converted into capital stock, plus (d) repayments to
the Company or its Restricted Subsidiaries after September 30, 1990
of any loans, advances, or investments which constituted Restricted
Investments.
10.
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4.04 Sale of Property and Subsidiary Stock
Except as permitted by Section 4.05, neither the Company nor
any Restricted Subsidiary will (a) sell, lease or otherwise
transfer all or a substantial part of its Property (by merger,
consolidation or otherwise); or (b) permit any Restricted
Subsidiary to issue or transfer any shares of its stock or any
other Securities exchangeable or convertible into its stock (such
stock and other Securities being called "Subsidiary Stock" below),
if the effect would be to reduce the direct or indirect
proportionate interest of the Company in the outstanding Subsidiary
Stock of the Restricted Subsidiary whose shares are the subject of
the transaction; provided that these restrictions do not apply to:
(a) the sale, lease, transfer or other disposition of
Property (other than Subsidiary Stock) in the ordinary
course of business;
(b) any such transaction if the following conditions are met:
(i) the aggregate net book value of such Property and
all other Property disposed of by the Company and
its Restricted Subsidiaries (other than as
permitted by any other provision of this
Section 4.04) during any fiscal year does not
exceed 15% of Consolidated Total Assets at the time
of such disposition (in computing the net book
value of Property disposed of during any calendar
year, any sale, lease, transfer or other disposi-
tion by the Company or a Restricted Subsidiary of
Property shall be excluded to the extent that the
net proceeds of such disposition are used to
acquire, construct or improve other Property); and
(ii) if the Property to be sold, leased, transferred, or
otherwise disposed of is an interest in a
Restricted Subsidiary, such disposition may be made
only if the Restricted Subsidiary proposed to be
sold, leased, transferred or otherwise disposed of
has no continuing investment in any other
Restricted Subsidiary not being simultaneously
disposed of, or in the Company;
(c) the sale, lease, transfer or other disposition of any
such assets by the Company or a Restricted Subsidiary to
the Company or any other Restricted Subsidiary;
(d) the sale, lease, transfer or other disposition by the
Company or a Restricted Subsidiary of Property as a
result of condemnation or the exercise of the right of
eminent domain or in anticipation or threat of such
action;
11.
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(e) the sale, lease, transfer or other disposition of all or
any portion of Designated Real Property;
(f) the sale, lease, transfer or other disposition of all or
any portion of the Company's interest in SRK Holding
Inc.; or
(g) the issue of directors' qualifying shares.
Notwithstanding any other provision herein to the contrary,
the Company or any Restricted Subsidiary may sell, lease, transfer
or otherwise dispose of any of such assets if it offers to apply
the net proceeds of such sale, lease, transfer or other disposition
to reduce outstanding Consolidated Funded Debt at par; provided,
however, that if such sales, leases, or transfers are used to
reduce outstanding Consolidated Funded Debt, other than the Notes,
then each holder of the Notes shall have the option pursuant to
Section 2.02(c) to require prepayment of the Notes held by such
holder, without premium, on a pro rata basis with the Consolidated
Funded Debt being paid, unless and to the extent such Consolidated
Funded Debt had been directly secured by the sold, leased, or
transferred or disposed of assets and such security interest was
not incurred by the Company in anticipation of such sale, lease or
transfer, or disposition.
4.05 Merger and Consolidation
Neither the Company nor any Restricted Subsidiary will be a
party to any merger or consolidation or sell, lease or otherwise
transfer all or substantially all of its Property (other than a
merger or consolidation with or sale to the Company or a Restricted
Subsidiary), provided that (i) the Company may merge or consolidate
with another Person and may sell, lease or otherwise transfer all
or substantially all of its Property as an entirety to another
Person if the surviving or acquiring Person: (A) is organized under
the laws of the United States or a jurisdiction thereof,
(B) expressly assumes in writing the covenants and obligations in
the Notes and this Agreement, (C) could, immediately after giving
effect to the transaction, incur at least $1.00 of additional
Funded Debtwithout violating the restrictions of Section 4.01, and
(D) would not be in default, immediately after giving effect to the
transaction, of any covenants under this Agreement, and (ii) a
Restricted Subsidiary may be a party to a merger or consolidation
or sell, lease or otherwise transfer all or substantially all of
its Property as an entirety, provided that, immediately after
giving effect to the transaction, (a) the surviving or acquiring
Person would be a Restricted Subsidiary, and (b) the Company would
not be in default of any covenant under this Agreement.
12.
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4.06 Transactions with Affiliates; Restricted Subsidiaries
Neither the Company nor any Restricted Subsidiary will enter
into any transaction (including the purchase, sale or exchange of
Property or the rendering of any service) with any Affiliate except
in the ordinary course of business and upon fair and reasonable
terms which, taken as a whole, are fair to the Company and its
Subsidiaries and are pursuant to the reasonable requirements of the
Company's or the Restricted Subsidiary's business as determined by
the Company or the Restricted Subsidiary. Each Restricted
Subsidiary will be maintained as a Restricted Subsidiary unless
otherwise permitted by Section 4.04 or 4.05 or the last sentence of
the definition of the term "Restricted Subsidiary" contained in
Section 6.01.
4.07 Nature of Business
The Company shall not, and shall not permit any Restricted
Subsidiary which is a Restricted Subsidiary on the date hereof, to
engage in any business if, as a result, the Company and such
Restricted Subsidiaries, taken as a whole, would not be engaged
primarily in substantially the same lines of business as are
engaged in by the Company and its Restricted Subsidiaries on the
date hereof.
4.08 Insurance
The Company shall and shall cause BHC and each Restricted
Subsidiary to maintain insurance with responsible insurance
companies in such amounts and against such risks as is customarily
and reasonably carried by owners of similar business and property,
and the Company will furnish you and any other holder of
outstanding Notes, upon request, with full information as to the
insurance carried.
4.09 Maintenance, Etc.
The Company will maintain, preserve and keep, and will cause
BHC and each Restricted Subsidiary to maintain, preserve and keep,
its Properties which are used or useful in the conduct of its
business (whether owned in fee or a leasehold interest) in good
repair and working order and from time to time will make all
necessary repairs, replacements, renewals and additions so that at
all times the efficiency thereof shall be maintained, except as may
otherwise be permitted under Section 4.04 or 4.05.
4.10 Records
The Company shall and shall cause each Subsidiary to keep and
maintain full and accurate accounts and records of its operations
to enable the Company to prepare financial statements in accordance
with generally accepted accounting principles.
13.
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4.11 Incorporation
The Company shall and shall cause BHC and each Restricted
Subsidiary to do all things necessary to remain duly incorporated,
validly existing and in good standing as a domestic corporation in
its jurisdiction of incorporation, except as may otherwise be
permitted under Section 4.04 or 4.05, and to qualify and remain
qualified as a foreign corporation in each jurisdiction in which
failure to receive or retain such qualification would have a
material adverse effect on the Property, business, franchises,
prospects, profits or condition (financial or otherwise) of the
Company and its Restricted Subsidiaries, taken as a whole, the
rates to be charged by BHC or the valuation of BHC's Property for
rate-making purposes, or the ability of the Company to perform this
Agreement or the Notes.
4.12 Compliance with Laws
The Company shall, and shall cause BHC and each Restricted
Subsidiary to, comply with all laws, rules, regulations, orders,
writs, judgments, injunctions, decrees or awards to which it may be
subject and, maintain all licenses, permits franchises or other
governmental authorizations necessary to the ownership of its
Property or to the conduct of its business, the failure to comply
with which (or failure to maintain) might materially and adversely
affect the Property, business, franchises, prospects, profits or
condition (financial or otherwise) of the Company and its
Restricted Subsidiaries, taken as a whole, the rates to be charged
by BHC or the valuation of BHC's Property for rate-making purposes,
or the ability of the Company to perform this Agreement or the
Notes.
4.13 Payment of Expenses; Indemnification, Etc.
The Company shall:
(a) pay the reasonable fees and disbursements of your special
counsel, Tyler Cooper & Alcorn, whether or not the Notes
are sold;
(b) pay, and hold you and any other holder of outstanding
Notes harmless from and against any and all present and
future stamp and other similar taxes with respect to the
execution and delivery of this Agreement or of the Notes
and save you and any other holder of outstanding Notes
harmless from and against any and all liabilities with
respect to or resulting from any delay or omission to pay
such taxes;
(c) pay all costs related to modifications or consents
initiated by or requested by the Company relating to this
Agreement; and
14.
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(d) pay all expenses, costs, outlays and attorneys' fees
(including the allocated costs and expenses of your
in-house counsel) of any kind and character relating to
(i) the exchange of Notes or amendments, waivers or
consents pursuant to, or the enforcement and protection
of your rights under, the provisions of this Agreement or
the Notes, or (ii) the enforcement of any provisions of,
or the collection of amounts due you under, the Notes or
this Agreement, or (iii) the preparation for,
negotiations regarding, consultations concerning or the
defense of legal proceedings involving any claim or
claims made or threatened against you arising out of this
Agreement or the Notes; provided, however, that the
Company shall not be required to reimburse you for any
such expenses, costs, outlays or fees incurred in
connection with any action or proceeding to enforce any
of the provisions of this Agreement or the Notes which a
court of competent jurisdiction determines has not been
undertaken by you in good faith.
The Company's obligations under the foregoing provisions of
this Section 4.13 shall survive the termination of this Agreement
and the payment of the Notes.
The Company shall obtain a Private Placement Number for the
transactions contemplated by this Agreement, issued by the CUSIP
Service Bureau of Standard & Poor's Corporation (in cooperation
with the Securities Valuation Office of the National Association of
Insurance Commissioners).
4.14 Taxes
The Company shall and shall cause BHC and each Restricted
Subsidiary to pay when due all taxes, assessments and governmental
charges and levies upon the Company, BHC or the Restricted
Subsidiaries or the Company's, BHC's or the Restricted
Subsidiaries' income, profits or Property, except those which are
being contested in good faith by appropriate proceedings and with
respect to which such adequate reserves as may be required by
generally accepted accounting principles have been set aside.
4.15 ERISA
(a) The Company shall and shall cause BHC and each Restricted
Subsidiary to comply in all material respects with the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and will furnish to you and any other
holder of outstanding Notes:
(i) promptly after the issuance thereof, a copy of any
notice by the Pension Benefit Guaranty Corporation
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(the "PBGC"), that it is instituting or will
institute proceedings under Section 4042 of ERISA
and any notice from the Internal Revenue Service of
or relating to the disqualification or termination
of any plan;
(ii) at the time a decision is made with respect
thereto, notice of intent to file a termination
notice with the Internal Revenue Service or the
PBGC with respect to any plan;
(iii) (A) promptly upon the Company's becoming a
participating employer in any Multiemployer
Plan (as defined in Section 3(37) of ERISA)
and promptly upon the Company's becoming aware
thereof, the estimated amount of any material
withdrawal liability the Company would incur
upon withdrawal therefrom; and
(B) at the earlier of the time of occurrence or
the time a decision is made with respect
thereto, notice of complete or partial
withdrawal or intent to completely or
partially withdraw from any Multiemployer Plan
or cessation of operations or intent to cease
operations at any facility or facilities where
such cessation could reasonably be expected to
result in a separation from employment of more
than 20% of the total number of employees who
are participants under a plan;
(iv) immediately after the Company, any Subsidiary, or a
duly appointed administrator of a plan knows or has
reason to know that:
(A) a Reportable Event (as defined in Section 4043
of ERISA) has occurred which is required to be
reported to the PBGC under Section 4043 of
ERISA; or
(B) a Prohibited Transaction (as such term is
defined in Section 4975 of the Internal
Revenue Code of 1986, as amended, or described
in Section 406 of ERISA) has occurred in
connection with any Pension Plan (as defined
in Attachment C) or any trust created
thereunder;
a written notice specifying the nature thereof,
what action the Company is taking or proposes to
take with respect thereto, and, when known, any
action taken by the Internal Revenue Service with
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respect thereto (provided, however, that any such
notice and the contents thereof shall be strictly
confidential and may not be used by or disclosed to
any Person (other than your affiliates) until such
time as the contents of such notice shall become
publicly available); and
(v) notice as soon as possible with respect to any plan
of a failure to meet minimum funding standards
established in Section 412 of the Internal Revenue
Code of 1986, as amended, or of obtaining a waiver
of such minimum funding standards; and, in each
case, a statement of an authorized officer setting
forth details as to such event or events and the
action proposed to be taken with respect thereto.
All assumptions and methods used to determine the present
value of vested employee benefits under Pension Plans and the value
of assets of Pension Plans shall be reasonable in the good faith
judgment of the Company's actuary (who shall be an "enrolled
actuary" as the term is defined in Section 103 of ERISA) and shall
comply with all requirements of law.
4.16 Sale and Leaseback of Property
Neither the Company nor any Restricted Subsidiary will enter
into any sale and leaseback transaction involving Property of the
Company or of a Restricted Subsidiary unless:
(a) the term of the lease, including any renewals thereof,
does not exceed five years;
(b) the Company offers to apply the net proceeds of such sale
to reduce outstanding Consolidated Funded Debt at par on
a pro rata basis or to purchase, construct or improve
other Property of at least equivalent value to such net
proceeds;
(c) immediately prior to such transaction, the Property could
have been subjected to a Lien to secure Debt in a
principal amount equal to the proceeds of such sale
without violation of the restrictions contained in
Section 4.02 of this Agreement;
(d) any such transaction relating to Property acquired or
constructed after the date of this Agreement occurs
within eighteen (18) months of the date of acquisition or
completion of construction;
(e) such transaction represents a sale by a Restricted
Subsidiary to the Company or any other Restricted
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Subsidiary or by the Company to a Restricted Subsidiary;
or
(f) the net proceeds of such sale are treated as Funded Debt
and would be permitted under the restrictions contained
in Section 4.01 of this Agreement.
4.17 Environmental Covenant
The Company shall, and shall cause BHC and each Restricted
Subsidiary to, use and operate all of their respective Property in
compliance with all Environmental Laws, keep all necessary permits,
approvals, certificates, licenses and other authorizations relating
to environmental matters in full force and effect and remain in
compliance therewith, handle all Hazardous Materials in compliance
with all applicable Environmental Laws, and promptly cure or defend
any actions and proceedings relating to compliance with
Environmental Laws, the violation of or failure to comply with
which would materially and adversely affect the business,
prospects, profits, Property or condition (financial or otherwise)
of the Company or any Subsidiary, the rates to be charged by BHC,
the valuation of BHC's Property for rate-making purposes or the
ability of the Company to perform its obligations under this
Agreement or the Notes.
4.18 Rule 144 Transfer
The Company will, so long as you or your nominee shall hold
any of the Notes, give you such information as you may reasonably
require for the purpose of completing Form 144 or any other
applicable form promulgated by the Securities and Exchange
Commission under the Act in connection with any proposed sale by
you of any of the Notes pursuant to Rule 144 or Rule 144A (or any
comparable provisions) issued by the Securities and Exchange
Commission under the Act including, but not limited to, (i) the
name, address and telephone number of the Company, (ii) the
Company's IRS identification number, and (iii) the Company's file
numbers (or any required electronic data gathering, analysis and
retrieval central index key, password, confirmation code or other
similar codes) for filing reports under the Securities Exchange Act
of 1934.
SECTION 5. DEFAULT
5.01 Nature of Default
An "Event of Default" shall exist if any of the following
occurs and is continuing:
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(a) Principal, Premium or Interest Payments - failure to pay
principal on any Note on or before the date such
principal payment is due, or failure to pay any premium
or interest on any Note on or before the date the payment
is due and payable and continuance of such failure to pay
any premium or interest on any Note for ten Business
Days, provided that any payment of principal, interest or
premium made after its due date shall also include
interest on the overdue amount (to the extent permitted
by applicable law) at the rate of 6.95% per annum;
(b) Breach of Company Business Covenants - failure to comply
with any covenant contained in Sections 3 or 4.01 through
4.06, 4.08, 4.11, 4.12, and 4.14 through 4.16, which
failure continues for more than thirty (30) Business Days
after it first becomes known to any officer of the
Company;
(c) Other Breaches - failure to comply with any other
provision of this Agreement, which continues for more
than forty-five (45) days after notice has been given to
the Company by any holder of the Notes;
(d) Default on Indebtedness or Other Security - any event
shall occur (other than the mere passage of time) or any
condition shall exist in respect of any Funded Debt or
under any agreement securing or relating to Funded Debt,
the effect of which event or condition is to cause (or
permit one or more Persons to cause) more than $5,000,000
of Funded Debt or other Securities of the Company, BHC or
any Restricted Subsidiary to become due before its (or
their) stated maturity or before its (or their) regularly
scheduled dates of payment;
(e) Involuntary Bankruptcy Proceedings, Etc. - a custodian,
receiver, liquidator or trustee of the Company or any
Restricted Subsidiary, or of any of the Property of
either (other than SRK Holding Inc. or its Securities),
is appointed or takes possession and such appointment or
possession remains in effect for more than ninety (90)
days; or the Company or any Restricted Subsidiary
generally fails to pay its debts as they become due; or
the Company or any Restricted Subsidiary is adjudicated
bankrupt or insolvent; or an order for relief is entered
under the Federal Bankruptcy Code against the Company or
any Restricted Subsidiary; or any Property (other than
SRK Holding Inc. or its Securities) of either is
sequestered by court order and the order remains in
effect for more than ninety (90) days; or a petition is
filed against the Company or any Restricted Subsidiary
under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or
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liquidation law of any jurisdiction, whether now or
subsequently in effect, and is not dismissed within
ninety (90) days after filing;
(f) Voluntary Bankruptcy Proceeding, Etc. - the Company or
any Restricted Subsidiary files a petition in voluntary
bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or subsequently in effect;
or consents to the filing of any petition against it
under any such law; or consents to the appointment of or
taking possession by a custodian, receiver, trustee or
liquidator of the Company, or any Restricted Subsidiary,
or of all or any part of the Property of either (other
than SRK Holding Inc. or its Securities); or makes an
assignment for the benefit of its creditors; or admits in
writing its general inability to pay its debts as they
become due;
(g) Representations or Warranties - any of the
representations, warranties, certifications or statements
of the Company made herein or in any certificate,
financial statement or other notice delivered pursuant
hereto shall prove to be untrue or misleading as of the
time made or delivered or as of the Closing Date in any
material respects; or
(h) Judgments - the Company or a Restricted Subsidiary
suffers one or more outstanding final judgments against
it aggregating more than $5,000,000 not covered by
insurance and such judgment or judgments shall continue
unsatisfied and not in good faith appealed, stayed,
bonded, vacated or suspended by agreement with the
beneficiary thereof, for a period of ninety (90) days.
5.02 Default Remedies
(a) Acceleration - If an Event of Default described in
Section 5.01(a) exists, any holder of Notes may, at its
option, exercise any right, power or remedy permitted by
law, including the right, by notice to the Company, to
declare the Notes held by such holder to be immediately
due and payable. If any other Event of Default exists,
the holder or holders of at least 35% in outstanding
principal amount of the Notes (exclusive of Notes owned
by the Company, Restricted Subsidiaries and Affiliates)
may, at its or their option, exercise any right, power or
remedy permitted by law, including the right, by notice
to the Company, to declare all the outstanding Notes to
be immediately due and payable. Upon each declaration,
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the principal of the Notes declared due shall become
immediately due and payable, together with all accrued
interest and together with, to the extent permitted by
applicable law, the Make Whole Premium Amount, and the
Company will immediately make payment, without any
presentment, demand, protest or other notice of any kind,
all of which are hereby expressly waived.
No course of dealing or delay or failure to exercise any
right on the part of any holder of the Notes shall
operate as a waiver of such right or otherwise prejudice
such holder's rights, powers or remedies. Upon an Event
of Default, the Company will pay or reimburse the holders
of the Notes for all costs and expenses (including
reasonable attorneys' fees) incurred by them in
collecting any sums due on the Notes or in otherwise
enforcing any of their rights.
(b) Annulment of Acceleration - In the event of each
declaration pursuant to Section 5.02(a), other than a
declaration of acceleration pursuant to an Event of
Default described in Section 5.01(a), the holder or
holders of at least 66-2/3% of the outstanding principal
amount of the Notes (exclusive of Notes owned by the
Company, Restricted Subsidiaries and Affiliates) may
annul such declaration and its consequences if no
judgment or decree has been entered for the payment of
any amount due pursuant to such declaration and if all
sums payable under the Notes and under this Agreement
(except any principal or interest on the Notes or the
premium amount in Section 2.02(a) which has become
payable solely by reason of such declaration) shall have
been duly paid.
SECTION 6. INTERPRETATION OF THIS AGREEMENT
6.01 Terms Defined
As used in this Agreement (including Attachments) accounting
terms shall be defined in accordance with generally accepted
accounting principles except the following terms which have the
respective meanings set forth below or in the Section indicated:
Act: means the Securities Act of 1933, as amended.
Affiliate: means a Person (other than a Restricted
Subsidiary) which directly or indirectly controls, or is
controlled by, or is under common control with, the Company.
The term "control" means the possession, directly or indi-
rectly, of the power to direct or cause the direction of the
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management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
Agreement: means this Note Agreement dated as of January 4,
1994 between the Company and you (including Attachments), as
amended or modified from time to time.
BHC: means Bridgeport Hydraulic Company.
Business Day: means a day other than a Saturday, a Sunday or,
in the case of any Note with respect to which the provisions
of Section 7.01 hereof are applicable, a day on which the bank
designated (by the holder of such Note) to receive (for such
holder's account) payments on such Note is, or banks located
in the State of Connecticut are, required or authorized by law
to be closed.
Capital Lease: means any lease the obligation for rentals
with respect to which is required to be capitalized on a
balance sheet of the lessee in accordance with generally
accepted accounting principles.
CERCLA: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time
to time.
Closing Date: Section 1.02.
Consolidated Funded Debt: at any date, means the aggregate
amount of Funded Debt of the Company and all of its
Subsidiaries at such date, determined on a consolidated basis,
but excluding indebtedness if owed or guaranteed by a
Subsidiary to the Company or any other Subsidiary or by the
Company to a Subsidiary.
Consolidated Net Income: for any period, means net earnings
after income taxes of the Company and each Restricted
Subsidiary (only for the period during which it is a
Restricted Subsidiary) and BHC, determined on a consolidated
basis, excluding:
(1) any extraordinary or unusual items, including,
without limitation, any gain arising from any
write-up of assets and loss from any write-off of
assets; and
(2) net earnings of any Person prior to becoming a
Restricted Subsidiary.
Consolidated Net Worth: at any date, means the sum of the
consolidated capital, surplus and retained earnings accounts
of the Company, its Restricted Subsidiaries and BHC, as
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determined in accordance with generally accepted accounting
principles.
Consolidated Total Capitalization: at any date, means the sum
of the Consolidated Funded Debt and Consolidated Net Worth.
Consolidated Total Assets: at any date, means the aggregate
amount of assets of the Company, BHC and Restricted
Subsidiaries at such date, determined on a consolidated basis
in accordance with generally accepted accounting principles.
Current Debt: with respect to any Person at any date, means
all liabilities for borrowed money at such date (including,
without limitation, all obligations under Capital Leases), all
liabilities secured by any Lien existing on Property owned by
that Person (whether or not those liabilities have been
assumed), and the aggregate amount of guaranties by such
Person of all such liabilities of other Persons, which, in any
such case, are payable on demand or within one year from their
creation, or are (without duplication) liabilities
constituting principal payments due within one year from the
date of determination on indebtedness for borrowed money
expressed to mature more than one year from the date of its
creation, except any liabilities which are renewable or
extendible at the option of the debtor to a date more than one
year from the date of creation thereof.
Debt: at any date, means the aggregate of Current Debt plus
Funded Debt at such date.
Designated Real Property: means that property, consisting of
approximately 2,100 acres of unimproved real property,
designated in Attachment G hereto and determined by the
Company not to be needed for utility operations.
Distribution: means:
(1) dividends or other distributions in respect of
capital stock of the Company (except distributions
in such stock); and
(2) the redemption or acquisition of such stock or of
warrants, rights or other options to purchase such
stock (except (a) when solely in exchange for such
stock, and (b) mandatory or optional sinking fund
redemptions of the preferred stock of the Company
or any Restricted Subsidiary);
in each case valued at the fair market value of the Property
being dividended, distributed, or otherwise transferred as a
Distribution.
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Environmental Laws: means all applicable federal, state or
local statutes, laws, ordinances, codes, rules, regulations
and guidelines (including consent decrees and administrative
orders), relating to public health and safety and protection
of the environment.
ERISA: Section 4.15.
Event of Default: Section 5.01.
Form 10-K: means the Annual Report on Form 10-K of the
Company for the year ended December 31, 1992, together with
the Quarterly Report on Form 10-Q of the Company for the
quarter ended September 30, 1993, each as filed with the
Securities and Exchange Commission.
Funded Debt: with respect to any Person at any date, means
without duplication:
(1) its liabilities for borrowed money at such date,
other than Current Debt; and
(2) any Capital Lease obligation at such date, other
than Current Debt.
Guaranty: with respect to any Person, means all guaranties
of, and all other obligations which in effect guaranty, any
Funded Debt of any other Person (the "primary obligor") in any
manner (except those which, in effect, guarantee any
indebtedness or the obligation of the Company or any
Restricted Subsidiary), including obligations incurred through
an agreement, contingent or otherwise, by such Person:
(1) to purchase such Funded Debt or any Property
constituting security therefor;
(2) to advance or supply funds for the purchase or
payment of such Funded Debt; or
(3) to lease Property, or to purchase Securities or
other Property or services, primarily for the
purpose of assuring the owner of such Funded Debt
of the ability of the primary obligor to make
payment of the Funded Debt;
but excluding endorsements in the ordinary course of business
of negotiable instruments for deposit or collection.
The amount of any Guaranty shall be deemed to be the
outstanding principal amount of such Funded Debt.
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Hazardous Material: means any of the following (i) any
"hazardous substance" as defined by CERCLA; (ii) any
"hazardous waste" as defined by RECRA; (iii) any petroleum
product; or (iv) any pollutant or contaminent or hazardous,
dangerous or toxic chemical material or substance within the
meaning of any other Environmental Law.
Lien: means any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the
Property, whether the interest is based on common law, statute
or contract (including the security interest lien arising from
a mortgage, deed of trust, encumbrance, pledge, conditional
sale or trust receipt or a lease, consignment or bailment for
security purposes). The term "Lien" shall not include minor
reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions and other
minor title exceptions affecting Property, provided that they
do not constitute security for a monetary obligation, and
shall not include negative pledge or other agreements
restricting Liens. For the purposes of this Agreement, the
Company or a Restricted Subsidiary shall be deemed to be the
owner of any Property which it has acquired or holds subject
to a conditional sale agreement, financing lease or other
arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security
purposes, and such retention or vesting shall be deemed to be
a Lien.
Make Whole Premium Amount: at any time with respect to Notes
or portions thereof being prepaid prior to maturity, means a
premium equal to the excess, if any, of the Present Value of
the Outstanding Dollar Years of the amount being so prepaid
over such amount as of the date of prepayment. The Make Whole
Premium Amount shall in no event be less than zero.
Notes: Section 1.01.
PBGC: Section 4.15.
Pension Plan: Attachment C.
Person: means an individual, partnership, corporation, trust
or unincorporated organization, and a government or a
governmental agency or political subdivision.
Present Value of the Outstanding Dollar Years: at any time
with respect to Notes or portions thereof being prepaid prior
to maturity, means the amount calculated by discounting all
remaining scheduled payments of principal and interest thereon
from the scheduled due date to the date of prepayment, in
accordance with accepted financial practice and at a discount
factor (applied on a semiannual basis) equal to the sum of
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(i) the Treasury Constant Yield with respect to such remaining
scheduled payments of principal, plus (ii) fifty (50) basis
points.
Property: means any interest in any kind of property or
asset, whether real, personal or mixed, or tangible or
intangible.
RECRA: means the Resource Conservation and Recovery Act, 42
U.S.C. sec. 6901, et seq., as amended from time to time.
Registered Notes: Section 1.01.
Restricted Investments: means all Property, including all
investments in any Person whether by acquisition of stock,
indebtedness, other obligation or Security, or by loan,
advance, capital contribution, or otherwise, except:
(1) investments in the Company or one or more
Restricted Subsidiaries or any Person who
immediately after such investment becomes a
Restricted Subsidiary;
(2) direct obligations of the United States of America,
or any of its agencies or obligations fully
guaranteed by the United States of America,
provided that such obligations mature within one
year from the date acquired;
(3) certificates of deposit or repurchase agreements
maturing within one year from the date acquired and
issued by banks or trust companies organized under
the laws of the United States or any of its states
having combined capital and surplus greater than
$250 million;
(4) commercial paper and taxable or tax-exempt
instruments having either of the two highest
ratings by Moody's Investors Service, Inc. or
Standard and Poor's Corporation and maturing within
one year from the date acquired;
(5) instruments maturing after one year from the date
acquired and having either of the two highest
ratings by Moody's Investors Service, Inc. or
Standard & Poor's Corporation, provided such
instruments have either a "put" or rate reset
feature recurring not less often then annually;
(6) investments in the debt obligations of or loans to
Affiliates;
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(7) acquisition or ownership of stock or Securities
received in settlement of Debt or other obligations
owing to the Company or any Restricted Subsidiary;
(8) investments in and loans to entities other than
Restricted Subsidiaries in an annual amount not to
exceed $500,000;
(9) Property to be used by the Company or its
Restricted Subsidiaries in the ordinary course of
business; and
(10) current assets arising from the sale of goods and
services by the Company or its Restricted
Subsidiaries in the ordinary course of business.
The amount of any Restricted Investment shall be valued at its
net book value.
Restricted Subsidiary: means any Subsidiary,
(1) organized under the laws of the United States,
Puerto Rico, or Canada, or a jurisdiction thereof;
(2) which conducts substantially all of its business
and has substantially all of its Property within
the United States and Canada;
(3) a majority of each class of common stock of which
is legally and beneficially owned by the Company
and its Restricted Subsidiaries; and
(4) designated as a Restricted Subsidiary on
Attachment H hereto. A Subsidiary may be
subsequently designated as a Restricted Subsidiary
by the Company if no Event of Default would occur
as a result of such designation.
A Restricted Subsidiary may subsequently be designated by the
Company as an Unrestricted Subsidiary if (a) no Event of
Default would occur as a result of such designation; and
(b) at least $1.00 of additional Funded Debt could be incurred
by the Company and its remaining Restricted Subsidiaries
immediately thereafter without violating the restrictions of
Section 4.01.
Security: shall have the same meaning as in Section 2(1) of
the Act.
Subsidiary: means a corporation in which the Company owns,
directly or indirectly, 50% or more of the Voting Stock which
enables it ordinarily, in the absence of contingencies, to
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elect a majority of the corporate directors (or Persons
performing similar functions) ("Voting Stock"), except SRK
Holding, Inc. and corporations (other than Industrial and
Environmental Analysts, Inc. - New Jersey, Industrial and
Environmental Analysts, Inc. - Illinois, and Industrial and
Environmental Analysts, Inc. - Connecticut, division of YWC,
Inc.) in which SRK Holding, Inc. owns, directly or indirectly,
50% or more of the Voting Stock.
Treasury Constant Yield: means the yield to maturity implied
by the Treasury Constant Maturity Series yields reported (for
the latest day for which such yields shall have been so
reported as of the Business Day next preceding the date of
payment with respect to any Notes or portions thereof being
paid prior to maturity) in Federal Reserve Statistical
Release H.15 (519) (or any comparable successor publication)
for actively traded United States Treasury securities having
a constant maturity equal to the remaining weighted average
life to final maturity (calculated in accordance with accepted
financial practice) of the Notes or portions thereof being
prepaid as of such date. Such implied yield shall be
determined (i) by calculating the remaining average life to
final maturity of the Notes or portions thereof being prepaid
rounded to the nearest one-twelfth year, and (ii) if
necessary, by interpolating linearly between Treasury Constant
Maturity Series yields.
Unrestricted Subsidiary: means SRK Holding Inc. and
corporations (other than Industrial and Environmental
Analysts, Inc. - New Jersey, Industrial and Environmental
Analysts, Inc. - Illinois, and Industrial and Environmental
Analysts, Inc. - Connecticut, division of YWC, Inc.) in which
SRK Holding, Inc. owns, directly or indirectly, 50% or more of
the Voting Stock, any Utility Subsidiary or any other
Subsidiary which is not at the time a Restricted Subsidiary.
Utility Subsidiary: means BHC, Stamford Water Company and any
other utility company which becomes a Subsidiary whose rates
are regulated by state or federal regulatory agencies.
Voting Stock: means Securities, the holders of which are
ordinarily, in the absence of contingencies, entitled to elect
the corporate directors (or persons performing similar
functions) irrespective of whether or not, at the time, stock
of any other class or classes shall have or might have special
voting powers or rights by reason of the happening of any
contingency.
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6.02 Accounting Principles
The character or amount of any asset or liability or item of
income or expense required to be determined under this Agreement
and each consolidation or other accounting computation required to
be made under this Agreement shall be determined or made in
accordance with generally accepted accounting principles at the
time in effect, to the extent applicable, except where such
principles are inconsistent with the requirements of this
Agreement.
6.03 Directly or Indirectly
Where any provision in this Agreement refers to any action
which any Person is prohibited from taking, the provision shall be
applicable whether the action is taken directly or indirectly by
such Person, including actions taken by, or on behalf of, any
partnership in which such Person is general partner, and all
liabilities of such partnerships shall be considered liabilities of
such Person under this Agreement.
6.04 Governing Law
This Agreement and the Notes shall be governed by and
construed in accordance with the internal laws of the State of
Connecticut, without reference to principles of conflict of laws.
6.05 Rank
The Notes shall rank pari passu with any and all of the
Company's unsecured obligations to any financial institutions
outstanding as of the Closing Date that are not specifically made
subordinate to the Notes.
6.06 Section Headings and Table of Contents
The title of the Sections and the Table of Contents appear as
a matter of convenience only, do not constitute a part of this
Agreement and shall not affect the construction hereof.
SECTION 7. PURCHASER'S SPECIAL RIGHTS
7.01 Direct Payment
The Company agrees that, notwithstanding any provision in this
Agreement or the Notes to the contrary, it will pay all sums
becoming due to any institutional holder of Notes by crediting the
account of such holder before 12:00 noon, New York time, in the
manner provided in Attachment A or, in the event payment in such
manner is not possible as a result of the failure of the federal
funds bank wire transfer system or other circumstances outside the
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Company's control, in any other commercially reasonable manner
consistent with the terms of this Agreement as such holder may
designate to the Company in writing (without presentment of or
notation on the Notes) upon notification of such failure or such
other circumstances by the Company. Any holder of Notes which
elects the benefit of this Section agrees that in the event of a
transfer of its Notes (a) a notation will be made thereon prior to
such transfer of all principal, if any, paid on its Notes, and the
date to which interest has been paid, and (b) notice will be given
to the Company of the name and address of the transferee of the
transferred Notes.
7.02 Issue Taxes
The Company will pay all taxes, if any, in connection with the
issuance and sale of the Notes (other than taxes based on income)
and in connection with any modification of the Notes and will save
you harmless against any and all liabilities relating to such
taxes, including any interest and penalties assessed or asserted in
connection therewith. The obligations of the Company under this
Section 7.02 shall survive the transfer, payment or redemption of
the Notes and the termination of this Agreement.
7.03 Registration of Notes
The Company will cause to be kept a register for the
registration and transfer of Registered Notes. The names and
addresses of the holders of Registered Notes, and all transfers of
and the names and addresses of the transferees of Registered Notes,
will be registered in the register. The Person in whose name any
Registered Note is registered shall be deemed and treated as the
owner and holder thereof for all purposes of this Agreement, and
the Company shall not be affected by any notice or knowledge to the
contrary.
7.04 Exchange of Notes
Upon surrender of any Note to the Company, the Company, upon
request, will execute and deliver at its expense (except as
provided below) new Notes, in denominations of at least $50,000
(except as may be necessary to reflect any principal amount not
evenly divisible by $50,000), in an aggregate principal amount
equal to the outstanding principal amount of the surrendered Note.
Each new Note shall be payable to any holder as the surrendering
holder may request and shall be a Registered Note. Each new Note
shall be dated and bear interest from the date to which interest
has been paid on the surrendered Note or dated the date of the
surrendered Note if no interest has been paid thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any transfer.
30.
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7.05 Replacement of Notes
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note, and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the
holder of the Note is an institutional holder, its own
agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation of the Note,
the Company at its expense will execute and deliver a new Note,
dated and bearing interest from the date to which interest has been
paid on the lost, stolen, destroyed or mutilated Note or dated the
date of the lost, stolen, destroyed or mutilated Note if no
interest has been paid thereon.
SECTION 8. MISCELLANEOUS
8.01 Notices
(a) All notices and other communications under this Agreement
or under the Notes will be in writing and will be mailed
by first class mail, postage prepaid:
(i) if to you, in the manner provided in Attachment A
or in any other manner as you may have most
recently advised the Company in writing, or
(ii) if to the Company, at its address shown at the
beginning of this Agreement, or at any other
address as it may have most recently furnished in
writing to you and to all other holders of the
Notes.
(b) Any notice so addressed and mailed by registered or
certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise sent or
delivered shall be deemed to be given when actually
received by the addressee.
8.02 Reproduction of Documents
This Agreement and all related documents, including
(a) consents, waivers and modifications which may subsequently be
executed, (b) documents received by you at the closing of your
purchase of the Notes (except the Notes themselves), and
31.
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(c) financial statements, certificates and other information
previously or subsequently furnished to you, may be reproduced by
you by any photographic, photostatic, microfilm, micro-card,
miniature photographic or other similar process and you may destroy
any original document so reproduced. The Company agrees and
stipulates that any such reproduction shall, to the extent
permitted by applicable law, be admissible in evidence as the
original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not the
reproduction was made by you in the regular course of business) and
that any enlargement, facsimile or further reproduction of the
reproduction shall likewise be admissible in evidence.
8.03 Purchase for Investment; ERISA
(a) You represent to the Company that you are purchasing the
Notes for your own account for investment or resale under
Rule 144A adopted pursuant to the Act or on behalf of one
or more separate accounts over which you have sole
investment discretion and with no present intention of
distributing any of the Notes, but without prejudice to
your right at all times to sell or otherwise dispose of
all or part of the Notes under an effective registration
statement under the Act and any applicable securities
laws of the several states, as amended, or under a
registration exemption available under the Act or those
laws, provided however, that nothing contained herein
shall be construed as creating an obligation upon the
Company to register any of the Notes under the Act or
such laws.
(b) You further represent that either: (i) no part of the
funds to be used by you to purchase the Notes constitutes
assets allocated to any "separate account" (as defined in
Section 3 of ERISA) maintained by you; or (2) no part of
the funds to be used by you to purchase the Notes
constitutes assets allocated to any "separate account"
(as defined in Section 3 of ERISA) maintained by you such
that the application of such funds constitutes a
prohibited transaction under Section 406 of ERISA.
8.04 Successors and Assigns
This Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties, including
without limitation the holder of any Note, except that your
obligation to purchase the Notes (as provided in Section 1.02)
shall be a right which is personal to the Company and such right
shall not be transferable or assignable by the Company to any other
Person (including successors at law) whether voluntarily or
involuntarily. The provisions of this Agreement are intended to be
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for the benefit of all holders, from time to time, of the Notes,
and shall be enforceable by any holder, whether or not an express
assignment of rights under this Agreement has been made by you or
your successor or assign.
8.05 Amendment and Waiver; Acquisition of Notes
(a) Amendment and Waiver. This Agreement may be amended, and
the observance of any term of this Agreement may be
waived, with (and only with) the written consent of the
Company and the holders of at least 66-2/3% of the
outstanding principal amount of the Notes (exclusive of
Notes then owned by the Company, Restricted Subsidiaries
and Affiliates), provided that no amendment or waiver of
any of the provisions of Sections 1, 7 and Attachments C
and D shall be effective as to any holder of the Notes
unless consented to by such holder in writing, and
provided further, that no amendment or waiver shall,
without the written consent of the holders of all the
outstanding Notes, (1) subject to Section 5.02(b), change
the amount or time of any prepayment, payment of
principal or premium or the rate or time of payment of
interest, (2) amend Section 5, or (3) amend this
Section 8.05(a). Executed or complete and correct copies
of any amendment or waiver effected pursuant to the
provisions of this Section 8.05(a) shall be delivered by
the Company to each holder of outstanding Notes promptly
following the date on which the same shall become
effective.
(b) Acquisition of Notes. Neither the Company nor any
Restricted Subsidiary nor any Affiliate will, directly or
indirectly, acquire or make any offer to acquire any
Notes unless the Company or such Restricted Subsidiary or
Affiliate shall contemporaneously offer to acquire Notes,
pro rata, from all holders of the Notes and upon the same
terms.
8.06 Duplicate Originals
Two or more duplicate originals of this Agreement may be
signed by the parties, each of which shall be an original but all
of which together shall constitute one and the same instrument.
8.07 Payments Due on Holidays
If any payment due on, or with respect to, any Note shall fall
due on a day other than a Business Day, then such payment shall be
made on the first Business Day following the day on which such
payment shall have so fallen due, without the payment of any
additional interest or penalty.
33.
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If this Agreement is satisfactory to you, please so indicate
by signing the acceptance at the foot of a counterpart of this
Agreement and return a counterpart to the Company, whereupon this
Agreement will become binding between us in accordance with its
terms.
Very truly yours,
AQUARION COMPANY
By /s/Janet M. Hansen
-----------------------------
Title: Vice President and Chief
Financial Officer
ACCEPTED:
NATIONWIDE LIFE INSURANCE COMPANY
By /s/Jeffrey G. Milburn
--------------------------------
Title: Vice President
Corporate Fixed-Income Securities
[b:NOTEAGT][AQUARION93#1]
/dlh
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ATTACHMENT A
PAYMENT AND COMMUNICATIONS
Nationwide Life Insurance Company...............................$10,000,000
In the case of all payments on account of the Notes in
accordance with Section 7.01, by:
(a) crediting (in the form of federal funds bank wire
transfer) its Account No. 1000-52-9588 in:
Society National Bank/Cleveland
900 Euclid Avenue
Cleveland, Ohio 44101
ABA No. 041001039
For the account of Nationwide Life Insurance Company; and
(b) providing sufficient information with such wire transfer
to identify the Notes, including interest rate and
maturity date, the sender of the funds and the reason for
such payment, and the allocation of the payment between
principal and interest;
In the case of all notices in respect of payment and all
responses to requests for confirmation of outstanding balances:
Nationwide Life Insurance Company
One Nationwide Plaza (1-32-09)
Columbus, Ohio 43215-2220
Attention: Corporate Money Management
In the case of all other communications:
Nationwide Life Insurance Company
One Nationwide Plaza (1-33-07)
Columbus, Ohio 43215-2220
Attention: Corporate Fixed-Income Securities
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ATTACHMENT B
AQUARION COMPANY
5.95% Senior Note due January 4, 1999
No.___________ Bridgeport, Connecticut
$_____________ January ___, 1994
Aquarion Company, a Delaware corporation (the "Company"), for
value received, hereby promises to pay to ____________________ or
registered assigns the principal sum of ____________ Dollars
($________) on January 4, 1999 and to pay interest (computed on the
basis of a 360-day year of twelve 30-day months) on the unpaid
principal balance hereof from the date of this Note at the rate of
5.95% per annum, semi-annually on the first day of July and the
first day of January each year, commencing on July 1, 1994, until
the principal amount hereof shall become due and payable; and to
pay on demand interest on any overdue principal (including any
overdue prepayment of principal) and premium, if any, and (to the
extent permitted by applicable law) on any overdue payment of
interest, at the rate of 6.95% per annum; and to pay any Make Whole
Premium Amount required as specified in the Agreement (as defined
below).
Payments of principal, premium, if any, and interest shall be
made in such coin or currency of the United States of America as at
the time of payment is legal tender for the payment of public and
private debts by check mailed and addressed to the registered
holder hereof at the address shown in the register maintained by
the Company for such purpose, or, at the option of the holder
hereof, in such manner and at such other place in the United States
of America as the holder hereof shall have designated to the
Company in writing in accordance with the terms of the Agreement.
This Note is one of an issue of Notes of the Company issued in
an aggregate principal amount limited to $10,000,000 pursuant to
the Company's Note Agreement with ____________________, dated as of
January ___, 1994 (the "Agreement"), and is entitled to the bene-
fits thereof and is subject to the resale restrictions contained
therein. As provided in such Agreement, this Note is subject to
prepayment, in whole or in part, with a premium as specified in
said Agreement. The Company agrees to make required payments on
account of said Notes in accordance with the provisions of said
Agreement.
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The Notes are issuable as registered Notes and are
transferable only by surrender thereof at the principal office of
the Company in Bridgeport, Connecticut, duly endorsed or
accompanied by a written instrument of transfer duly executed by
the registered holder of this Note or his attorney duly authorized
in writing.
Under certain circumstances, as specified in said Agreement,
the principal of this Note may be declared due and payable in the
manner and with the effect provided in said Agreement.
This Note and said Agreement are governed by and construed in
accordance with the internal laws of the State of Connecticut,
without reference to principles of conflict of laws.
AQUARION COMPANY
(Corporate Seal)
By_________________________
Its
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ATTACHMENT C
WARRANTIES AND REPRESENTATIONS
The Company warrants and represents to you that:
C.1 FULL DISCLOSURE
The Agreement does not, and the Form 10-K and any financial
statement or other written material furnished or delivered to you
in connection with the offering of the Notes did not, as of the
respective dates thereof, contain any untrue statement of a
material fact or omit a material fact necessary to make the
information contained therein or herein not misleading. There is
no fact which the Company has not disclosed to you in writing that
has materially and adversely affected or, so far as the Company can
now foresee, will materially and adversely affect the ability of
the Company to perform the Agreement. Since December 31, 1991,
there has been no change that has materially and adversely affected
the Property, business, profits or condition (financial or
otherwise) of the Company, BHC and its Restricted Subsidiaries,
taken as a whole, the rates to be charged by BHC or the valuation
of BHC's Property for rate-making purposes.
C.2 CORPORATE ORGANIZATION AND AUTHORITY
(a) The Company and each Restricted Subsidiary,
(i) is a corporation duly organized, validly existing
and in good standing under the laws of its
jurisdiction of incorporation;
(ii) has all requisite power and authority and all
necessary franchises, licenses, rights and permits
to own and operate its Properties and to carry on
its business as now conducted and, with respect to
the Company, as presently proposed to be conducted;
and
(iii) has duly qualified and is authorized to do business
and is in good standing as a foreign corporation in
each jurisdiction where the character of its
Properties or the nature of its activities makes
such qualification necessary.
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C.3 LEGAL AND AUTHORIZED SALE
The sale of the Notes by the Company, the execution and
delivery of this Agreement and the Notes and compliance by the
Company and each Restricted Subsidiary with all of the provisions
of the Agreement and of the Notes:
(a) are within the corporate powers of the Company and each
Restricted Subsidiary; and
(b) are legal and authorized by all necessary corporate
proceedings on the Company's part and will not conflict
with, result in any breach of any of the provisions of,
constitute a default or violation of, or result in the
creation of any Lien upon any Property of the Company,
BHC or any Restricted Subsidiary (other than Liens
permitted by Section 4.02) under, the provisions of any
agreement, charter instrument, bylaw or other instrument
to which the Company, BHC or any Restricted Subsidiary is
a party or by which any of them or their respective
Properties may be bound. The Agreement and the Notes
(when issued hereunder for value) will each constitute a
legal, valid and binding obligation of the Company
enforceable in accordance with its terms (subject to
general equitable principles and to applicable
bankruptcy, reorganization, insolvency and similar laws).
C.4 NO DEFAULTS
No event has occurred and no condition exists which, upon the
issue of the Notes, would constitute an Event of Default or any
other violation of the Agreement or any other agreement or
instrument to which the Company, BHC or any Restricted Subsidiary
is a party or by which it may be bound (except as may otherwise be
provided with respect to Funded Debt in Section 5.01(d)). Neither
the Company, BHC nor any Restricted Subsidiary is in violation of
any term of any agreement, charter instrument, bylaw or other in-
strument to which it is a party or by which it or any of its
Property may be bound which might materially and adversely affect
the Property, business, franchises, prospects, profits or condition
(financial or otherwise) of the Company and its Restricted
Subsidiaries, taken as a whole, the rates to be charged by BHC or
the valuation of BHC's Property for rate-making purposes, or the
ability of the Company to perform this Agreement or the Notes.
C.5 GOVERNMENTAL CONSENT
Neither the nature of the Company, BHC or of any Restricted
Subsidiary, or of any of their respective Property or businesses,
nor any relationship between the Company, BHC or any Restricted
2.
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Subsidiary and any other Person, nor any circumstance in connection
with the offer, issue, sale or delivery of the Notes or execution,
delivery and performance of the Agreement is such as to require a
consent, approval or authorization of, or filing, registration or
qualification with, any governmental authority on the part of the
Company, BHC or any Restricted Subsidiary or Affiliate in
connection with the execution, delivery and performance of the
Agreement or the offer, issue, sale or delivery of the Notes.
C.6 USE OF PROCEEDS
The Company will use the proceeds from the sale of the Notes
to redeem the principal amount of the Company's $10,000,000 8.50%
Senior Notes due January 1, 1994, and for other general corporate
purposes.
None of the transactions contemplated in the Agreement
(including the use of the proceeds from the sale of the Notes) will
result in a violation of Section 7 of the Securities Exchange Act
of 1934, as amended, or any related regulations, including
Regulations G, T and X of the Board of Governors of the Federal
Reserve System, 12 C.F.R., Chapter II. Neither the Company, BHC
nor any Restricted Subsidiary owns or intends to carry or purchase
any "margin security" within the meaning of said Regulation G,
including margin securities originally issued by it, with the
proceeds from the sale of the Notes. None of the proceeds from the
sale of the Notes will be used to purchase or carry (or refinance
any borrowing the proceeds of which were used to purchase or carry)
any "margin security" within the meaning of the Securities Exchange
Act of 1934, as amended.
C.7 PRIVATE OFFERING
Neither the Company nor Smith Barney Shearson, Inc. (the only
Person authorized or employed by the Company as agent, broker,
dealer or otherwise in connection with the offering or sale of the
Notes or any similar Security of the Company) has offered any of
the Notes or any similar Security of the Company for sale to, or
solicited offers to buy any thereof from, or otherwise approached
or negotiated with respect thereto with, any prospective purchaser,
other than you. The Company agrees that neither the Company nor
anyone acting on its behalf will offer any Notes or any similar
Security for issue or sale to, or solicit any offer to acquire any
of the same from, anyone so as to bring the issuance and sale of
the Notes within the provisions of Section 5 of the Act. The
Company agrees that, within a period of six months after the
Closing Date, it will not issue any Securities similar to the Notes
in a manner which would cause the Notes to be considered to be part
of a public offering of securities within the meaning of the Act.
3.
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C.8 PENDING LITIGATION
Except as specifically disclosed in the Form 10-K, there are
no claims, actions or administrative proceedings pending, or to the
knowledge of the Company, BHC or any Restricted Subsidiary,
threatened against or affecting the Company, BHC or any Restricted
Subsidiary in any court or before any governmental authority or
arbitration board or tribunal which might materially and adversely
affect the Property, business, franchises, prospects, profits or
condition (financial or otherwise) of the Company and its
Restricted Subsidiaries, taken as a whole, the rates to be charged
by BHC or the valuation of BHC's Property for rate-making purposes,
or the ability of the Company to perform this Agreement or the
Notes. Neither the Company, BHC nor any Restricted Subsidiary is
in default with respect to any order of any Court or governmental
authority or arbitration board or tribunal.
C.9 TAXES
Neither the Company, BHC nor any Restricted Subsidiary has
outstanding and due and payable any taxes, assessments,
governmental charges or levies upon it, or its income, profits, or
Property (except those which are being contested in good faith by
appropriate proceedings and with respect to which adequate reserves
have been set aside), which might materially and adversely affect
the Property, business, franchises, prospects, profits or condition
(financial or otherwise) of the Company or any Restricted
Subsidiary, the rates to be charged by BHC or the valuation of
BHC's Property for rate-making purposes, or the ability of the
Company to perform this Agreement or the Notes.
C.10 COMPLIANCE WITH LAW
(a) Neither the Company, BHC nor any Restricted Subsidiary:
(i) is in violation of any laws, ordinances,
governmental rules or regulations to which it is
subject; or
(ii) has failed to obtain any licenses, permits,
franchises or other governmental authorizations
necessary to the ownership of its Property or to
the conduct of its business,
which violation or failure to obtain might materially and
adversely affect the Property, business, franchises,
prospects, profits, or condition (financial or otherwise)
of the Company and its Restricted Subsidiaries, taken as
a whole, the rates to be charged by BHC or the valuation
of BHC's Property for rate-making purposes, or the
4.
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ability of the Company to perform this Agreement or the
Notes.
(b) Neither the Company, BHC nor any of the Restricted
Subsidiaries is in violation in any material respect of
any applicable zoning ordinances or any applicable state
and federal Environmental Laws, health or safety statutes
or regulations, including, without limitation, the
Occupational Safety and Health Act of 1970, laws and
regulations establishing quality criteria and standards
for air, water, land and toxic wastes and regulations
promulgated under RECRA, and, to its knowledge after due
inquiry, has not acquired, incurred or assumed, directly
or indirectly, any material contingent liability in
connection with the release of any toxic or Hazardous
Material into the environment, which violation or failure
to obtain might materially and adversely affect the
Property, business, franchises, prospects, profits, or
condition (financial or otherwise) of the Company and its
Restricted Subsidiaries, taken as a whole, the rates to
be charged by BHC or the valuation of BHC's Property for
rate-making purposes, or the ability of the Company to
perform this Agreement or the Notes.
(c) Neither the Company, BHC nor any of the Restricted
Subsidiaries is the subject of any evaluation under
CERCLA, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. secs. 9601 et seq.
C.11 ERISA
(a) Relationship of Vested Benefits to Pension Plan Assets.
The present value of all benefits vested under all
"employee pension benefit plans," as such term is defined
in Section 3 of ERISA, maintained by the Company and any
other corporation or other trade or business under common
control with the Company as determined under
Section 414(c) of the Internal Revenue Code of 1986, as
amended (a "Common Control Entity"), as from time to time
in effect (herein called the "Pension Plans"), did not,
as of December 31, 1991, the last annual valuation date,
exceed the value of the assets of the Pension Plans
allocable to such vested benefits.
(b) Prohibited Transactions. Neither the Company, any Common
Control Entity nor any of the Pension Plans or any trusts
created thereunder, nor any trustee or administrator
thereof, has engaged in a "prohibited transaction," as
such term is defined in Section 4975 of the Internal
Revenue Code of 1986, as amended, or described in
Section 406 of ERISA, which could subject the Company,
5.
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any Common Control Entity, the Pension Plans, or any of
them, any such trust, or any trustee or administrator
thereof, or any party dealing with the Pension Plans or
any such trust to the tax or penalty on prohibited
transactions imposed by said Section 4975 or by
Section 502(i) of ERISA. The issuance, sale and delivery
of the Notes by the Company hereunder will not involve
any "prohibited transaction" within the meaning of
Section 4975 of the Internal Revenue Code of 1986, as
amended, or ERISA.
(c) Reportable Events. Neither any of the Pension Plans nor
any such trusts have been terminated, nor have there been
any "reportable events," as that term is defined in
Section 4043 of ERISA, since the effective date of ERISA.
The Company has not at any time made, and is not
obligated to make, contributions to any Multiemployer
Plan (as defined in Section 3(37) of ERISA).
(d) Accumulated Funding Deficiency. Neither any of the
Pension Plans nor any such trusts have incurred any
"accumulated funding deficiency," as such term is defined
in Section 302 of ERISA (whether or not waived), since
the effective date of ERISA.
(e) List of Benefit Plans. The Company has delivered to you
a complete and correct list of (i) all employee benefit
plans with respect to which the Company or any Common
Control Entity is a party in interest, and (ii) all
employee benefit plans with respect to which the
Company's or an Affiliate's securities are "employer
securities" within the meaning of Section 407(d)(1) of
ERISA. As used in this Section C.11, the terms "employee
benefit plans" and "party in interest" shall have the
respective meanings assigned to such terms in Section 3
of ERISA, and the term "affiliate" shall have the meaning
assigned to such term in Section 407(d)(7) of ERISA.
6.
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ATTACHMENT D
CLOSING CONDITIONS
D.1 OPINIONS OF COUNSEL
You shall have received from Wiggin & Dana, counsel for the
Company, and Tyler Cooper & Alcorn, your special counsel, the
closing opinions described in Attachments E and F, respectively.
D.2 WARRANTIES AND REPRESENTATIONS
The warranties and representations contained in Attachment C
shall (except as affected by transactions contemplated by the
Agreement) be true in all material respects on the Closing Date
with the same effect as though made on and as of that date.
D.3 COMPLIANCE WITH THIS AGREEMENT
The Company shall have performed and complied with all
agreements and conditions contained in the Agreement which are
required to be performed or complied with by the Company before or
at the closing.
D.4 OFFICERS' CERTIFICATE
You shall have received a certificate dated the Closing Date
and signed by the Senior Vice President, Chief Financial Officer
and Treasurer of the Company, certifying that the conditions
specified in Sections D.2 and D.3 have been fulfilled.
D.5 PROCEEDINGS SATISFACTORY
All proceedings taken in connection with the sale of the Notes
and all documents and papers relating thereto shall be satisfactory
to you and your special counsel. You and your special counsel
shall have received copies of such documents and papers as you or
they may reasonably request in connection therewith or as a basis
for your special counsel's closing opinion, all in form and
substance satisfactory to you and your special counsel.
D.6 PRIVATE PLACEMENT NUMBER
You shall have received evidence satisfactory to you of the
acquisition of a Private Placement Number for the transactions
contemplated by this Agreement, issued by the CUSIP Service Bureau
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of Standard & Poor's Corporation (in cooperation with the
Securities Valuation Office of the National Association of
Insurance Commissioners).
2.
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ATTACHMENT E
DESCRIPTION OF COMPANY COUNSEL'S CLOSING OPINION
The closing opinion of Wiggin & Dana, counsel for the Company,
which is called for by Section D.1 of Attachment D, shall be dated
the Closing Date and addressed to you, shall be governed by and
interpreted in accordance with the Legal Opinion Accord of the ABA
Section of Business Law (1991), shall be satisfactory in form and
substance to you, and shall be to the effect that:
(1) Organization, Standing, Etc. of the Company - the Company
is a duly incorporated and validly existing corporation
in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to
issue, sell and deliver the Notes and to carry on its
business as now conducted and own and operate its
Property as now owned and operated.
(2) Agreement, Notes - the Agreement and the Notes being
delivered to you at the closing have been duly authorized
by all necessary corporate action on the part of the
Company (no action by the stockholders of the Company
being required by law, by the Company's Restated
Certificate of Incorporation or Bylaws or otherwise),
have been duly executed and delivered by the Company, and
are legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their
terms except as enforcement is subject to the effect of
(i) any applicable bankruptcy, insolvency, reorganization
or other law relating to or affecting creditors' rights
generally, and (ii) general principles of equity
(regardless of whether enforceability is considered in a
proceeding in equity or at law);
(3) No Conflict with Charter, Bylaws or Other Agreements -
the issue and sale of the Notes and compliance by the
Company with the terms of the Notes and the Agreement
will not conflict with, or result in any breach of any of
the provisions of, or constitute a default under, or
result in the creation or imposition of any Lien upon any
of the Property of the Company pursuant to the provisions
of the Restated Certificate of Incorporation or Bylaws of
the Company, or, to the best of such counsel's knowledge
after due inquiry, any material agreement or other
instrument to which the Company is a party or by which it
is bound;
(4) Governmental Consent, Etc. - no consent, approval or
authorization of, or filing, registration or
qualification with, any federal or Connecticut or
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Delaware governmental authority is required on the part
of the Company or any Restricted Subsidiary in connection
with the execution, delivery and performance of the
Agreement or the offer, issue, sale or delivery of the
Notes; and
(5) Exempted Offering - based upon the representations
contained in Sections 8.03 of the Agreement and
Section C.7 of Attachment C of the Agreement and upon
such other inquiries as such counsel deems necessary and
appropriate to render such opinion, the issuance, sale
and delivery of the Notes under the circumstances
contemplated by the Agreement are exempted transactions
under the registration provisions of the Securities Act
of 1933, as amended, and do not, under existing law,
require the registration of the Notes under the
Securities Act of 1933, as amended.
Such opinion shall also cover such other matters incident to
the transactions contemplated hereby as you or your special counsel
may reasonably request.
2.
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ATTACHMENT F
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Tyler Cooper & Alcorn, special counsel
for you, which is called for by Section D.1 of Attachment D, shall
be dated the Closing Date and addressed to you, shall be governed
by and interpreted in accordance with the Legal Opinion Accord of
the ABA Section of Business Law (1991), shall be satisfactory in
form and substance to you, and shall cover the matters referred to
in paragraphs 2, 3 and 5 of Attachment E (except that only the
Restated Certificate of Incorporation and Bylaws shall be covered
with respect to paragraph 3). Such opinion shall also state that
based on such investigation and inquiry as deemed relevant and
appropriate, the closing opinion of Company counsel delivered
pursuant to Section D.1 of Attachment D is satisfactory in scope
and form to your special counsel and that in their opinion you are
justified in relying thereon, and shall cover such other matters
relating to the sale of the Notes as you may reasonably request.
Such opinion may rely on the closing opinion of Company
counsel delivered pursuant to Section D.1 of Attachment D.
EXHIBIT 25(A)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature
appears below constitutes and appoints Jack E. McGregor and Janet M.
Hansen, and each of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, to act, without
the other, for him or her and in his or her name, place and stead, in any
and all capacities, to sign the Annual Report on Form 10-K of the
registrant, Aquarion Company, for the year ended December 31, 1993, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform
each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/William S. Warner
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William S. Warner Chairman of the February 22, 1994
Board of Directors
and Director
/s/Jack E. McGregor
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Jack E. McGregor President, Chief Executive February 22, 1994
Officer and Director
(Principal Executive
Officer)
/s/Janet M. Hansen
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Janet M. Hansen Senior Vice President and February 22, 1994
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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George W. Edwards, Jr. Director February 22, 1994
<PAGE>
- -----------------------
Geoffrey Etherington Director February 22, 1994
/s/Norwick R. G. Goodspeed
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Norwick R. G. Goodspeed Director February 22, 1994
/s/Janet D. Greenwood
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Janet D. Greenwood Director February 22, 1994
/s/Donald M. Halsted, Jr.
- --------------------------------------
Donald M. Halsted, Jr. Director February 22, 1994
- -----------------------
Eugene D. Jones Director February 22, 1994
/s/Larry L. Pflieger
- -----------------------
Larry L. Pflieger Director February 22, 1994
/s/G. Jackson Ratcliffe
- --------------------------------------
G. Jackson Ratcliffe Director February 22, 1994
/s/John A. Urquhart
- -----------------------
John A. Urquhart Director February 22, 1994
