Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _____________
---------------- -------------
Commission File Number 1-8060
------
AQUARION COMPANY
----------------
(Exact name of registrant as specified in its charter)
Delaware 06-0852232
----------------- ---------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
835 Main Street, Bridgeport, Connecticut 06604-4995
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (203) 335-2333
--------------
(Former name, former address and former fiscal year, if changes since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
---- ------
Indicate the number of share outstanding of each of the issuer's classes of
common stock as of May 11, 1999:
Common Stock
No Par Value (Stated Value: $1) 11,358,614
------------------------------- -----------------
Class Number of Shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
<TABLE>
<CAPTION>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
Three Months Ended
March 31,
---------------------
1999 1998
----- ------
(In thousands, except share data)
<S> <C> <C>
Operating revenues $25,722 $25,383
Costs and expenses:
Operating 7,254 7,471
General and administrative 4,151 3,853
Depreciation 3,651 3,525
Interest expense 2,497 2,686
Taxes other than income taxes 2,678 2,532
--------- --------
Total costs and expenses 20,231 20,067
--------- --------
5,491 5,316
Allowance for funds used during
construction 22 47
--------- -------
Income before income taxes 5,513 5,363
Income taxes 2,148 2,328
--------- -------
Net income $3,365 $ 3,035
========= =========
Basic earnings per share $0.30 $0.27
--------- --------
Basic weighted average common
shares outstanding 11,282,456 11,049,423
========== ==========
Diluted earnings per share $0.29 $0.27
---------- ----------
Diluted weighted average common
shares outstanding 11,653,288 11,316,744
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
UNAUDITED
Three Months Ended
March 31,
------------------
1999 1998
------ -------
(In thousands, except share data)
<S> <C> <C>
Beginning of period $27,297 $19,624
Net income 3,365 3,035
------- -------
30,662 22,659
Deduct: Cash dividends declared on 3,140 3,031
common stock, $.2775 per
share and $.2733 per share
for 1st quarter 1999 and
1998, respectively ------- -------
End of period $27,522 $19,628
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
---------- ------------
(Unaudited)
(In thousands)
<S> <C> <C>
Property, plant and equipment $496,695 $493,279
Less: accumulated depreciation 149,459 146,034
------- -------
Net property, plant and
equipment 347,236 347,245
------- -------
Current assets:
Cash and cash equivalents 622 654
Accounts receivable from customers 13,028 11,325
Less: allowance for doubtful
accounts 2,117 1,976
------ ------
10,911 9,349
Accrued revenues 10,322 9,406
Inventories 5,045 4,526
Prepaid expenses 14,438 12,924
Other current assets 4,359 4,626
------- -------
Total current assets 45,697 41,485
------- -------
Prepaid taxes 11,834 11,834
Recoverable income taxes 38,814 39,022
Other assets 17,685 17,894
------- -------
$461,266 $457,480
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
<CAPTION>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
----------- --------------
(Unaudited)
(In thousands, except share data)
<S> <C> <C>
Shareholders' equity:
Preferred stock, no par value,
authorized $ - $ -
2,500,000 shares not to exceed
aggregate balue of $25,000,000
issuable in series-none issued
Common stock, stated value: $1
Authorized-16,000,000 shares
Issued-11,260,797 shares in 1998
Capital in excess of stated value 109,519 108,381
Retained earnings 27,522 27,297
Less: minimum pension liability
adjustment 99 99
------- -------
Total shareholders' equity 148,254 146,840
------- -------
Long-term debt and other obligations 141,380 141,380
------- -------
Current liabilities:
Short-term borrowings, unsecured 16,000 -
Current maturities of long-term debt - 10,000
Accounts payable and accrued liabilities 11,464 14,868
Dividends payable 3,139 3,115
Accrued interest 2,218 2,834
Taxes other than income taxes 884 887
Income taxes 3,805 3,782
------- -------
Total current liabilities 37,510 35,486
Advances for construction 19,543 19,638
Contributions in aid of construction 38,266 38,097
Deferred land sale gains 1,589 1,658
Accrued postretirement benefit cost 5,379 5,165
Recoverable income taxes 5,721 5,930
Deferred taxes 63,624 63,286
------- -------
$461,266 $457,480
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
<TABLE>
<CAPTION>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Three Months Ended March 31,
----------------------------
1999 1998
-------- --------
(In thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income $3,365 $3,035
Adjustments reconciling net income to
net cash provided by operating activities:
Depreciation and amortization 3,846 3,719
Allowance for funds used during construction (22) (47)
Provision for losses on accounts receivable 134 90
Deferred and prepaid income taxes, net 337 337
Proceeds from sale of surplus land, net of 377 964
Change in assets and liabilities (Note 3) (8,592) (3,424)
------ ------
Net cash used in operating activities (555) 4,674
------- ------
Cash flows from investing activities:
Capital additions, excluding an allowance for
funds used during construction (4,038) (3,499)
Advances and contributions in aid of 410 425
Refunds on advances for construction (46) (80)
Other investing activities 124 330
Net cash used in investing activities (3,550) (2,824)
Cash flows from financing activities:
Principal payments on long-term debt (10,000) -
Principal payments on short-term borrowings - (1,000)
Net proceeds from short-term borrowings 16,000 -
Proceeds from the issuance of common
stock, net 1,221 1,734
Common dividends paid (3,148) (3,005)
Bond finance charges - (17)
------- ------
Net cash provided by (used in)
financing 4,073 (2,288)
------- ------
Net decrease in cash and cash equivalents (32) (438)
Cash and cash equivalents, beginning
of period 654 851
------ ------
Cash and cash equivalents, end of period $622 $413
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
AQUARION COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
Aquarion Company (Aquarion or the Company) 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 subsidiaries, BHC Company (BHC) and Sea Cliff Water
Company (SCWC) (collectively, the Utilities), collect, treat and distribute
water for residential, commercial and industrial customers, to other utilities
for resale and for private and municipal fire protection. The Utilities
provide water to customers in 30 communities with a population of over 500,000
people in Connecticut and Long Island, New York. BHC is the largest investor-
owned water company in Connecticut and, with SCWC, is among the ten largest
investor-owned water companies in the nation. The Utilities are regulated by
several Connecticut and New York agencies, including the Connecticut
Department of Public Utility Control (DPUC) and the New York Public Service
Commission (PSC).
The Company's non-utility subsidiaries include: Timco, Inc. (Timco), a
timber processing company based in New Hampshire; Aquarion Management
Services, Inc. (AMS), a utility management services business; and Main Street
South Corporation (MSSC), a real estate subsidiary formed in 1969 to assist
BHC in marketing surplus land.
NOTE 1 - BASIS OF PRESENTATION
The accompanying consolidated financial statements of the Company have
been prepared in accordance with generally accepted accounting principles for
interim financial information, the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X and, as applied in the case of rate-regulated public utilities,
comply with the Uniform System of Accounts and ratemaking practices prescribed
by the Company's regulating authorities. Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of
operations are not necessarily indicative of the results of operations for the
calendar year. Water consumption is less in the first quarter of the year
than during the warmer months. Other factors affecting the comparability of
various accounting periods include the timing of rate increases granted the
Utilities and the timing and magnitude
7
<PAGE>
of property sales. The consolidated
financial statements contained herein should be read in conjunction with the
consolidated financial statements and accompanying notes included in the
Company's 1998 Annual Report to Shareholders and incorporated by reference in
the Company's Annual Report on Form 10-K for the year ended December 31, 1998.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," (SFAS 133) which establishes a
new model for accounting for derivative and hedging activities and supersedes
and amends a number of existing standards. SFAS 133 is effective for fiscal
years beginning after June 15, 1999. Upon initial application, all
derivatives are required to be recognized in the statement of financial
position as either assets or liabilities and measured at fair value. Changes
in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of
hedge transaction. In addition, all hedging relationships must be
reassessed and documented pursuant to the provisions of SFAS 133. The Company
does not expect adoption of this statement to have a significant impact
on its financial position or results of operations.
NOTE 2 - INVENTORY
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
-------- -----------
(Unaudited)
<S> <C> <C>
Lumber and logs $3,932 $3,534
Materials and supplies 1,113 992
----- -----
$5,045 $4,526
</TABLE>
8
<PAGE>
NOTE 3 - SUPPLEMENTAL DISCLOSURE FOR CONSOLIDATED STATEMENTS OF CASH FLOWS
Changes in assets and liabilities and supplemental cash flow information
for the three-month period ended March 31, are set forth below (in thousands):
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Changes in assets and liabilities: (Unaudited)
(Increase) decrease in accounts receivable $(2,612) $692
Increase in inventory (519) (249)
Increase in prepayments (1,514) (1,115)
Decrease in other current assets 267 313
Decrease in accounts payable and accrued (3,404) (3,457)
(Decrease) increase in interest and taxes (596) 654
Net changes in other noncurrent balance sheet (214) (262)
------ -------
$(8,592) $(3,424)
====== ======
Supplemental cash flow information:
Cash paid for:
Interest $3,503 $3,092
Income taxes $1,790 $ 875
</TABLE>
NOTE 4 - REGULATORY MATTERS
Rates. On March 17, 1999, BHC's Western division received a final decision
from the DPUC for a 3.97 percent water service rate increase designed to
provide a $607,000 increase in annual water service revenues. The new rate
became effective on the date of approval.
On October 1, 1996, the Ridgefield Water Company, which has subsequently
been merged into BHC, entered into a Consent Agreement with the State of
Connecticut, Department of Environmental Protection (DEP), relating to certain
water supply sources located in the Town of Ridgefield. The Consent Agreement
requires BHC to meet various milestones by particular dates in order to bring
B H C ' s Ridgefield water system into compliance with DEP's diversion
regulations. BHC's failure to timely comply with many of the requirements of
the Consent Order now permits DEP to demand certain fines from BHC.
This matter has been referred by DEP to the Office of the Connecticut
Attorney General for
9
<PAGE>
further action. BHC is presently in the process of negotiating a
revised Consent Agreement and its potential liability for civil penalties with
the Attorney General s office. BHC is unable to assess the ultimate outcome
of these negotiations at this time, but presently expects that any civil
penalties will be less than $1,000,000.
NOTE 5 - SALE OF SURPLUS LAND
For the first three months of 1999, the Company sold approximately 7
acres of surplus land with proceeds totaling $664,000. Total gains, including
recognition of deferred gains from prior land sales of $103,000, approximated
$292,000.
In February 1997, the Company had entered into a contract to sell the
entire Trout Brook Valley property for approximately $14,000,000 to a private
developer. However, in June 1998, the Aspetuck Land Trust, a non-profit land
preservation organization, exercised a statutory right of first refusal
allowing it to purchase, at the original contract terms, substantially all of
the Trout Brook Valley property for approximately $12,400,000. Connecticut
statutes afford the buyer fifteen months to close, or until September 8, 1999.
As of March 31, 1999, the Company has received $1,550,000 on deposit from the
Aspetuck Land Trust. The proposed current sale has been approved by the DPUC.
The Town of Weston, Connecticut has notified the Company of its intention to
purchase, for approximately $820,000, the approximately 45 acre portion of
BHC s Trout Brook Valley property located in Weston pursuant to its statutory
right of first refusal. Although both BHC and the Aspetuck Land Trust have no
objection to this purchase, BHC has indicated that it will only sell the
Weston portion at or after the closing of the sale of the remainder of its
Trout Brook Valley property. BHC filed a request with the DPUC for a
declaratory ruling to the effect that the Town of Weston is not entitled to
purchase only the Weston property. The Town of Weston subsequently filed an
action in Connecticut Superior Court requesting that BHC be required to sell
the Weston property to the Town of Weston separate from the proposed sale of
the remainder of the Trout Brook Valley property to the Aspetuck Land Trust.
The DPUC recently decided that it will not issue a declaratory ruling on this
matter. The Superior Court proceeding is pending at this time.
The Company anticipates that the after-tax gain from the proposed current
sale will be approximately $6,000,000, to be recognized over an applicable
amortization period. In its decision approving the original sale, the DPUC
granted the company a 10-year amortization period, which provides ratepayers
with 55 percent and shareholders with 45 percent of the after-tax gain on
approximately 60 percent of BHC's portion of the property. Due to the
10
<PAGE>
change in purchaser and its intended use of the property as open space,
the Company is considering filing an amended application with the DPUC
seeking a shorter amortization period.
On December 18, 1998, the Company sold five parcels of land, located in
Shelton, Connecticut and totaling 401 acres, to the City of Shelton for
approximately $6,800,000. The Company received $2,268,000 in cash and a note
receivable for the balance, which will be paid in two equal installments of
$2,266,500 in December 1999 and July 2000. The after-tax net gain
attributable to the sale amounted to $3,510,000. A 30-acre parcel of land,
originally scheduled to be included in the sale, is expected to close in 1999,
after BHC receives the necessary permits from the Connecticut Department of
Health Services.
In 1995, the Company entered into an agreement with a local developer to
sell a 40-acre parcel of land located in New Canaan, Connecticut, for
approximately $1,950,000. The Company anticipates that the after-tax gain
from this transaction will be approximately $1,100,000. The sale has been
approved by the DPUC. The buyer has been involved in litigation and appeals
with several residents, environmental groups and the DEP over regulatory
approvals. Although several appeals have been withdrawn, certain issues
remain open. The Company anticipates closing this transaction sometime in
1999, however, the closing could be delayed due to the opposition to granting
the required permits and approvals. No assurances can be given at this time
that such permits and approvals will be granted.
MSSC owns a two-thirds share, through a joint venture, of approximately
7.7 acres of real property in Shelton, Connecticut. In December 1997, the
joint venture was formally notified of an eminent domain action undertaken on
behalf of the City of Shelton, with an accompanying notice of value of
approximately $95,000. Although the Company does not concur with this value
and has initiated an appeal process to obtain a higher value for this
property, the Company reserved for the difference between the carrying value
of the investment and its estimated net realizable value.
11
<PAGE>
NOTE 6 - EARNINGS PER SHARE
In accordance with SFAS 128, the following table presents the
calculation of basic and diluted earnings per share for the three months ended
March 31, 1999 and 1998.
<TABLE>
<CAPTION>
In thousands, except per share data Income Shares Per-Share
(Numerator) (Denominator) Amount
- ------------------------------------ ----------- ------------- ---------
For the three months ended March 31,
Basic earnings per share
<S> <C> <C> <C>
Net income $3,365 11,282 $0.30
====
Effect of dilutive stock options - 371
------ ------
Diluted earnings per share
Net income giving effect to dilutive
stock options $3,365 11,653 $0.29
====== ====== ====
For the three months ended March 31,
Basic earnings per share
Net income $3,035 11,049 $0.27
====
Effect of dilutive stock options - 268
------ ------
Diluted earnings per share
Net Income giving effect to
dilutive stock options $3,035 11,317 $0.27
====== ====== =====
</TABLE>
NOTE 7 INDUSTRY SEGMENT INFORMATION
In 1998, Aquarion adopted Statement of Financial Accounting Standards
No. 131 (SFAS 131) Disclosure about segments of and Enterprise and Related
Information , which requires the reporting of certain financial information by
business segment.
In accordance with SFAS 131, the Company s four industry segments are:
Public water supply--collection, purification and distribution of water
for domestic commercial and industrial use, and for private and
municipal fire protection service;
Timber processing--processing, marketing and distribution of lumber
products;
Real Estate ownership, rental and sale of real property; and,
Utility management services--nonregulated water-related services.
12
<PAGE>
The Company's industry segment information for the three months ended
March 31 is as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998
- ------------------------------------------ ------- ------
<S> <C> <C>
Operating income (loss):
Public water supply $7,103 $7,319
Timber processing 432 326
Real estate 374 462
Utility management services (6) (32)
Industry segment operating income 7,903 8,075
Interest expense (2,497) (2,686)
Allowance for funds used during construction 22 47
Other income (expenses), net 85 (73)
------ -----
Income before income taxes $5,513 $5,363
</TABLE>
The Company's operations take place in North America and no single
customer accounts for 10 percent or more of total operating revenues.
13
<PAGE>
<TABLE>
<CAPTION>
In thousands 1999 1998
- ------------------------------------------------ ------- -------
<S> <C> <C>
Segment assets:
Public water supply $438,608 $428,559
Timber processing 10,661 9,093
Real estate 4,581 4,527
Utility management services 280 504
------- -------
Subtotal 454,130 442,683
Reconciling items 7,136 11,450
------- -------
Total consolidated items $461,266 $454,133
------- -------
Capital Expenditures:
Public water supply 3,996 $3,154
Timber processing 42 345
Utility management services 0 0
------ ------
Total capital expenditures $4,038 $3,499
----- -----
Depreciation expense:
Public water supply $3,506 $3,396
Timber processing 140 125
Real estate 3 3
Utility management services 2 1
----- ------
Total depreciation expense $3,651 $3,525
===== =====
</TABLE>
Reconciling items include assets of the parent company, which are not
allocated to a specific industry segment.
NOTE 8 ACQUISITIONS
On March 10, 1999, BHC signed a letter of intent to acquire the remaining
stock of the closely held Village Water Company (Village) in Simsbury,
Connecticut. In 1998, BHC acquired 9 percent of Village s common stock.
Terms of the letter of intent call for BHC to pay Village shareholders $150
per share. The value of the transaction is $6,500,000, which includes payment
for outstanding debentures that may be converted to common shares prior to
closing. A definitive merger agreement is expected to be signed in the second
quarter of 1999. Village has approximately 5,000 customers and annual
revenues of $1,800,000. The transaction is subject to approval by Village
shareholders and the DPUC. Regulatory approval is presently expected within
120 days after shareholder approval.
14
<PAGE>
NOTE 9 STOCK SPLIT
On March 22, 1999, the Company declared a three-for-two split on the
Company's common stock, effected in the form of a 50 percent stock
distribution to holders of record on March 1, 1999. This resulted in the
issuance of 3,764,181 additional shares of common stock. Shareholders equity
has been restated to give retroactive recognition to the stock split for all
periods presented by reclassifying the par value of the new shares issued from
capital in excess of stated value to common stock. In addition, all
references in the financial statements to number of shares, per share amounts,
stock option data, and market price of the Company s common stock for all
periods presented have been restated to reflect this stock split.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Management's Discussion and Analysis of Financial Condition and Results
of Operations contained in Aquarion's 1998 Annual Report to Shareholders and
incorporated by reference in Aquarion's Annual Report on Form 10-K for the
year ended December 31, 1998 should be read in conjunction with the discussion
below.
Capital Resources and Liquidity
Capital Expenditures
The Company invested $4,038,000 in property, plant and equipment in the
first three months of 1999, compared to $3,499,000 for the same 1998 period.
The Utilities accounted for the majority of capital additions in both periods.
Management estimates that capital expenditures will total $28,000,000 in 1999,
of which approximately $27,000,000 will be for water utility construction
programs.
Financing Activities
The Company's capital expenditures have historically been financed from
several sources, including internally generated funds, rate relief, proceeds
from debt financings, sales of common stock and short-term borrowings under
the Company's revolving credit agreements.
15
<PAGE>
Due to its declining capital requirements, the Company did not renew its
unsecured revolving committed credit agreements, which expired on May 10,
1998. The Company negotiated with some of its lenders to establish
$40,000,000 of uncommitted lines of credit to finance short-term borrowings.
On January 4, 1999, the Company repaid Aquarion s 5.95% unsecured Senior
Note, issued in 1994, in the amount of $10,000,000.
The Company obtained funds of $1,154,000 from the issuance of 37,685
shares of common stock under its Dividend Reinvestment and Common Stock
Purchase Plan (the Plan) for the three months ended March 31, 1999 versus
$788,000 for 24,409 shares in 1998. The Company also obtained funds of
$68,000 from 2,600 stock options exercised for the three months ended March
31, 1999 compared to $926,000 for 38,080 stock options exercised during the
first quarter of 1998. The Utilities received $410,000 and $425,000 from
advances and contributions in aid of construction from developers and
customers for the three months ended March 31, 1999 and 1998, receptively.
Future Financing Requirements
The Company's ability to finance future utility construction programs
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. 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 the Company's shareholders. 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.
Year 2000 Compliance
The Company is currently evaluating its exposure to the Year 2000
problem. In general terms, the problem arises from the fact that many existing
computer systems and other equipment containing date-sensitive embedded
technology (including non-information technology equipment and systems) use
only two digits to identify a year in the date field, with the assumption that
the first two digits of the year are always "19". As a result, such systems
may misinterpret dates after December 31, 1999, which may result in
miscalculations, other malfunctions or the total failure of such systems.
Additional problems arise from the fact that the Year 2000 is a special case
leap year. Because the Company is dependent upon the proper functioning of
computer systems and other equipment containing date-sensitive technology, a
16
<PAGE>
failure of such systems and equipment to be Year 2000 compliant could have a
material adverse effect on the Company. If not remedied, potential risks
nclude business interruption or shutdown, financial loss, regulatory actions
and legal liability.
The Company has established a Year 2000 task force comprised of senior
management and operating personnel to coordinate its Year 2000 efforts. This
task force is currently evaluating the Company's exposure to the Year 2000
problem and has prepared a plan for managing the risks and costs associated
therewith. The Company has hired an outside consultant to assist it in
preparing and implementing its Year 2000 compliance and contingency plans. In
addition, the Connecticut Department of Public Utility Control is reviewing
the Company's Year 2000 preparations.
The Company's general process of addressing the Year 2000 problem <PAGE>
consists of the following steps: (a) inventorying systems, equipment and
other items (including relationships with third parties) that potentially
present a Year 2000 problem, (b) determining the materiality of such items to
the Company and assessing the Year 2000 compliance of the material items
through internal testing and outside certification, (c) repairing, replacing
or preparing for the failure of material items that are determined to be non-
compliant, (d) testing repaired or replaced items, and (e) designing and
implementing contingency plans.
The Company, in the ordinary course of business, replaced its corporate
information system and several other systems which were not Year 2000
compliant. These systems had been scheduled for replacement for reasons
unrelated to the Year 2000 problem. The integration of the new systems was
completed during the first quarter of 1999. The Company intends to complete
independent Year 2000 testing of these systems during the second quarter of
1999.
The Company has completed its preliminary inventory of other systems,
equipment and items that potentially present a Year 2000 problem. The outside
consultant completed an assessment and impact analysis of equipment critical
to the Company s operations in February 1999. The initial assessment revealed
few non-compliant items. These items are in the process of being replaced.
The Company began internal testing, and seeking outside certification, of
material inventoried items during the first quarter of 1999 and expects to
complete such assessment by the end of the second quarter of 1999. While the
Company will not know the nature and extent of required repairs and
replacements of non-compliant systems and equipment until such assessment is
completed, it currently anticipates completing and testing such repairs and
replacements by September 1999.
17
<PAGE>
In addition to its own systems and equipment, the Company depends upon
the proper functioning of computer systems and other date-sensitive equipment
of outside parties. These parties include banks, telecommunications service
providers and electric and other utilities. The Company has compiled a
preliminary list of such parties and has contacted these parties to determine
the extent to which they are vulnerable to the Year 2000 problem. The Company
does not currently have sufficient information about the Year 2000 exposure or
remediation plans of such parties to predict the risk that they pose to the
company. If the third parties with which the Company interacts have Year 2000
problems that are not remedied, resulting problems could include the loss of
telecommunications and electrical service.
Due to the uncertainties presented by such third party Year 2000
problems, and the possibility that, despite its efforts, the Company is
unsuccessful in preparing its internal systems and equipment for the Year
2000, the Company is developing contingency plans for dealing with the most
reasonably likely worst-case scenario. Such plans will likely include manual
backup for automated systems, the use of electrical generators capable of
sustaining operations through a power failure, and enhanced transition-period
staffing to compensate for automation and communication failures. The
Company's assessment of its most reasonably likely worst-case scenario and the
exact nature and scope of its contingency plans will be effected by the
Company's continued Year 2000 assessment. The Company expects to complete
such assessment and contingency planning during the second quarter of 1999,
and to have all contingency systems in place and fully tested by the fourth
quarter of 1999.
The Company estimates that, as of March 31, 1999, its costs of <PAGE>
addressing the Year 2000 problem have been less than $200,000. While the
Company is currently unable to estimate future costs of addressing the Year
2000 problem, it does not believe that such costs will be material to the
Company's financial condition. The Company has funded, and expects to
continue to fund, the costs of its Year 2000 efforts through operating cash
flow.
This description of matters relating to the Year 2000 problem contains a
number of forward-looking statements. See "Forward-Looking Statements". The
Company's assessment of the costs of its Year 2000 program and the timetable
for completing its Year 2000 preparations are based on current estimates,
which reflect numerous assumptions about future events, including the
continued availability of certain resources, the timing and effectiveness of
third-party remediation plans and other factors. The Company can give no
assurance that these estimates will be achieved, and actual results could
differ materially from those currently anticipated. In addition, there can be
no assurance that the Company's Year 2000 program will be effective or that
its contingency plans will be sufficient. Specific factors that might cause
material differences include, but are not limited to, the availability and
cost of personnel
18
<PAGE>
trained in this area, the ability to locate and correct
relevant computer software codes and embedded technology, the results of
internal and external testing and the timeliness and effectiveness of
remediation efforts of third parties.
Results of Operations for the three months ended March 31, 1999 and 1998
Net income for the three months ended March 31, 1999 was $3,365,000
compared with $3,035,000 for the same 1998 period. Operating results during
the first three months of 1999 are higher primarily due to improved results
from the Company's Utility operations.
Operating revenues increased $339,000 for the three months ended March
31, 1999 from the comparable 1998 period. This increase was attributable to
higher revenues at Timco and BHC, which were partially offset by lower land
sale revenue.
Operating expenses decreased $217,000 for the three months ended March
31, 1999, from the comparable 1998 period. The decrease was primarily
attributable to a reduction in land sale-related expenses and lower operating
expenses at BHC. The decrease was partially offset by higher expenses at
Timco, which resulted from increased revenue.
General and administrative expenses increased $298,000 for the three
months ended March 31, 1999, compared to the 1998 period. The increase was
the result of increased miscellaneous general and administrative expenses at
the Utilities.
Depreciation expense increased $126,000 for the three months ended March
31, 1999 from the 1998 comparable period due to general plant additions.
Interest expense for the three months ended March 31, 1999 was $189,000
lower than the 1998 comparable period due to reduced long-term debt.
Taxes other than income taxes for the three months ended March 31, 1999
increased $146,000 from the comparable 1998 period due to increased property
tax expense.
Income taxes decreased $180,000 for the three months ended March 31, <PAGE>
1999 from the comparable 1998 period due to a lower effective tax rate in
1999.
19
<PAGE>
Significant changes in balance sheet accounts for the three months ended March
31, 1999
The increase of $1,514,000 in prepaid expenses was primarily the result
of prepaid property taxes that were paid in January 1999 and will be expensed
over the first half of the year.
Forward-looking statements
In addition to the historical information contained herein, this report
contains a number of "forward-looking statements," within the meaning of the
Securities and Exchange Act of 1934. Words such as "estimates", "expects",
"anticipates", "intends", "plans" and similar expressions identify forward-
looking statements. Such statements address future events and conditions
concerning the adequacy of water supply and utility plant, capital
expenditures, liquidity and capital resources, financial condition, results of
operations, gains recorded from land sales and regulatory and accounting
matters. Actual results in each case could differ materially from those
projected in such statements. Factors that may cause actual results to differ
include, without limitation, interest rates, economic factors, weather
variations, decisions of regulatory agencies, seasonality and Year 2000
issues.
ITEM 3. Quantitative and qualitative disclosures about market risk
Not Applicable.
PART II. OTHER INFORMATION
ITEM 4. Submission of matters to a vote of security holders
At the Annual Meeting of Shareholders of the Company held on April 20,
1999, two directors were elected to a three-year term. The shareholders
elected Janet D. Greenwood with 6,142,315 affirmative votes cast and 150,142
withheld, and John Urquhart with 6,155,920 affirmative votes cast and 136,537
withheld.
20
<PAGE>
Shareholders also approved a stock incentive plan for officers and key
employees with 3,562,531 affirmative votes cast, 1,075,978 negative votes,
144,093 abstentions and 1,509,855 broker nonvotes.
In addition, shareholders ratified the selection of
PricewaterhouseCoopers LLP as independent accountants for 1999 with 6,205,947
affirmative votes cast, 40,057 negative votes and 46,453 abstentions.
ITEM 6 Exhibits and reports on Form 8-K
(a) Exhibits
10(a) Employment agreement between Aquarion and Charles V.
Firlotte dated April 23, 1999
10(b) Employment agreement between Aquarion and Daniel Neaton
dated April 23, 1999
27 Financial Data Schedule for the quarter ended March 31, 1999
(b) The Company did not file a report on Form 8-K during the quarter
ended March 31, 1999.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AQUARION COMPANY
Date: May 12, 1999 By /s/JANET M. HANSEN
----------------------- --------------------
Janet M. Hansen
Executive Vice President
Chief Financial Officer and
Treasurer
22
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AQUARION COMPANY
Date: May 12, 1999 By
------------------------------ ------------------------
Janet M. Hansen
Executive Vice President
Chief Financial Officer and
Treasurer
23
<PAGE>
Exhibit Index
Exhibit 27 Financial Date Schedule for the quarter ended March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
March 31, 1999 Aquarion Company form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 622
<SECURITIES> 0
<RECEIVABLES> 13028
<ALLOWANCES> 2117
<INVENTORY> 5045
<CURRENT-ASSETS> 45697
<PP&E> 496695
<DEPRECIATION> 149459
<TOTAL-ASSETS> 461266
<CURRENT-LIABILITIES> 37510
<BONDS> 141380
0
0
<COMMON> 11312
<OTHER-SE> 136942
<TOTAL-LIABILITY-AND-EQUITY> 461266
<SALES> 25722
<TOTAL-REVENUES> 25722
<CGS> 0
<TOTAL-COSTS> 17734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 2497
<INCOME-PRETAX> 5513
<INCOME-TAX> 2148
<INCOME-CONTINUING> 3365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3365
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.29
</TABLE>
EMPLOYMENT AGREEMENT
between
AQUARION COMPANY
and
CHARLES V. FIRLOTTE
dated as of April 23, 1999
1
<PAGE>
THIS AGREEMENT, made effective April 23, 1999 by and
between AQUARION COMPANY (the ACompany@), a Delaware corporation, and Charles V.
Firlotte of 36 Stone House Road, Huntington, Connecticut, 06404
(the "Executive").
W I T N E S S E T H T H A T :
WHEREAS:
1. The Executive is a principal officer of the Company
and an integral part of its
senior management who participates in the decision making process relative to
short and long term
planning and policy for the Company;
2. The Board of Directors of the Company, at its meeting
on December 15, 1998,
determined that it would be in the best interests of the Company and its
shareholders to enter into an
employment agreement to retain the services of the Executive; and
3. The Executive is willing to serve the Company as a
member of its management on
the terms and conditions set forth herein;
NOW, THEREFORE, it is hereby agreed by and between the parties
hereto as follows:
1. Employment. The Company agrees to continue the
----------
Executive in its employ, and
the Executive agrees to remain in the employ of the Company, for the period
stated in Paragraph 3 hereof
and upon the other terms and conditions herein provided.
2. Position and Responsibilities. During the period of
employment hereunder, the
Executive agrees to serve the Company as Vice President, Administration and
Human Resources and as Vice
President and Chief Operating Officer of Bridgeport Hydraulic Company
("Hydraulic"), reporting directly
to the Chief Executive Officers of the Company and Hydraulic, respectively,
with such duties and responsibilities, consistent with such position, as the
respective
2
<PAGE>
Boards of Directors or the Chief
Executive Officers may from time to time determine. During said period,
the Executive also agrees to
serve, if elected, as an officer and director of any other subsidiary or
affiliate of the Company.
3. Term and Duties.
---------------
(a) Term of Employment. The term of the Executive"s
------------------
employment under this
Agreement shall be deemed to have commenced as of the date first above written
and shall continue until April 22, 2000, subject to extension as hereinafter
provided. On the first day of each month following
the date first above written, the term of the Executive=s employment under this
Agreement shall be
automatically extended unless prior thereto the Company shall deliver to the
Executive or the Executive
shall deliver to the Company written notice that such term of employment shall
not be extended, in which
case such term shall end at the expiration of the then existing term of
employment under this Agreement,
including any previous extensions, and shall not be further extended except by
agreement of the Company
and the Executive. Any such automatic extension shall be for one additional
full calendar month (for a
total term upon such extension of twenty-four full calendar months), unless the
Executive will attain
age 65 prior to completion of twenty-four full calendar months following the
extension date, in which
case the term of the Executive=s employment under this Agreement shall
terminate on the last day of the
month in which the Executive attains age 65.
(b) Duties. During the period of employment
------
hereunder and except for illness
or incapacity and reasonable vacation period (which shall not be less than 20
days in any calendar
year), the Executive's business time, attention, skill and efforts shall be
exclusively devoted to the
business and affairs of the Company and its subsidiaries; provided, however,
that
3
<PAGE>
nothing in this Agreement shall preclude the Executive from devoting time
during reasonable periods required for:
(i) serving as an officer, director or member of a
committee of any company or organization involving no
conflict of interest with the Company or any of
its subsidiaries or affiliates,
(ii) delivering lectures and fulfilling speaking
engagements, and
(iii) engaging in charitable and community activities,
provided that such activities do not materially
affect or interfere with the performance
of the Executive=s obligations to the Company.
4. Compensation.
------------
(a) For all services rendered by the Executive in
any capacity during
employment under this Agreement, including services as an executive, officer,
director, or member of any
committee of the Company or any subsidiary or affiliate thereof, the Company
shall pay the Executive a base salary at the rate of not less than $160,000
per year, subject to such periodic increases as the
Board of Directors of the Company, or a committee designated by said
Board, shall deem appropriate in
accordance with the Company=s customary procedures and practices
regarding the salaries of Company
officers. Such salary shall be payable in accordance with the
customary payroll practices of the
Company, but in no event less frequently than monthly. Such periodic
increases in salary, once granted,
shall not be subject to revocation.
(b) Executive shall be entitled to participate
in any Company incentive or
bonus plan covering some or all of its executive officers that
is in effect during the period of his
employment hereunder and to receive benefits thereunder on a
basis consistent with the overall
administration and intent of any such plan and with past practice,
if any, under such plan.
4
<PAGE>
(c) Nothing in this Agreement shall
preclude or affect any rights or benefits
that may now or hereafter be provided for the Executive or for which
the Executive may be or become
eligible under any other form of compensation or employment benefit
plan now existing or that may
hereafter be adopted or awarded by the Company. Specifically,
the Executive shall:
(i) participate in the Company=s Retirement Plan
for Employees of Aquarion Company as well as any related program
under any "excess benefit plan" that may be adopted during the
period of the Executive's employment hereunder and in which the
Executive is designated by the Company's Board of Directors to
participate (hereinafter referred to collectively as the "Retirement Program");
(ii) participate to the permitted extent the
Executive wishes in The Employee Savings and Investment Plan of the
Company and the related program under any excess benefit plan
(hereinafter referred to collectively as the "Thrift and Savings Program");
(iii) participate in the salary continuation program
in the event of death in accordance with Board policy for Company officers;
(iv) participate in the Company=s death and disability
benefit plans and its medical, dental and health and welfare plans; and
(v) participate in equivalent successor plans of
the Company for which senior management employees are eligible;
provided, however, that, subject to Paragraph 7(c)(iv), nothing in this
Agreement shall preclude the
Company from amending or terminating any such plan or program, on the
condition that such
5
<PAGE>
amendment or termination is applicable to all of the Company's
senior management employees generally.
5. Business Expenses. The Company shall pay or
-----------------
reimburse the Executive for all reasonable travel and other expenses
incurred in connection with the performance of the Executive's
duties under this Agreement in accordance with such procedures
as the Company may from time to time
establish. The Company further agrees to furnish the Executive
with a private office and a private
secretary and such other assistance and accommodations, including an
automobile and appropriate club
membership, as shall be suitable to the character of the
Executive's position with the Company and
adequate for the performance of the Executive=s duties under this Agreement.
6. Additional Benefits. Nothing in this Agreement
-------------------
shall affect the Executive's
eligibility to participate in all group health, dental,
hospitalization, life, travel or accident or
other insurance plans or programs and all other perquisites, fringe
benefits or retirement plans or
additional compensation, including termination pay programs, which the
Company may hereafter, in its
sole and absolute discretion, elect to make available to its
senior management employees generally, and
the Executive shall be eligible to receive, during the period of
employment under this Agreement, all
benefits and emoluments for which key employees are eligible under
every such plan, program, perquisite
or arrangement to the extent permissible under the general
terms and provisions thereof.
7. Termination of Employment. Notwithstanding
-------------------------
any other provision of this
Agreement, the Executive=s employment under this Agreement may be terminated:
(a) by the Company, in the event of the
Executive's serious, willful
misconduct in respect of the Executive=s duties under this Agreement,
including conviction for a
6
<PAGE>
felony or perpetration of a common law fraud which has
resulted or is likely to result in material economic
damage to the Company or any of its subsidiaries, by written notice
to the Executive, specifying the event relied upon for such termination;
(b) by either the Company or the Executive,
if the Executive accepts
employment or a consulting position with another company; or
(c) by the Executive, in the event of any (i)
material change by the Company
of the Executive=s functions, duties or responsibilities, which
change would cause his position with the
Company to become of less dignity, responsibility, importance
or scope from the position and attributes
thereof described in Paragraph 2 above, (ii) assignment or
reassignment by the Company or by one of its
subsidiaries of the Executive to another place of employment
outside of Fairfield County, Connecticut,
(iii) liquidation, dissolution, consolidation, or acquisition or
merger of the Company, or transfer of
all or substantially all of its assets other than a transaction in
which a successor corporation with a
net worth at least equal to that of the Company assumes this
Agreement and all obligations and
undertakings of the Company hereunder, or (iv) reduction
in the Executive's total compensation and
benefits, as specified in Paragraph 4 above and as currently provided,
or other material breach of this
Agreement by the Company or any of its subsidiaries, by thirty
(30) days written notice to the Company,
specifying the event relied upon for such termination and given
within 180 days after such event.
8. Payments Upon Termination of Employment.
---------------------------------------
In the event of any termination by
the Executive pursuant to Paragraph 7(c) above, or in the event the
Executive's employment under this
Agreement is terminated by the Company for any reason other than
one of those specified in
Paragraphs 7(a) or 7(b) above, the Company shall, as liquidated
damages or
7
<PAGE>
severance pay, or both,
promptly pay to the Executive and provide the Executive and the
dependents, beneficiaries and estate of
the Executive as follows:
(a) The Company shall pay the Executive,
at his option, either as a lump sum
or in equal monthly installments over the unexpired portion of the
term of employment provided for in
Paragraph 3(a) above, a cash amount equal to the present value of the
excess of (i) the salary provided
in Paragraph 4(a) above, as in effect at the time of termination, for a
period of 12 months (commencing
with the month in which termination shall have occurred) less the
amounts, if any, the Executive would
have paid in cash in respect of employee benefits provided for in
Paragraph 4(c)(iv) above if the Executive were still employed,
over (ii) the amounts, if any, paid to the Executive pursuant to any
severance or termination pay program or arrangement of the Company or
any of its subsidiaries.
(b) The Company shall also pay the Executive a
lump sum cash amount equal to
the present value of the excess of (i) the aggregate benefit that
would have been paid under the
Retirement Program described in paragraph 4(c)(i) above as in effect
on the date first above written, if
the Executive had continued to be employed and to be entitled to
service credit for eligibility and
benefit purposes during the unexpired portion of the term of employment
provided for in Paragraph 3(a)
above, at an annual rate of compensation equal to that used to
calculate the payments provided by
Paragraph 8(a) above, calculated on the basis of the higher of the Executive's
salary for the 12 months
immediately preceding the month in which termination shall have
occurred or the compensation amount used
in the benefit formula under said Retirement Program, and assuming
that the Executive is fully vested in
such benefit, or (ii) the aggregate benefit actually payable
under the Retirement Program and any
successor retirement program of the Company consisting of a
tax-qualified pension plan and a related
excess benefit
8
<PAGE>
plan. In clarification of the immediately
preceding sentence, the aggregate benefit that
would have been paid under the Retirement Program shall be calculated
as of the normal or early
retirement date for which the Executive would have qualified,
assuming the Executive were still employed
on that date and were fully vested in such benefit, and which
would produce the highest present value.
(c) The Company shall also pay the Executive
a lump sum cash amount equal to
the present value of the aggregate contributions or payments, if any, that
would have been made by the
Company or any of its subsidiaries under the Thrift and Savings Program
described in Paragraph 4(c)(ii)
above, or any successor program of the Company in effect on the date on
which termination shall have
occurred, if the Executive had continued to be employed, and to
participate in the Thrift and Savings
Program or such successor program to the same extent as the Executive
participated for the last month
during which the Executive was permitted to participate, during the
unexpired portion of the term of
employment provided for in Paragraph 3(a) above, at an annual
rate of compensation equal to that used to
calculate the payments provided in Paragraph 8(a) above.
(d) For purposes of calculating the lump such
cash payments provided in Paragraphs 8(a), (b) and (c) above,
present value shall be determined by using a discount factor equal
to one percentage point below the prime rate as published in The Wall
Street Journal as of the date on
which termination shall have occurred.
(e) For a period of 24 months (commencing
with the month in which termination
shall have occurred), the Executive shall continue to be entitled
to all employee benefits provided for
in paragraph 4(c)(iv) above, as if the Executive were still
employed during such period under this
Agreement, with benefits based upon the compensation used to
calculate
9
<PAGE>
the payments provided by
Paragraph 8(a) above, and if and to the extent that such benefits
shall not be payable or provided under
any such plan, the Company shall pay or provide such
benefits on an individual basis. The medical,
dental, health and welfare benefits provided for in Paragraph 4(c)(iv)
above, in accordance with this
Paragraph 8(e) shall be secondary to any comparable benefits provided
by another employer provided that
an appropriate refund is made of any reduction in the amount
paid pursuant to Paragraph 9(a)(i) which
had assumed that such benefits would be primary.
9. Source of Payments; Interest. All payments
----------------------------
provided for in Paragraphs 4, 5, 6
and 8 above shall be paid in cash from the general funds of the Company.
Any payments not made within
thirty (30) days after termination or such time as they may otherwise be
due hereunder shall bear
interest at the interest rate used to establish the discount factor
provided for in Paragraph 8(d). The
Company shall not be required to establish a special or separate
fund or other segregation of assets to
assure such payments.
10. Litigation Expense.
------------------
(a) In the event of any litigation or other
proceeding between the Company and
the Executive with respect to the subject matter of this Agreement and
the enforcement of rights
hereunder, the Company shall reimburse the Executive for all reasonable
costs and expenses relating to
such litigation or other proceeding, including reasonable attorneys'
fees and expenses, provided that
such litigation or proceeding results in any
(i) settlement requiring the Company to make
a payment to the Executive, or
(ii) judgment or order in favor of the Executive
enforcing any provision of this Agreement or awarding any payment or other
consideration
10
<PAGE>
to the Executive, regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral proceeding.
In no event shall the Executive be required to reimburse the Company for
any of the costs and expenses
relating to such litigation or other proceeding. The obligation of the
Company under this Paragraph 10
shall survive the termination for any reason of this Agreement
(whether such termination is by the
Company, by the Executive, upon the expiration of this Agreement or otherwise).
11. Income Tax Withholding. The Company may withhold
----------------------
from any payments made under
this Agreement all Federal, State, City or other taxes as shall be
required pursuant to any law or governmental regulation or ruling.
12. Entire Understanding. This Agreement
--------------------
contains the entire understanding between
the Company and the Executive with respect to the subject matter hereof
and supersedes any prior
employment agreement between the Company and the Executive, except that
this agreement shall not affect
or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided
and not expressly provided in this Agreement.
13. Severability. If, for any reason, any one or
------------
more of the provisions or part of
a provision contained in this Agreement shall be held to be
invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provision or part of
a provision of this Agreement not held so invalid, illegal or unenforceable,
and each other provision or
part of a provision shall to the full extent consistent with law
continue in full force and effect. If
this Agreement is held invalid or cannot be enforced, then to the full
extent permitted by law any prior
agreement between the Company and the Executive shall be deemed reinstated
as if this Agreement had not
been executed.
11
<PAGE>
14. Consolidation, Merger, or Sale of Assets.
-----------------------------------------
Nothing in this Agreement shall
preclude the Company from consolidating or merging into or with, or
transferring all or substantially
all of its assets to, another corporation or acquiring entity which
assumes this Agreement and all obligations and undertakings of the
Company hereunder. Upon such a consolidation, merger or transfer of
assets and assumption, the term, Athe Company@, as used herein
shall mean such other corporation or
acquiring entity and this Agreement shall continue in full force and effect.
15. Notices. All notices, requests, demands
-------
and other communications required or
permitted hereunder shall be given in writing and shall be deemed to
have been duly given if delivered
or mailed, postage prepaid, first class as follows:
(a) to the Company:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Secretary
(b) to the Executive:
Charles V. Firlotte
36 Stone House Road
Huntington, Connecticut 06404
or to such other address as either party shall have previously specified
in writing to the other.
16. No Attachment. Except as required by law,
-------------
no right to receive payments under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment,
encumbrances, charge, pledge, or hypothecation or to execution,
attachment, levy, or similar process or
assignment by operation of law, or any attempt, voluntary or
involuntary, to effect any such action
shall be null, void and of no effect.
12
<PAGE>
17. Binding Agreement. This Agreement shall be
-----------------
binding upon, and shall inure to
the benefit of, the Executive and the Company and their respective
permitted successors and assigns.
18. Modification and Waiver. This Agreement
------------------------
may not be modified or amended except
by an instrument in writing signed by the parties hereto. No term or
condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision
of this Agreement except by written instrument signed by the party charged
with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each
such waiver shall operate only as to the specific term or condition
waived and shall not constitute a waiver of such term or condition for
the future or as to any act other than that specifically waived.
19. Headings of No Effect. The paragraph headings
---------------------
contained in this Agreement are
included solely for convenience of reference and shall not in any way
affect the meaning or
interpretation of any of the provisions of this Agreement.
20. Governing Law. This Agreement and its validity,
-------------
interpretation, performance,
and enforcement shall be governed by the laws of the State of Connecticut.
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed and its seal to be affixed hereunto by its officers thereunto duly
authorized, and the Executive has signed this Agreement, all as of the date
first above written.
ATTEST: AQUARION COMPANY
By______________________________
______________________________ Name:
Secretary Title:
By______________________________
Charles V. Firlotte
EMPLOYMENT AGREEMENT
between
AQUARION COMPANY
and
DANIEL NEATON
dated as of April 23, 1999
<PAGE>
THIS AGREEMENT, made effective April 23, 1999 by and
between AQUARION COMPANY (the ACompany@), a Delaware corporation,
and Daniel Neaton
of 109 Benedict Road, Monroe, Connecticut, 06468 (the "Executive").
W I T N E S S E T H T H A T :
WHEREAS:
1. The Executive is a principal officer of the Company and an
integral part of its
senior management who participates in the decision making process relative
to short and long term
planning and policy for the Company;
2. The Board of Directors of the Company, at its meeting on
December 15, 1998,
determined that it would be in the best interests of the Company
and its shareholders to enter into an
employment agreement to retain the services of the Executive; and
3. The Executive is willing to serve the Company as a
member of its management on
the terms and conditions set forth herein;
NOW, THEREFORE, it is hereby agreed by and between
the parties hereto as follows:
1. Employment. The Company agrees to continue
the Executive in its employ, and
the Executive agrees to remain in the employ of the Company, for
the period stated in Paragraph 3 hereof
and upon the other terms and conditions herein provided.
2. Position and Responsibilities. During the
period of employment hereunder, the
Executive agrees to serve the Company as Vice President,
Corporate Development and Strategic Planning,
reporting directly to the Chief Executive Officer of the
Company, with such duties and responsibilities,
consistent with such position, as the Board of Directors or the
Chief Executive Officer may from time to
time determine. During said period, the Executive also
2
<PAGE>
agrees to serve, if elected, as an officer and
director of any other subsidiary or affiliate of the Company.
3. Term and Duties.
(a) Term of Employment. The term of the
Executive's employment under this
Agreement shall be deemed to have commenced as of the date first above
written and shall continue until
April 22, 2000, subject to extension as hereinafter provided. On the first
day of each month following the date first above written, the term
of the Executive's employment under this Agreement shall be
automatically extended unless prior thereto the Company shall deliver
to the Executive or the Executive
shall deliver to the Company written notice that such term of employment
shall not be extended, in which
case such term shall end at the expiration of the then existing term of
employment under this Agreement,
including any previous extensions, and shall not be further extended
except by agreement of the Company
and the Executive. Any such automatic extension shall be for one
additional full calendar month (for a
total term upon such extension of twenty-four full calendar months),
unless the Executive will attain
age 65 prior to completion of twenty-four full calendar months
following the extension date, in which
case the term of the Executive's employment under this Agreement
shall terminate on the last day of the
month in which the Executive attains age 65.
(b) Duties. During the period of employment hereunder and
except for illness
or incapacity and reasonable vacation period (which shall not be
less than 19 days in any calendar
year), the Executive=s business time, attention, skill and efforts
shall be exclusively devoted to the
business and affairs of the Company and its subsidiaries;
provided, however, that nothing in this
Agreement shall preclude the Executive from devoting time
during reasonable periods required for:
3
<PAGE>
(i) serving as an officer, director or member of a committee of any
company or organization involving no conflict of interest with the
Company or any of its subsidiaries or affiliates,
(ii) delivering lectures and fulfilling speaking engagements, and
(iii) engaging in charitable and community activities, provided that such
activities do not materially affect or interfere with the performance
of the Executive=s obligations to the Company.
4. Compensation.
(a) For all services rendered by the Executive in any capacity during
employment under this Agreement, including services as an executive,
officer, director, or member of any
committee of the Company or any subsidiary or affiliate thereof,
the Company shall pay the Executive a
base salary at the rate of not less than $125,000 per year, subject
to such periodic increases as the Board of Directors of the
Company, or a committee designated by said Board, shall deem appropriate in
accordance with the Company=s customary procedures and practices
regarding the salaries of Company
officers. Such salary shall be payable in accordance with the
customary payroll practices of the
Company, but in no event less frequently than monthly. Such periodic
increases in salary, once granted,
shall not be subject to revocation.
(b) Executive shall be entitled to participate in any Company incentive or
bonus plan covering some or all of its executive officers that is in
effect during the period of his
employment hereunder and to receive benefits thereunder on a basis
consistent with the overall
administration and intent of any such plan and with past practice,
if any, under such plan.
(c) Nothing in this Agreement shall preclude or affect any rights or benefits
that may now or hereafter be provided for the Executive or for
which the Executive may
4
<PAGE>
be or become eligible under any other form of compensation or
employment benefit plan now existing or that may
hereafter be adopted or awarded by the Company. Specifically,
the Executive shall:
(i) participate in the Company's Retirement Plan for Employees of Aquarion
Company as well as any related program under any Aexcess benefit plan'
that may be adopted during the period of the Executive's employment
hereunder and in which the Executive is designated by the Company's
Board of Directors to participate (hereinafter referred to
collectively as the "Retirement Program");
(ii) participate to the permitted extent the Executive wishes in The
Employee Savings and Investment Plan of the Company and the related
program under any excess benefit plan (hereinafter referred to
collectively as the "Thrift and Savings Program");
(iii) participate in the salary continuation program in the event of death
in accordance with Board policy for Company officers;
(iv) participate in the Company's death and disability benefit plans and
its medical, dental and health and welfare plans; and
(v) participate in equivalent successor plans of the Company for which
senior management employees are eligible;
provided, however, that, subject to Paragraph 7(c)(iv), nothing in this
Agreement shall preclude the
Company from amending or terminating any such plan or program, on the
condition that such amendment or
termination is applicable to all of the Company=s senior management
employees generally.
5
<PAGE>
5. Business Expenses. The Company shall pay or reimburse the
Executive for all
reasonable travel and other expenses incurred in connection with the
performance of the Executive's
duties under this Agreement in accordance with such procedures as the
Company may from time to time
establish. The Company further agrees to furnish the Executive with a
private office and a private
secretary and such other assistance and accommodations, including an
automobile and appropriate club
membership, as shall be suitable to the character of the Executive's
position with the Company and
adequate for the performance of the Executive=s duties under this Agreement.
6. Additional Benefits. Nothing in this Agreement shall
affect the Executive's
eligibility to participate in all group health, dental, hospitalization,
life, travel or accident or
other insurance plans or programs and all other perquisites, fringe
benefits or retirement plans or
additional compensation, including termination pay programs, which
the Company may hereafter, in its
sole and absolute discretion, elect to make available to its senior
management employees generally, and
the Executive shall be eligible to receive, during the period of
employment under this Agreement, all
benefits and emoluments for which key employees are eligible under
every such plan, program, perquisite
or arrangement to the extent permissible under the general terms
and provisions thereof.
7. Termination of Employment. Notwithstanding any other
provision of this
Agreement, the Executive=s employment under this Agreement may be terminated:
(a) by the Company, in the event of the Executive's serious, willful
misconduct in respect of the Executive=s duties under this Agreement,
including conviction for a felony
or perpetration of a common law fraud which has resulted or is
likely to result in material
6
<PAGE>
economic damage to the Company or any of its subsidiaries, by written notice
to the Executive, specifying the
event relied upon for such termination;
(b) by either the Company or the Executive, if the Executive accepts
employment or a consulting position with another company; or
(c) by the Executive, in the event of any (i) material change by the Company
of the Executive=s functions, duties or responsibilities, which change
would cause his position with the
Company to become of less dignity, responsibility, importance or scope
from the position and attributes
thereof described in Paragraph 2 above, (ii) assignment or reassignment
by the Company or by one of its
subsidiaries of the Executive to another place of employment
outside of Fairfield County, Connecticut,
(iii) liquidation, dissolution, consolidation, or acquisition or merger
of the Company, or transfer of
all or substantially all of its assets other than a transaction in
which a successor corporation with a
net worth at least equal to that of the Company assumes this Agreement
and all obligations and
undertakings of the Company hereunder, or (iv) reduction in the
Executive's total compensation and
benefits, as specified in Paragraph 4 above and as currently
provided, or other material breach of this
Agreement by the Company or any of its subsidiaries, by thirty (30)
days written notice to the Company,
specifying the event relied upon for such termination and given
within 180 days after such event.
8. Payments Upon Termination of Employment.
In the event of any termination by
the Executive pursuant to Paragraph 7(c) above, or in the
event the Executive's employment under this
Agreement is terminated by the Company for any reason other than
one of those specified in
Paragraphs 7(a) or 7(b) above, the Company shall, as liquidated
damages or severance pay, or both,
promptly pay to the Executive and provide the Executive and the
dependents, beneficiaries and estate of
the Executive as follows:
7
<PAGE>
(a) The Company shall pay the Executive, at his option, either as a lump sum
or in equal monthly installments over the unexpired portion of the
term of employment provided for in
Paragraph 3(a) above, a cash amount equal to the present value of the
excess of (i) the salary provided
in Paragraph 4(a) above, as in effect at the time of termination, for a
period of 12 months (commencing
with the month in which termination shall have occurred) less the
amounts, if any, the Executive would
have paid in cash in respect of employee benefits provided for in
Paragraph 4(c)(iv) above if the
Executive were still employed, over (ii) the amounts, if any, paid
to the Executive pursuant to any severance or termination pay
program or arrangement of the Company or any of its subsidiaries.
(b) The Company shall also pay the Executive a lump sum cash amount equal to
the present value of the excess of (i) the aggregate benefit that
would have been paid under the
Retirement Program described in paragraph 4(c)(i) above as in effect
on the date first above written, if
the Executive had continued to be employed and to be entitled to
service credit for eligibility and
benefit purposes during the unexpired portion of the term of
employment provided for in Paragraph 3(a)
above, at an annual rate of compensation equal to that used
to calculate the payments provided by
Paragraph 8(a) above, calculated on the basis of the higher
of the Executive's salary for the 12 months
immediately preceding the month in which termination shall have
occurred or the compensation amount used
in the benefit formula under said Retirement Program, and assuming
that the Executive is fully vested in
such benefit, or (ii) the aggregate benefit actually payable under
the Retirement Program and any
successor retirement program of the Company consisting of a
tax-qualified pension plan and a related
excess benefit plan. In clarification of the immediately preceding
sentence, the aggregate benefit that
would have been paid under the Retirement Program shall be calculated
as of the normal or early
8
<PAGE>
retirement date for which the Executive would have qualified, assuming
the Executive were still employed
on that date and were fully vested in such benefit, and which would
produce the highest present value.
(c) The Company shall also pay the Executive a lump sum
cash amount equal to
the present value of the aggregate contributions or payments, if any,
that would have been made by the
Company or any of its subsidiaries under the Thrift and Savings
Program described in Paragraph 4(c)(ii)
above, or any successor program of the Company in effect on the
date on which termination shall have
occurred, if the Executive had continued to be employed, and to
participate in the Thrift and Savings
Program or such successor program to the same extent as the
Executive participated for the last month
during which the Executive was permitted to participate, during the
unexpired portion of the term of
employment provided for in Paragraph 3(a) above, at an annual rate of
compensation equal to that used to
calculate the payments provided in Paragraph 8(a) above.
(d) For purposes of calculating the lump such cash payments provided in
Paragraphs 8(a), (b) and (c) above, present value shall be
determined by using a discount factor equal to one percentage
point below the prime rate as published in The Wall Street
Journal as of the date on
which termination shall have occurred.
(e) For a period of 24 months (commencing with the
month in which termination
shall have occurred), the Executive shall continue to be
entitled to all employee benefits provided for
in paragraph 4(c)(iv) above, as if the Executive were still employed
during such period under this
Agreement, with benefits based upon the compensation used to
calculate the payments provided by
Paragraph 8(a) above, and if and to the extent that such benefits
shall not be payable or provided under
any such plan, the Company shall pay or provide such benefits
9
<PAGE>
on an individual basis. The medical,
dental, health and welfare benefits provided for in
Paragraph 4(c)(iv) above, in accordance with this
Paragraph 8(e) shall be secondary to any comparable benefits
provided by another employer provided that
an appropriate refund is made of any reduction in the amount paid
pursuant to Paragraph 9(a)(i) which
had assumed that such benefits would be primary.
9. Source of Payments; Interest. All payments provided
for in Paragraphs 4, 5, 6
and 8 above shall be paid in cash from the general funds of the Company.
Any payments not made within
thirty (30) days after termination or such time as they may otherwise
be due hereunder shall bear
interest at the interest rate used to establish the discount factor
provided for in Paragraph 8(d). The
Company shall not be required to establish a special or separate fund or
other segregation of assets to
assure such payments.
10. Litigation Expense.
(a) In the event of any litigation or other proceeding
between the Company and
the Executive with respect to the subject matter of this Agreement
and the enforcement of rights
hereunder, the Company shall reimburse the Executive for all reasonable
costs and expenses relating to
such litigation or other proceeding, including reasonable
attorneys' fees and expenses, provided that
such litigation or proceeding results in any
(i) settlement requiring the Company to make a payment to the Executive,
or
(ii) judgment or order in favor of the Executive enforcing any provision of
this Agreement or awarding any payment or other consideration to the
Executive, regardless of whether such judgment or order is
subsequently reversed on appeal or in a collateral proceeding.
10
<PAGE>
In no event shall the Executive be required to reimburse the
Company for any of the costs and expenses
relating to such litigation or other proceeding. The obligation
of the Company under this Paragraph 10
shall survive the termination for any reason of this Agreement
(whether such termination is by the
Company, by the Executive, upon the expiration of this Agreement or otherwise).
11. Income Tax Withholding. The Company may withhold from any
payments made under
this Agreement all Federal, State, City or other taxes as shall be
required pursuant to any law or
governmental regulation or ruling.
12. Entire Understanding. This Agreement contains
the entire understanding between
the Company and the Executive with respect to the subject matter
hereof and supersedes any prior
employment agreement between the Company and the Executive, except
that this agreement shall not affect
or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided
and not expressly provided in this Agreement.
13. Severability. If, for any reason, any one or more of
the provisions or part of
a provision contained in this Agreement shall be held to be
invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability
shall not affect any other provision or part of
a provision of this Agreement not held so invalid, illegal or
unenforceable, and each other provision or
part of a provision shall to the full extent consistent with
law continue in full force and effect. If
this Agreement is held invalid or cannot be enforced, then to the
full extent permitted by law any prior
agreement between the Company and the Executive shall be deemed
reinstated as if this Agreement had not
been executed.
14. Consolidation, Merger, or Sale of Assets. Nothing
in this Agreement shall
preclude the Company from consolidating or merging into or with,
or transferring all or
11
<PAGE>
substantially all of its assets to, another corporation or
acquiring entity which assumes this Agreement and all
obligations and undertakings of the Company hereunder. Upon such a
consolidation, merger or transfer of assets and assumption,
the term, "the Company", as used herein shall mean such other corporation or
acquiring entity and this Agreement shall continue in full force and effect.
15. Notices. All notices, requests, demands and other
communications required or
permitted hereunder shall be given in writing and shall be deemed to have
been duly given if delivered
or mailed, postage prepaid, first class as follows:
(a) to the Company:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Secretary
(b) to the Executive:
Daniel Neaton
109 Benedict Road
Monroe, Connecticut 06468
or to such other address as either party shall have previously
specified in writing to the other.
16. No Attachment. Except as required by law, no right to
receive payments under
this Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment,
encumbrances, charge, pledge, or hypothecation or to execution, attachment,
levy, or similar process or
assignment by operation of law, or any attempt, voluntary or
involuntary, to effect any such action
shall be null, void and of no effect.
12
<PAGE>
17. Binding Agreement. This Agreement shall be binding upon,
and shall inure to
the benefit of, the Executive and the Company and their respective
permitted successors and assigns.
18. Modification and Waiver. This Agreement may not be
modified or amended except
by an instrument in writing signed by the parties hereto. No term or
condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel
against the enforcement of any provision
of this Agreement except by written instrument signed by the party charged
with such waiver or estoppel.
No such written waiver shall be deemed a continuing waiver unless
specifically stated therein, and each
such waiver shall operate only as to the specific term or condition
waived and shall not constitute a
waiver of such term or condition for the future or as to any act
other than that specifically waived.
19. Headings of No Effect. The paragraph headings contained
in this Agreement are
included solely for convenience of reference and shall not in
any way affect the meaning or
interpretation of any of the provisions of this Agreement.
20. Governing Law. This Agreement and its validity,
interpretation, performance,
and enforcement shall be governed by the laws of the State of Connecticut.
13
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement
to be executed and its seal
to be affixed hereunto by its officers thereunto duly authorized, and
the Executive has signed this
Agreement, all as of the date first above written.
ATTEST: AQUARION COMPANY
By______________________________
______________________________ Name:
Secretary Title:
By______________________________
Daniel Neaton
