<PAGE>
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 June 30, 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
incorporation or organization) Identification No.)
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 August 9, 1999:
Common Stock
No Par Value (Stated Value: $1) 11,420,765
--------------------------------- ------------------
Class Number of Shares
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
---------------------------------
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Quarter ended Six months ended
June 30, June 30,
------------------------------------- ----------------------------------
1999 1998 1999 1998
----------------- ------------ -------------- ------------
<S> <C> <C> <C> <C>
(In thousands, except per share date)
Operating revenues $27,564 $26,827 $53,286 $52,210
Costs and expenses: ----------------- ------------ -------------- ------------
Operating 7,551 7,214 14,805 14,685
General and administrative 3,893 3,734 8,044 7,587
Depreciation 3,651 3,543 7,302 7,068
Interest expense 2,508 2,658 5,005 5,344
Taxes other that income taxes 2,446 2,411 5,124 4,943
----------------- ------------ ------------ ------------
Total costs and expenses 20,049 19,560 40,280 39,627
----------------- ------------ ------------ ------------
7,515 7,267 13,006 12,583
Allowance for funds used during
construction 30 42 52 89
----------------- ------------ ------------ ------------
Income before income taxes 7,545 7,309 13,058 12,672
Income taxes 2,992 3,301 5,140 5,629
----------------- ------------ ------------ ------------
Net income $4,553 $4,008 $7,918 $7,043
================= ============ ============ ============
Basic earnings per share $0.40 $0.36 $0.70 $0.64
Basic weighted average shares
outstanding 11,353,624 11,112,561 11,318,236 11,081,168
================= ============ ============ ============
Diluted earnings per share $0.38 $0.35 $0.67 $0.62
Diluted weighted average common ================= ============ ============ ============
shares outstanding 11,841,895 11,368,667 11,747,979 11,337,272
================= ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
UNAUDITED
<TABLE>
<CAPTION>
Quarter ended June 30, Six months ended June 30,
----------------------------------------------------------------------------
1999 1998 1999 1998
------------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
(In thousands, except share data)
Beginning of period $27,522 $19,628 $27,297 $19,624
Net income 4,553 4,008 7,918 7,043
------------- ------------- ------------- ----------------
32,075 23,636 35,215 26,667
Deduct: Cash dividends declared on common stock,
$.2775 per sharefor 1st and 2nd quarters 1999 and
$.2733 per share for 1st and 2nd quarters 1998
3,162 3,050 6,302 6,081
------------- ------------- ------------- -----------------
End of period $28,913 $20,586 $28,913 $20,586
============= ============= ============= =================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------- -----------------
(Unaudited)
(In thousands)
<S> <C> <C>
Property, plant and equipment $502,613 $493,279
Less: accumulated depreciation 153,078 146,034
---------------- ---------------
Net property, plant and equipment 349,535 347,245
---------------- ---------------
Current assets:
Cash and cash equivalents 1,159 654
Accounts receivable from customers 15,890 11,325
Less: allowance for doubtful accounts 2,240 1,976
---------------- ---------------
13,650 9,349
Accrued revenues 9,917 9,406
Inventories 4,865 4,526
Prepaid expenses 13,640 12,924
Other current assets 4,049 4,626
---------------- ---------------
Total current assets 47,280 41,485
---------------- ---------------
Prepaid taxes 11,834 11,834
Recoverable income taxes 38,814 39,022
Other assets 17,561 17,894
---------------- ---------------
$465,024 $457,480
================ ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------------------------- --------------------------
(Unaudited)
(In thousands, except share data)
Shareholders' equity:
<S> <C> <C>
Preferred stock, no par value, authorized $ - $ -
2,500,000 shares not to exceed aggregate value of
$25,000,000, issuable in series-none issued
Common stock, stated value: $1
Authorized-16,000,000 shares
Issued-11,394,951 shares in 1999 and
11,260,797 shares in 1998 11,395 11,261
Capital in excess of stated value 111,350 108,381
Retained earnings 28,913 27,297
Less: minimum pension liability adjustment 99 99
----------------- ----------------
Total shareholders' equity 151,559 146,840
----------------- ----------------
Long-term debt and other obligations 141,380 141,380
----------------- ----------------
Current liabilities:
Short-term borrowings, unsecured 13,500 -
Current maturities of long-term debt - 10,000
Accounts payable and accrued liabilities 14,289 14,868
Dividends payable 3,162 3,115
Accrued interest 2,530 2,834
Taxes other than income taxes 927 887
Income taxes 2,039 3,782
----------------- ----------------
Total current liabilities 36,447 35,486
----------------- ----------------
Advances for construction 19,740 19,638
Contributions in aid of construction 39,045 38,097
Deferred land sale gains 1,489 1,658
Accrued postretirement benefit cost 5,564 5,165
Recoverable income taxes 5,721 5,930
Deferred taxes 64,079 63,286
----------------- ----------------
$465,024 $457,480
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
AQUARION COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------------
1999 1998
--------------- ---------------
<S> <C> <C>
(In thousands)
Cash flows from operating activities:
Net income $ 7,918 $ 7,043
Adjustments reconciling net income to net cash provided by
operating activities:
Depreciation and amortization 7,668 7,426
Allowance for funds used during construction (52) (89)
Provision for losses on accounts receivable 251 221
Deferred and prepaid income taxes, net 792 700
Proceeds from sale of surplus land, net of gains 378 1,457
Change in assets and liabilities (Note 3) (8,066) (3,128)
--------------- ---------------
Net cash used in operating activities 8,889 13,630
--------------- ---------------
Cash flows from investing activities:
Capital additions, excluding an allowance for funds used
during construction (10,207) (9,251)
Advances and contributions in aid of construction 1,419 1,130
Refunds on advances for construction (79) (235)
Other investing activities 135 394
--------------- ---------------
Net cash used in investing activities (8,732) (7,962)
--------------- ---------------
Cash flows from financing activities:
Principal payments on long-term debt (10,000) -
Principal payments on short-term borrowings - (2,900)
Net proceeds from short-term borrowings 13,500 -
Proceeds from the issuance of common stock, net 3,103 2,757
Common dividends paid (6,255) (6,042)
Net cash provided by (used in) financing activities 378 (6,185)
--------------- ---------------
Net decrease in cash and cash equivalents 505 (517)
Cash and cash equivalents, beginning of period 654 851
--------------- ---------------
Cash and cash equivalents, end of period $ 1,159 $ 334
=============== ===============
</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.
In June 1999, FASB issued SFAS No. 137, "Deferral of the Effective Date of FASB
Statement No. 133", which delayed the implementation of SFAS 133 for one year.
NOTE 2 - INVENTORY
- ------------------
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------------------- ----------------
(Unaudited)
<S> <C> <C>
Lumber and logs $3,666 $3,534
Materials and supplies 1,199 992
------------- ------------
$4,865 $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 six-month period ended June 30, are set forth below (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------- ------------
(Unaudited)
Changes in assets and liabilities:
<S> <C> <C>
$ (111)
Increase in accounts receivable $(5,063)
Increase in inventory (339) (278)
Increase in prepayments (716) (194)
Decrease in other current assets 577 45
Decrease in accounts payable and accrued liabilities (579) (1,838)
Decrease in interest and taxes payable (2,007) (87)
Net changes in other noncurrent balance sheet items 61 (665)
-------------- ------------
$(8,066) $(3,128)
============== ============
Supplemental cash flow information:
Cash paid for:
Interest $ 5,191 $ 5,214
Income taxes $ 6,050 $ 5,045
</TABLE>
NOTE 4 - REGULATORY MATTERS
- ----------------------------
Rates. On March 17, 1999, BHC's Western division received a final decision from
the DPUC approving 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
BHC'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
9
<PAGE>
DEP to the Office of the Connecticut Attorney General for 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 six months of 1999, the Company sold approximately nine acres
of surplus land with proceeds totaling $794,000. Total gains, including
recognition of deferred gains from prior land sales of $206,000, approximated
$416,000.
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 June
30, 1999, the Company has received $1,700,000 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. Both BHC and the Aspetuck Land Trust have no objection to this
purchase.
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 change in
purchaser and its intended use of the property as open space, the Company has
filed 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
10
<PAGE>
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 quarter and six months ended
June 30, 1999 and 1998.
<TABLE>
<CAPTION>
In thousands, except per share data Income Shares Per-share
(numerator) (denominator) amount
- --------------------------------------------- -------------- ---------------------- -----------
For the quarter ended June 30, 1999
Basic earnings per share
<S> <C> <C> <C>
Net income $4,553 11,354 $0.40
===========
Effect of dilutive stock options - 488
Diluted earnings per share ------------- -----------------
Net income giving effect to dilutive
stock options $4,553 11,842 $0.38
============= ================= ===========
For the quarter ended June 30, 1998
Basic earnings per share
Net income $4,008 11,113 $0.36
===========
Effect of dilutive stock options - 256
Diluted earnings per share ============= =================
Net income giving effect to dilutive
stock options $4,008 11,369 $0.35
============== ============ ===========
For the six months ended June 30, 1999
Basic earnings per share
Net income $7,918 11,318 $0.70
===========
Effect of dilutive stock options - 430
Diluted earnings per share --------------- ------------
Net income giving effect to dilutive
stock options $7,918 11,748 $0.67
=============== ============ ===========
For the six months ended June 30, 1998
Basic earnings per share
Net income $7,043 11,081 $0.64
===========
Effect of dilutive stock options - 256
Diluted earnings per share =============== ============
Net income giving effect to dilutive
stock options $7,043 11,337 $0.62
============== ============ ===========
</TABLE>
12
<PAGE>
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.
The Company's industry segment information for the six months ended June 30
is as follows:
<TABLE>
<CAPTION>
In thousands 1999 1998
- ------------------------------------------------------ ------------- -------------
Operating income (loss):
<S> <C> <C>
Public water supply $16,399 $16,389
Timber processing 762 662
Real estate 580 867
Utility management services (42) (59)
------------- -------------
Industry segment operating income 17,699 17,859
Interest expense 5,005 5,344
Allowance for funds used during construction 52 89
Other income (expenses), net 312 68
------------- -------------
Income before income taxes $13,058 $12,672
============= =============
</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
- ------------------------------------------------------ ------------- -------------
Segment assets:
<S> <C> <C>
Public water supply $441,071 $431,413
Timber processing 10,948 9,391
Real estate 4,578 4,525
Utility management services 309 363
------------- -------------
Subtotal 456,906 445,692
Reconciling items 8,118 11,788
------------- -------------
Total consolidated items $465,024 $457,480
------------- -------------
Capital Expenditures:
Public water supply 10,087 8,600
Timber processing 120 651
------------- -------------
Total capital expenditures $ 10,207 $ 9,251
------------- -------------
Depreciation expense:
Public water supply $ 7,013 $ 6,816
Timber processing 279 244
Real estate 6 5
Utility management services 4 3
------------- -------------
Total depreciation expense $ 7,302 $ 7,068
============= =============
</TABLE>
Reconciling items include assets of the parent company, which are not
allocated to a specific industry segment.
NOTE 8 - ACQUISITIONS
- ---------------------
On May 31, 1999, the Board of Directors of the Company approved an agreement
to be acquired by Yorkshire Water plc, which has subsequently been renamed Kelda
Group plc (Kelda), of Leeds, England, for $37.05 per share in cash. As a
result, Aquarion will be merged with a subsidiary of Kelda. The value of the
transaction is $445 million in cash, net of assumed proceeds from unexercised
stock options, based on approximately 12.6 million fully diluted shares
outstanding, plus the assumption by Kelda of $155 million in debt. The DPUC and
the New York PSC must approve the transaction. Their approvals are expected in
late 1999 or early 2000. In addition, the merger is subject to approval by the
Company's shareholders. After the merger is completed, Aquarion will maintain
its corporate identity, but will be a wholly owned subsidiary of Kelda.
On June 1, 1999, BHC signed a definitive merger agreement to acquire the
remaining
14
<PAGE>
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 agreement 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. Village has
approximately 5,000 customers and annual revenues of $1,800,000. Village
shareholders have approved the sale. The transaction is subject to DPUC
approval, which is presently expected in the fourth quarter of 1999.
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 $10,207,000 in property, plant and equipment in the first
six months of 1999, compared to $9,251,000 for the same period in 1998. 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.
15
<PAGE>
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.
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 currently has $30,000,000 of uncommitted lines of credit with two
lenders 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 $2,554,000 from the issuance of 89,068 shares
of common stock under its Dividend Reinvestment and Common Stock Purchase Plan
(the Plan) for the six months ended June 30, 1999 versus $1,648,000 for 51,993
shares in the same period in 1998. The Company also obtained funds of $504,000
from 31,526 stock options exercised for the six months ended June 30, 1999
compared to $157,000 for 6,016 stock options exercised during the comparable
1998 period. The Utilities received $471,000 and $1,130,000 from advances and
contributions in aid of construction from developers and customers for the six
months ended June 30, 1999 and 1998, respectively.
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
16
<PAGE>
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 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 include 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 has been 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
DPUC has hired a consultant that is currently working with the Company to review
the Year 2000 preparations.
The Company's general process of addressing the Year 2000 problem 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
critical systems and equipment material to operations, 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 completed 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
17
<PAGE>
1999. The initial assessment revealed few non-compliant items. These items are
in the process of being replaced. The Company has completed internal testing of
material inventoried items and has obtained outside certification of these
items. The Company is presently in the process of replacing non-compliant items
and anticipates completing and testing such replacements by October 1999.
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 has
developed contingency plans for dealing with the most reasonably likely worst-
case scenario. Such plans 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 have all contingency systems in place and fully tested by the
fourth quarter of 1999.
The Company estimates that, as of June 30, 1999, its costs of 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
18
<PAGE>
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 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 six months ended June 30, 1999 and 1998
- ---------------------------------------------------------------------
Net income for the six months ended June 30, 1999 was $7,918,000 compared
with $7,043,000 for the same 1998 period. Operating results during the first six
months of 1999 are higher primarily due to improved results from the Company's
Utility operations.
Operating revenues increased to $53,286,000 for the six months ended June
30, 1999 compared to $52,210,000 in the same 1998 period. The rise in revenues
reflects increased water sales, due to a hot, dry spring and early summer, by
the Utilities; the March 17, 1999 increase in BHC's Western division water
rates; and increased sales volume at Timco. These increases were partially
offset by lower land sale revenue.
Operating expenses increased slightly, by less than one percent, to
$14,805,000 for the six months ended June 30, 1999, from the comparable 1998
period. The increase was primarily attributable to higher operating expenses at
Timco and BHC, which resulted from increased revenue. These increases were
partially offset by a reduction in land sale-related expenses.
General and administrative expenses increased $457,000 for the six months
ended June 30, 1999, compared to the 1998 period. The increase was the result
of increased miscellaneous general and administrative expenses at the Utilities.
Depreciation expense increased $234,000 for the six months ended June 30,
1999 from the 1998 comparable period due to general plant additions.
Interest expense for the six months ended June 30, 1999 was $339,000 lower
than the 1998 comparable period due to reduced long-term debt.
Taxes other than income taxes for the six months ended June 30, 1999
increased
19
<PAGE>
$181,000 from the comparable 1998 period due to increased property tax expense.
Income taxes decreased $489,000 for the six months ended June 30, 1999 from
the comparable 1998 period due to a lower effective tax rate in 1999.
Significant changes in balance sheet accounts for the six months ended June 30,
- -------------------------------------------------------------------------------
1999
- ----
Accounts receivable increased by $4,565,000 for the six months ended June
30, 1999 compared to the 1998 period due to higher billed water revenues,
increased non-water accounts receivable and timing of customer payments.
Income tax liability decreased by $1,743,000 for the six months ended June
30, 1999 from the comparable 1998 period due to a lower effective tax rate for
1999.
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 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, acquisition activities 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, Year 2000 issues and,
with respect to the proposed acquisition by Kelda, approval by the Company's
shareholders.
ITEM 3. Quantitative and qualitative disclosures about market risk
----------------------------------------------------------
Not Applicable.
20
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of matters to a vote of security holders
---------------------------------------------------
Previously reported in the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1999.
ITEM 6 Exhibits and reports on Form 8-K
--------------------------------
(a) Exhibits
2 Agreement and Plan of Merger dated as of May 31, 1999 among Aquarion,
Kelda Group plc (formerly named Yorkshire Water plc) and Waterman
Acquisition Corp. (incorporated by reference to Exhibit 2 of the
Current Report on Form 8-K of Aquarion, filed June 8, 1999).
10(a) Continuity Agreement between Aquarion and Richard K. Schmidt
dated as of May 7, 1999.
10(b) Continuity Agreement between Aquarion and Janet M. Hansen dated
as of May 7, 1999.
10(c) Form of Continuity Agreements between Aquarion and Charles V.
Firlotte, Daniel Neaton and Larry L. Bingaman, each dated as of
May 7, 1999.
10(d) Form of Continuity Agreements between Aquarion and Charles V.
Firlotte, Daniel Neaton and Larry L. Bingaman, each dated as of
May 7, 1999.
27 Financial Data Schedule for the quarter ended June 30, 1999
(b) On June 8, 1999, the Company filed a Current Report on Form 8-K
pursuant to the Securities Exchange Act of 1934, reporting an event
under Item 5 of such Form. No financial statements were filed
therewith.
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: August 13, 1999 By /s/JANET M. HANSEN
------------------------ ---------------------------------
Janet M. Hansen
Executive Vice President
Chief Financial Officer and
Treasurer
22
<PAGE>
Exhibit Index
10(a) Continuity Agreement between Aquarion and Richard K. Schmidt dated as of
May 7, 1999.
10(b) Continuity Agreement between Aquarion and Janet M. Hansen dated as of May
7, 1999.
10(c) Form of Continuity Agreements between Aquarion and Charles V. Firlotte,
Daniel Neaton and Larry L. Bingaman, each dated as of May 7,
1999.
10(d) Form of Continuity Agreements between Aquarion and Charles V. Firlotte,
Daniel Neaton and Larry L. Bingaman, each dated as of May 7,
1999.
Exhibit 27 Financial Data Schedule for the quarter ended June 30, 1999
23
<PAGE>
EXHIBIT 10(a)
CONTINUITY AGREEMENT
This Agreement (the "Agreement") is dated as of May 7, 1999 by and
between AQUARION COMPANY, a Delaware corporation (the "Company"), and Richard K.
Schmidt (the "Executive").
WHEREAS, the Company's Board of Directors considers the continued
services of key executives of the Company to be in the best interests of the
Company and its stockholders; and
WHEREAS, the Company's Board of Directors desires to assure, and has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of key executives of the Company to their duties of employment
without personal distraction or conflict of interest in circumstances which
could arise from the occurrence of a change in control of the Company; and
WHEREAS, the Company's Board of Directors has authorized the Company
to enter into continuity agreements with those key executives of the Company and
any of its respective subsidiaries (all of such entities, with the Company
hereinafter referred to as an "Employer"), such agreements to set forth the
severance compensation which the Company agrees under certain circumstances to
pay such executives; and
WHEREAS, the Executive is a key executive of an Employer and has been
designated by the Committee as an executive to be offered such a continuity
compensation agreement with the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Executive agree as follows:
1. Term. This Agreement shall become effective on the date hereof
----
and remain in effect until the third anniversary thereof; provided, however,
-------- -------
that, thereafter, this Agreement shall automatically renew on each successive
anniversary, unless an Employer provides the Executive, in writing, at least 180
days prior to the renewal date, that this Agreement shall not be renewed.
Notwithstanding the foregoing, in the event that a Change in Control occurs at
any time prior to the termination of this Agreement in accordance with the
preceding sentence, this Agreement shall not terminate until the second
anniversary of the Change in Control.
2. Change in Control. No compensation or other benefit pursuant to
-----------------
Section 4 hereof shall be payable under this Agreement unless and until either
(i) a Change in Control of the Company (as hereinafter defined) shall have
occurred while the Executive is an employee of an Employer and the Executive's
employment by an Employer thereafter shall have terminated in accordance with
Section 3 hereof or (ii) the Executive's employment by the Company shall have
terminated in accordance with Section 3(a)(ii) hereof prior to the occurrence of
the Change in Control. For purposes of this Agreement, a "Change in Control"
shall be deemed to have occurred when:
<PAGE>
(a) any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the Exchange Act but excluding the Company and any subsidiary and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities (other than indirectly as a result of the Company's redemption
of its securities); or
(b) the consummation of any merger or other business combination of
the Company, sale of 50% or more of the Company's assets, liquidation or
dissolution of the Company or combination of the foregoing transactions
(the "Transactions") other than a Transaction immediately following which
the shareholders of the Company and any trustee or fiduciary of any Company
employee benefit plan immediately prior to the Transaction own at least 60%
of the voting power, directly or indirectly, of (A) the surviving
corporation in any such merger or other business combination; (B) the
purchaser of or successor to the Company's assets; (C) both the surviving
corporation and the purchaser in the event of any combination of
Transactions; or (D) the parent company owning 100% of such surviving
corporation, purchaser or both the surviving corporation and the purchaser,
as the case may be; or
(c) within any twenty-four month period, the persons who were
directors immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at
least a majority of the Board or the board of directors of a successor to
the Company. For this purpose, any director who was not a director at the
beginning of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or
with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors (so long as such director was not
nominated by a person who commenced or threatened to commence an election
contest or proxy solicitation by or on behalf of a Person (other than the
Board) or who has entered into an agreement to effect a Change in Control
or expressed an intention to cause such a Change in Control).
3. Termination of Employment; Definitions.
--------------------------------------
(a) Termination without Cause by the Company or for Good Reason by
--------------------------------------------------------------
the Executive. (i) The Executive shall be entitled to the compensation
-------------
provided for in Section 4 hereof, if within two years after a Change in
Control, the Executive's employment by an Employer shall be terminated (A)
by an Employer for any reason other than (I) the Executive's Disability or
Retirement, (II) the Executive's death or (III) for Cause, or (B) by the
Executive with Good Reason (all terms are hereinafter defined).
(ii) In addition, the Executive shall be entitled to the compensation
provided for in Section 4 hereof if, (A) in the event that an agreement is
signed which, if consummated, would result in a Change of Control and the
Executive is terminated without Cause by the Company or terminates
employment with Good Reason prior to the
<PAGE>
3
Change in Control, (B) such termination is at the direction of the acquiror
or merger partner or otherwise in connection with the anticipated Change in
Control, and (C) such Change in Control actually occurs.
(b) Disability. For purposes of this Agreement, "Disability" shall
----------
mean the Executive's absence from the full-time performance of the Executive's
duties (as such duties existed immediately prior to such absence) for 180
consecutive business days, when the Executive is disabled as a result of
incapacity due to physical or mental illness.
(c) Retirement. For purposes of this Agreement, "Retirement" shall
----------
mean the Executive's voluntary termination of employment pursuant to late,
normal or early retirement under a pension plan sponsored by an Employer, as
defined in such plan, but only if such retirement occurs prior to a termination
by an Employer without Cause or by the Executive for Good Reason.
(d) Cause. For purposes of this Agreement, "Cause" shall mean:
-----
(i) the willful and continued failure of the Executive to
perform substantially all of his or her duties with an Employer (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to such Executive by the Board of Directors (the "Board") of the Company
which specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his or her duties,
(ii) the willful engaging by the Executive in gross misconduct
which is materially and demonstrably injurious to the Company or any
Employer; or
(iii) the conviction of, or plea of guilty or nolo contendere
---- ----------
to, a felony.
Termination of the Executive for Cause shall be made by delivery to the
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a three-fourths majority of the non-employee Directors of the Company
or of the ultimate parent of the entity which caused the Change in Control (if
the Company has become a subsidiary) at a meeting of such Directors called and
held for such purpose, after 30 days prior written notice to the Executive
specifying the basis for such termination and the particulars thereof and a
reasonable opportunity for the Executive to cure or otherwise resolve the
behavior in question prior to such meeting, finding that in the reasonable
judgment of such Directors, the conduct or event set forth in any of clauses (i)
through (iii) above has occurred and that such occurrence warrants the
Executive's termination.
(e) Good Reason. For purposes of this Agreement, "Good Reason" shall
-----------
mean the occurrence, within the Term of this Agreement, of any of the following
without the Executive's express written consent:
<PAGE>
4
(iii) any material and adverse diminution in the Executive's
duties or responsibilities with the Company (or any affiliate thereof) from
those in effect immediately prior to the Change in Control; provided,
--------
however, that no such diminution shall be deemed to exist solely because of
-------
changes in Executive's duties, responsibilities or titles as a consequence
of the Company ceasing to be a company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(iv) any reduction in the Executive's annual base salary or
cash bonus percentage target from the annual base salary or cash bonus
percentage target in effect immediately prior to the Change in Control;
(v) any requirement that Executive be based at a location more
than 35 miles from the location at which the Executive was based
immediately prior to the Change in Control (or a substantial increase in
the amount of travel Executive is required to do because of a relocation of
the executive offices);
(vi) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to the Executive to assume
and perform this Agreement, as contemplated by Section 10(a) hereof; and
(vii) during the thirty-day period immediately following the first
anniversary of the Change in Control, the voluntary termination of employment by
the Executive for any reason or no reason at all.
Notwithstanding the foregoing, in the event Executive provides the Company with
a Notice of Termination (as defined below) referencing this Section 3(e) (with
the exception of Section 3(e)(vii)), the Company shall have 30 days thereafter
in which to cure or resolve the behavior otherwise constituting Good Reason.
Any good faith determination by Executive that Good Reason exists shall be
presumed correct and shall be binding upon the Company.
(f) Notice of Termination. Any purported termination of the
---------------------
Executive's employment (other than on account of Executive's death) with an
Employer shall be communicated by a Notice of Termination to the Executive, if
such termination is by an Employer, or to an Employer, if such termination is by
the Executive. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated; provided, however, that in
-------- -------
connection with a termination for Good Reason under Section 3(e)(vii), no
details shall be necessary other than reference to such Section. For purposes
of this Agreement, no purported termination of Executive's employment with an
Employer shall be effective without such a Notice of Termination having been
given.
<PAGE>
5
4. Compensation Upon Termination After a Change in Control.
-------------------------------------------------------
Subject to Section 9 hereof, if within two years of a Change in
Control, the Executive's employment by an Employer shall be terminated in
accordance with Section 3(a) (the "Termination"), the Executive shall be
entitled to the following payments and benefits:
(a) Severance. The Company shall pay or cause to be paid to the
---------
Executive a cash severance amount equal to (i) three times the sum of (A)
the Executive's annual base salary on the date of the Change in Control
(or, if higher, the annual base salary in effect immediately prior to the
giving of the Notice of Termination, and (B) the average of the actual
bonuses earned by the Executive in respect of the two years prior to the
year in which the Change in Control occurs under the Company's Executive
Incentive Award Program, plus (ii) in lieu of the continuation of any of
the Executive's perquisites as provided under the Executive's employment
agreement, a cash payment equal to 12 percent of the Executive's annual
base salary as in effect on the date of the Change in Control for each of
the three years following the Change in Control. This cash severance
amount shall be payable in equal monthly installments or, at the Company's
election, in a lump sum calculated without any discount.
(b) Additional Payments and Benefits. The Executive shall also be
--------------------------------
entitled to:
(i) a lump sum cash payment equal to the sum of (A) the
Executive's accrued but unpaid annual base salary through the date of
Termination, (B) the unpaid portion, if any, of bonuses previously
earned by the Executive pursuant to the Company's Executive Incentive
Award Program, plus the pro rata portion of the bonus to be paid for
the year in which the date of Termination occurs (calculated through
the date of Termination), and (C) an amount, if any, equal to
compensation previously deferred (excluding any qualified plan
deferral) and any accrued vacation pay, in each case, in full
satisfaction of Executive's rights thereto.
(ii) a lump sum cash payment equal to the aggregate sum of
(A) additional pension contributions in an amount equal to the
Company's contributions under the Company's Thrift and Savings Program
and Employee Stock Ownership Plan (or such other qualified and
nonqualified defined contribution pension plans as then in effect) for
the three-year period following the date of Termination (the
"Separation Period") (based on assumed rates of Executive's
contributions at the level of participation in effect as of the last
date Executive was permitted to participate); and (B) the difference
between the present value of the annual benefit the Executive would be
entitled to receive under the Retirement Program (if the Executive had
continued employment through the Separation Period) and the annual
benefit expressed as a life annuity under the Retirement Program
accrued thereunder as of the date of termination of employment, after
giving effect to three years of continued credit for age and
<PAGE>
6
services purposes, as if he had been paid at the rate used to
calculate the payments under Section 4(a); provided, however, that the
-------- -------
Executive shall receive the present value of the Executive's annual
benefit that he/she would have received if, at the time of termination
of employment, the Executive would have been eligible for a full,
unreduced life annuity under the Retirement Plan, after including in
the calculation thereof years of service and compensation credit
through age 62..
(iii) continued medical, dental, vision, and life insurance
coverage (excluding accident, death, and disability insurance) for the
Executive and the Executive's eligible dependents or, to the extent
such coverage is not commercially available, such other arrangements
reasonably acceptable to the Executive, on the same basis as in effect
prior to the Change in Control or the Executive's Termination,
whichever is deemed to provide for more substantial benefits, for a
period ending on the earlier of (A) the end of the Separation Period
or (B) the commencement of comparable coverage by the Executive with a
subsequent employer;
(iv) unless it would adversely affect the Company's
ability to use pooling of interest accounting in a Change in Control
transaction in which such accounting is intended to be used, immediate
100% vesting of all outstanding stock options, stock appreciation
rights and restricted stock granted or issued by any Employer to the
extent not previously vested on or following the Change of Control;
and
(v) all other accrued or vested benefits in accordance
with the terms of the applicable plan (with an offset for any amounts
paid under Section 4(b)(i)(C), above).
All lump sum payments under this Section 4 shall be paid within 10 business
days after Executive's date of Termination. Present value for purposes of
subsection (ii) above shall be calculated 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 of employment occurred and
using the actuarial factors set forth in the Retirement Program.
(c) Outplacement. If so requested by the Executive, outplacement
------------
services shall be provided by a professional outplacement provider selected
by Executive; provided, however, that such outplacement services shall be
-------- -------
provided the Executive at a cost to the Company of not more than ten (10)
percent of such Executive's annual base salary.
(d) Withholding. Payments and benefits provided pursuant to this
-----------
Section 4 shall be subject to any applicable payroll and other taxes
required to be withheld.
<PAGE>
7
5. Compensation Upon Termination for Death, Disability or Retirement.
------------------------------------------------------------------
If an Executive's employment is terminated by reason of Death,
Disability or Retirement prior to any other termination, Executive will receive:
(a) the sum of (i) Executive's accrued but unpaid salary through the
date of Termination, (ii) the pro rata portion of the Executive's target
bonus for the year of Executive's Death or Disability (calculated through
the date of Termination), and (iii) an amount equal to any compensation
previously deferred an any accrued vacation pay; and
(b) other accrued or vested benefits in accordance with the terms of
the applicable plan (with an offset for any amounts paid under item
(a)(iii), above.
6. Excess Parachute Excise Tax Payments.
------------------------------------
(a) (i) If it is determined (as hereafter provided) that any payment
or distribution by the Company or any Employer to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisability of any of the
foregoing (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Code (or any successor provision thereto) by reason of being
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(ii) Subject to the provisions of Section 6(a)(i) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change in Control (or,
if such Accounting Firm declines to serve, the Accounting Firm shall be a
nationally recognized firm of certified public accountants selected by the
Executive). The Accounting Firm shall be directed by the Company or the
Executive to submit its preliminary determination and detailed supporting
calculations to both the Company and the Executive within 15 calendar days after
the Termination Date, if applicable, and any other such time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up
<PAGE>
8
Payment to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall, at the same
time as it makes such determination, furnish the Executive with an opinion that
he has substantial authority not to report any Excise Tax on his/her federal,
state, local income or other tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive absent a contrary determination by the Internal Revenue
Services or a court of competent jurisdiction; provided, however, that no such
-------- -------
determination shall eliminate or reduce the Company's obligation to provide any
Gross-Up Payment that shall be due as a result of such contrary determination.
As a result of the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of similar uncertainty
regarding state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
6(a) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(iii) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determination contemplated by Section
6(a) hereof.
(iv) The federal, state and local income or other tax returns filed
by the Executive (or any filing made by a consolidated tax group which includes
the Company) shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its services
in connection with the determinations and calculations contemplated by Sections
6(a)(ii) and (iv) hereof shall be borne by the Company. If such fees and
expenses are initially advanced by the
<PAGE>
9
Executive, the Company shall reimburse the Executive the full amount of such
fees and expenses within five business days after receipt from the Executive of
a statement therefor and reasonable evidence of his/her payment thereof.
(b) In the event that the Internal Revenue Service claims that any
payment or benefit received under this Agreement constitutes an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code, the
Executive shall notify the Company in writing of such claim. Such notification
shall be given as soon as practicable but no later than 10 business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30
day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall (i) give the Company any information reasonably
requested by the Company relating to such claim; (ii) take such action in
connection with contesting such claim as the Company shall reasonably request in
writing from time to time, including without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably satisfactory to the Executive; (iii) cooperate with
the Company in good faith in order to effectively contest such claim; and (iv)
permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
- -------- -------
expenses (including, but not limited to, additional interest and penalties and
related legal, consulting or other similar fees) incurred in connection with
such contest and shall indemnify and hold the Executive harmless, on an after-
tax basis, for and against any Excise Tax or other tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.
(c) The Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
-------- -------
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis, and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that if the Executive is required to extend the statute
-------- -------
of limitations to enable the Company to contest such claim, the Executive may
limit this extension solely to such contested amount. The Company's control of
the contest shall be limited to issues with respect to which a corporate
deduction would be disallowed pursuant to Section 280G of the Code and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue
<PAGE>
10
Service or any other taxing authority. In addition, no position may be taken nor
any final resolution be agreed to by the Company without the Executive's consent
if such position or resolution could reasonably be expected to adversely affect
the Executive (including any other tax position of the Executive unrelated to
matters covered hereby).
(d) If, after the receipt by the Executive of an amount advanced by
the Company in connection with the contest of the Excise Tax claim, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto);
provided, however, if the amount of that refund exceeds the amount advanced by
- -------- -------
the Company or it is otherwise determined for any reason that additional amounts
could be paid to the Named Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to the named Executive. If, after
the receipt by the Executive of an amount advanced by the Company in connection
with an Excise Tax claim, a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest the denial of such
refund prior to the expiration of 30 days after such determination, such advance
shall be forgiven and shall not be required to be repaid and shall be deemed to
be in consideration for services rendered after the date of the Termination.
7. Expenses. In addition to all other amounts payable to the
--------
Executive under this Agreement, the Company shall pay or reimburse the Executive
for legal fees (including without limitation, any and all court costs and
attorneys' fees and expenses) incurred by the Executive in connection with or as
a result of any claim, action or proceeding brought by the Company or the
Executive with respect to or arising out of this Agreement or any provision
hereof; provided, however, that in the case of an action brought by the
-------- -------
Executive, the Company shall have no obligation for any such legal fees, if the
Company is successful in establishing with the court that the Executive's action
was frivolous or otherwise without any reasonable legal or factual basis.
8. Obligations Absolute;; Non-Exclusivity of Rights; Joint Several
---------------------------------------------------------------
Liability.
- ----------
(a) The obligations of the Company to make the payment to the
Executive, and to make the arrangements, provided for herein shall be absolute
and unconditional and shall not be reduced by any circumstances, including
without limitation any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or any third party at any time.
(b) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any other Employer and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any agreements with the Company or any other
Employer.
<PAGE>
11
(c) Each entity included in the definition of "Employer" and any
successors or assigns shall be joint and severally liable with the Company under
this Agreement.
9. Not an Employment Agreement; Effect On Other Rights.
---------------------------------------------------
(a) This Agreement is not, and nothing herein shall be deemed to
create, a contract of employment between the Executive and the Company. The
Company may terminate the employment of the Executive by the Company at any
time, subject to the terms of this Agreement and/or any employment agreement or
arrangement between the Company and the Executive that may then be in effect.
(b) With respect to the Executive's employment agreement as in effect
immediately prior to the Change in Control, nothing herein shall have any effect
on the Executive's rights thereunder; provided, however, that in the event of
-------- -------
the Executive's termination of employment in accordance with Section 3 hereof,
this Agreement shall govern solely for the purpose of providing the terms of all
payments and additional benefits to which the Executive is entitled upon such
termination and any payments or benefit provided thereunder shall reduce the
corresponding type of payments or benefits hereunder. Notwithstanding the
foregoing, in the event that the Executive's employment is terminated prior to
the occurrence of a Change in Control under the circumstances provided for in
Section 3(a)(ii) and such circumstances also entitle Executive to payments and
benefits under any other employment or other agreement as in effect prior to the
Change in Control ("Other Agreement"), then, until the Change in Control occurs,
the Executive will receive the payments and benefits to which he/she is entitled
under such Other Agreement. Upon the occurrence of the Change in Control, the
Company will pay to the Executive in cash the amount to which he/she is entitled
to under this Agreement (reduced by the amounts already paid under the Other
Agreement) in respect of cash payments and shall provide or increase any other
noncash benefits to those provided for hereunder (after taking into Account
noncash benefits, if any, provided under such Other Agreement). Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company or any other Employer shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.
10. Successors; Binding Agreement, Assignment.
-----------------------------------------
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to expressly,
absolutely and unconditionally assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in this
Agreement, "Company" shall mean (i) the Company as hereinbefore defined, and
(ii) any successor to all the stock of the Company or to all or substantially
all of the
<PAGE>
11
Company's business or assets which executes and delivers an agreement provided
for in this Section 10(a) or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law, including any parent or
subsidiary of such a successor.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would be payable to the Executive hereunder if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's estate or designated beneficiary. Neither this Agreement nor any
right arising hereunder may be assigned or pledged by the Executive.
11. Notice. For purpose of this Agreement, notices and all other
------
communications provided for in this Agreement or contemplated hereby shall be in
writing and shall be deemed to have been duly given when personally delivered,
delivered by a nationally recognized overnight delivery service or when mailed
United States certified or registered mail, return receipt requested, postage
prepaid, and addressed, in the case of the Company, to the Company at:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Chief Executive Officer
and in the case of the Executive, to the Executive at the address set forth on
the execution page at the end hereof.
Either party may designate a different address by giving notice of change
of address in the manner provided above, except that notices of change of
address shall be effective only upon receipt.
12. Confidentiality. The Executive shall retain in confidence any
---------------
and all confidential information concerning the Company and its respective
business which is now known or hereafter becomes known to the Executive, except
as otherwise required by law and except information (i) ascertainable or
obtained from public information, (ii) received by the Executive at any time
after the Executive's employment by the Company shall have terminated, from a
third party not employed by or otherwise affiliated with the Company or (iii)
which is or becomes known to the public by any means other than a breach of this
Section 12. Upon the Termination of employment, the Executive will not take or
keep any proprietary or confidential information or documentation belonging to
the Company.
13. Miscellaneous. No provision of this Agreement may be amended,
-------------
altered, modified, waived or discharged unless such amendment, alteration,
modification, waiver or discharge is agreed to in writing signed by the
Executive and such officer of the Company as shall be specifically designated by
the Committee or by the Board of Directors of the Company.
<PAGE>
13
No waiver by either party, at any time, of any breach by the other party of, or
of compliance by the other party with, any condition or provision of this
Agreement to be performed or complied with by such other party shall be deemed a
waiver of any similar or dissimilar provision or condition of this Agreement or
any other breach of or failure to comply with the same condition or provision at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
14. Severability. If any one or more of the provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
hereto waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
15. Governing Law; Venue. The validity, interpretation, construction
--------------------
and performance of this Agreement shall be governed on a non-exclusive basis by
the laws of the State of Connecticut without giving effect to its conflict of
laws rules. For purposes of jurisdiction and venue, the Company and each
Employer hereby consents to jurisdiction and venue in any suit, action or
proceeding with respect to this Agreement in any court of competent jurisdiction
in the state in which Executive resides at the commencement of such suit, action
or proceeding and waives any objection, challenge or dispute as to such
jurisdiction or venue being proper.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AQUARION COMPANY:
By: /s/ Janet M. Hansen
--------------------------------
Title: Executive VP & CFO
-----------------------------
EXECUTIVE:
Richard K. Schmidt
-----------------------------------
Richard K. Schmidt
___________________________________
<PAGE>
14
___________________________________
Address
<PAGE>
EXHIBIT 10(b)
CONTINUITY AGREEMENT
This Agreement (the "Agreement") is dated as of May 7, 1999 by and
between AQUARION COMPANY, a Delaware corporation (the "Company"), and Janet M.
Hansen (the "Executive").
WHEREAS, the Company's Board of Directors considers the continued
services of key executives of the Company to be in the best interests of the
Company and its stockholders; and
WHEREAS, the Company's Board of Directors desires to assure, and has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of key executives of the Company to their duties of employment
without personal distraction or conflict of interest in circumstances which
could arise from the occurrence of a change in control of the Company; and
WHEREAS, the Company's Board of Directors has authorized the Company
to enter into continuity agreements with those key executives of the Company and
any of its respective subsidiaries (all of such entities, with the Company
hereinafter referred to as an "Employer"), such agreements to set forth the
severance compensation which the Company agrees under certain circumstances to
pay such executives; and
WHEREAS, the Executive is a key executive of an Employer and has been
designated by the Committee as an executive to be offered such a continuity
compensation agreement with the Company.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Executive agree as follows:
1. Term. This Agreement shall become effective on the date hereof
----
and remain in effect until the third anniversary thereof; provided, however,
-------- -------
that, thereafter, this Agreement shall automatically renew on each successive
anniversary, unless an Employer provides the Executive, in writing, at least 180
days prior to the renewal date, that this Agreement shall not be renewed.
Notwithstanding the foregoing, in the event that a Change in Control occurs at
any time prior to the termination of this Agreement in accordance with the
preceding sentence, this Agreement shall not terminate until the second
anniversary of the Change in Control.
2. Change in Control. No compensation or other benefit pursuant to
-----------------
Section 4 hereof shall be payable under this Agreement unless and until either
(i) a Change in Control of the Company (as hereinafter defined) shall have
occurred while the Executive is an employee of an Employer and the Executive's
employment by an Employer thereafter shall have terminated in accordance with
Section 3 hereof or (ii) the Executive's employment by the Company shall have
terminated in accordance with Section 3(a)(ii) hereof prior to the occurrence of
the Change in
<PAGE>
Control. For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred when:
(a) any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the Exchange Act but excluding the Company and any subsidiary and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities (other than indirectly as a result of the Company's redemption
of its securities); or
(b) the consummation of any merger or other business combination of
the Company, sale of 50% or more of the Company's assets, liquidation or
dissolution of the Company or combination of the foregoing transactions
(the "Transactions") other than a Transaction immediately following which
the shareholders of the Company and any trustee or fiduciary of any Company
employee benefit plan immediately prior to the Transaction own at least 60%
of the voting power, directly or indirectly, of (A) the surviving
corporation in any such merger or other business combination; (B) the
purchaser of or successor to the Company's assets; (C) both the surviving
corporation and the purchaser in the event of any combination of
Transactions; or (D) the parent company owning 100% of such surviving
corporation, purchaser or both the surviving corporation and the purchaser,
as the case may be; or
(c) within any twenty-four month period, the persons who were
directors immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at
least a majority of the Board or the board of directors of a successor to
the Company. For this purpose, any director who was not a director at the
beginning of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or
with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors (so long as such director was not
nominated by a person who commenced or threatened to commence an election
contest or proxy solicitation by or on behalf of a Person (other than the
Board) or who has entered into an agreement to effect a Change in Control
or expressed an intention to cause such a Change in Control).
3. Termination of Employment; Definitions.
--------------------------------------
(a) Termination without Cause by the Company or for Good Reason by
--------------------------------------------------------------
the Executive. (i) The Executive shall be entitled to the compensation
-------------
provided for in Section 4 hereof, if within two years after a Change in
Control, the Executive's employment by an Employer shall be terminated (A)
by an Employer for any reason other than (I) the Executive's Disability or
Retirement, (II) the Executive's death or (III) for Cause, or (B) by the
Executive with Good Reason (all terms are hereinafter defined).
(ii) In addition, the Executive shall be entitled to the compensation
provided for in Section 4 hereof if, (A) in the event that an agreement is
signed which, if consummated, would result in a Change of Control and the
Executive is terminated
<PAGE>
3
without Cause by the Company or terminates employment with Good Reason
prior to the Change in Control, (B) such termination is at the direction of
the acquiror or merger partner or otherwise in connection with the
anticipated Change in Control, and (C) such Change in Control actually
occurs.
(b) Disability. For purposes of this Agreement, "Disability" shall
----------
mean the Executive's absence from the full-time performance of the Executive's
duties (as such duties existed immediately prior to such absence) for 180
consecutive business days, when the Executive is disabled as a result of
incapacity due to physical or mental illness.
(c) Retirement. For purposes of this Agreement, "Retirement" shall
----------
mean the Executive's voluntary termination of employment pursuant to late,
normal or early retirement under a pension plan sponsored by an Employer, as
defined in such plan, but only if such retirement occurs prior to a termination
by an Employer without Cause or by the Executive for Good Reason.
(d) Cause. For purposes of this Agreement, "Cause" shall mean:
-----
(i) the willful and continued failure of the Executive to
perform substantially all of his or her duties with an Employer (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to such Executive by the Board of Directors (the "Board") of the Company
which specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his or her duties,
(ii) the willful engaging by the Executive in gross misconduct
which is materially and demonstrably injurious to the Company or any
Employer; or
(iii) the conviction of, or plea of guilty or nolo contendere to,
---- ----------
a felony.
Termination of the Executive for Cause shall be made by delivery to the
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a three-fourths majority of the non-employee Directors of the Company
or of the ultimate parent of the entity which caused the Change in Control (if
the Company has become a subsidiary) at a meeting of such Directors called and
held for such purpose, after 30 days prior written notice to the Executive
specifying the basis for such termination and the particulars thereof and a
reasonable opportunity for the Executive to cure or otherwise resolve the
behavior in question prior to such meeting, finding that in the reasonable
judgment of such Directors, the conduct or event set forth in any of clauses (i)
through (iii) above has occurred and that such occurrence warrants the
Executive's termination.
(e) Good Reason. For purposes of this Agreement, "Good Reason" shall
-----------
mean the occurrence, within the Term of this Agreement, of any of the following
without the Executive's express written consent:
<PAGE>
4
(iii) any material and adverse diminution in the Executive's
duties or responsibilities with the Company (or any affiliate thereof) from
those in effect immediately prior to the Change in Control; provided,
--------
however, that no such diminution shall be deemed to exist solely because of
-------
changes in Executive's duties, responsibilities or titles as a consequence
of the Company ceasing to be a company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(iv) any reduction in the Executive's annual base salary or cash
bonus percentage target from the annual base salary or cash bonus
percentage target in effect immediately prior to the Change in Control;
(v) any requirement that Executive be based at a location more
than 35 miles from the location at which the Executive was based
immediately prior to the Change in Control (or a substantial increase in
the amount of travel Executive is required to do because of a relocation of
the executive offices);
(vi) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to the Executive to assume
and perform this Agreement, as contemplated by Section 10(a) hereof; and
(vii) during the thirty-day period immediately following the
first anniversary of the Change in Control, the voluntary termination of
employment by the Executive for any reason or no reason at all.
Notwithstanding the foregoing, in the event Executive provides the Company with
a Notice of Termination (as defined below) referencing this Section 3(e) (with
the exception of Section 3(e)(vii)), the Company shall have 30 days thereafter
in which to cure or resolve the behavior otherwise constituting Good Reason.
Any good faith determination by Executive that Good Reason exists shall be
presumed correct and shall be binding upon the Company.
(f) Notice of Termination. Any purported termination of the
---------------------
Executive's employment (other than on account of Executive's death) with an
Employer shall be communicated by a Notice of Termination to the Executive, if
such termination is by an Employer, or to an Employer, if such termination is by
the Executive. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated; provided, however, that in
-------- -------
connection with a termination for Good Reason under Section 3(e)(vii), no
details shall be necessary other than reference to such Section. For purposes
of this Agreement, no purported termination of Executive's employment with an
Employer shall be effective without such a Notice of Termination having been
given.
<PAGE>
5
4. Compensation Upon Termination After a Change in Control.
-------------------------------------------------------
Subject to Section 9 hereof, if within two years of a Change in
Control, the Executive's employment by an Employer shall be terminated in
accordance with Section 3(a) (the "Termination"), the Executive shall be
entitled to the following payments and benefits:
(a) Severance. The Company shall pay or cause to be paid to the
---------
Executive a cash severance amount equal to (i) two times the sum of (A) the
Executive's annual base salary on the date of the Change in Control (or, if
higher, the annual base salary in effect immediately prior to the giving of
the Notice of Termination, and (B) the average of the actual bonuses earned
by the Executive in respect of the two years prior to the year in which the
Change in Control occurs under the Company's Executive Incentive Award
Program, plus (ii) in lieu of the continuation of any of the Executive's
perquisites as provided under the Executive's employment agreement, a cash
payment equal to 12 percent of the Executive's annual base salary as in
effect on the date of the Change in Control for each of the two years
following the Change in Control. This cash severance amount shall be
payable in equal monthly installments or, at the Company's election, in a
lump sum calculated without any discount.
(b) Additional Payments and Benefits. The Executive shall also be
--------------------------------
entitled to:
(i) a lump sum cash payment equal to the sum of (A) the
Executive's accrued but unpaid annual base salary through the date of
Termination, (B) the unpaid portion, if any, of bonuses previously
earned by the Executive pursuant to the Company's Executive Incentive
Award Program, plus the pro rata portion of the bonus to be paid for
the year in which the date of Termination occurs (calculated through
the date of Termination), and (C) an amount, if any, equal to
compensation previously deferred (excluding any qualified plan
deferral) and any accrued vacation pay, in each case, in full
satisfaction of Executive's rights thereto.
(ii) a lump sum cash payment equal to the aggregate sum of
(A) additional pension contributions in an amount equal to the
Company's contributions under the Company's Thrift and Savings Program
and Employee Stock Ownership Plan (or such other qualified and
nonqualified defined contribution pension plans as then in effect) for
the two-year period following the date of Termination (the "Separation
Period") (based on assumed rates of Executive's contributions at the
level of participation in effect as of the last date Executive was
permitted to participate); and (B) the difference between the present
value of the annual benefit the Executive would be entitled to receive
under the Retirement Program (if the Executive had continued
employment through the Separation Period) and the annual benefit
expressed as a life annuity under the Retirement Program accrued
thereunder as of the date of termination of employment, after giving
effect to two years of continued credit for age and
<PAGE>
6
services purposes, as if he had been paid at the rate used to
calculate the payments under Section 4(a); provided, however, that the
-------- -------
Executive shall receive the present value of the Executive's annual
benefit that he/she would have received if, at the time of termination
of employment, the Executive would have been eligible for a full,
unreduced life annuity under the Retirement Plan, after including in
the calculation thereof years of service and compensation credit
through age 62..
(iii) continued medical, dental, vision, and life
insurance coverage (excluding accident, death, and disability
insurance) for the Executive and the Executive's eligible dependents
or, to the extent such coverage is not commercially available, such
other arrangements reasonably acceptable to the Executive, on the same
basis as in effect prior to the Change in Control or the Executive's
Termination, whichever is deemed to provide for more substantial
benefits, for a period ending on the earlier of (A) the end of the
Separation Period or (B) the commencement of comparable coverage by
the Executive with a subsequent employer;
(iv) unless it would adversely affect the Company's
ability to use pooling of interest accounting in a Change in Control
transaction in which such accounting is intended to be used, immediate
100% vesting of all outstanding stock options, stock appreciation
rights and restricted stock granted or issued by any Employer to the
extent not previously vested on or following the Change of Control;
and
(v) all other accrued or vested benefits in accordance
with the terms of the applicable plan (with an offset for any amounts
paid under Section 4(b)(i)(C), above).
All lump sum payments under this Section 4 shall be paid within 10 business
days after Executive's date of Termination. Present value for purposes of
subsection (ii) above shall be calculated 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 of employment occurred and
using the actuarial factors set forth in the Retirement Program.
(c) Outplacement. If so requested by the Executive, outplacement
------------
services shall be provided by a professional outplacement provider selected
by Executive; provided, however, that such outplacement services shall be
-------- -------
provided the Executive at a cost to the Company of not more than ten (10)
percent of such Executive's annual base salary.
(d) Withholding. Payments and benefits provided pursuant to this
-----------
Section 4 shall be subject to any applicable payroll and other taxes
required to be withheld.
<PAGE>
7
5. Compensation Upon Termination for Death, Disability or Retirement.
-----------------------------------------------------------------
If an Executive's employment is terminated by reason of Death,
Disability or Retirement prior to any other termination, Executive will receive:
(a) the sum of (i) Executive's accrued but unpaid salary through the
date of Termination, (ii) the pro rata portion of the Executive's target
bonus for the year of Executive's Death or Disability (calculated through
the date of Termination), and (iii) an amount equal to any compensation
previously deferred an any accrued vacation pay; and
(b) other accrued or vested benefits in accordance with the terms of
the applicable plan (with an offset for any amounts paid under item
(a)(iii), above.
6. Excess Parachute Excise Tax Payments.
------------------------------------
(a) (i) If it is determined (as hereafter provided) that any payment
or distribution by the Company or any Employer to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisability of any of the
foregoing (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Code (or any successor provision thereto) by reason of being
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(ii) Subject to the provisions of Section 6(a)(i) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change in Control (or,
if such Accounting Firm declines to serve, the Accounting Firm shall be a
nationally recognized firm of certified public accountants selected by the
Executive). The Accounting Firm shall be directed by the Company or the
Executive to submit its preliminary determination and detailed supporting
calculations to both the Company and the Executive within 15 calendar days after
the Termination Date, if applicable, and any other such time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up
<PAGE>
8
Payment to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations. If the Accounting Firm
determines that no Excise Tax is payable by the Executive, it shall, at the same
time as it makes such determination, furnish the Executive with an opinion that
he has substantial authority not to report any Excise Tax on his/her federal,
state, local income or other tax return. Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive absent a contrary determination by the Internal Revenue
Services or a court of competent jurisdiction; provided, however, that no such
-------- -------
determination shall eliminate or reduce the Company's obligation to provide any
Gross-Up Payment that shall be due as a result of such contrary determination.
As a result of the uncertainty in the application of Section 4999 of the Code
(or any successor provision thereto) and the possibility of similar uncertainty
regarding state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
6(a) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(iii) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 6(a) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive (or any filing made by a consolidated tax group which
includes the Company) shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 6(a)(ii) and (iv) hereof shall be borne by the Company. If such fees
and expenses are initially advanced by the
<PAGE>
9
Executive, the Company shall reimburse the Executive the full amount of such
fees and expenses within five business days after receipt from the Executive of
a statement therefor and reasonable evidence of his/her payment thereof.
(b) In the event that the Internal Revenue Service claims that any
payment or benefit received under this Agreement constitutes an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code, the
Executive shall notify the Company in writing of such claim. Such notification
shall be given as soon as practicable but no later than 10 business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30
day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall (i) give the Company any information reasonably
requested by the Company relating to such claim; (ii) take such action in
connection with contesting such claim as the Company shall reasonably request in
writing from time to time, including without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably satisfactory to the Executive; (iii) cooperate with
the Company in good faith in order to effectively contest such claim; and (iv)
permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
- -------- -------
expenses (including, but not limited to, additional interest and penalties and
related legal, consulting or other similar fees) incurred in connection with
such contest and shall indemnify and hold the Executive harmless, on an after-
tax basis, for and against any Excise Tax or other tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.
(c) The Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
-------- -------
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis, and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that if the Executive is required to extend the statute
-------- -------
of limitations to enable the Company to contest such claim, the Executive may
limit this extension solely to such contested amount. The Company's control of
the contest shall be limited to issues with respect to which a corporate
deduction would be disallowed pursuant to Section 280G of the Code and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue
<PAGE>
10
Service or any other taxing authority. In addition, no position may be taken nor
any final resolution be agreed to by the Company without the Executive's consent
if such position or resolution could reasonably be expected to adversely affect
the Executive (including any other tax position of the Executive unrelated to
matters covered hereby).
(d) If, after the receipt by the Executive of an amount advanced by
the Company in connection with the contest of the Excise Tax claim, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto);
provided, however, if the amount of that refund exceeds the amount advanced by
- -------- -------
the Company or it is otherwise determined for any reason that additional amounts
could be paid to the Named Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to the named Executive. If, after
the receipt by the Executive of an amount advanced by the Company in connection
with an Excise Tax claim, a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest the denial of such
refund prior to the expiration of 30 days after such determination, such advance
shall be forgiven and shall not be required to be repaid and shall be deemed to
be in consideration for services rendered after the date of the Termination.
7. Expenses. In addition to all other amounts payable to the
--------
Executive under this Agreement, the Company shall pay or reimburse the Executive
for legal fees (including without limitation, any and all court costs and
attorneys' fees and expenses) incurred by the Executive in connection with or as
a result of any claim, action or proceeding brought by the Company or the
Executive with respect to or arising out of this Agreement or any provision
hereof; provided, however, that in the case of an action brought by the
-------- -------
Executive, the Company shall have no obligation for any such legal fees, if the
Company is successful in establishing with the court that the Executive's action
was frivolous or otherwise without any reasonable legal or factual basis.
8. Obligations Absolute;; Non-Exclusivity of Rights; Joint Several
---------------------------------------------------------------
Liability.
- ----------
(a) The obligations of the Company to make the payment to the
Executive, and to make the arrangements, provided for herein shall be absolute
and unconditional and shall not be reduced by any circumstances, including
without limitation any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or any third party at any time.
(b) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any other Employer and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any agreements with the Company or any other
Employer.
<PAGE>
11
(c) Each entity included in the definition of "Employer" and any
successors or assigns shall be joint and severally liable with the Company under
this Agreement.
9. Not an Employment Agreement; Effect On Other Rights.
---------------------------------------------------
(a) This Agreement is not, and nothing herein shall be deemed to
create, a contract of employment between the Executive and the Company. The
Company may terminate the employment of the Executive by the Company at any
time, subject to the terms of this Agreement and/or any employment agreement or
arrangement between the Company and the Executive that may then be in effect.
(b) With respect to the Executive's employment agreement as in effect
immediately prior to the Change in Control, nothing herein shall have any effect
on the Executive's rights thereunder; provided, however, that in the event of
-------- -------
the Executive's termination of employment in accordance with Section 3 hereof,
this Agreement shall govern solely for the purpose of providing the terms of all
payments and additional benefits to which the Executive is entitled upon such
termination and any payments or benefit provided thereunder shall reduce the
corresponding type of payments or benefits hereunder. Notwithstanding the
foregoing, in the event that the Executive's employment is terminated prior to
the occurrence of a Change in Control under the circumstances provided for in
Section 3(a)(ii) and such circumstances also entitle Executive to payments and
benefits under any other employment or other agreement as in effect prior to the
Change in Control ("Other Agreement"), then, until the Change in Control occurs,
the Executive will receive the payments and benefits to which she is entitled
under such Other Agreement. Upon the occurrence of the Change in Control, the
Company will pay to the Executive in cash the amount to which he/she is entitled
to under this Agreement (reduced by the amounts already paid under the Other
Agreement) in respect of cash payments and shall provide or increase any other
noncash benefits to those provided for hereunder (after taking into Account
noncash benefits, if any, provided under such Other Agreement). Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company or any other Employer shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.
10. Successors; Binding Agreement, Assignment.
-----------------------------------------
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to expressly,
absolutely and unconditionally assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in this
Agreement, "Company" shall mean (i) the Company as hereinbefore defined, and
(ii) any successor to all the stock of the Company or to all or substantially
all of the
<PAGE>
12
Company's business or assets which executes and delivers an agreement provided
for in this Section 10(a) or which otherwise becomes bound by all the terms and
provisions of this Agreement by operation of law, including any parent or
subsidiary of such a successor.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would be payable to the Executive hereunder if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's estate or designated beneficiary. Neither this Agreement nor any
right arising hereunder may be assigned or pledged by the Executive.
11. Notice. For purpose of this Agreement, notices and all other
------
communications provided for in this Agreement or contemplated hereby shall be in
writing and shall be deemed to have been duly given when personally delivered,
delivered by a nationally recognized overnight delivery service or when mailed
United States certified or registered mail, return receipt requested, postage
prepaid, and addressed, in the case of the Company, to the Company at:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Chief Executive Officer
and in the case of the Executive, to the Executive at the address set forth on
the execution page at the end hereof.
Either party may designate a different address by giving notice of change
of address in the manner provided above, except that notices of change of
address shall be effective only upon receipt.
12. Confidentiality. The Executive shall retain in confidence any
---------------
and all confidential information concerning the Company and its respective
business which is now known or hereafter becomes known to the Executive, except
as otherwise required by law and except information (i) ascertainable or
obtained from public information, (ii) received by the Executive at any time
after the Executive's employment by the Company shall have terminated, from a
third party not employed by or otherwise affiliated with the Company or (iii)
which is or becomes known to the public by any means other than a breach of this
Section 12. Upon the Termination of employment, the Executive will not take or
keep any proprietary or confidential information or documentation belonging to
the Company.
13. Miscellaneous. No provision of this Agreement may be amended,
-------------
altered, modified, waived or discharged unless such amendment, alteration,
modification, waiver or discharge is agreed to in writing signed by the
Executive and such officer of the Company as shall be specifically designated by
the Committee or by the Board of Directors of the Company.
<PAGE>
13
No waiver by either party, at any time, of any breach by the other party of, or
of compliance by the other party with, any condition or provision of this
Agreement to be performed or complied with by such other party shall be deemed a
waiver of any similar or dissimilar provision or condition of this Agreement or
any other breach of or failure to comply with the same condition or provision at
the same time or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
14. Severability. If any one or more of the provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
hereto waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
15. Governing Law; Venue. The validity, interpretation, construction
--------------------
and performance of this Agreement shall be governed on a non-exclusive basis by
the laws of the State of Connecticut without giving effect to its conflict of
laws rules. For purposes of jurisdiction and venue, the Company and each
Employer hereby consents to jurisdiction and venue in any suit, action or
proceeding with respect to this Agreement in any court of competent jurisdiction
in the state in which Executive resides at the commencement of such suit, action
or proceeding and waives any objection, challenge or dispute as to such
jurisdiction or venue being proper.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AQUARION COMPANY:
By: /s/ Richard K. Schmidt
--------------------------------
Title: President/CEO
-----------------------------
EXECUTIVE:
/s/ Janet M. Hansen
-----------------------------------
Janet M. Hansen
___________________________________
<PAGE>
14
___________________________________
Address
<PAGE>
EXHIBIT 10(c)
The following agreement was entered into by each of Larry L. Bingaman, Charles
V. Firlotte and David A. Neaton, dated as of May 25, 1999.
CONTINUITY AGREEMENT
This Agreement (the "Agreement") is dated as of May 7,1999 by and
between AQUARION COMPANY, a Delaware corporation (the "Company"), and
_______________ (the "Executive").
WHEREAS, the Company's Board of Directors considers the continued
services of key executives of the Company to be in the best interests of the
Company and its stockholders; and
WHEREAS, the Company's Board of Directors desires to assure, and has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of key executives of the Company to their duties of employment
without personal distraction or conflict of interest in circumstances which
could arise from the occurrence of a change in control of the Company; and
WHEREAS, the Company's Board of Directors has authorized the Company
to enter into continuity agreements with those key executives of the Company and
any of its respective subsidiaries (all of such entities, with the Company
hereinafter referred to as an "Employer"), such agreements to set forth the
severance compensation which the Company agrees under certain circumstances to
pay such executives; and
WHEREAS, the Executive is a key executive of an Employer and has been
designated by the Committee as an executive to be offered such a continuity
compensation agreement with the Company (the "Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Executive agree as follows:
1. Term. This Agreement shall become effective on the date hereof
----
and remain in effect until the third anniversary thereof; provided, however,
-------- -------
that, thereafter, this Agreement shall automatically renew on each successive
anniversary, unless an Employer provides the Executive, in writing, at least 180
days prior to the renewal date, that this Agreement shall not be renewed.
Notwithstanding the foregoing, in the event that a Change in Control occurs at
any time prior to the termination of this Agreement in accordance with the
preceding sentence, this Agreement shall not terminate until the second
anniversary of the Change in Control.
2. Change in Control. No compensation or other benefit pursuant to
-----------------
Section 4 hereof shall be payable under this Agreement unless and until either
(i) a Change in Control of the Company (as hereinafter defined) shall have
occurred while the Executive is an employee of an Employer and the Executive's
employment by an Employer thereafter shall have terminated in accordance with
Section 3 hereof or (ii) the Executive's employment by the Company shall have
terminated in accordance with Section 3(a)(ii) hereof prior to the occurrence of
the Change in Control. For purposes of this Agreement, a "Change in Control"
shall be deemed to have
<PAGE>
2
occurred when:
(a) any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the Exchange Act but excluding the Company and any subsidiary and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities (other than indirectly as a result of the Company's redemption
of its securities); or
(b) the consummation of any merger or other business combination of
the Company, sale of 50% or more of the Company's assets, liquidation or
dissolution of the Company or combination of the foregoing transactions
(the "Transactions") other than a Transaction immediately following which
the shareholders of the Company and any trustee or fiduciary of any Company
employee benefit plan immediately prior to the Transaction own at least 60%
of the voting power, directly or indirectly, of (A) the surviving
corporation in any such merger or other business combination; (B) the
purchaser of or successor to the Company's assets; (C) both the surviving
corporation and the purchaser in the event of any combination of
Transactions; or (D) the parent company owning 100% of such surviving
corporation, purchaser or both the surviving corporation and the purchaser,
as the case may be; or
(c) within any twenty-four month period, the persons who were
directors immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at
least a majority of the Board or the board of directors of a successor to
the Company. For this purpose, any director who was not a director at the
beginning of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or
with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors (so long as such director was not
nominated by a person who commenced or threatened to commence an election
contest or proxy solicitation by or on behalf of a Person (other than the
Board) or who has entered into an agreement to effect a Change in Control
or expressed an intention to cause such a Change in Control).
3. Termination of Employment; Definitions.
--------------------------------------
(a) Termination without Cause by the Company or for Good Reason by
--------------------------------------------------------------
the Executive. (i) The Executive shall be entitled to the compensation
-------------
provided for in Section 4 hereof, if within two years after a Change in
Control, the Executive's employment by an Employer shall be terminated (A)
by an Employer for any reason other than (I) the Executive's Disability or
Retirement, (II) the Executive's death or (III) for
<PAGE>
3
Cause, or (B) by the Executive with Good Reason (all terms are hereinafter
defined).
(ii) In addition, the Executive shall be entitled to the compensation
provided for in Section 4 hereof if, (A) in the event that an agreement is
signed which, if consummated, would result in a Change of Control and the
Executive is terminated without Cause by the Company or terminates
employment with Good Reason prior to the Change in Control, (B) such
termination is at the direction of the acquiror or merger partner or
otherwise in connection with the anticipated Change in Control, and (C)
such Change in Control actually occurs.
(b) Disability. For purposes of this Agreement, "Disability" shall
----------
mean the Executive's absence from the full-time performance of the Executive's
duties (as such duties existed immediately prior to such absence) for 180
consecutive business days, when the Executive is disabled as a result of
incapacity due to physical or mental illness.
(c) Retirement. For purposes of this Agreement, "Retirement" shall
----------
mean the Executive's voluntary termination of employment pursuant to late,
normal or early retirement under a pension plan sponsored by an Employer, as
defined in such plan, but only if such retirement occurs prior to a termination
by an Employer without Cause or by the Executive for Good Reason.
(d) Cause. For purposes of this Agreement, "Cause" shall mean:
-----
(i) the willful and continued failure of the Executive to
perform substantially all of his or her duties with an Employer (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to such Executive by the Board of Directors (the "Board") of the Company
which specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his or her duties,
(ii) the willful engaging by the Executive in gross misconduct
which is materially and demonstrably injurious to the Company or any
Employer; or
(iii) the conviction of, or plea of guilty or nolo contendere
---- ----------
to, a felony.
Termination of the Executive for Cause shall be made by delivery to the
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a three-fourths majority of the non-employee Directors of the Company
or of the ultimate parent of the entity which caused the Change in Control (if
the Company has become a subsidiary) at a meeting of such Directors called and
held for such purpose, after 30 days prior written notice to the Executive
specifying the basis for such termination and the particulars thereof and a
reasonable opportunity for the Executive to cure or otherwise resolve the
behavior in question prior to such meeting, finding that in the reasonable
judgment of such Directors, the conduct or event set forth in any of clauses
<PAGE>
4
(i) through (iii) above has occurred and that such occurrence warrants the
Executive's termination.
(e) Good Reason. For purposes of this Agreement, "Good Reason" shall
-----------
mean the occurrence, within the Term of this Agreement, of any of the following
without the Executive's express written consent:
(iii) any material and adverse diminution in the Executive's
duties or responsibilities with the Company (or any affiliate thereof) from
those in effect immediately prior to the Change in Control; provided,
--------
however, that no such diminution shall be deemed to exist solely because of
-------
changes in Executive's duties, responsibilities or titles as a consequence
of the Company ceasing to be a company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(iv) any reduction in the Executive's annual base salary or cash
bonus percentage target from the annual base salary or cash bonus
percentage target in effect immediately prior to the Change in Control;
(v) any requirement that Executive be based at a location more
than 35 miles from the location at which the Executive was based
immediately prior to the Change in Control (or a substantial increase in
the amount of travel Executive is required to do because of a relocation of
the executive offices); and
(vi) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to the Executive to assume
and perform this Agreement, as contemplated by Section 10(a) hereof.
Notwithstanding the foregoing, in the event Executive provides the Company with
a Notice of Termination (as defined below) referencing this Section 3(e) the
Company shall have 30 days thereafter in which to cure or resolve the behavior
otherwise constituting Good Reason. Any good faith determination by Executive
that Good Reason exists shall be presumed correct and shall be binding upon the
Company.
(f) Notice of Termination. Any purported termination of the
---------------------
Executive's employment (other than on account of Executive's death) with an
Employer shall be communicated by a Notice of Termination to the Executive, if
such termination is by an Employer, or to an Employer, if such termination is by
the Executive. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated. For purposes of this Agreement, no
purported termination of Executive's employment with an Employer shall be
effective without such a Notice of Termination having been given.
<PAGE>
5
4. Compensation Upon Termination After a Change in Control.
-------------------------------------------------------
Subject to Section 9 hereof, if within two years of a Change in
Control, the Executive's employment by an Employer shall be terminated in
accordance with Section 3(a) (the "Termination"), the Executive shall be
entitled to the following payments and benefits:
(a) Severance. The Company shall pay or cause to be paid to the
Executive a cash severance amount equal to (i) the sum of (A) the
Executive's annual base salary on the date of the Change in Control (or, if
higher, the annual base salary in effect immediately prior to the giving of
the Notice of Termination, and (B) the average of the actual bonuses earned
by the Executive in respect of the two years prior to the year in which the
Change in Control occurs under the Company's Executive Incentive Award
Program, plus (ii) in lieu of the continuation of any of the Executive's
perquisites as provided under the Executive's employment agreement, a cash
payment equal to 12 percent of the Executive's annual base salary as in
effect on the date of the Change in Control for the year following the
Change in Control. This cash severance amount shall be payable in equal
monthly installments or, at the Company's election, in a lump sum
calculated without any discount.
(b) Additional Payments and Benefits. The Executive shall also be
--------------------------------
entitled to:
(i) a lump sum cash payment equal to the sum of (A) the
Executive's accrued but unpaid annual base salary through the date of
Termination, (B) the unpaid portion, if any, of bonuses previously
earned by the Executive pursuant to the Company's Executive Incentive
Award Program, plus the pro rata portion of the bonus to be paid for
the year in which the date of Termination occurs (calculated through
the date of Termination), and (C) an amount, if any, equal to
compensation previously deferred (excluding any qualified plan
deferral) and any accrued vacation pay, in each case, in full
satisfaction of Executive's rights thereto.
(ii) a lump sum cash payment equal to the aggregate sum of
(A) additional pension contributions in an amount equal to the
Company's contributions under the Company's Thrift and Savings Program
and Employee Stock Ownership Plan (or such other qualified and
nonqualified defined contribution pension plans as then in effect) for
the one-year period following the date of Termination (the "Separation
Period") (based on assumed rates of Executive's contributions at the
level of participation in effect as of the last date Executive was
permitted to participate); and (B) the difference between the present
value of the annual benefit the Executive would be entitled to receive
under the Retirement Program (if the Executive had continued
employment through the Separation Period) and the annual benefit
expressed as a life annuity under the Retirement Program accrued
thereunder as of the date of termination of
<PAGE>
6
employment, after giving effect to one year of continued credit for
age and services purposes, as if he had been paid at the rate used to
calculate the payments under Section 4(a).
(iii) continued medical, dental, vision, and life insurance
coverage (excluding accident, death, and disability insurance) for the
Executive and the Executive's eligible dependents or, to the extent
such coverage is not commercially available, such other arrangements
reasonably acceptable to the Executive, on the same basis as in effect
prior to the Change in Control or the Executive's Termination,
whichever is deemed to provide for more substantial benefits, for a
period ending on the earlier of (A) the end of the Separation Period
or (B) the commencement of comparable coverage by the Executive with a
subsequent employer;
(iv) unless it would adversely affect the Company's
ability to use pooling of interest accounting in a Change in Control
transaction in which such accounting is intended to be used, immediate
100% vesting of all outstanding stock options, stock appreciation
rights and restricted stock granted or issued by any Employer to the
extent not previously vested on or following the Change of Control;
and
(v) all other accrued or vested benefits in accordance
with the terms of the applicable plan (with an offset for any amounts
paid under Section 4(b)(i)(C), above).
All lump sum payments under this Section 4 shall be paid within 10 business days
after Executive's date of Termination. Present value for purposes of subsection
(ii) above shall be calculated 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 of employment occurred and using the actuarial factors
set forth in the Retirement Program.
(c) Outplacement. If so requested by the Executive, outplacement
------------
services shall be provided by a professional outplacement provider selected
by Executive; provided, however, that such outplacement services shall be
-------- -------
provided the Executive at a cost to the Company of not more than ten (10)
percent of such Executive's annual base salary.
(d) Withholding. Payments and benefits provided pursuant to this
-----------
Section 4 shall be subject to any applicable payroll and other taxes
required to be withheld.
5. Compensation Upon Termination for Death, Disability or
------------------------------------------------------
Retirement.
- ----------
If an Executive's employment is terminated by reason of Death,
Disability or
<PAGE>
7
Retirement prior to any other termination, Executive will receive:
(a) the sum of (i) Executive's accrued but unpaid salary through the
date of Termination, (ii) the pro rata portion of the Executive's target
bonus for the year of Executive's Death or Disability (calculated through
the date of Termination), and (iii) an amount equal to any compensation
previously deferred an any accrued vacation pay; and
(b) other accrued or vested benefits in accordance with the terms of
the applicable plan (with an offset for any amounts paid under item
(a)(iii), above.
6. Excess Parachute Excise Tax Payments.
------------------------------------
(a) (i) If it is determined (as hereafter provided) that any payment
or distribution by the Company or any Employer to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisability of any of the
foregoing (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Code (or any successor provision thereto) by reason of being
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(ii) Subject to the provisions of Section 6(a)(i) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change in Control (or,
if such Accounting Firm declines to serve, the Accounting Firm shall be a
nationally recognized firm of certified public accountants selected by the
Executive). The Accounting Firm shall be directed by the Company or the
Executive to submit its preliminary determination and detailed supporting
calculations to both the Company and the Executive within 15 calendar days after
the Termination Date, if applicable, and any other such time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to, or for the benefit of, the Executive within five
business days after receipt of such determination and calculations. If the
Accounting Firm determines that no Excise Tax is payable
<PAGE>
8
by the Executive, it shall, at the same time as it makes such determination,
furnish the Executive with an opinion that he has substantial authority not to
report any Excise Tax on his/her federal, state, local income or other tax
return. Any determination by the Accounting Firm as to the amount of the Gross-
Up Payment shall be binding upon the Company and the Executive absent a contrary
determination by the Internal Revenue Services or a court of competent
jurisdiction; provided, however, that no such determination shall eliminate or
-------- -------
reduce the Company's obligation to provide any Gross-Up Payment that shall be
due as a result of such contrary determination. As a result of the uncertainty
in the application of Section 4999 of the Code (or any successor provision
thereto) and the possibility of similar uncertainty regarding state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments that will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts or fails
to pursue its remedies pursuant to Section 6(a) hereof and the Executive
thereafter is required to make a payment of any Excise Tax, the Executive shall
direct the Accounting Firm to determine the amount of the Underpayment that has
occurred and to submit its determination and detailed supporting calculations to
both the Company and the Executive as promptly as possible. Any such
Underpayment shall be promptly paid by the Company to, or for the benefit of,
the Executive within five business days after receipt of such determination and
calculations.
(iii) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 6(a) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive (or any filing made by a consolidated tax group which
includes the Company) shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 6(a)(ii) and (iv) hereof shall be borne by the Company. If such fees
and expenses are initially advanced by the Executive, the Company shall
reimburse the Executive the full amount of such fees and expenses
<PAGE>
9
within five business days after receipt from the Executive of a statement
therefor and reasonable evidence of his/her payment thereof.
(b) In the event that the Internal Revenue Service claims that any
payment or benefit received under this Agreement constitutes an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code, the
Executive shall notify the Company in writing of such claim. Such notification
shall be given as soon as practicable but no later than 10 business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30
day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall (i) give the Company any information reasonably
requested by the Company relating to such claim; (ii) take such action in
connection with contesting such claim as the Company shall reasonably request in
writing from time to time, including without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably satisfactory to the Executive; (iii) cooperate with
the Company in good faith in order to effectively contest such claim; and (iv)
permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
- -------- -------
expenses (including, but not limited to, additional interest and penalties and
related legal, consulting or other similar fees) incurred in connection with
such contest and shall indemnify and hold the Executive harmless, on an after-
tax basis, for and against any Excise Tax or other tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.
(c) The Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
-------- -------
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis, and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that if the Executive is required to extend the statute
-------- -------
of limitations to enable the Company to contest such claim, the Executive may
limit this extension solely to such contested amount. The Company's control of
the contest shall be limited to issues with respect to which a corporate
deduction would be disallowed pursuant to Section 280G of the Code and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue
<PAGE>
10
Service or any other taxing authority. In addition, no position may be taken nor
any final resolution be agreed to by the Company without the Executive's consent
if such position or resolution could reasonably be expected to adversely affect
the Executive (including any other tax position of the Executive unrelated to
matters covered hereby).
(d) If, after the receipt by the Executive of an amount advanced by
the Company in connection with the contest of the Excise Tax claim, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto);
provided, however, if the amount of that refund exceeds the amount advanced by
- -------- -------
the Company or it is otherwise determined for any reason that additional amounts
could be paid to the Named Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to the named Executive. If, after
the receipt by the Executive of an amount advanced by the Company in connection
with an Excise Tax claim, a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest the denial of such
refund prior to the expiration of 30 days after such determination, such advance
shall be forgiven and shall not be required to be repaid and shall be deemed to
be in consideration for services rendered after the date of the Termination.
7. Expenses. In addition to all other amounts payable to the
--------
Executive under this Agreement, the Company shall pay or reimburse the Executive
for legal fees (including without limitation, any and all court costs and
attorneys' fees and expenses) incurred by the Executive in connection with or as
a result of any claim, action or proceeding brought by the Company or the
Executive with respect to or arising out of this Agreement or any provision
hereof; provided, however, that in the case of an action brought by the
-------- -------
Executive, the Company shall have no obligation for any such legal fees, if the
Company is successful in establishing with the court that the Executive's action
was frivolous or otherwise without any reasonable legal or factual basis.
8. Obligations Absolute; Non-Exclusivity of Rights; Joint Several
--------------------------------------------------------------
Liability.
- ---------
(a) The obligations of the Company to make the payment to the
Executive, and to make the arrangements, provided for herein shall be absolute
and unconditional and shall not be reduced by any circumstances, including
without limitation any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or any third party at any time.
(b) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any other Employer and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any agreements with the Company or any other
Employer.
<PAGE>
11
(c) Each entity included in the definition of "Employer" and any
successors or assigns shall be joint and severally liable with the Company under
this Agreement.
9. Not an Employment Agreement; Effect On Other Rights.
---------------------------------------------------
(a) This Agreement is not, and nothing herein shall be deemed to
create, a contract of employment between the Executive and the Company. The
Company may terminate the employment of the Executive by the Company at any
time, subject to the terms of this Agreement and/or any employment agreement or
arrangement between the Company and the Executive that may then be in effect.
(b) With respect to the Executive's employment agreement as in effect
immediately prior to the Change in Control, nothing herein shall have any effect
on the Executive's rights thereunder; provided, however, that in the event of
-------- -------
the Executive's termination of employment in accordance with Section 3 hereof,
this Agreement shall govern solely for the purpose of providing the terms of all
payments and additional benefits to which the Executive is entitled upon such
termination and any payments or benefit provided thereunder shall reduce the
corresponding type of payments or benefits hereunder. Notwithstanding the
foregoing, in the event that the Executive"s employment is terminated prior to
the occurrence of a Change in Control under the circumstances provided for in
Section 3(a)(ii) and such circumstances also entitle Executive to payments and
benefits under any other employment or other agreement as in effect prior to the
Change in Control ("Other Agreement"), then, until the Change in Control occurs,
the Executive will receive the payments and benefits to which he/she is entitled
under such Other Agreement. Upon the occurrence of the Change in Control, the
Company will pay to the Executive in cash the amount to which he/she is entitled
to under this Agreement (reduced by the amounts already paid under the Other
Agreement) in respect of cash payments and shall provide or increase any other
noncash benefits to those provided for hereunder (after taking into Account
noncash benefits, if any, provided under such Other Agreement). Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company or any other Employer shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.
10. Successors; Binding Agreement, Assignment.
-----------------------------------------
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to expressly,
absolutely and unconditionally assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in this
Agreement, "Company" shall mean (i) the Company as hereinbefore
<PAGE>
12
defined, and (ii) any successor to all the stock of the Company or to all or
substantially all of the Company's business or assets which executes and
delivers an agreement provided for in this Section 10(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation of
law, including any parent or subsidiary of such a successor.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would be payable to the Executive hereunder if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's estate or designated beneficiary. Neither this Agreement nor any
right arising hereunder may be assigned or pledged by the Executive.
11. Notice. For purpose of this Agreement, notices and all other
------
communications provided for in this Agreement or contemplated hereby shall be in
writing and shall be deemed to have been duly given when personally delivered,
delivered by a nationally recognized overnight delivery service or when mailed
United States certified or registered mail, return receipt requested, postage
prepaid, and addressed, in the case of the Company, to the Company at:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Chief Executive Officer
and in the case of the Executive, to the Executive at the address set forth on
the execution page at the end hereof.
Either party may designate a different address by giving notice of change
of address in the manner provided above, except that notices of change of
address shall be effective only upon receipt.
12. Confidentiality. The Executive shall retain in confidence any
---------------
and all confidential information concerning the Company and its respective
business which is now known or hereafter becomes known to the Executive, except
as otherwise required by law and except information (i) ascertainable or
obtained from public information, (ii) received by the Executive at any time
after the Executive's employment by the Company shall have terminated, from a
third party not employed by or otherwise affiliated with the Company or (iii)
which is or becomes known to the public by any means other than a breach of this
Section 12. Upon the Termination of employment, the Executive will not take or
keep any proprietary or confidential information or documentation belonging to
the Company.
13. Miscellaneous. No provision of this Agreement may be amended,
-------------
altered, modified, waived or discharged unless such amendment, alteration,
modification, waiver or
<PAGE>
13
discharge is agreed to in writing signed by the Executive and such officer of
the Company as shall be specifically designated by the Committee or by the Board
of Directors of the Company. No waiver by either party, at any time, of any
breach by the other party of, or of compliance by the other party with, any
condition or provision of this Agreement to be performed or complied with by
such other party shall be deemed a waiver of any similar or dissimilar provision
or condition of this Agreement or any other breach of or failure to comply with
the same condition or provision at the same time or at any prior or subsequent
time. No agreements or representations, oral or otherwise, express or implied,
with respect to the subject matter hereof have been made by either party which
are not expressly set forth in this Agreement.
14. Severability. If any one or more of the provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
hereto waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
15. Governing Law; Venue. The validity, interpretation, construction
--------------------
and performance of this Agreement shall be governed on a non-exclusive basis by
the laws of the State of Connecticut without giving effect to its conflict of
laws rules. For purposes of jurisdiction and venue, the Company and each
Employer hereby consents to jurisdiction and venue in any suit, action or
proceeding with respect to this Agreement in any court of competent jurisdiction
in the state in which Executive resides at the commencement of such suit, action
or proceeding and waives any objection, challenge or dispute as to such
jurisdiction or venue being proper.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AQUARION COMPANY:
By:________________________________
Title:____________________________
EXECUTIVE:
___________________________________
<PAGE>
14
Charles V. Firlotte
___________________________________
___________________________________
Address
<PAGE>
EXHIBIT 10(d)
CONTINUITY AGREEMENT
This Agreement (the "Agreement") is dated as of May 7,1999 by and
between AQUARION COMPANY, a Delaware corporation (the "Company"), and James S.
McInerney, Jr. (the "Executive").
WHEREAS, the Company's Board of Directors considers the continued
services of key executives of the Company to be in the best interests of the
Company and its stockholders; and
WHEREAS, the Company's Board of Directors desires to assure, and has
determined that it is appropriate and in the best interests of the Company and
its stockholders to reinforce and encourage the continued attention and
dedication of key executives of the Company to their duties of employment
without personal distraction or conflict of interest in circumstances which
could arise from the occurrence of a change in control of the Company; and
WHEREAS, the Company's Board of Directors has authorized the Company
to enter into continuity agreements with those key executives of the Company and
any of its respective subsidiaries (all of such entities, with the Company
hereinafter referred to as an "Employer"), such agreements to set forth the
severance compensation which the Company agrees under certain circumstances to
pay such executives; and
WHEREAS, the Executive is a key executive of an Employer and has been
designated by the Committee as an executive to be offered such a continuity
compensation agreement with the Company (the "Agreement").
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and the Executive agree as follows:
1. Term. This Agreement shall become effective on the date hereof
----
and remain in effect until the third anniversary thereof; provided, however,
-------- -------
that, thereafter, this Agreement shall automatically renew on each successive
anniversary, unless an Employer provides the Executive, in writing, at least 180
days prior to the renewal date, that this Agreement shall not be renewed.
Notwithstanding the foregoing, in the event that a Change in Control occurs at
any time prior to the termination of this Agreement in accordance with the
preceding sentence, this Agreement shall not terminate until the second
anniversary of the Change in Control.
2. Change in Control. No compensation or other benefit pursuant to
-----------------
Section 4 hereof shall be payable under this Agreement unless and until either
(i) a Change in Control of the Company (as hereinafter defined) shall have
occurred while the Executive is an employee of an Employer and the Executive's
employment by an Employer thereafter shall have terminated in accordance with
Section 3 hereof or (ii) the Executive's employment by the Company shall have
terminated in accordance with Section 3(a)(ii) hereof prior to the occurrence of
the Change in
<PAGE>
Control. For purposes of this Agreement, a "Change in Control" shall be deemed
to have occurred when:
(a) any "person" as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and as used in
Section 13(d) and 14(d) thereof, including a "group" as defined in Section
13(d) of the Exchange Act but excluding the Company and any subsidiary and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary (including any trustee of such plan acting as trustee), directly
or indirectly, becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities (other than indirectly as a result of the Company's redemption
of its securities); or
(b) the consummation of any merger or other business combination of
the Company, sale of 50% or more of the Company's assets, liquidation or
dissolution of the Company or combination of the foregoing transactions
(the "Transactions") other than a Transaction immediately following which
the shareholders of the Company and any trustee or fiduciary of any Company
employee benefit plan immediately prior to the Transaction own at least 60%
of the voting power, directly or indirectly, of (A) the surviving
corporation in any such merger or other business combination; (B) the
purchaser of or successor to the Company's assets; (C) both the surviving
corporation and the purchaser in the event of any combination of
Transactions; or (D) the parent company owning 100% of such surviving
corporation, purchaser or both the surviving corporation and the purchaser,
as the case may be; or
(c) within any twenty-four month period, the persons who were
directors immediately before the beginning of such period (the "Incumbent
Directors") shall cease (for any reason other than death) to constitute at
least a majority of the Board or the board of directors of a successor to
the Company. For this purpose, any director who was not a director at the
beginning of such period shall be deemed to be an Incumbent Director if
such director was elected to the Board by, or on the recommendation of or
with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors (so long as such director was not
nominated by a person who commenced or threatened to commence an election
contest or proxy solicitation by or on behalf of a Person (other than the
Board) or who has entered into an agreement to effect a Change in Control
or expressed an intention to cause such a Change in Control).
3. Termination of Employment; Definitions.
--------------------------------------
(a) Termination without Cause by the Company or for Good Reason by
--------------------------------------------------------------
the Executive. (i) The Executive shall be entitled to the compensation
-------------
provided for in Section 4 hereof, if within two years after a Change in
Control, the Executive's employment by an Employer shall be terminated (A)
by an Employer for any reason other than (I) the Executive's Disability or
Retirement, (II) the Executive's death or (III) for Cause, or (B) by the
Executive with Good Reason (all terms are hereinafter defined).
(ii) In addition, the Executive shall be entitled to the compensation
provided for in Section 4 hereof if, (A) in the event that an agreement is
signed which, if consummated, would result in a Change of Control and the
Executive is terminated
<PAGE>
3
without Cause by the Company or terminates employment with Good Reason
prior to the Change in Control, (B) such termination is at the direction of
the acquiror or merger partner or otherwise in connection with the
anticipated Change in Control, and (C) such Change in Control actually
occurs.
(b) Disability. For purposes of this Agreement, "Disability" shall
----------
mean the Executive's absence from the full-time performance of the Executive's
duties (as such duties existed immediately prior to such absence) for 180
consecutive business days, when the Executive is disabled as a result of
incapacity due to physical or mental illness.
(c) Retirement. For purposes of this Agreement, "Retirement" shall
----------
mean the Executive's voluntary termination of employment pursuant to late,
normal or early retirement under a pension plan sponsored by an Employer, as
defined in such plan, but only if such retirement occurs prior to a termination
by an Employer without Cause or by the Executive for Good Reason.
(d) Cause. For purposes of this Agreement, "Cause" shall mean:
-----
(i) the willful and continued failure of the Executive to
perform substantially all of his or her duties with an Employer (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to such Executive by the Board of Directors (the "Board") of the Company
which specifically identifies the manner in which the Board believes that
the Executive has not substantially performed his or her duties,
(ii) the willful engaging by the Executive in gross misconduct
which is materially and demonstrably injurious to the Company or any
Employer; or
(iii) the conviction of, or plea of guilty or nolo contendere
---- ----------
to, a felony.
Termination of the Executive for Cause shall be made by delivery to the
Executive of a copy of a resolution duly adopted by the affirmative vote of not
less than a three-fourths majority of the non-employee Directors of the Company
or of the ultimate parent of the entity which caused the Change in Control (if
the Company has become a subsidiary) at a meeting of such Directors called and
held for such purpose, after 30 days prior written notice to the Executive
specifying the basis for such termination and the particulars thereof and a
reasonable opportunity for the Executive to cure or otherwise resolve the
behavior in question prior to such meeting, finding that in the reasonable
judgment of such Directors, the conduct or event set forth in any of clauses (i)
through (iii) above has occurred and that such occurrence warrants the
Executive's termination.
(e) Good Reason. For purposes of this Agreement, "Good Reason" shall
-----------
mean the occurrence, within the Term of this Agreement, of any of the following
without the Executive's express written consent:
<PAGE>
4
(iii) any material and adverse diminution in the Executive's
duties or responsibilities with the Company (or any affiliate thereof) from
those in effect immediately prior to the Change in Control; provided,
--------
however, that no such diminution shall be deemed to exist solely because of
-------
changes in Executive's duties, responsibilities or titles as a consequence
of the Company ceasing to be a company with publicly-traded securities or
becoming a wholly-owned subsidiary of another company;
(iv) any reduction in the Executive's annual base salary or
cash bonus percentage target from the annual base salary or cash bonus
percentage target in effect immediately prior to the Change in Control;
(v) any requirement that Executive be based at a location more
than 35 miles from the location at which the Executive was based
immediately prior to the Change in Control (or a substantial increase in
the amount of travel Executive is required to do because of a relocation of
the executive offices);
(vi) any failure by the Company to obtain from any successor to
the Company an agreement reasonably satisfactory to the Executive to assume
and perform this Agreement, as contemplated by Section 10(a) hereof; and
(vii) during the thirty-day period immediately following the
first anniversary of the Change in Control, the voluntary termination of
employment by the Executive for any reason or no reason at all.
Notwithstanding the foregoing, in the event Executive provides the Company with
a Notice of Termination (as defined below) referencing this Section 3(e) (with
the exception of Section 3(e)(vii)), the Company shall have 30 days thereafter
in which to cure or resolve the behavior otherwise constituting Good Reason.
Any good faith determination by Executive that Good Reason exists shall be
presumed correct and shall be binding upon the Company.
(f) Notice of Termination. Any purported termination of the
---------------------
Executive's employment (other than on account of Executive's death) with an
Employer shall be communicated by a Notice of Termination to the Executive, if
such termination is by an Employer, or to an Employer, if such termination is by
the Executive. For purposes of this Agreement, "Notice of Termination" shall
mean a written notice which shall indicate the specific termination provision in
this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated; provided, however, that in
-------- -------
connection with a termination for Good Reason under Section 3(e)(vii), no
details shall be necessary other than reference to such Section. For purposes
of this Agreement, no purported termination of Executive's employment with an
Employer shall be effective without such a Notice of Termination having been
given.
<PAGE>
4. Compensation Upon Termination After a Change in Control.
-------------------------------------------------------
Subject to Section 9 hereof, if within two years of a Change in
Control, the Executive's employment by an Employer shall be terminated in
accordance with Section 3(a) (the "Termination"), the Executive shall be
entitled to the following payments and benefits:
(a) Severance. The Company shall pay or cause to be paid to the
---------
Executive a cash severance amount equal to (i) two times the sum of (A) the
Executive's annual base salary on the date of the Change in Control (or, if
higher, the annual base salary in effect immediately prior to the giving of
the Notice of Termination, and (B) the average of the actual bonuses earned
by the Executive in respect of the two years prior to the year in which the
Change in Control occurs under the Company's Executive Incentive Award
Program, plus (ii) in lieu of the continuation of any of the Executive's
perquisites as provided under the Executive's employment agreement a cash
payment equal to 12 percent of the Executive's annual base salary as in
effect on the date of the Change in Control for each of the two years
following the Change in Control. This cash severance amount shall be
payable in equal monthly installments or, at the Company's election, in a
lump sum calculated without any discount.
(b) Additional Payments and Benefits. The Executive shall also be
--------------------------------
entitled to:
(i) a lump sum cash payment equal to the sum of (A) the
Executive's accrued but unpaid annual base salary through the date of
Termination, (B) the unpaid portion, if any, of bonuses previously
earned by the Executive pursuant to the Company's Executive Incentive
Award Program, plus the pro rata portion of the bonus to be paid for
the year in which the date of Termination occurs (calculated through
the date of Termination), and (C) an amount, if any, equal to
compensation previously deferred (excluding any qualified plan
deferral) and any accrued vacation pay, in each case, in full
satisfaction of Executive's rights thereto.
(ii) a lump sum cash payment equal to the aggregate sum of
(A) additional pension contributions in an amount equal to the
Company's contributions under the Company's Thrift and Savings Program
and Employee Stock Ownership Plan (or such other qualified and
nonqualified defined contribution pension plans as then in effect) for
the two-year period following the date of Termination (the "Separation
Period") (based on assumed rates of Executive's contributions at the
level of participation in effect as of the last date Executive was
permitted to participate); and (B) the difference between the present
value of the annual benefit the Executive would be entitled to receive
under the Retirement Program (if the Executive had continued
employment through the Separation Period) and the annual benefit
expressed as a life annuity under the Retirement Program accrued
thereunder as of the date of termination of employment, after giving
effect to two years of continued credit for age and
<PAGE>
6
services purposes, as if he had been paid at the rate used to
calculate the payments under Section 4(a).
(iii) continued medical, dental, vision, and life insurance
coverage (excluding accident, death, and disability insurance) for the
Executive and the Executive's eligible dependents or, to the extent
such coverage is not commercially available, such other arrangements
reasonably acceptable to the Executive, on the same basis as in effect
prior to the Change in Control or the Executive's Termination,
whichever is deemed to provide for more substantial benefits, for a
period ending on the earlier of (A) the end of the Separation Period
or (B) the commencement of comparable coverage by the Executive with a
subsequent employer;
(iv) unless it would adversely affect the Company's
ability to use pooling of interest accounting in a Change in Control
transaction in which such accounting is intended to be used, immediate
100% vesting of all outstanding stock options, stock appreciation
rights and restricted stock granted or issued by any Employer to the
extent not previously vested on or following the Change of Control;
and
(v) all other accrued or vested benefits in accordance
with the terms of the applicable plan (with an offset for any amounts
paid under Section 4(b)(i)(C), above).
All lump sum payments under this Section 4 shall be paid within 10 business
days after Executive's date of Termination. Present value for purposes of
subsection (ii) above shall be calculated 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 of employment occurred and
using the actuarial factors set forth in the Retirement Program.
(c) Outplacement. If so requested by the Executive, outplacement
------------
services shall be provided by a professional outplacement provider selected
by Executive; provided, however, that such outplacement services shall be
-------- -------
provided the Executive at a cost to the Company of not more than ten (10)
percent of such Executive's annual base salary.
(d) Withholding. Payments and benefits provided pursuant to this
-----------
Section 4 shall be subject to any applicable payroll and other taxes
required to be withheld.
5. Compensation Upon Termination for Death, Disability or
------------------------------------------------------
Retirement.
- ----------
If an Executive's employment is terminated by reason of Death,
Disability or Retirement prior to any other termination, Executive will receive:
<PAGE>
7
(a) the sum of (i) Executive's accrued but unpaid salary through the
date of Termination, (ii) the pro rata portion of the Executive's target
bonus for the year of Executive's Death or Disability (calculated through
the date of Termination), and (iii) an amount equal to any compensation
previously deferred an any accrued vacation pay; and
(b) other accrued or vested benefits in accordance with the terms of
the applicable plan (with an offset for any amounts paid under item
(a)(iii), above.
6. Excess Parachute Excise Tax Payments.
------------------------------------
(a) (i) If it is determined (as hereafter provided) that any payment
or distribution by the Company or any Employer to or for the benefit of the
Executive, whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement or otherwise pursuant to or by reason of any other
agreement, policy, plan, program or arrangement, including without limitation
any stock option, stock appreciation right or similar right, or the lapse or
termination of any restriction on or the vesting or exercisability of any of the
foregoing (a "Payment"), would be subject to the excise tax imposed by Section
4999 of the Code (or any successor provision thereto) by reason of being
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such excise tax (such tax or taxes, together with any such interest
and penalties, are hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments (a
"Gross-Up Payment") in an amount such that, after payment by the Executive of
all taxes (including any interest or penalties imposed with respect to such
taxes), including any Excise Tax, imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(ii) Subject to the provisions of Section 6(a)(i) hereof, all
determinations required to be made under this Section 6, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required and the amount of such Gross-Up Payment,
shall be made by the nationally recognized firm of certified public accountants
(the "Accounting Firm") used by the Company prior to the Change in Control (or,
if such Accounting Firm declines to serve, the Accounting Firm shall be a
nationally recognized firm of certified public accountants selected by the
Executive). The Accounting Firm shall be directed by the Company or the
Executive to submit its preliminary determination and detailed supporting
calculations to both the Company and the Executive within 15 calendar days after
the Termination Date, if applicable, and any other such time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to, or for the benefit of, the Executive within five
business days after receipt of such determination and calculations. If the
Accounting Firm determines that no Excise Tax is payable by the Executive, it
shall, at the same time as it makes such determination, furnish the Executive
with an opinion that he has substantial authority not to report any Excise Tax
on his/her federal, state, local income or other tax return. Any determination
by the Accounting Firm as to the
<PAGE>
8
amount of the Gross-Up Payment shall be binding upon the Company and the
Executive absent a contrary determination by the Internal Revenue Services or a
court of competent jurisdiction; provided, however, that no such determination
-------- -------
shall eliminate or reduce the Company's obligation to provide any Gross-Up
Payment that shall be due as a result of such contrary determination. As a
result of the uncertainty in the application of Section 4999 of the Code (or any
successor provision thereto) and the possibility of similar uncertainty
regarding state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments that will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts or fails to pursue its remedies pursuant to Section
6(a) hereof and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(iii) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determination
contemplated by Section 6(a) hereof.
(iv) The federal, state and local income or other tax returns
filed by the Executive (or any filing made by a consolidated tax group which
includes the Company) shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Tax, and at the request of the Company, provide to the Company true and
correct copies (with any amendments) of his/her federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting Firm
determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(v) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Sections 6(a)(ii) and (iv) hereof shall be borne by the Company. If such fees
and expenses are initially advanced by the Executive, the Company shall
reimburse the Executive the full amount of such fees and expenses within five
business days after receipt from the Executive of a statement therefor and
reasonable evidence of his/her payment thereof.
<PAGE>
9
(b) In the event that the Internal Revenue Service claims that any
payment or benefit received under this Agreement constitutes an "excess
parachute payment," within the meaning of Section 280G(b)(1) of the Code, the
Executive shall notify the Company in writing of such claim. Such notification
shall be given as soon as practicable but no later than 10 business days after
the Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the 30
day period following the date on which the Executive gives such notice to the
Company (or such shorter period ending on the date that any payment of taxes
with respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall (i) give the Company any information reasonably
requested by the Company relating to such claim; (ii) take such action in
connection with contesting such claim as the Company shall reasonably request in
writing from time to time, including without limitation, accepting legal
representation with respect to such claim by an attorney reasonably selected by
the Company and reasonably satisfactory to the Executive; (iii) cooperate with
the Company in good faith in order to effectively contest such claim; and (iv)
permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
- -------- -------
expenses (including, but not limited to, additional interest and penalties and
related legal, consulting or other similar fees) incurred in connection with
such contest and shall indemnify and hold the Executive harmless, on an after-
tax basis, for and against any Excise Tax or other tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses.
(c) The Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of such claim and may, at its sole option, either direct
the Executive to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and the Executive agrees to prosecute such contest to
a determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
-------- -------
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive on an interest-free basis, and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or other tax
(including interest and penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and provided, further, that if the Executive is required to extend the statute
-------- -------
of limitations to enable the Company to contest such claim, the Executive may
limit this extension solely to such contested amount. The Company's control of
the contest shall be limited to issues with respect to which a corporate
deduction would be disallowed pursuant to Section 280G of the Code and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority. In
addition, no position may be taken nor any final resolution be agreed to by the
Company without the Executive's consent if such position or resolution could
reasonably be expected to adversely affect the Executive (including any other
tax position of the Executive unrelated to matters covered hereby).
<PAGE>
10
(d) If, after the receipt by the Executive of an amount advanced by
the Company in connection with the contest of the Excise Tax claim, the
Executive becomes entitled to receive any refund with respect to such claim, the
Executive shall promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto);
provided, however, if the amount of that refund exceeds the amount advanced by
- -------- -------
the Company or it is otherwise determined for any reason that additional amounts
could be paid to the Named Executive without incurring any Excise Tax, any such
amount will be promptly paid by the Company to the named Executive. If, after
the receipt by the Executive of an amount advanced by the Company in connection
with an Excise Tax claim, a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest the denial of such
refund prior to the expiration of 30 days after such determination, such advance
shall be forgiven and shall not be required to be repaid and shall be deemed to
be in consideration for services rendered after the date of the Termination.
7. Expenses. In addition to all other amounts payable to the
--------
Executive under this Agreement, the Company shall pay or reimburse the Executive
for legal fees (including without limitation, any and all court costs and
attorneys' fees and expenses) incurred by the Executive in connection with or as
a result of any claim, action or proceeding brought by the Company or the
Executive with respect to or arising out of this Agreement or any provision
hereof; provided, however, that in the case of an action brought by the
-------- -------
Executive, the Company shall have no obligation for any such legal fees, if the
Company is successful in establishing with the court that the Executive's action
was frivolous or otherwise without any reasonable legal or factual basis.
8. Obligations Absolute;; Non-Exclusivity of Rights; Joint Several
---------------------------------------------------------------
Liability.
- ----------
(a) The obligations of the Company to make the payment to the
Executive, and to make the arrangements, provided for herein shall be absolute
and unconditional and shall not be reduced by any circumstances, including
without limitation any set-off, counterclaim, recoupment, defense or other right
which the Company may have against the Executive or any third party at any time.
(b) Nothing in this Agreement shall prevent or limit the Executive's
continuing or future participation in any benefit, bonus, incentive or other
plan or program provided by the Company or any other Employer and for which the
Executive may qualify, nor shall anything herein limit or reduce such rights as
the Executive may have under any agreements with the Company or any other
Employer.
(c) Each entity included in the definition of "Employer" and any
successors or assigns shall be joint and severally liable with the Company under
this Agreement.
9. Not an Employment Agreement; Effect On Other Rights.
---------------------------------------------------
<PAGE>
11
(a) This Agreement is not, and nothing herein shall be deemed to
create, a contract of employment between the Executive and the Company. The
Company may terminate the employment of the Executive by the Company at any
time, subject to the terms of this Agreement and/or any employment agreement or
arrangement between the Company and the Executive that may then be in effect.
(b) With respect to the Executive's employment agreement as in effect
immediately prior to the Change in Control, nothing herein shall have any effect
on the Executive's rights thereunder; provided, however, that in the event of
-------- -------
the Executive's termination of employment in accordance with Section 3 hereof,
this Agreement shall govern solely for the purpose of providing the terms of all
payments and additional benefits to which the Executive is entitled upon such
termination and any payments or benefit provided thereunder shall reduce the
corresponding type of payments or benefits hereunder. Notwithstanding the
foregoing, in the event that the Executive's employment is terminated prior to
the occurrence of a Change in Control under the circumstances provided for in
Section 3(a)(ii) and such circumstances also entitle Executive to payments and
benefits under any other employment or other agreement as in effect prior to the
Change in Control ("Other Agreement"), then, until the Change in Control occurs,
the Executive will receive the payments and benefits to which he/she is entitled
under such Other Agreement. Upon the occurrence of the Change in Control, the
Company will pay to the Executive in cash the amount to which he/she is entitled
to under this Agreement (reduced by the amounts already paid under the Other
Agreement) in respect of cash payments and shall provide or increase any other
noncash benefits to those provided for hereunder (after taking into Account
noncash benefits, if any, provided under such Other Agreement). Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company or any other Employer shall be payable
in accordance with such plan or program, except as explicitly modified by this
Agreement.
10. Successors; Binding Agreement, Assignment.
-----------------------------------------
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business of the Company, by agreement to expressly,
absolutely and unconditionally assume and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. Failure of the Company to obtain such
agreement prior to the effectiveness of any such succession shall be a material
breach of this Agreement and shall entitle the Executive to terminate the
Executive's employment with the Company or such successor for Good Reason
immediately prior to or at any time after such succession. As used in this
Agreement, "Company" shall mean (i) the Company as hereinbefore defined, and
(ii) any successor to all the stock of the Company or to all or substantially
all of the Company's business or assets which executes and delivers an agreement
provided for in this Section 10(a) or which otherwise becomes bound by all the
terms and provisions of this Agreement by operation of law, including any parent
or subsidiary of such a successor.
<PAGE>
12
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive should
die while any amount would be payable to the Executive hereunder if the
Executive had continued to live, all such amounts, unless otherwise provided
herein, shall be paid in accordance with the terms of this Agreement to the
Executive's estate or designated beneficiary. Neither this Agreement nor any
right arising hereunder may be assigned or pledged by the Executive.
11. Notice. For purpose of this Agreement, notices and all other
------
communications provided for in this Agreement or contemplated hereby shall be in
writing and shall be deemed to have been duly given when personally delivered,
delivered by a nationally recognized overnight delivery service or when mailed
United States certified or registered mail, return receipt requested, postage
prepaid, and addressed, in the case of the Company, to the Company at:
Aquarion Company
835 Main Street
Bridgeport, Connecticut 06601
Attention: Chief Executive Officer
and in the case of the Executive, to the Executive at the address set forth on
the execution page at the end hereof.
Either party may designate a different address by giving notice of change
of address in the manner provided above, except that notices of change of
address shall be effective only upon receipt.
12. Confidentiality. The Executive shall retain in confidence any
---------------
and all confidential information concerning the Company and its respective
business which is now known or hereafter becomes known to the Executive, except
as otherwise required by law and except information (i) ascertainable or
obtained from public information, (ii) received by the Executive at any time
after the Executive's employment by the Company shall have terminated, from a
third party not employed by or otherwise affiliated with the Company or (iii)
which is or becomes known to the public by any means other than a breach of this
Section 12. Upon the Termination of employment, the Executive will not take or
keep any proprietary or confidential information or documentation belonging to
the Company.
13. Miscellaneous. No provision of this Agreement may be amended,
-------------
altered, modified, waived or discharged unless such amendment, alteration,
modification, waiver or discharge is agreed to in writing signed by the
Executive and such officer of the Company as shall be specifically designated by
the Committee or by the Board of Directors of the Company. No waiver by either
party, at any time, of any breach by the other party of, or of compliance by the
other party with, any condition or provision of this Agreement to be performed
or complied with by such other party shall be deemed a waiver of any similar or
dissimilar provision or condition of this Agreement or any other breach of or
failure to comply with the same condition
<PAGE>
13
or provision at the same time or at any prior or subsequent time. No agreements
or representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement.
14. Severability. If any one or more of the provisions of this
------------
Agreement shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not be affected thereby. To the extent permitted by applicable law, each party
hereto waives any provision of law which renders any provision of this Agreement
invalid, illegal or unenforceable in any respect.
15. Governing Law; Venue. The validity, interpretation, construction
--------------------
and performance of this Agreement shall be governed on a non-exclusive basis by
the laws of the State of Connecticut without giving effect to its conflict of
laws rules. For purposes of jurisdiction and venue, the Company and each
Employer hereby consents to jurisdiction and venue in any suit, action or
proceeding with respect to this Agreement in any court of competent jurisdiction
in the state in which Executive resides at the commencement of such suit, action
or proceeding and waives any objection, challenge or dispute as to such
jurisdiction or venue being proper.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be an original and all of which shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
AQUARION COMPANY:
By: /s/ Richard K. Schmidt
--------------------------------
Title: President/CEO
-------------------------
EXECUTIVE:
/s/ James S. McInerney
-----------------------------------
James S. McInerney
___________________________________
___________________________________
Address
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 30, 1999 AQUARION COMPANY FOR 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,159
<SECURITIES> 0
<RECEIVABLES> 15,890
<ALLOWANCES> 2,240
<INVENTORY> 4,865
<CURRENT-ASSETS> 47,280
<PP&E> 502,613
<DEPRECIATION> 153,078
<TOTAL-ASSETS> 465,024
<CURRENT-LIABILITIES> 35,447
<BONDS> 141,380
0
0
<COMMON> 11,395
<OTHER-SE> 140,164
<TOTAL-LIABILITY-AND-EQUITY> 465,024
<SALES> 53,286
<TOTAL-REVENUES> 53,286
<CGS> 0
<TOTAL-COSTS> 25,275
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 52
<INTEREST-EXPENSE> 5,005
<INCOME-PRETAX> 13,058
<INCOME-TAX> 5,140
<INCOME-CONTINUING> 7,918
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,918
<EPS-BASIC> 0.70
<EPS-DILUTED> 0.67
</TABLE>
