SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Fiscal Year ended December 31, 1998 No. 0-422
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MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Ronson Road, Iselin, New Jersey 08830-3020
- ------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
(732) 634-1500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
- ------------------- -------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par Value
--------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
<PAGE>
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 19, 1999 was $122,103,067 based on the closing market price
of $24.875 per share.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 19, 1999
----- -----------------------------
Common Stock, No par Value 4,908,666
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Documents Incorporated by Reference
Proxy Statement to be filed in connection with the Registrant's Annual Meeting
of Shareholders to be held on May 26, 1999 as to Part III.
<PAGE>
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
PART I
Item 1. Business:
General
Retail Sales
Contract Sales
Contract Services
Financial Information
Water Supplies and Contracts
Competition
Regulation
Regulation of Rates and Services
Water Quality and Environmental Regulations
Employees
Executive Officers of Middlesex Water Company
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote
of Security Holders
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters:
Price Range of Common Stock
Approximate Number of Equity Security
Holders as of December 31, 1997
Dividends
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 7a. Qualitative and Quantitative Disclosures
About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Signatures
Exhibit Index
<PAGE>
PART I
Item 1. Business
--------
Middlesex Water Company was incorporated as a water utility company in
1897 and operates water utility systems in central and southern New Jersey and
in Delaware as well as a wastewater utility in southern New Jersey. The water
utility system in central New Jersey, which we call the "Middlesex System,"
produced 87.8% of the Company's 1998 revenues. The Middlesex System treats,
stores and distributes water for residential, commercial, industrial and fire
prevention purposes.
Our Middlesex System provides water services to approximately 54,000
retail customers, primarily in eastern Middlesex County, New Jersey and provides
water on a contracted basis to the Township of Edison, the Boroughs of Highland
Park and Sayreville, the City of South Amboy and both the Old Bridge and the
Marlboro Township Municipal Utilities Authorities. Under a special contract, the
Middlesex System also provides water treatment and pumping services to the
Township of East Brunswick.
The Middlesex System's retail customers are located in an area of
approximately 55 square miles in Woodbridge Township, the Boroughs of Metuchen
and Carteret, portions of Edison Township and the Borough of South Plainfield in
Middlesex County and a portion of the Township of Clark in Union County. The
retail customers include a mix of residential customers, large industrial
concerns and commercial and light industrial facilities. These retail customers
are located in generally well developed areas of central New Jersey. The
contract customers of the Middlesex System comprise an area of approximately 141
square miles with a population of approximately 267,000. Contract sales to
Edison, Sayreville, Old Bridge and Marlboro are supplemental to the existing
water systems of these customers. The State of New Jersey in the mid-1980's
approved plans to increase available surface water supply to these and other
municipalities in the South River Basin area of the State through contracts with
water suppliers outside the South River Basin. The State saw this as a way to
reduce the use of ground water and depletion of acquifers. Our long-term
contracts to pump treated surface water to East Brunswick, Marlboro, Old Bridge,
Sayreville and South Amboy are consistent with the State approved plan.
We have five wholly-owned subsidiaries:
o Tidewater Utilities, Inc. ("Tidewater"), together with Tidewater's
wholly-owned subsidiary, Public Water Supply Company, Inc.
("Public"), provide water services to 11,300 retail customers for
residential, commercial and fire protection purposes in over 100
separate community water systems in Kent, Sussex and New Castle
Counties, Delaware. We refer to our Delaware operations as the
"Tidewater Systems". The Tidewater Systems produced approximately
8.8% of our total revenues in 1998. Tidewater has another
wholly-owned subsidiary, White Marsh Environmental Systems, Inc.,
which owns the office building that Tidewater uses as its business
office.
o Pinelands Water Company services 2,200 residential customers in
Burlington County, New Jersey. We refer to this water utility as
the "Pinelands System." The Pinelands System produced approximately
0.8% of our total revenues in 1998.
-1
<PAGE>
o Pinelands Wastewater Company services approximately 2,200 primarily
residential retail customers and, under contract, one municipal
wastewater system in Burlington County, New Jersey with about 200
residential customers. We refer to this wastewater utility as the
"Pinelands Wastewater System." The Pinelands Wastewater System
produced approximately 1.5% of our total revenues in 1998.
o Utility Service Affiliates, Inc., along with Middlesex Water
Company, entered into a five-year contract with the City of South
Amboy, New Jersey to operate and maintain the city's 2,600 customer
water system in May 1995. The contract is renewable for up to three
additional five-year periods. We refer to this subsidiary as "USA."
USA produced approximately 1.1% of our total revenues in 1998.
Middlesex Water Company has negotiated the acquisition, subject to
Board of Public Utilities (BPU) approval, of a franchise to provide
water service and to install water system facilities in South
Amboy. Assuming BPU approval is obtained, Middlesex Water Company
will operate and maintain the system on a retail basis.
o Utility Service Affiliates (Perth Amboy) Inc., which we refer to as
"USA-PA," along with Middlesex Water Company, signed an agreement
on December 8, 1998 with the City of Perth Amboy (the City) and the
Middlesex County Improvement Authority (MCIA). Under that
agreement, USA-PA will operate and maintain the City's water system
and the wastewater system for 20 years. USA-PA will be paid a fixed
fee and a variable fee based on increased system billings. Fixed
fee payments to USA-PA in the agreement rise from $6.4 million in
the first year to $9.7 by year 20. The agreement also requires
USA-PA to lease from the City all of the City's employees who
currently work on the City's water system or wastewater system. In
connection with the agreement, the City of Perth Amboy, through the
MCIA issued $68.0 million in three series of bonds. One of those
series of bonds, in principal amount of $26.3 million, is
guaranteed by the Company. The City guaranteed the two other series
of bonds. The Company also guaranteed the performance of our
subsidiary, USA-PA. USA-PA entered into a subcontract with a sewer
contracting firm for the operation and maintenance of the City's
wastewater system. City employees who now work on the City's
wastewater system are subleased by the subcontractor from USA-PA.
Of the $6.4 million fixed fee payable to USA-PA in the first year
of the agreement, $3.0 million will be payable to the
subcontractor. The variable fee payable by USA-PA to the
subcontractor would be based on a portion of the increased billings
attributable to the wastewater system. USA-PA began to operate and
maintain the City's systems on January 1, 1999.
-2-
<PAGE>
Financial Information
---------------------
Consolidated operating revenues and operating income relating
primarily to operating water utilities are as follows:
<TABLE>
<CAPTION>
(000's)
Years Ended December 31,
------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Operating Revenues ............. $43,058 $40,294 $38,025
======= ======= =======
Operating Income ............... $ 9,149 $ 8,768 $ 8,222
======= ======= =======
</TABLE>
Operating revenues were derived from the following sources:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Residential ................. 41.4% 40.3% 39.7%
Commercial .................. 11.4 11.4 11.4
Industrial .................. 15.8 16.5 17.4
Fire Protection ............. 11.5 11.6 12.2
Contract Sales .............. 17.5 18.3 17.8
Other ....................... 2.4 1.9 1.5
----- ----- -----
TOTAL .................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Water Supplies and Contracts
----------------------------
Our water utility plant consists of sources of supply, pumping, water
treatment, transmission, distribution and general facilities located in New
Jersey and Delaware. Our New Jersey and Delaware water supply systems are
physically separate and are not interconnected. In addition, in New Jersey, the
Pinelands System is not interconnected with the Middlesex System. In the opinion
of management, we have adequate sources of water supply to meet the current and
anticipated future service requirements of our present customers in New Jersey
and Delaware.
Middlesex System:
Our Middlesex System obtains water from both surface sources and from
wells which we call groundwater sources. In 1998, surface sources of water
provided approximately 68.1% of the Middlesex System's water supply, groundwater
from wells provided approximately 25.0% and the balance of 6.9% was purchased
from Elizabethtown Water Company ("Elizabethtown"), a nonaffiliated water
utility. Middlesex System's distribution storage facilities are used to supply
water to its customers at times of peak demand, outages and emergencies.
-3
<PAGE>
The principal source of surface supply for the Middlesex System is the
Delaware and Raritan Canal (D&R Canal), owned by the State of New Jersey and
operated as a water resource by the New Jersey Water Supply Authority ("NJWSA").
Under a multistate compact, the NJWSA is entitled to divert water from the
Delaware River through the D&R Canal. This supply, together with water in the
Round Valley and Spruce Run Reservoir System, provide a safe yield of 225
million gallons per day (mgd), which supplies our Middlesex System and other
large water purveyors contractually regulated by the NJWSA. We have contracts
with the NJWSA to divert a minimum of 20 mgd of untreated water from the D&R
Canal. In addition, we have a one year agreement for an additional 5 mgd,
renewed through April 30, 1999. We also have an agreement with Elizabethtown,
effective through December 31, 2005, which provides for the minimum purchase of
3 mgd of treated water with provisions for additional purchases. This contract
also allows us to purchase additional water from Elizabethtown on an emergency
basis.
Our Middlesex System also derives water from groundwater sources
equipped with electric motor driven deep well turbine type pumps. The Middlesex
System has 32 wells, which provide an aggregate pump capacity of approximately
27 mgd.
The Middlesex System's groundwater sources are:
<TABLE>
<CAPTION>
1998 Maximum Daily
Pumpage Pump
No. of (millions of Capacity
Middlesex System Wells gallons) (mgd) Location
---------------- ----- -------- ----- --------
<S> <C> <C> <C> <C>
Park Avenue 15 10.8 15.2 South Plainfield
Tingley Lane North 4 3.2 2.8 Edison
Tingley Lane South 5 2.9 2.6 Edison
Spring Lake 4 1.2 2.8 South Plainfield
Sprague Avenue #1 1 1.1 1.1 South Plainfield
Sprague Avenue #2 1 1.3 1.3 South Plainfield
Maple Avenue 1 1.0 0.9 South Plainfield
Thermal Well 1 0.2 0.2 Edison
--
Total 32
</TABLE>
Tidewater Systems:
Water supply to Delaware customers is derived from the Tidewater
Systems' 119 wells which provided overall system delivery of 523 million gallons
during 1998. The Tidewater Systems do not have a central treatment facility.
Several of its water systems in Sussex County and New Castle County, Delaware
have interconnected transmission systems. Treatment is by chlorination and, in
some cases, pH correction and filtration.
-4-
<PAGE>
Pinelands System:
The Pinelands System obtains its water supply from four wells drilled
into the Mt. Laurel aquifer. The wells are equipped with three electric motor
driven deep well turbine pumps and one is equipped with a electric motor driven
submersible pump. Disinfection is done at individual well sites, which are
located in Southampton Township, New Jersey. The wells have an aggregate pump
capacity of 2.2 mgd. In 1998, the maximum daily pumpage was 2.1 million gallons.
Pinelands Wastewater System:
The Pinelands Wastewater System discharges into the South Branch of the
Rancocas Creek through a tertiary treatment plant that provides clarification,
sedimentation, filtration and disinfection. The total capacity of the plant is
0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid
discharge permit issued by the New Jersey Department of Environmental Protection
("DEP").
Competition
-----------
Our business in our franchised service areas is substantially free from
direct competition with other public utilities, municipalities and other
entities. However, our ability to provide some contract water supply and
wastewater services and operations and maintenance services is subject to
competition from other public utilities, municipalities and other entities.
Although the Tidewater System has been granted an exclusive franchise for each
of its existing community water systems, its ability to expand service areas has
been affected by the Delaware Department of Natural Resources and Environmental
Control (DNREC) awarding franchises to other regulated water purveyors,
including franchises granted to community water systems around and in between
the Tidewater Systems service areas.
Regulation
----------
We are subject to regulation as to our rates, services and other
matters by the states of New Jersey and Delaware with respect to utility service
within those states and with respect to environmental and water quality matters.
We are also subject to environmental and water quality regulation by the United
States Environmental Protection Agency ("EPA").
Regulation of Rates and Services
--------------------------------
New Jersey operations are subject to regulation by the BPU. Similarly,
our Delaware operations are subject to regulation by the Public Service
Commission (PSC). These regulatory authorities have jurisdiction with respect to
rates, service, accounting procedures, the issuance of securities and other
matters. In determining our rates, the BPU and the PSC consider the income,
expenses, rate base of property used and useful in providing service to the
public and a fair rate of return on that property. Rate determinations by the
BPU do not guarantee particular rates of return to the Company for our New
Jersey operations nor do rate determinations by the PSC guarantee particular
rates of return for our Delaware operations. Thus, we may not achieve the rates
of return allowed by the BPU or the PSC.
-5-
<PAGE>
We filed a petition with the BPU on September 17, 1998 for a 21.9% rate
increase to include the $38 million costs of the CJO Plant Project in our rate
base and to recover certain other of our costs which have increased. The Company
anticipates that a BPU determination with respect to this petition may not be
made until the summer of 1999. There can be no assurance that the rate increase
will be granted or, if granted, that it will be in the amount we requested.
We anticipate that we may file with the PSC during 1999 for a rate
increase for the Tidewater Systems, which may also include a request to combine
Tidewater and Public into a single entity.
Water Quality and Environmental Regulations
-------------------------------------------
Both the EPA and the DEP regulate our operations in New Jersey with
respect to water supply, treatment and distribution systems and the quality of
the water, as do the EPA, the DNREC, and the Delaware Department of Health with
respect to operations in Delaware.
Federal, Delaware and New Jersey regulations adopted over the past five
years relating to water quality require expanded types of testing by the Company
to insure that its water meets State and Federal water quality requirements. In
addition, environmental regulatory agencies are reviewing current regulations
governing the limits of certain organic compounds found in the water as
byproducts of treatment. The Company believes the Carl J. Olsen Water Treatment
Plant (CJO Plant) upgrade and expansion will allow the Company to be in a
stronger position to meet any such future regulations with regard to its
Middlesex System. Regular testing of our water demonstrates that we are in
compliance with existing Federal, New Jersey and Delaware primary water quality
standards.
The DEP and the Delaware Department of Health monitor the activities of
the Company and review the results of water quality tests performed by the
Company for adherence to applicable regulations. Other regulations applicable to
the Company include the Lead and Copper Rule, the maximum contaminant levels
established for various volatile organic compounds, the Federal Surface Water
Treatment Rule, and the Total Coliform Rule.
Employees
---------
As of December 31, 1998, we had a total of 144 employees in New Jersey,
and a total of 30 employees in Delaware. No employees are represented by a
union. Management considers its relations with its employees to be satisfactory.
Wages and benefits are reviewed annually and are considered competitive within
the industry. As part of USA-PA's agreement with the City of Perth Amboy, 40
employees currently working in the City's water and wastewater systems are
leased by USA-PA. The City employees are represented by several unions and are
subject to contract negotiations with the City.
Executive Officers of Middlesex Water Company
---------------------------------------------
Walter J. Brady - age 57; Senior Vice President-Administration; term expires May
1999. Mr. Brady, who joined the Company in 1962, was elected Assistant
Secretary-Assistant Treasurer in 1979, Assistant Vice President in 1982, Vice
President-Human Resources in 1987, Vice President-Administration in 1989 and
Senior Vice President of Administration in 1998. He serves as Plan Administrator
of the Pension Plan. He is a Director of Tidewater Utilities, Inc., White Marsh
Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater
Company and Utility Service Affiliates, Inc., and an Officer and Director of
Utility Service Affiliates (Perth Amboy) Inc.
-6-
<PAGE>
A. Bruce O'Connor - age 40; Vice President and Controller; term expires May
1999. Mr. O'Connor, a Certified Public Accountant, joined the Company in 1990 as
Assistant Controller and was elected Controller in 1992 and Vice President in
1995. He assumed the designated title of Vice President and Controller and Chief
Financial Officer in May 1996. He is responsible for financial reporting,
customer service, rate cases, cash management and financings. He was formerly
employed by Deloitte & Touche LLP, a certified public accounting firm from 1984
to 1990. He is an Officer and Director of Tidewater Utilities, Inc., Public
Water Supply Company, Inc., Pinelands Water Company, Pinelands Wastewater
Company and an Officer of White Marsh Environmental Systems, Inc., Utility
Service Affiliates, Inc. and Utility Service Affiliates (Perth Amboy) Inc.
Marion F. Reynolds - age 59; Vice President, Secretary and Treasurer; term
expires May 1999. Ms. Reynolds, who had been Secretary-Treasurer since 1987 was
elected Vice President, Secretary and Treasurer in 1993. Prior to her election
she had been employed by Public Service Electric and Gas Company, Newark, New
Jersey since 1958, and was elected Assistant Corporate Secretary in 1976. She is
an Officer of Tidewater Utilities, Inc., Utility Service Affiliates (Perth
Amboy) Inc., Pinelands Water Company and Pinelands Wastewater Company and a
Director of Utility Service Affiliates, Inc.
Richard A. Russo - age 53; Executive Vice President; term expires May 1999. Mr.
Russo, who had been Vice President-Operations since 1989 was elected Executive
Vice President in 1995 and is responsible for engineering, water production,
water treatment and distribution maintenance. He was formerly employed by
Trenton Water Works as General Superintendent and Chief Engineer since 1979. He
is President and Director of Tidewater Utilities, Inc., White Marsh
Environmental Systems, Inc., Public Water Supply Company, Inc., Pinelands Water
Company and Pinelands Wastewater Company. He is also Executive Vice President
and Director of Utility Service Affiliates, Inc. and Utility Service Affiliates
(Perth Amboy) Inc.
Dennis G. Sullivan - age 57; Vice President and General Counsel, Assistant
Secretary-Assistant Treasurer; term expires May 1999. Mr. Sullivan was hired in
1984 as Corporate Attorney, responsible for general corporate internal legal
matters. He was elected Assistant Secretary-Assistant Treasurer in 1988 and Vice
President and General Counsel in 1990. He was employed in a private law practice
from 1981 to 1984 as a staff attorney. He is an Officer and Director of
Tidewater Utilities Inc., White Marsh Environmental Systems, Inc., Public Water
Supply Company, Inc., Utility Service Affiliates, Inc., and Utility Service
Affiliates (Perth Amboy) Inc. and a Director of Pinelands Water Company and
Pinelands Wastewater Company.
J. Richard Tompkins - age 60; Chairman of the Board and President; term expires
May 1999. Mr. Tompkins was elected President of the Company in 1981 and was
elected Chairman of the Board in 1990. In 1979 he was employed by Associated
Utility Services, an independent utility consulting firm in New Jersey, as Vice
President. From 1962 to 1979 he was employed by Buck, Seifert & Jost,
Incorporated, consulting engineers in New Jersey and was appointed Vice
President in 1973. He is Chairman and Director of Tidewater Utilities, Inc.,
White Marsh Environmental Systems, Inc., Pinelands Water Company and Pinelands
Wastewater Company; Director of Public Water Supply Company, Inc. and Director
and President of Utility Service Affiliates, Inc. and Utility Service Affiliates
(Perth Amboy) Inc. He is also a Director of New Jersey Utilities Association and
Raritan Bay Healthcare Foundation.
-7-
<PAGE>
Ronald F. Williams - age 50; Vice President-Operations; term expires May 1999.
Mr. Williams was hired in March 1995 as Assistant Vice President-Operations,
responsible for the Company's Engineering and Distribution Departments. He was
elected Vice President-Operations in October 1995. He was formerly employed with
the Garden State Water Company as President and Chief Executive Officer since
1991. He is an Officer and Director of Utility Service Affiliates, Inc., and
Utility Service Affiliates (Perth Amboy) Inc.
Item 2. Properties
----------
The water and wastewater utility properties of our systems consist of
source of supply, pumping, water treatment, transmission and distribution,
wastewater collection and treatment and general facilities.
Middlesex System:
The Middlesex System's principal source of surface supply is the D&R
Canal owned by the State of New Jersey and operated as a water resource by the
NJWSA.
Water is withdrawn from the D&R Canal at New Brunswick, New Jersey
through our intake and pumping station located on State owned land bordering the
Canal. It is transported through our 54 inch supply main for treatment and
distribution at the CJO Plant. Facilities at the CJO Plant consist of source of
supply, pumping, water treatment, transmission, storage, laboratory and general
facilities. We monitor water quality at the CJO Plant, at each well field and
throughout the distribution system to determine that federal and state water
quality standards are met.
The design capacity of the intake and pumping station in New Brunswick,
New Jersey, is 80 mgd. The four electric motor driven vertical turbine pumps
presently installed have an aggregate design capacity of 65 mgd. The station is
designed to permit its pumping capacity to be increased to 80 mgd by the
installation of additional pumping units. The design capacity of our raw water
supply main is 55 mgd. We also have a 58,600 foot transmission main; a long term
lease agreement with the City of Perth Amboy for the use of a 38,800 foot
transmission main; and a long term, nonexclusive "wheeling agreement" with the
East Brunswick system, all used to transport water to several of our contract
customers. The lease agreement with the City of Perth Amboy includes an option
to purchase the transmission main at the end of the lease term.
The CJO Plant includes chemical storage and chemical feed equipment,
dual rapid mixing basins, four reinforced concrete mechanical flocculation
compartments, four underground reinforced concrete settling basins, eight rapid
filters containing gravel, sand and anthracite for water treatment and a steel
washwater tank. The firm design capacity of the CJO Plant is now 30 mgd (45 mgd
maximum capacity). The main pumping station at the CJO Plant has a design
capacity of 90 mgd. The four electric motor driven vertical turbine pumps
presently installed have an aggregate capacity of 65 mgd.
In addition to the main pumping station at the CJO Plant, there is a 15
mgd auxiliary pumping station located in a separate building. It has a dedicated
substation and emergency power supply provided by a diesel-driven generator. It
pumps from the 10 million gallon distribution storage reservoir directly into
the distribution system.
-8-
<PAGE>
In November 1997 construction began on the upgrade, expansion and
addition of facilities at the CJO Plant and related water intake station, which
we refer to as "The Project." The Project includes the installation of new flash
mixers and new chemical storage and feed facilities. The existing conventional
sedimentation basins are being replaced by high rate upflow clarifiers that are
intended to remove turbidity more effectively . The chlorine application point
is being relocated from preclarification to postclarification. The existing
sedimentation basins are to be used as chlorine contact basins. Four additional
filters are being added to the CJO Plant, a new laboratory is being constructed,
and a computerized Supervisory Control and Data Acquisition (SCADA) system is
being added to monitor and control the CJO Plant and our water supply and
distribution system in central New Jersey. Upgrades are also being made to the
heating, ventilating, air conditioning and the electrical system at the CJO
Plant and to the pumping equipment at our raw water pump station.
The Project will upgrade the CJO Plant to meet the new and anticipated
regulatory changes concerning water quality, as well as increase capacity to
meet peak-day demands. The firm capacity of the CJO Plant is being increased
from about 30 mgd to 45 mgd (we define firm capacity as the capacity when the
largest unit is out of service).
The Project also involves changes to the raw water pump station which
delivers water from the D&R Canal to the CJO Plant, a distance of about one
mile. The station capacity is being increased by replacing one existing pump
with a larger pump. The firm capacity of the raw water pump station is being
increased from about 35 mgd to 45 mgd. Functional completion of the Project (by
which we mean the ability to produce water) is scheduled for June, 1999, with
final completion set for October, 1999.
The total cost of the Project, including design, engineering and
capitalized interest, will be approximately $38 million. Of this amount, we
expended $7.9 million through March 31, 1998 from operations of our central New
Jersey system. In March, 1998, we issued our 5.35% Series W Mortgage Bonds which
provided an additional $23 million. The remainder of the cost of the Project
will be funded from proceeds of our December 1998 common stock offering.
We have a RENEW Program in the Middlesex System to clean and line with
cement previously unlined cast iron mains. There are approximately 170 miles of
unlined cast iron mains in the 670 mile Middlesex System. In 1999, we will clean
and line approximately nine miles of unlined mains.
Middlesex System's storage facilities consist of a 10 mg reservoir at
the CJO Plant, 5 mg and 2 mg reservoirs in Edison, a 5 mg reservoir in Carteret
and a 2 mg reservoir at the Park Avenue Well Field.
We own the properties in New Jersey on which Middlesex System's 32
wells are located. We also own our headquarters complex at 1500 Ronson Road,
Iselin, New Jersey, consisting of a 27,000 square foot, two story office
building and an adjacent 16,500 square foot maintenance facility.
Tidewater Systems:
The Tidewater Systems' storage facilities include 21 ground level
storage tanks with the following capacities: eleven 30,000 gallon tanks, five
25,000 gallon tanks, three 120,000 gallon tanks, one 135,000 gallon tank, one
82,000 gallon tank and one elevated storage tank with a capacity of 250,000
gallons.
-9-
<PAGE>
Our Delaware operations are managed from Tidewater's leased offices in
Odessa, Delaware and from Public's leased offices in Millsboro, Delaware.
Tidewater's office property, which is owned by its wholly-owned subsidiary,
White Marsh Environmental Systems, Inc., consists of a 2,400 square foot
building situated on a one (1) acre lot.
Pinelands System:
Pinelands Water Company owns well site properties which are located in
Southampton Township, New Jersey. Pinelands Water storage facility is a 1.2 mg
standpipe.
Pinelands Wastewater System:
Pinelands Wastewater Company owns a 12 acre site on which its 0.5 mgd
capacity tertiary treatment plant is located.
Item 3. Legal Proceedings
-----------------
A motel in our Middlesex service area originally filed claims against
us in 1990 alleging financial losses due to improper water pressure and service
and also seeking punitive damages. Subsequently in 1994, and again in 1997, the
motel suffered outbreaks of legionella, resulting in the 1997 shutdown of the
motel by the New Jersey Department of Health. The motel amended its claims to
assert that we provided water containing the legionella bacteria. The motel is
in bankruptcy. A bank creditor of the motel has joined in the motel's claim
against us. We believe that the motel's claims are not supportable. Claims
resulting from the death of a motel guest from legionella in 1997 and claims by
two other patrons alleging illness as a result of their stay at the motel in
1997 have been brought against the motel and against us. We have substantial
insurance coverage, which we believe will be sufficient for all claims in this
matter other than for punitive damages. We do not believe the motel's claims for
punitive damages will prevail. While the outcome of this case remains uncertain,
we believe that the final resolution will not have a significant effect on our
financial condition or results of operation.
A 1995 fire at a warehouse in our service territory resulted in
multiple party claims brought forth in the Superior Court for Middlesex County,
New Jersey, as well as, with the financial collapse of the principal tenant, in
the Federal Bankruptcy Court. The claims in the State court action are for
unspecified amounts but include claims against us for insufficient water
pressure and supply. The Bankruptcy Court has stayed all claims against the
tenant except, to the extent the tenant is insured, claims brought by us arising
from claims made against us by other tenants and the landlord. Under New Jersey
case law, we will not have financial responsibility to parties to the extent
they receive payments under their own insurance policies. We do not know either
the total amount of claims against us or how much of that amount will be covered
by the parties' own insurance policies. Our counsel in the litigation advises us
that the case is unlikely to be resolved rapidly. We believe we have substantial
defenses to the claims against us, although we do not have insurance coverage
for them.
-10-
<PAGE>
The Company has been notified of a potential claim of $1.5 million
involving the break of both a Company water line and an underground electric
power cable in close proximity to it. The power cable contained both electric
lines and a petroleum based insulating fluid. The Company is insured for damages
except for damages resulting from pollution discharge. Causation and liability
has not been established.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters Price Range of Common Stock
-----------------------------------
The following table shows the range of closing prices for the
Common Stock on the NASDAQ Stock Market for the calendar quarter indicated.
<TABLE>
<CAPTION>
1998 High Low Dividend
---- ---- --- --------
<S> <C> <C> <C>
First Quarter $22 1/2 $19 7/8 $0.28 1/2
Second Quarter 21 1/4 19 1/4 0.28 1/2
Third Quarter 22 20 1/8 0.28 1/2
Fourth Quarter 25 3/4 21 1/4 0.29 1/2
<CAPTION>
1997 High Low Dividend
---- ---- --- --------
<S> <C> <C> <C>
First Quarter $18 $17 $0.28
Second Quarter 17 7/8 16 3/8 0.28
Third Quarter 19 1/4 16 3/8 0.28
Fourth Quarter 22 1/2 18 0.28 1/2
</TABLE>
Approximate Number of Equity Security Holders as of December 31, 1998
---------------------------------------------------------------------
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No Par Value 2,305
Cumulative Preferred Stock, No Par Value:
$7 Series 17
$4.75 Series 1
Cumulative Convertible Preferred Stock, No Par Value:
$7 Series 4
$8 Series 5
-11-
<PAGE>
Dividends
---------
The Company has paid dividends on its Common Stock each year since
1912. Although it is the present intention of the Board of Directors of the
Company to continue to pay regular quarterly cash dividends on its Common Stock,
the payment of future dividends is contingent upon the future earnings of the
Company, its financial condition and other factors deemed relevant by the Board
of Directors at its discretion.
The Common Stock of the Company is traded on the NASDAQ Stock
Market under the symbol MSEX.
Item 6. Selected Financial Data
-----------------------
Consolidated Selected Financial Data, page 20.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
The companies referred to herein are defined in Note 1(a), Notes to the
Consolidated Financial Statements, included in Item 8 in Part II of this Form
10-K.
Liquidity and Capital Resources
The Company's actual capital expenditures for 1997 and 1998 and
projected requirements through 2001 are detailed as follows:
<TABLE>
<CAPTION>
(in millions)
1997 1998 1999 2000 2001
------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
CJO Plant ..................... $ 3.1 $ 18.6 $ 15.0 $ -- $ --
Delaware Systems .............. 1.4 3.2 5.8 3.3 1.1
RENEW Program ................. 1.8 2.1 2.0 2.0 2.0
Scheduled upgrades to
existing systems ............ 4.4 3.4 3.8 5.1 6.7
------- ------- ------- ------- ------
Total ...................... $ 10.7 $ 27.3 $ 26.6 $ 10.4 $ 9.8
------- ------- ------- ------- ------
</TABLE>
Our plan to finance these projects is underway. Net proceeds from the
$23.0 million Series W First Mortgage Bonds and the December 1998, $12.7 million
common stock offering will be used to finance the Carl J. Olsen Water Treatment
Plant (CJO Plant) expenditures in 1999. Middlesex issued $2.2 million of First
Mortgage Bonds through the New Jersey State Revolving Fund to cover the cost of
the 1999 RENEW Program, which is our program to clean and cement line
approximately nine miles of unlined mains in the Middlesex System. There is a
total of approximately 170 miles of unlined mains in the 670 mile Middlesex
System. We expect to apply for similar funds in 1999 for the years 2000 and 2001
RENEW Programs. The financing of our Delaware subsidiaries' capital program may
be a combination of a capital contribution from Middlesex and long-term debt
financing from either a financial institution or the Company. The debt financing
decision will be based upon the terms of financing available to our Delaware
subsidiaries. We expect to be able to cover the costs of scheduled upgrades to
the existing systems with the cash flow generated from our utility operations
through the year 2001.
-12-
<PAGE>
The Company currently has eight series of First Mortgage Bonds
outstanding in the aggregate principal amount of $74.7 million. The First
Mortgage Bonds have been issued under and secured by a mortgage indenture and
supplements thereto which constitute a direct first mortgage lien upon
substantially all of the property of Middlesex. Tidewater borrowed funds under a
$3.5 million, 8.05% Amortizing Secured Note due December 20, 2021. Approximately
$3.4 million was outstanding under that note as of December 31, 1998.
From time to time it may be necessary to utilize all or part of the
$28.0 million in total lines of credit we have available with three commercial
banks for working capital purposes or to provide interim funds until long-term
financing is arranged. At December 31, 1998, we had $1.0 million of loans
outstanding against those lines of credit.
Results of Operations
1998 Compared to 1997
Operating Revenues were up $2.8 million or 6.9% over 1997. The increase
was attributable to several factors. Rate increases accounted for $1.7 million
of additional revenues. In January 1998, Middlesex implemented a BPU approved
rate increase of 4.4%, and Pinelands Water and Wastewater Companies implemented
the second part of a three phase rate increase. The final phase was put in place
in January 1999. In addition, $0.5 million was added to revenues by the
inclusion of Public for the entire year of 1998 compared to five months in 1997.
Public was acquired on July 31, 1997. The continued double-digit growth of 11.5%
in Tidewater's customer base also contributed $0.5 million in revenues.
Higher revenues were partially offset by increased operating expenses
of $2.4 million or 7.6%. The increases were related primarily to the following
factors. Purchased water and water treatment expenses reflected a combined
increase of $0.2 million as a result of Middlesex changing the composition of
the water sources it uses to supply its customers. Purchased power increased
$0.2 million due in part to a large credit Middlesex received in 1997 from its
power provider. Mandated recognition of postretirement benefit costs other than
pensions and amortization of BPU approved regulatory deferrals added $0.5
million and $0.2 million, respectively, to expenses. Labor costs were higher by
$0.5 million, and the inclusion of Public's expenses for a full year accounted
for $0.3 million of the increase.
Depreciation expense increased $0.2 million or 7.0% based on newly
constructed utility plant placed in service in 1998 and utility plant acquired
through the acquisition of Public.
Other Taxes increased $0.3 million and related mostly to
revenue-related taxes and employers' payroll taxes. The decrease in Federal
income taxes is due to a lower amount of deferred taxes, which offset an
increased amount of current taxable income.
Other income increased $1.4 million compared to 1997. An increase of
$0.9 million in Allowance for Funds Used During Construction was related to the
capital expenditures incurred in connection with the upgrade of the CJO Plant.
Interest income rose $0.5 million as a result of the unexpended proceeds
available for investment from the Series W Mortgage Bonds issued in March 1998.
-13-
<PAGE>
Total interest charges rose $1.1 million. This increase reflects $0.9
million of interest expense related to the Series W Mortgage Bonds and increased
interest of $0.2 million on a higher level of short-term borrowings under
existing lines of credit incurred to finance the capital program on an interim
basis.
The $0.1 million increase in preferred stock dividend requirements
reflects the issuance on July 31, 1997, of the $8.00 preferred stock series to
complete the acquisition of Public. Basic and diluted earnings per share
increased $0.09 and $0.08, respectively over 1997. The $0.01 per share dilution
in 1998 is the result of the two series of convertible preferred stock currently
outstanding.
Results of Operations
1997 Compared to 1996
Net income increased 13.4% to $5.9 million in 1997 compared with $5.2
million in the prior year. Operating revenues increased by $2.3 million to $40.3
million due to favorable weather conditions in New Jersey and Delaware,
continued growth in Tidewater's customer base of 12%, rate increases implemented
by the Pinelands Companies, increased contract revenues from USA and the
inclusion of Public's operating results since August 1997.
Somewhat offsetting the effect of increased revenues were higher
operations and maintenance expenses of $0.7 million or 3.7%, which reflected
increased purchased water of $0.3 million; transmission and distribution
expenses of $0.3 million; administrative and general expenses of $0.2 million
and the inclusion of operating expenses for Public of $0.2 million. These
increases were offset by reductions in purchased power and water treatment
expenses of $0.3 million.
Depreciation expense increased 4.8% due to a higher level of
depreciable plant in service. Other taxes increased $0.2 million and were
related primarily to revenue-related taxes. A higher level of taxable income
resulted in a $0.6 million increase in federal taxes.
Regulatory Matters
On December 8, 1998, the Company's newly formed subsidiary, USA-PA,
entered into a 20-year agreement with the City of Perth Amboy, New Jersey (Perth
Amboy) and the Middlesex County Improvement Authority (MCIA) to operate and
maintain the water and wastewater systems of Perth Amboy. USA-PA began operating
the City's systems on January 1, 1999.
Perth Amboy has a population of 40,000 and has approximately 9,500
customers, most of whom are served by both systems. The agreement is being
effected under New Jersey's Water Supply Public-Private Contracting Act and the
New Jersey Wastewater Public/Private Contracting Act. Under the agreement,
USA-PA will receive a fixed fee and a variable fee based on increased system
billing. Fixed fee payments begin at $6.4 million in the first year and increase
to $9.7 in year 20. The agreement also requires USA-PA to lease from Perth Amboy
all of its employees who currently work on the Perth Amboy water and wastewater
systems. In connection with the agreement, Perth Amboy, through the MCIA, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
-14-
<PAGE>
In addition to the agreement with Perth Amboy, effective January 1,
1999, USA-PA entered into a 20-year subcontract with a sewer contracting firm
for the operation and maintenance of the Perth Amboy wastewater system. The
subcontract requires the sharing of certain fixed and variable fees and
operating expenses.
In December 1998, Middlesex filed a petition with the Board of Public
Utilities of the State of New Jersey (BPU) for approval of a franchise ordinance
to provide retail water service and install water system facilities in the City
of South Amboy (South Amboy). A favorable decision by the BPU will result in the
elimination of an existing wholesale water sales contract and a significant
modification to an existing management service contract between the Company and
South Amboy. A decision from the BPU is expected in the second quarter of 1999.
On September 17, 1998, Middlesex filed a petition with the BPU for a
base rate increase of $8.0 million or 21.9%. Approximately 75% of the increase
is necessary to recover the investment in the upgrade and expansion of the CJO
Plant serving our central New Jersey water system. The purpose of the upgrade is
to meet the new and anticipated regulatory standards concerning water quality,
as well as to increase the plant's production capacity. A decision by the BPU is
expected in the summer of 1999.
On January 29, 1998, the BPU approved an increase in the rates of
Middlesex by 4.4% or $1.5 million. The original petition was filed in November
1996. Under the approval, the allowed return on equity is 11.0% with an overall
rate of return of 8.56%. The increase includes the recovery of postretirement
costs other than pension expenses which are mandated by the Company's compliance
with Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions."
In January 1997, the BPU approved a stipulation agreed to by the
parties to the Pinelands Water and Wastewater Companies' rate cases which were
filed in February 1996. The stipulations allow for a combined rate increase
which will result in $0.4 million additional revenues. The new rates were phased
in over a three-year period to minimize the impact on customers. The three
phases were implemented in January 1999, 1998 and 1997, respectively.
Accounting Standards
In June 1998, The Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts. The Company is currently evaluating the requirements of the
accounting standard, which is required to be adopted in the first quarter of
2000.
SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits," revises and standardizes disclosure requirements for
pension and other post-retirement benefit plans but does not change the
measurement or recognition of those plans. Effective January 1, 1998, the
Company adopted SFAS No. 132. See Note 9 to the Consolidated Financial
Statements.
-15-
<PAGE>
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting certain financial and
descriptive information about operating segments in complete sets of financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. The Company has evaluated SFAS No. 131
and has determined that at December 31, 1998, there are no disclosure
requirements that would impact the Company's financial statements.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards
for reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. At December 31, 1998, the Company
does not have any significant items of comprehensive income that would effect
the current reporting of the Company's financial position, results of operations
or cash flows.
Year 2000 Disclosure
- --------------------
Software used in many computer systems and computerized control devices
was designed to record only the last two digits of each year. This software,
some of which we own, may not function properly as of January 1, 2000, because
it interprets the new year as 1900. An internal Year 2000 (Y2K) Committee was
formed to evaluate the readiness of our existing computer systems and to design
contingency plans to protect against service interruption.
Under the direction of the Y2K Committee, our own computer systems were
tested to make certain that those systems will work properly when identifying
date information. All of the data processing systems serving our financial
reporting, customer billing, customer information, shareholder records and
payroll, are outsourced. Those vendors have certified that their systems have
been tested and will work properly. Certification was also received from the
vendor constructing the new automated control system at the CJO Plant as to its
Y2K readiness. This system provides centralized control over all the critical
components of the Middlesex water production, distribution and storage systems.
We believe we may rely on those certifications. We expect to spend up to $10,000
to make certain other systems, including our network of desktop personal
computers, Y2K ready. Nonetheless, it is possible that not every Y2K affected
computerized control device of ours has been identified. Even if identified, we
may not be able to reprogram or replace those devices in time to avoid date
identification problems.
More importantly, we are concerned about the failure of computer
systems and control devices used by vendors who deliver critical materials and
services that are used by us in providing water and wastewater service. Some of
these critical vendors provide us with electric power, raw water, finished
water, telecommunications, water treatment chemicals, fuel and residual removal
services. The Y2K Committee has performed the following steps to evaluate the
effect of these outside factors.
Internal information is under review regarding chemical and fuel
storage capacity, production capabilities using alternative power, manpower
requirements for manual system operations (including financial) and emergency
communication systems.
Middlesex is a member of the BPU Y2K Industry Task Force, which allows
us to monitor the Y2K progress of several of our critical utility service
providers. Task force meetings allow for the sharing of ideas with members that
offer the same utility services.
-16-
<PAGE>
A questionnaire on Y2K readiness was sent to every vendor determined to
be critical to the uninterrupted water and wastewater service that is provided
by the Company. We expect to receive the majority of the responses before March
31, 1999, and to incorporate those responses into our contingency plan by June
1, 1999. The contingency plans must be submitted to the BPU and the Delaware
Public Service Commission.
Qualitative and Quantitative Disclosures About Market Risk
The Company is subject to the risk of fluctuating interest rates in the
normal course of business. Our policy is to manage interest rates through the
use of fixed rate long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months
approximately $0.1 million of the current portion of three existing long-term
debt instruments will mature. Combining this amount with the $1.0 million in
short-term debt outstanding at December 31, 1998 and applying a hypothetical
change in the rate of interest charged by 10% on those borrowings, would not
have a material effect on earnings.
Outlook
Revenues are expected to improve in 1999. USA-PA will contribute to
increased revenues generated from the 20-year service agreement with the City of
Perth Amboy to operate and manage their water and wastewater systems.
Anticipated customer growth in Delaware and the third phase of the Pinelands
rate increase should also add to revenues. The level of earnings may be impacted
by the outcome of the Middlesex base rate increase petition currently under
review by the BPU and the Company's ability to maintain costs at reasonable
levels. Revenues may also be affected by weather conditions.
Tidewater and Public are currently evaluating the need to petition the
Delaware Public Service Commission for an increase in rates to reflect
additional construction, financing and operating costs since rates were last
established in 1991 and 1992, respectively.
Our strategy is for continued growth through acquisitions, internal
expansion, public/private partnerships and rate relief. Opportunities in both
the regulated and non-regulated sectors that are financially sound, complement
existing operations and increase shareholder value will be pursued.
Certain matters discussed in this annual report are "forward-looking
statements" intended to qualify for safe harbors from liability established by
the Private Securities Litigation Reform Act of 1995. Such statements address
future plans, objectives, expectations and events concerning various matters
such as capital expenditures, earnings, litigation, growth potential, rates,
regulatory matters, liquidity, capital resources and accounting matters. Actual
results in each case could differ materially from those currently anticipated in
such statements. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise.
-17-
<PAGE>
Item 7a. Qualitative and Quantitative Disclosure
About Market Risk
---------------------------------------
This information is incorporated herein by reference to Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Page 17.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Consolidated Financial Statements and Supplementary Financial Data:
Consolidated Balance Sheets at December 31, 1998 and 1997, Page 21.
Consolidated Statements of Income for the years ended December 31, 1998, 1997
and 1996, Page 23.
Consolidated Statements of Capital Stock and Long-term Debt at December 31, 1998
and 1997, Page 24.
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996, Page 25.
Consolidated Statements of Retained Earnings for the years ended December 31,
1998 and 1997, Page 26.
Notes to Consolidated Financial Statements, Pages 27-38.
Independent Auditors' Report, Page 39.
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosures
-------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information with respect to Directors of Middlesex Water Company is
included in Middlesex Water Company's Proxy Statement for the 1999 Annual
Meeting of Stockholders and is incorporated herein by reference.
Information regarding the Executive Officers of Middlesex Water
Company is included in Part I, Item I of this Form 10-K.
Item 11. Executive Compensation
----------------------
This Information for Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management
--------------
This information for Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
-18-
<PAGE>
Item 13. Certain Relationships and Related Transactions
----------------------------------------------
This information for Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. The following Financial Statements and supplementary data are included in
Part II, Item 8:
Management's Discussion and Analysis, Pages 12-17.
Consolidated Balance Sheets at December 31, 1998, and 1997, Pages 21-22.
Consolidated Statements of Income for the years ended December 31, 1998, 1997
and 1996 Page 23.
Consolidated Statements of Capital Stock and Long-term Debt at December 31,
1998, and 1997, Page 24.
Consolidated Statements of Cash Flows for the years ended December 31, 1998,
1997 and 1996, Page 25.
Consolidated Statements of Retained Earnings for the years ended December 31,
1998, 1997 and 1996, Page 26.
Notes to Consolidated Financial Statements, Pages 27-38.
Independent Auditors' Report, Page 39.
(a) 2. Financial Statement Schedules
-----------------------------
All Schedules are omitted because of the absence of the conditions under which
they are required or because the required information is shown in the financial
statements or notes thereto.
(a) 3. Exhibits
--------
See Exhibit listing on Pages 41-44.
(b) Reports on Form 8-K
-------------------
Filed December 10, 1998
Filed February 5, 1999
-19-
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
1998 1997 1996 1995 1994 1993 1988
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Revenues ................. $ 43,058 $ 40,294 $ 38,025 $ 37,847 $ 36,122 $ 35,479 $ 24,034
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operations and Maintenance ...... 21,523 19,513 18,817 18,057 16,975 16,783 11,247
Depreciation .................... 3,285 3,071 2,929 2,814 2,650 2,376 1,317
Other Taxes ..................... 6,102 5,782 5,569 5,479 5,343 5,222 3,869
Income Taxes .................... 2,999 3,135 2,526 2,975 2,766 3,072 1,781
- ---------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses ........ 33,909 31,501 29,841 29,325 27,734 27,453 18,214
- ---------------------------------------------------------------------------------------------------------------------------------
Operating Income ................... 9,149 8,793 8,184 8,522 8,388 8,026 5,820
Other Income ....................... 1,795 405 288 303 151 576 351
- ---------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charge.... 10,944 9,198 8,472 8,825 8,539 8,602 6,171
- ---------------------------------------------------------------------------------------------------------------------------------
Interest Charges ................... 4,423 3,337 3,304 3,121 3,044 3,122 2,545
- ---------------------------------------------------------------------------------------------------------------------------------
Net Income .............. 6,521 5,861 5,168 5,704 5,495 5,480 3,626
Preferred Stock Dividend ........... 319 226 159 159 188 256 175
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 6,202 $ 5,635 $ 5,009 $ 5,545 $ 5,307 $ 5,224 $ 3,451
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per Share:
Basic ........................ $ 1.42 $ 1.33 $ 1.20 $ 1.36 $ 1.33 $ 1.33 $ 1.14
Diluted ...................... $ 1.41 $ 1.33 $ 1.20 $ 1.36 $ 1.32 $ 1.33 $ 1.14
Average Shares Outstanding:
Basic ........................ 4,353,879 4,235,082 4,169,334 4,078,890 4,003,393 3,924,363 3,030,802
Diluted ...................... 4,580,305 4,382,345 4,258,740 4,168,296 4,092,799 4,013,769 3,030,802
Dividends Declared and Paid ........ $ 1.15 $ 1.121/2 $ 1.101/2 $ 1.081/2 $ 1.053/4 $ 1.011/4 $ .863/4
Total Assets ....................... $ 203,501 $ 159,761 $ 148,660 $ 144,822 $ 132,413 $ 125,676 $ 88,827
Convertible Preferred Stock ........ $ 3,894 $ 3,894 $ 1,566 $ 1,566 $ 1,566 $ 1,566 $ --
Long-term Debt ..................... $ 78,032 $ 52,918 $ 52,961 $ 52,960 $ 49,500 $ 37,000 $ 39,350
- ---------------------------------------------------------------------------------------------------------------------------------
20
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
UTILITY PLANT Water Production $ 28,154,961 $ 27,689,254
Transmission and Distribution 118,234,900 113,104,789
General 19,300,406 18,845,301
Construction Work in Progress 25,794,061 5,683,217
-----------------------------------------------------------------------------------------
TOTAL 191,484,328 165,322,561
Less Accumulated Depreciation 32,367,936 30,251,825
-----------------------------------------------------------------------------------------
UTILITY PLANT - NET 159,116,392 135,070,736
-----------------------------------------------------------------------------------------
NONUTILITY ASSETS - NET 3,710,437 2,038,568
- ---------------------------------------------------------------------------------------------------------------
CURRENT ASSETS: Cash and Cash Equivalents 9,388,822 2,513,294
Temporary Cash Investments - Restricted 9,776,072 218,787
Accounts Receivable 4,886,067 3,794,860
Unbilled Revenues 2,298,148 2,175,934
Materials and Supplies (at average cost) 906,866 960,577
Prepayments 528,348 387,487
-----------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 27,784,323 10,050,939
- ---------------------------------------------------------------------------------------------------------------
DEFERRED CHARGES: Unamortized Debt Expense 3,143,384 2,773,233
Preliminary Survey and Investigation Charges 276,202 213,650
Regulatory Assets:
Income Taxes (Note 3) 5,788,752 6,031,247
Postretirement Costs (Note 9) 1,214,092 1,328,722
Other (Note 2) 2,467,674 2,253,678
-----------------------------------------------------------------------------------------
TOTAL DEFERRED CHARGES 12,890,104 12,600,530
-----------------------------------------------------------------------------------------
TOTAL $ 203,501,256 $ 159,760,773
-----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
-21-
<PAGE>
<TABLE>
<CAPTION>
CAPITALIZATION AND LIABILITIES
December 31,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CAPITALIZATION Common Stock $ 45,507,172 $ 31,138,484
(See Accompanying Retained Earnings 21,222,294 20,087,065
Statements and Note 8): ----------------------------------------------------------------------------------------------------
TOTAL COMMON EQUITY 66,729,466 51,225,549
----------------------------------------------------------------------------------------------------
Cumulative Preferred Stock 4,995,635 4,995,635
Long-term Debt 78,031,513 52,918,245
----------------------------------------------------------------------------------------------------
TOTAL CAPITALIZATION 149,756,614 109,139,429
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT Current Portion of Long-term Debt 71,730 42,708
LIABILITIES: Notes Payable 1,000,000 564,701
Accounts Payable 3,373,595 3,191,033
Taxes Accrued 5,220,669 5,142,089
Interest Accrued 1,701,330 1,183,561
Other 1,832,737 1,453,516
----------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 13,200,061 11,577,608
- ------------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS: Customer Advances for Construction 11,275,660 10,830,646
Accumulated Deferred Investment Tax Credits (Note 3) 2,165,384 2,237,060
Accumulated Deferred Federal Income Taxes (Note 3) 12,070,474 12,177,993
Employee Benefit Plans (Note 9) 3,762,516 2,719,797
Other 791,460 723,173
----------------------------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS 30,065,494 28,688,669
----------------------------------------------------------------------------------------------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 10,479,087 10,355,067
----------------------------------------------------------------------------------------------------
TOTAL $ 203,501,256 $ 159,760,773
----------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
</TABLE>
-22-
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31,
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES (Note 2) $ 43,057,966 $ 40,294,118 $ 38,024,669
- ----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations (Note 4) 19,807,472 17,771,892 17,288,440
Maintenance 1,715,357 1,741,487 1,527,842
Depreciation 3,284,669 3,070,843 2,929,106
Other Taxes 6,101,719 5,781,641 5,569,047
Federal Income Taxes (Note 3) 2,999,288 3,135,118 2,526,297
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 33,908,505 31,500,981 29,840,732
- ----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 9,149,461 8,793,137 8,183,937
- ----------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Allowance for Funds Used During Construction 1,050,044 147,912 63,614
Other - Net 745,322 256,554 223,786
- ----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 1,795,366 404,466 287,400
- ----------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INTEREST CHARGES 10,944,827 9,197,603 8,471,337
- ----------------------------------------------------------------------------------------------------------------------
INTEREST CHARGES:
Interest on Long-term Debt 4,088,631 3,163,035 3,166,786
Amortization of Debt Expense 132,049 121,089 120,930
Other Interest Expense 202,921 52,573 16,161
- ----------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST CHARGES 4,423,601 3,336,697 3,303,877
- ----------------------------------------------------------------------------------------------------------------------
NET INCOME 6,521,226 5,860,906 5,167,460
- ----------------------------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 318,786 226,027 158,926
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 6,202,440 $ 5,634,879 $ 5,008,534
- ----------------------------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:
Earnings per Share (Note 8):
Basic $ 1.42 $ 1.33 $ 1.20
Diluted $ 1.41 $ 1.33 $ 1.20
Average Number of Shares Outstanding (Note 8):
Basic 4,353,879 4,235,082 4,169,334
Diluted 4,580,305 4,382,345 4,258,740
Dividends Paid per Share $ 1.15 $ 1.121/2 $ 1.101/2
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-23-
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
December 31,
1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, No Par Value (Note 8):
Shares Authorized - 10,000,000
Shares Outstanding - 1998 - 4,897,069 $ 45,889,980
1997 - 4,269,217 $ 31,425,398
Restricted Stock Plan (Note 9) (382,808) (286,914)
--------------------------------------------------------------------------------------------------------------------------------
TOTAL COMMON STOCK 45,507,172 31,138,484
- --------------------------------------------------------------------------------------------------------------------------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value (Note 8):
Shares Authorized - 149,980
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 20,000 2,331,430 2,331,430
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL CUMULATIVE PREFERRED STOCK 4,995,635 4,995,635
- --------------------------------------------------------------------------------------------------------------------------------
Long-term Debt (Note 8):
8.05%, Amortizing Secured Note, due December 20, 2021 3,418,243 3,460,953
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 6,000,000 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 -
0.00%, Series X, due August 1, 2018 1,050,000 -
4.53%, Series Y, due August 1, 2018 1,135,000 -
- --------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL LONG-TERM DEBT 78,103,243 52,960,953
- --------------------------------------------------------------------------------------------------------------------------------
Less: Current Portion of Long-term Debt (71,730) (42,708)
- --------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 78,031,513 $ 52,918,245
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-24-
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,521,226 $ 5,860,906 $ 5,167,460
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 3,796,607 3,145,218 3,011,337
Provision for Deferred Income Taxes 134,976 778,521 811,993
Allowance for Funds Used During Construction (1,050,044) (147,912) (63,614)
Changes in Assets and Liabilities:
Accounts Receivable (1,091,207) 305,079 202,524
Accounts Payable 182,562 1,653,239 164,745
Accrued Taxes 78,580 612,904 207,266
Accrued Interest 517,769 11,170 (48,609)
Unbilled Revenues (122,214) 29,344 (5,335)
Employee Benefit Plans 1,015,280 536,342 666,392
Other-Net 433,666 (158,099) 142,566
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,417,201 12,626,712 10,256,725
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (26,275,281) (10,233,685) (6,172,482)
Cash from Acquisition of Subsidiary - 158,436 -
Notes Receivable (1,619,065) 5,963 -
Preliminary Survey & Investigation Charges (62,552) (458,016) (883,015)
Other-Net (654,605) (779,145) (657,958)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (28,611,503) (11,306,447) (7,713,455)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (42,710) (41,780) (1,200,000)
Proceeds from Issuance of Long-term Debt 25,185,000 - 1,000,000
Short-term Bank Borrowings 435,299 - -
Deferred Debt Issuance Expenses (502,200) - (251)
Temporary Cash Investments-Restricted (9,557,285) 9,996 (152,593)
Proceeds from Issuance of Common Stock-Net 14,288,456 1,147,418 1,168,122
Payment of Common Dividends (4,987,013) (4,761,327) (4,604,504)
Payment of Preferred Dividends (318,751) (239,361) (158,926)
Construction Advances and Contributions-Net 569,034 1,032,721 549,604
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 25,069,830 (2,852,333) (3,398,548)
- ------------------------------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS 6,875,528 (1,532,068) (855,278)
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,513,294 4,045,362 4,900,640
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,388,822 $ 2,513,294 $ 4,045,362
- ------------------------------------------------------------------------------------------------------------------------
*Excludes Allowance for Funds Used During Construction.
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest (net of amounts capitalized) $ 2,810,578 $ 3,045,867 $ 3,116,338
Income Taxes $ 3,162,975 $ 1,702,200 $ 2,117,998
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-25-
<PAGE>
<TABLE>
<CAPTION>
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended December 31,
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE AT BEGINNING OF YEAR $ 20,087,065 $ 19,226,847 $ 18,822,817
NET INCOME 6,521,226 5,860,906 5,167,460
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL 26,608,291 25,087,753 23,990,277
- ---------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS:
Cumulative Preferred Stock 318,751 239,361 158,926
Common Stock 4,987,013 4,761,327 4,604,504
COMMON STOCK EXPENSES 80,233 - -
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL DEDUCTIONS 5,385,997 5,000,688 4,763,430
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT END OF YEAR $ 21,222,294 $ 20,087,065 $ 19,226,847
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
-26-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
(a) Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA)
and Utility Service Affiliates (Perth Amboy) Inc. (USA-PA), which was
established in October 1998. Public Water Supply Company, Inc. (Public) and
White Marsh Environmental Systems, Inc., are wholly-owned subsidiaries of
Tidewater. The financial statements for Middlesex and its wholly-owned
subsidiaries (the Company) are reported on a consolidated basis. All
intercompany accounts and transactions have been eliminated.
(b) System of Accounts - Middlesex, Pinelands Water and Pinelands Wastewater
maintain their accounts in accordance with the Uniform System of Accounts
prescribed by the Board of Public Utilities of the State of New Jersey (BPU).
Tidewater and Public maintain their accounts in accordance with the Public
Service Commission of Delaware (PSC) requirements.
(c) Utility Plant is stated at original cost as defined for regulatory purposes.
Property accounts are charged with the cost of betterments and major
replacements of property. Cost includes direct material, labor and indirect
charges for pension benefits and payroll taxes. The cost of labor, materials,
supervision and other expenses incurred in making repairs and minor replacements
and in maintaining the properties is charged to the appropriate expense
accounts. At December 31, 1998, there was no event or change in circumstance
that would indicate that the carrying amount of any long-lived asset was not
recoverable.
(d) Depreciation is computed by each regulated member of the Company utilizing a
rate approved by the applicable regulatory authority. The Accumulated Provision
for Depreciation is charged with the cost of property retired, together with
removal costs, less salvage.
(e) Allowance for Funds Used During Construction (AFUDC) - Middlesex, Tidewater,
Public, Pinelands Water and Pinelands Wastewater capitalize AFUDC, which
represents the cost of financing major projects during construction. AFUDC is
added to the construction costs of individual projects exceeding specific cost
thresholds established for each company and then depreciated along with the rest
of the utility plant's costs over its estimated useful life. AFUDC is calculated
using each company's weighted cost of debt and equity.
(f) Accounts Receivable - Provision for allowance for doubtful accounts at
December 31, 1998, 1997 and 1996, and the corresponding expense and deduction
for those years, is less than $0.1 million.
(g) Revenues from regulated activities are recorded as service is rendered and
include estimates for amounts unbilled at the end of the period for services
provided subsequent to the last billing cycle. Fixed service charges are billed
in advance by the Delaware subsidiaries and are recognized in revenue as the
service is provided. Management contract fees are recorded as earned.
(h) Deferred Charges - Unamortized Debt Expense is amortized over the lives of
the related issues. As authorized by the BPU, main cleaning and lining costs,
tank painting and regulatory expenses are amortized over 2 to 15-year periods.
-27-
<PAGE>
(i) Income Taxes - Middlesex files a consolidated Federal income tax return for
the Company and income taxes are allocated based on the separate return method.
Investment tax credits have been deferred and are amortized over the estimated
useful life of the related property.
(j) Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and cash equivalents represent bank
balances, commercial paper and money market funds maturing in less than 90 days.
(k) Use of Estimates - Conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ from those
estimates.
(l) In June 1998, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts. The Company is currently
evaluating the requirements of this accounting standard, which is required to be
adopted in the first quarter of 2000.
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. At December 31, 1998, the Company does not have any
significant items of comprehensive income that would effect the current
reporting of the Company's financial position, results of operations or cash
flows.
(m) Certain prior year amounts have been reclassified to conform to the current
year reporting.
Note 2 - Rates and Revenues
On September 17, 1998, Middlesex filed a petition with the BPU for a base rate
increase of $8.0 million, or 21.9%. Approximately 75% of the increase is
necessary to recover the investment in the upgrade and expansion of the Carl J.
Olsen Water Treatment Plant (CJO Plant) serving our central New Jersey water
system. The purpose of the upgrade is to meet the new and anticipated regulatory
standards concerning water quality, as well as to increase the plant's
production capacity. A decision by the BPU is expected in the summer of 1999.
On January 29, 1998, the BPU approved an increase in the rates of Middlesex by
4.4%, or $1.5 million. The original petition was filed in November 1996. Under
the approval, the allowed return on equity is 11.0% with an overall rate of
return of 8.56%. The increase includes the recovery of postretirement costs
other than pension expenses which are mandated by the Company's compliance with
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions."
In December 1998, Middlesex filed a petition with the BPU for approval of a
franchise ordinance to provide retail water service and install water system
facilities in the City of South Amboy (South Amboy). A favorable decision by the
BPU will result in the elimination of an existing wholesale water sales contract
and a significant modification to an existing management service contract
between Middlesex, along with USA, and South Amboy (See Note 4). A decision from
the BPU is expected in the second quarter of 1999.
-28-
<PAGE>
In January 1997, the BPU approved a stipulation agreed to by the parties to the
Pinelands Water and Wastewater Companies' rate cases which were filed in
February 1996. The stipulations allow for a combined rate increase which will
result in $0.4 million additional revenues. The new rates were phased in over a
three-year period to minimize the impact on customers. The three phases were
implemented in January 1999, 1998 and 1997, respectively.
Included in Deferred Charges-Other is $0.9 million of deferred costs at December
31, 1998, which Middlesex, Pinelands Water and Pinelands Wastewater are
recovering through rates over periods of 2 to 14 years. The BPU has excluded
these costs from their rate bases and, therefore, they are not earning a return
on the unamortized costs during the recovery periods.
Note 3 - Income Taxes
Federal income tax expense differs from the amount computed by applying the
statutory rate on book income subject to tax for the following reasons:
<TABLE>
<CAPTION>
Years Ended December 31,
(Thousands of Dollars)
1998 1997 1996
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Tax at Statutory Rate of 34% ............ $ 3,237 $ 2,956 $ 2,616
Tax Effect of:
AFUDC ........................................ (357) (49) (22)
Other ........................................ 119 (133) (68)
- --------------------------------------------------------------------------------------
Total Federal Income Tax Expense ............... $ 2,999 $ 2,774 $ 2,526
- --------------------------------------------------------------------------------------
</TABLE>
Federal income tax expense is comprised of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Current ................................. $ 2,975 $ 2,117 $ 1,835
Deferred:
Customer Advances ..................... 51 63 35
Accelerated Depreciation .............. 595 753 733
Employee Benefit Plans ................ (358) (107) (99)
Investment Tax Credit ................. (72) (72) (72)
Other ................................. (192) 20 94
- --------------------------------------------------------------------------------
Total Federal Income Tax Expense ........ $ 2,999 $ 2,774 $ 2,526
- --------------------------------------------------------------------------------
Charged to: Operating Expenses ......... $ 2,999 $ 3,135 $ 2,526
Other Income-Net ... -- (361) --
- --------------------------------------------------------------------------------
Total Provision ........................ $ 2,999 $ 2,774 $ 2,526
- --------------------------------------------------------------------------------
</TABLE>
The statutory review period for income tax returns for the years prior to 1995
has been closed.
The Company is required to set up deferred income taxes for all temporary
differences regardless of the regulatory ratemaking treatment. However, if it is
probable that these additional taxes will be passed on to ratepayers, an
offsetting regulatory asset or liability can be recorded. Management believes
that it is probable that the consolidated deferred income tax liability of
approximately $5.8 million will be recovered in future rates. Therefore, a
regulatory asset has been set up to offset the increased liability.
-29-
<PAGE>
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. The components of the net deferred
tax liability are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
(Thousands of Dollars)
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Utility Plant Related $17,549 $17,151
Customer Advances (4,669) (4,586)
Employee Benefits (813) (489)
Other 3 102
- --------------------------------------------------------------------------------
Total Deferred Tax Liability $12,070 $12,178
- --------------------------------------------------------------------------------
</TABLE>
Note 4 - Commitments and Contingent Liabilities
Service Agreement - On December 8, 1998, the Company's newly formed subsidiary,
USA-PA, entered into a 20-year agreement with the City of Perth Amboy, New
Jersey (Perth Amboy) and the Middlesex County Improvement Authority (MCIA) to
operate and maintain the water and wastewater systems of Perth Amboy. USA-PA
began operating Perth Amboy's systems on January 1, 1999.
Perth Amboy has a population of 40,000 and has approximately 9,500 customers,
most of whom are served by both systems. The agreement is being effected under
New Jersey's Water Supply Public-Private Contracting Act and the New Jersey
Wastewater Public/Private Contracting Act. Under the agreement, USA-PA will
receive a fixed fee and a variable fee based on increased system billing. Fixed
fee payments begin at $6.4 million in the first year and increase to $9.7 in
year 20. The agreement also requires USA-PA to lease from Perth Amboy all of its
employees who currently work on the Perth Amboy water and wastewater systems. In
connection with the agreement, Perth Amboy through the MCIA, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
In addition to the agreement with Perth Amboy, effective January 1, 1999, USA-PA
entered into a 20-year subcontract with a sewer contracting firm for the
operation and maintenance of the Perth Amboy wastewater system. The subcontract
requires the sharing of certain fixed and variable fees and operating expenses.
Franchise Agreement/Service Agreement - On December 9, 1998, Middlesex signed an
agreement with the City of South Amboy (South Amboy) whereby Middlesex will be
granted a franchise to provide water service and install water system facilities
in South Amboy. The implementation of the franchise agreement, which is subject
to approval by the BPU, will significantly impact two existing agreements
entered into by the parties in 1994.
-30-
<PAGE>
The first agreement is for the sale of water to South Amboy on a wholesale
basis. The second agreement, which included Middlesex's wholly owned subsidiary
USA, is a contract to provide management services for a fixed fee. In
conjunction with the franchise agreement, the water sales contract will be
eliminated. In addition, the management services contract will be extended
through May 2045 and significantly modified to correspond with the terms and
conditions of the franchise agreement. Certain advances made by USA to South
Amboy at the commencement of the management services contract will be forgiven
in consideration for the franchise agreement. Fixed fee revenues recognized
under the original contract will be eliminated in lieu of revenues derived from
providing water to South Amboy's 2,600 customers. In 1998, 1997 and 1996,
service contract revenues recognized under the original contract were $0.5
million, $0.4 million and $0.3 million, respectively. A decision by the BPU is
expected in the second quarter of 1999.
Water Supply - Middlesex has an agreement with the Elizabethtown Water Company
for the purchase of treated water. This agreement, which expires December 31,
2005, provides for the minimum purchase of 3 million gallons daily (mgd) of
treated water with provisions for additional purchases. The 1998, 1997 and 1996
costs under this agreement were $1.6 million, $1.5 million and $1.3 million,
respectively. Middlesex also has an agreement with the New Jersey Water Supply
Authority (NJWSA), which expires November 1, 2013, and provides for the minimum
purchase of 20 mgd of untreated water from the Delaware and Raritan Canal and
the Raritan River. In addition, the Company has a supplemental one-year
agreement for an additional 5 mgd through April 30, 1999. This agreement is
renewable on an annual basis. The total costs under this agreement in 1998, 1997
and 1996 were $1.8 million, $1.7 million and $1.7 million, respectively.
Construction - The Company plans to spend approximately $26.6 million, $10.4
million and $9.8 million in 1999, 2000 and 2001, respectively, on its
construction program. Substantially all of the utility plant of the Company is
subject to the lien of its mortgage which also includes certain restrictions as
to cash dividend payments and other distributions on common stock.
Litigation - A motel in our Middlesex service area originally filed claims
against us in 1990 alleging financial losses due to improper water pressure and
service and also seeking punitive damages. Subsequently in 1994, and again in
1997, the motel suffered outbreaks of legionella, resulting in the 1997 shutdown
of the motel by the New Jersey Department of Health. The motel amended its
claims to assert that we provided water containing the legionella bacteria. The
motel is in bankruptcy. A bank creditor of the motel has joined in the motel's
claim against us. We believe that the motel's claims are not supportable. Claims
resulting from the death of a motel guest from legionella in 1997 and claims by
two other patrons alleging illness as a result of their stay at the motel in
1997 have been brought against the motel and against us. We have substantial
insurance coverage, which we believe will be sufficient for all claims in this
matter other than for punitive damages. We do not believe the motel's claims for
punitive damages will prevail. While the outcome of this case remains uncertain,
we believe that the final resolution will not have a significant effect on our
financial condition or results of operations.
A 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. The Bankruptcy Court has stayed all claims against the tenant except, to
the extent the tenant is insured, claims brought by us arising from claims made
against us by other tenants and the landlord. Under New Jersey case law, we will
not have financial responsibility to parties to the extent they receive payments
under their own insurance policies. We do not
-31-
<PAGE>
know either the total amount of claims against us or how much of that amount
will be covered by the parties' own insurance policies. Our counsel in the
litigation advises us that the case is unlikely to be resolved rapidly. We
believe we have substantial defenses to the claims against us, although we do
not have insurance coverage for them.
The Company has been notified of a potential claim of $1.5 million involving the
break of both a Company water line and an underground electric power cable in
close proximity to it. The power cable contained both electric lines and a
petroleum based insulating fluid. The Company is insured for damages except for
damages resulting from pollution discharge. Causation and liability has not been
established.
Note 5 - Lines of Credit, Notes Payable and Restricted Cash
<TABLE>
<CAPTION>
(Thousands of Dollars)
1998 1997 1996
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Established Lines at Year End $28,000 $20,000 $20,000
Maximum Amount Outstanding 4,575 - -
Average Outstanding 2,653 - -
Notes Payable at Year End 1,000 - -
Weighted Average Interest Rate 5.37% - -
</TABLE>
To accommodate the funding requirements of the Company's on-going capital
program, in December 1997 the Board of Directors authorized an increase in the
amount of lines of credit for up to $30 million. Short-term borrowings are
generally below the prime rate with some requirements for compensating balances
not exceeding 5% of the line.
Restricted temporary cash investments at December 31, 1998 include a $7.1
million balance of Series W First Mortgage Bonds proceeds and a $2.2 million
balance of Series X and Y First Mortgage Bonds proceeds. These funds are held in
trusts and restricted to specific capital expenditures. The Series W proceeds
are for costs related to the CJO Plant upgrade. Series X and Y proceeds can only
be used for the 1999 main cleaning and cement lining program.
Note 6 - Related Party Transactions
During 1998, 1997 and 1996, Middlesex had transactions with a construction
company in which a member of the Board of Directors has a financial interest.
Major construction transactions were awarded on the basis of competitive bids
approved by the Board of Directors (with the interested Director abstaining) and
amounted to $1.0 million, $0.7 million and $0.9 million for the years 1998, 1997
and 1996, respectively. These amounts included $0.1 million due the construction
company at December 31, 1998, 1997 and 1996.
-32-
<PAGE>
Note 7 - Quarterly Operating Results - Unaudited
Quarterly operating results for 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter Year
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $ 9,769 $ 10,591 $12,074 $10,624 $43,058
Operating Income 1,948 2,268 2,978 1,955 9,149
Net Income 1,263 1,574 2,348 1,336 6,521
Basic Earnings per Share $ 0.28 $ 0.34 $ 0.52 $ 0.28 $ 1.42
Diluted Earnings per Share 0.28 0.34 0.51 0.28 1.41
<CAPTION>
1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Revenues $9,336 $ 9,937 $10,968 $10,053 $40,294
Operating Income 2,023 2,120 2,682 1,943 8,768
Net Income 1,282 1,311 1,894 1,374 5,861
Basic Earnings per Share $ 0.30 $ 0.30 $ 0.43 $ 0.30 $ 1.33
Diluted Earnings per Share 0.30 0.30 0.43 0.30 1.33
</TABLE>
The information above, in the opinion of the Company, includes all adjustments
consisting only of normal recurring accruals necessary for a fair presentation
of such amounts. The business of the Company is subject to seasonal fluctuation
with the peak period usually occurring during the summer months.
Note 8 - Capitalization
All the transactions discussed below related to the issuance or redemption of
securities were approved by the BPU, except where noted.
Common Stock
In December 1998, the Company completed the sale of 517,000 shares of its no par
common stock at a price of $24.625 per share. The majority of the proceeds of
the offering will be used to fund a portion of the cost of the CJO Plant
upgrade. In addition, other capital improvement expenditures for the Company's
utility systems will be funded by the proceeds.
In June 1998, the Company increased the number of shares authorized under the
Dividend Reinvestment and Common Stock Purchase Plan (DRP) from 900,000 to
1,700,000 shares. The cumulative number of shares issued under the DRP at
December 31, 1998 is 848,493. In October 1997, the Board of Directors approved a
5% discount on the first 100,000 shares of common stock sold to participants of
the Company's DRP between the period of January 2, 1998 and June 1, 1998.
During 1998, 1997 and 1996, 110,852 shares ($2.3 million), 64,148 shares ($1.1
million) and 67,977 shares ($1.2 million) of common stock were issued under DRP
and the restricted stock plan, respectively.
In the event dividends on the preferred stock are in arrears, no dividends may
be declared or paid on the common stock of the Company. At December 31, 1998, no
restrictions were placed on common dividends.
-33-
<PAGE>
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. In 1998, the
number of authorized Preferred Stock, without par value, was reduced from
150,000 shares to 149,980 shares to account for shares that were redeemed. At
December 31, 1998 and 1997, 45,898 shares of Preferred Stock presently
authorized were outstanding for each year. There were no dividends in arrears.
The conversion feature of the no par $7.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for six shares of the Company's common stock. In addition, the Company may
redeem up to 10% of the outstanding convertible stock in any calendar year at a
price equal to the fair market value of six shares of the Company's common stock
for each share of convertible stock redeemed. On July 31, 1997, Middlesex issued
20,000 shares of no par $8.00 Cumulative and Convertible Preferred Stock
convertible into 137,140 shares of Middlesex's common stock for 100% of the
common stock of Public. The preferred shares are convertible at the election of
the security holder within seven years from the date of issuance at the common
equivalent rate of 6.857 shares of common stock for each share of preferred. The
same conversion feature is granted to Middlesex after seven years from the date
of issuance.
The acquisition of Public, a 2,500-customer water system located in Sussex
County Delaware was accounted for under the purchase method of accounting. The
acquisition price, representing the value of the convertible preferred stock
issued, was $2.3 million and resulted in an acquisition adjustment of $1.0
million. The acquisition adjustment is being amortized over a period determined
using the remaining composite life of Public's utility plant.
The following is supplemental unaudited pro forma information, as though the
acquisition occurred as of January 1, 1996.
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Operating Revenues $40,985 $38,643
Net Income 5,864 5,247
Basic Earnings per Share $ 1.31 $ 1.18
Diluted Earnings per Share 1.30 1.18
</TABLE>
Long-term Debt
On March 31, 1998, Middlesex issued $23.0 million of First Mortgage Bonds
designated as Series W with a maturity date of February 1, 2038 and a coupon
rate of 5.35%. The effective interest cost to maturity is 5.48%. The bond
offering was competitively bid in cooperation with the New Jersey Economic
Development Authority. Interest paid to the bondholders is exempt from federal
and New Jersey income taxes (Tax Exempt). However, the interest is subject to
the Alternative Minimum Tax (AMT). The proceeds of the bonds are being used to
finance a significant portion of the upgrade of the CJO Plant.
On November 1, 1998, the Company issued $1.05 million, designated as Series X,
and $1.135 million, designated as Series Y, First Mortgage Bonds through the New
Jersey State Revolving Fund (SRF). Series X has a zero interest cost, while
Series Y has a coupon rate that varies from 4.25% to 4.625%. Both issues have a
final maturity date of August 1, 2018. The SRF program, which is administered by
the New Jersey Environmental Infrastructure Trust, evolved from the Federal
Environmental Protection Agency's (EPA) regulations issued under the Safe
Drinking Water Act. Under this program, investor-owned public water
-34-
<PAGE>
utilities can apply for construction loans, which are funded by the
participating state and the EPA through the state environmental agency. In New
Jersey, initial project approval must be granted by the New Jersey Department of
Environmental Protection. Funds from the EPA, which can equal up to 50% of
construction costs, are loaned at a zero interest cost; the interest rate on the
state portion of the loan is based upon the market place at time of issuance.
The interest paid to bondholders is considered Tax Exempt subject to AMT. The
proceeds of the bonds are being used to fund the 1999 capital project to clean
and cement line previously unlined pipes and mains. The aggregate annual
maturities for the amortizing secured note and Series X and Y First Mortgage
Bonds for each of the next five years are as follows: 1999 and 2000 - $0.1
million; and 2001 through 2003; $0.2 million. All other First Mortgage Bonds are
term bonds with a single maturity date, which are listed in the Consolidated
Statements of Capital Stock and Long-term Debt. The weighted average interest
rate on all long-term debt at December 31, 1998 and 1997 was 6.0% and 6.35%,
respectively.
Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share," which requires dual
presentation of basic and diluted earnings per share in the Consolidated
Statement of Income and requires a reconciliation of basic earnings per share
(EPS) to diluted EPS, the following table presents the calculation of basic and
diluted EPS for the three years ended December 31. Basic EPS are computed on the
basis of the weighted average number of shares outstanding. Diluted EPS assumes
the conversion of both the Convertible Preferred Stock $7.00 Series and $8.00
Series.
<TABLE>
<CAPTION>
(In Thousands Except per Share Amounts)
1998 1997 1996
Basic: Income Shares Income Shares Income Shares
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net Income $6,521 4,354 $5,861 4,235 $5,167 4,169
Preferred Dividend (319) (226) (159)
------ ----- ------ ----- ------ -----
Earnings Applicable to Common Stock $6,202 4,354 $5,635 4,235 $5,008 4,169
Basic EPS $ 1.42 $ 1.33 $ 1.20
Diluted:
- ------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $6,202 4,354 $5,635 4,235 $5,008 4,169
$7.00 Series Dividend 104 89 104 89 104 89
$8.00 Series Dividend 160 137 68 58 - -
------ ----- ------ ----- ------ -----
Adjusted Earnings Applicable to Common Stock $6,466 4,580 $5,807 4,382 $5,112 4,258
Diluted EPS $ 1.41 $ 1.33 $ 1.20
</TABLE>
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments for which it is practicable to
estimate that value. The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, marketable securities, and trade
receivables and payables approximate their respective fair values due to the
short-term maturities of these instruments. The fair value of the Company's
long-term debt relating to first mortgage bonds is based on quoted market prices
for similar issues. At December 31, 1998 and 1997, the carrying and fair market
value of the Company's bonds were as follows:
-35-
<PAGE>
<TABLE>
<CAPTION>
(Thousands of Dollars)
1998 1997
Carrying Fair Carrying Fair
Value Value Value Value
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First Mortgage Bonds $74,685 $75,106 $49,500 $49,800
</TABLE>
For other long-term debt for which there were no quoted market price, it was not
practicable to estimate their fair value. The carrying amounts of these
instruments at December 31, 1998 and 1997 were $3.4 million and $3.5 million,
respectively. Customer advances for construction have a carrying value of $11.3
million and $10.8 million at December 31, 1998 and 1997, respectively. Their
relative fair values cannot be accurately estimated since future refund payments
depend on several variables, including new customer connections, customer
consumption levels and future rate increases.
Note 9 - Employee Benefit Plans
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which revises and
standardizes disclosure requirements for pension and other postretirement
benefit plans but does not change the measurement or recognition of those plans.
SFAS No. 132 supersedes the disclosure requirements in SFAS No. 87, "Employers'
Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
Pension
The Company has a noncontributory defined benefit pension plan which covers
substantially all employees with more than 1,000 hours of service. The Company
makes contributions to the plan consistent with the funding requirements of
Federal laws and regulations. In 1998, employees of Public, Pinelands Water and
Pinelands Wastewater became eligible to participate in the Plan. Plan assets
consist primarily of corporate equities, cash equivalents, and stock and bond
funds. In addition, the Company maintains an unfunded supplemental pension plan
for its executives.
Postretirement Benefits Other Than Pensions
The Company has a postretirement benefit plan other than pension for
substantially all of its retired employees. Coverage includes health care and
life insurance. Employee contributions are dependent on credited years of
service. Accrued retirement benefit costs are recorded each year. In 1998,
employees of Tidewater, Public, Pinelands Water and Pinelands Wastewater became
eligible to participate in the Plan.
The Company has recognized a deferred regulatory asset relating to the
difference between the accrued retirement benefit costs and actual cash paid for
plan premiums in years prior to 1998. Included in the regulatory asset is a
transition obligation from adopting SFAS No.106 on January 1, 1993. As part of
Middlesex's most recent rate case settlement (see Note 2), the BPU allowed the
recovery of the annual accrued retirement benefit costs and the amortization of
the transition obligation over 15 years. The regulatory assets at December 31,
1998 and 1997 were $1.2 million and $1.3 million, respectively.
The following table sets forth information relating to the Company's Pension
Plans and Other Postretirement Benefits.
-36-
<PAGE>
<TABLE>
<CAPTION>
(Thousands of Dollars)
Pension Benefits Other Benefits
1998 1997 1998 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Reconciliation of Benefit Obligation
Beginning Balance ...................................... $ 15,577 $ 13,262 $ 4,209 $ 3,602
Service Cost ........................................... 619 534 132 116
Interest Cost .......................................... 1,065 935 287 258
Actuarial (Gain)/Loss .................................. -- 522 1 173
Benefits Paid .......................................... (688) (647) (195) (214)
- ---------------------------------------------------------------------------------------------------------------
Ending Balance ......................................... $ 16,573 $ 14,606 $ 4,434 $ 3,935
- ---------------------------------------------------------------------------------------------------------------
Reconciliation of Plan Assets at Fair Value
Beginning Balance ...................................... $ 14,777 $ 12,831 $ -- $ --
Actual Return on Plan Assets ........................... 3,456 2,498 -- --
Employer Contributions ................................. 46 95 195 214
Benefits Paid .......................................... (687) (647) (195) (214)
- ---------------------------------------------------------------------------------------------------------------
Ending Balance ......................................... $ 17,592 $ 14,777 -- --
- ---------------------------------------------------------------------------------------------------------------
Funded Status .......................................... $ 1,019 $ 171 $ (4,434) $ (3,935)
Unrecognized Net Transition Obligation ................. 44 58 1,894 2,029
Unrecognized Net Actuarial (Gain)/Loss ................. (3,661) (2,287) 945 734
Unrecognized Prior Service Cost ........................ 758 826 (146) (157)
- ---------------------------------------------------------------------------------------------------------------
Accrued Benefit Cost ................................... $ (1,840) $ (1,232) $ (1,741) $ (1,329)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
(Thousands of Dollars)
Pension Benefits Other Benefits
1998 1997 1996 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Benefit Cost
Service Cost ......................................... $ 619 $ 534 $ 507 $ 132 $ 116 $ 101
Interest Cost ........................................ 1,065 935 879 287 258 211
Expected Return on Plan Assets ....................... (1,156) (1,002) (924) -- -- --
Amortization of Net Transition Obligation ............ 14 14 14 135 135 135
Amortization of Net Actuarial (Gain)/Loss ............ 10 7 -- 64 41 2
Amortization of Prior Service Cost ................... 102 98 107 (11) (11) (11)
Regulatory Deferral .................................. -- -- -- -- (325) (246)
- ------------------------------------------------------------------------------------------------------------------------------------
Net Periodic Benefit Cost ............................ $ 654 $ 586 $ 583 $ 607 $ 214 $ 192
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Bnefits Pension Benefits Other
Weighted-Average Assumptions 1998 1997 1996 1998 1997 1996
----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Discount Rate ................ 7.00% 7.00% 7.25% 7.00% 7.00% 7.25%
Expected Return on Plan Assets 8.00% 8.00% 8.00% -- -- --
Actual Return on Plan Assets . 23.95% 20.42% 12.10% -- -- --
Rate of Compensation Increase 4.75% 4.75% 4.75% 4.75% 4.75% 4.75%
</TABLE>
For measurement purposes, a 5.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1998 and all future years.
Assumed health care trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
(Thousands of Dollars)
1 Percentage Point
Increase Decrease
-------- --------
<S> <C> <C>
Effect on Current Year's Benefit Expense $ 69 $ (58)
Effect on Benefit Obligation 717 (607)
</TABLE>
401(k) Plan
The Company has a 401(k) defined contribution plan, which covers substantially
all employees with more than 1,000 hours of service. Under the terms of the
Plan, the Company matches 100% of a participant's contributions which do not
exceed 1% of a participant's compensation, plus 50% of a participant's
contributions exceeding 1% but not more than 6%. The Company's matching
contributions in 1998, 1997 and 1996 amounted to $0.2 million for each year.
Stock Based Compensation
The Company maintains a restricted stock plan, under which 36,050 shares of the
Company's common stock are held in escrow by the Company for key employees. Such
stock is subject to an agreement requiring forfeiture by the employee in the
event of termination of employment within five years of the grant other than as
a result of retirement, death or disability.
In May 1997, 100,000 additional shares were allocated to the restricted stock
plan, bringing the maximum number of shares authorized for grant under this plan
to 160,000 shares. Compensation expense is determined by the market value of the
stock on the date of the award and is being amortized over a five-year period.
The compensation expenses were $0.1 million for each of the years 1998, 1997 and
1996.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS
No. 123) the Company elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Had compensation costs for the Company's restricted stock plan been
determined based on methodology prescribed in SFAS No. 123, there would have
been no effect on its results of operations or cash flows.
-38-
<PAGE>
INDEPENDENT AUDITORS' REPORT
MIDDLESEX WATER COMPANY
We have audited the accompanying consolidated balance sheets and consolidated
statements of capital stock and long-term debt of Middlesex Water Company and
its subsidiaries as of December 31, 1998 and 1997 and the related consolidated
statements of income, retained earnings and of cash flows for each of the three
years in the period ended December 31, 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Middlesex Water Company and its
subsidiaries at December 31, 1998 and 1997 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998 in conformity with generally accepted accounting principles.
/s/DELOITTE & TOUCHE LLP/
- ------------------------
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 16, 1999
-39-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Chairman of the Board and /s/J. Richard Tompkins/ 3/25/99
President and Director ----------------------- -------
J. Richard Tompkins Date
Executive Vice President and /s/Richard A. Russo/ 3/25/99
Director ------------------- -------
Richard A. Russo Date
Vice President and Controller /s/A. Bruce O'Connor/ 3/25/99
Chief Financial Officer --------------------- -------
A. Bruce O'Connor Date
Director /s/John C. Cutting/ 3/25/99
------------------- -------
John C. Cutting Date
Director /s/Ernest C. Gere/ 3/25/99
------------------ -------
Ernest C. Gere Date
Director /s/John P. Mulkerin/ 3/25/99
-------------------- -------
John P. Mulkerin Date
Director /s/Stephen H. Mundy/ 3/25/99
-------------------- -------
Stephen H. Mundy Date
Director /s/Philip H. Reardon/ 3/25/99
--------------------- -------
Philip H. Reardon Date
Director /s/Jeffries Shein/ 3/25/99
------------------ -------
Jeffries Shein Date
-40-
<PAGE>
EXHIBIT INDEX
Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so
designated have heretofore been filed with the Commission and are incorporated
herein by reference to the documents indicated in the previous filing columns
following the description of such exhibits.
<TABLE>
<CAPTION>
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
<S> <C> <C> <C>
*3.1 Certificate of Incorporation of the Company, as amended.
3.2 Bylaws of the Company, as amended. 33-54922 3.2
4.1 Form of Common Stock Certificate. 2-55058 2(a)
4.2 Registration Statement, Form S-3, under Securities Act of 1933
filed February 3, 1987, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
4.3 Post Effective Amendments No. 3 and 7, Form S-3, under Securities 33-11717
Act of 1933 filed May 28, 1993, relating to the Dividend
Reinvestment and Common Stock Purchase Plan.
10.1 Copy of Purchased Water Agreement between the Company and
Elizabethtown Water Company, filed as Exhibit 10.1 of 1996 Form
10-K.
10.2 Copy of Mortgage, dated April 1, 1927, between the Company and
Union County Trust Company, as Trustee, as supplemented by
Supplemental Indentures, dated as of
October 1, 1939 and April 1, 1949. 2-15795 4(a)-4(f)
10.3 Copy of Supplemental Indentures, dated as of July 1, 1964 and June
15, 1991, between the Company and Union County Trust Company, as 10.4 - 10.9
Trustee. 33-54922 and 10.16
10.4 Copy of Trust Indenture, dated as of June 15, 1991, between the New
Jersey Economic Development Authority and Midlantic National Bank,
as Trustee. 33-54922 10.17
10.5 Copy of Supply Agreement, dated as of November 17, 1986, between
the Company and the Old Bridge Municipal Utilities Authority. 33-31476 10.12
</TABLE>
-41-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
<S> <C> <C> <C>
10.6 Copy of Supply Agreement, dated as of July 14, 1987, between the
Company and the Marlboro Township Municipal Utilities Authority, as
amended. 33-31476 10.13
10.7 Copy of Supply Agreement, dated as of February 11, 1988, with
modifications dated February 25, 1992, and April 20, 1994, between
the Company and the Borough of Sayreville filed as Exhibit No.
10.11 of 1994 First Quarter Form 10-Q.
10.8 Copy of Water Purchase Contract and Supplemental Agreement, dated
as of May 12, 1993, between the Company and the New Jersey Water
Supply Authority filed as Exhibit No. 10.12 of 1993 Form 10-K.
10.9 Copy of Treating and Pumping Agreement, dated April 9, 1984,
between the Company and the Township of East Brunswick. 33-31476 10.17
10.10 Copy of Supply Agreement, dated June 4, 1990, between the Company
and Edison Township. 33-54922 10.24
10.11 Copy of Supply Agreement, between the Company and the Borough of
Highland Park, filed as Exhibit No. 10.15 of 1996 Form 10-K.
10.12 Copy of Pipeline Lease Agreement, dated as of January 9, 1987,
between the Company and the City of Perth Amboy. 33-31476 10.20
10.13 Copy of Supplemental Executive Retirement Plan, effective January
1, 1984, as amended. 33-31476 10.21
10.14 Copy of 1989 Restricted Stock Plan, filed as Appendix B to the
Company's Definitive Proxy Statement, dated and filed April 25, 33-31476 10.22
1997.
10.15 Amendment to Supplemental Executive Retirement Plan, dated May 23,
1990, filed as Exhibit No. 10.23 of 1991 Form 10-K.
10.16 Copy of Transmission Agreement, dated October 16, 1992, between the
Company and the Township of East Brunswick. 33-54922 10.23
</TABLE>
-42-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
<S> <C> <C> <C>
10.17 Copy of Agreement and Plan of Merger, dated January 7, 1992,
between the Company, Midwater Utilities, Inc. and Tidewater
Utilities, Inc. 33-54922 10.29
10.18 Copy of Supplemental Indentures, dated September 1, 1993, (Series S
& T) and January 1, 1994, (Series U & V), between the Company and
United Counties Trust Company, as Trustee, filed as Exhibit No.
10.22 of 1993 Form 10-K.
10.19 Copy of Trust Indentures, dated September 1, 1993, (Series S & T)
and January 1, 1994, (Series V), between the New Jersey Economic
Development Authority and First Fidelity Bank (Series S & T), as
Trustee, and Midlantic National Bank (Series V), as Trustee, filed
as Exhibit No. 10.23 of 1993 Form 10-K.
10.20 Copy of Amended Pipeline Lease Agreement between the Company and
the City of Perth Amboy 333-66727 10.24
10.21 Copy of Supplemental Indenture dated March 1, 1998 between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Trust Indenture dated March 1, 1998 between the New Jersey
Economic Development Authority and PNC Bank, National Association,
as Trustee (Series W),filed as Exhibit No. 10.21 of the 1998 Third
Quarter Form 10-Q
10.22 Copy of Supplemental Indenture dated October 15, 1998 between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Loan Agreement dated November 1, 1998 between the State of
New Jersey and Middlesex Water Company (Series X), filed as Exhibit
No. 10.22 of the 1998 Third Quarter Form 10-Q.
10-23 Copy of Supplemental Indenture dated October 15, 1998 between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Loan Agreement dated November 1, 1998 between the New
Jersey Environmental Infrastructure Trust and Middlesex Water
Company (Series Y), filed as Exhibit No. 10.23 of the 1998 Third
Quarter Form 10-Q.
10.24 Copy of Operation, Maintenance and Management Services Agreement
dated January 1, 1999 between the Company, City of Perth Amboy,
Middlesex County Improvement Authority and Utility Service
Affiliates, Inc. 333-66727 10.24
</TABLE>
-43-
<PAGE>
<TABLE>
<CAPTION>
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
<S> <C> <C> <C>
10.25 Assignment and Acceptance agreement between Utility Service
Affiliates, Inc. and Utility Service Affiliates (Perth Amboy) Inc. 333-66727 10.25
*23 Independent Auditors' Consent.
*27 Financial Data Schedule
</TABLE>
-44-
RESTATED CERTIFICATE OF INCORPORATION
OF
MIDDLESEX WATER COMPANY
Approved by the Board of Directors February 27, 1997
MIDDLESEX WATER COMPANY (hereinafter referred to as "the Company" or
"the Corporation"), a corporation of New Jersey resulting from Articles of
Agreement and Consolidation dated June 23, 1897, between the MIDLAND WATER
COMPANY, a corporation organized under "An act concerning corporations",
approved April 7, 1875, as supplemented and amended, its certificate of
incorporation having been amended under "An act concerning corporations,
Revision of 1896", and MIDDLESEX WATER COMPANY, a corporation organized under
"An act for the construction, maintenance and operation of water works for the
purpose of supplying cited, towns and villages of this state with water",
approved April 21, 1876, as amended and supplemented; and also resulting from an
agreement of merger and consolidation dated September 10, 1907, between
MIDDLESEX WATER COMPANY and CONSUMERS AQUEDUCT COMPANY, a corporation organized
under the laws of the State of New Jersey; and having filed, on December 21,
1925, a Certificate of Desire to come under Chapter CXCIII of the Laws of 1876,
does hereby certify that the certificate of incorporation forming the
Corporation, as amended and supplemented by all certificates filed pursuant to
law, is restated as set forth below:
ARTICLE 1. The name of the corporation is MIDDLESEX WATER COMPANY. The
period of existence of MIDDLESEX WATER COMPANY shall be perpetual.
ARTICLE 2. The address of the Company's current registered office is
1500 Ronson Road, Iselin, Township of Woodbridge, New Jersey 08830-3049, and the
name of the Company's current agent therein upon whom process against the said
Company may be served is Marion F. Reynolds.
ARTICLE 3. The purpose of the Company is to construct, maintain and
operate waterworks, wells, reservoirs, mains, pipes, and appurtenances; to
obtain, impound and supply water for public and private use; to acquire, hold,
lease, mortgage, exchange, sell, convey and dispose of real and personal
property and interests therein, including the securities of any water company or
other corporation; and to exercise all the rights and powers which the Company
may lawfully possess; including such rights and powers as were set forth in
statutes under which the Company was incorporated as such statutes have been
amended, extended and superseded from time to time.
ARTICLE 4. The management of the affairs of the Company shall be vested
in a Board of Directors, to be selected by and from the stockholders, consisting
of not less than five nor more than twelve directors, the exact number of
directors to be determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors. The directors
shall be divided into three classes, designated Class I, Class II and Class III.
Each class shall consist, as nearly as may be possible, of one-third of the
total number of directors constituting the entire Board of Directors. At the
1984 annual meeting of stockholders, Class I directors shall be elected for a
one-year term, Class II directors for a two-year terms and Class III directors
for a three year term. At each succeeding annual meeting of stockholders
<PAGE>
beginning in 1985, successors to the class of directors whose term expires at
that annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain the number of directors in each class as nearly equal
as possible, but in no case shall a decrease in the number of directors shorten
the term of any incumbent director. A director shall hold office until the
annual meeting for the year in which his or her term expires and until his or
her successor shall be elected and shall qualify, subject, however, to prior
death, resignation, retirement, disqualification or removal from office.
(a) The term of a director elected by stockholders to fill
a newly created directorship or other vacancy shall expire at the
same time as the terms of the other directors of the class for which
the new directorship is created or in which the vacancy occurred. Any
vacancy on the Board of Directors that results from an increase in
the number of directors and any other vacancy occurring in the Board
of Directors may be filled by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Any director so elected by the Board of Directors shall, without
regard to the class in which such vacancy occurred, hold office until
the next succeeding annual meeting of stockholders and until his
successor shall be elected and shall qualify.
(b) Notwithstanding the foregoing, whenever the holders of
any one or more classes or series of preferred stock or preference
stock, issued by the Company shall have the right, pursuant to
Article 7A (f) or Article 7E (e), respectively, voting separately by
class or series, to elect additional directors at an annual or
special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall
be governed by the applicable terms of the Certificate of
Incorporation, as amended, and such directors so elected shall not be
divided into classes pursuant to this ARTICLE 4 unless expressly
provided by such terms.
(c) The directors shall choose by a majority vote the
President and one or more Vice Presidents, the Secretary and one or
more Assistant Secretaries, the Treasurer and one or more Assistant
Treasurers, all of whom shall be chosen annually and shall hold
office for one year and until their successors are chosen and
qualified. The directors shall also appoint and remove from time to
time such other officers and agents as they shall think proper. All
of the provisions of this article are subject to alteration from time
to time by the by-laws.
(d) The power to make and alter by-laws of the Company
shall be in the Board of Directors. By-laws made by the Board of
Directors may be altered or repealed by the affirmative vote of the
holders of two-thirds (2/3) or more of the outstanding shares of
capital stock of the Company having voting powers.
<PAGE>
ARTICLE 5. The number of directors constituting the current Board of
Directors of the Company is 9. The names and addresses of the directors
constituting its current Board of Directors as follows:
John C. Cutting 1610 Northstream Parkway
Point Pleasant, New Jersey
Ernest C. Gere 47 Troon Court
Pawleys Island, South Carolina
John P. Mulkerin 6 Oak Grove Lane
Edison, New Jersey
Stephen H. Mundy 1521 Duke of Windsor Road
Virginia Beach, Virginia
Philip H. Reardon 6 Knobb Hill
Byfield, Massachusetts
Richard A. Russo 1500 Ronson Road
Iselin, New Jersey
Carolina M. Schneider 1109-A Troy Towers
Bloomfield, New Jersey
William E. Scott 29 Laurel Place
Upper Montclair, New Jersey
Jeffries Shein 30 Huntley Road
Holmdel, New Jersey
J. Richard Tompkins 1500 Ronson Road
Iselin, New Jersey
ARTICLE 6. The directors shall be chosen at the
annual meetings of the stockholders, to be held at such time and place as shall
be provided by the by-laws of the Company.
ARTICLE 7A. The total authorized capital stock of the Company is
6,169,418 shares, divided into 6,000,000 shares of common stock without nominal
or par value, 69,418 shares of preferred stock without nominal or par value (out
of 100,000 shares of preferred stock originally authorized) and 100,000 shares
of preference stock without nominal or par value. Certain of the originally
authorized 100,000 shares of preferred stock without nominal or par value have
been redeemed and canceled by the Company from time to time without the ability
to reissue such shares. From time to time the capital stock of the Company may
be issued and sold in such amounts, within such authorized limits, and in such
proportions and for such considerations as may be fixed by the Board of
Directors of the Company, and as may be permitted by law, and all capital stock
so issued and sold shall be deemed fully paid and nonassessable and the holder
of any such shares shall not be liable to the Company or its creditors in
respect thereof.
(a) The preferred stock shall be issuable from time to time in one or more
series with such designation, description and terms thereof, in the manner and
to the extent permitted by the laws of the State of New Jersey, as may be
determined and fixed by the Board of Directors at the time of the creation and
establishment of any such series of preferred stock. All of the shares of
<PAGE>
preferred stock of each series shall rank pari passu with all of the shares of
preferred stock of each other series, and shall have the same rights and
privileges, preferences and voting powers, and shall be subject to the same
restriction or qualifications thereof, without distinction between the shares of
the respective series except only as to variations in (i) the rates of dividend
payable thereon, (ii) the terms on which shares of the respective series may be
redeemed, (iii) the amount which shall be paid to the holders of the shares of
the respective series in case of dissolution or any distribution of assets, (iv)
the terms or amount of any sinking fund provided for the purchase or redemption
thereof, (v) the terms upon which the holders of the shares of the respective
series may convert the same into stock of any other class or classes or of any
one or more series of the same class or of another class or classes, and (vi) in
such other respects, if any, as may at the time be permitted by the laws of the
State of New Jersey.
(b) The holders of the preferred stock irrespective of the
series thereof shall be entitled to receive, and the Company shall be
obligated to pay, when, as declared by the Board of Directors of the
Company, cumulative dividends at such respective rates as may be
fixed by the Board of Directors of the Company at the time of the
creation and establishment of the respective series, and no more,
payable quarterly on the first days of February, May, August and
November of each year. Said dividends shall accumulate from the date
of the original issue of each shares of such preferred stock (except
for shares of the $7 Series Cumulative Preferred Stock described in
ARTICLE 7B on which dividends shall accumulate from the date of their
creation). Such dividends shall be payable before any dividends shall
be paid upon or set apart for the common stock, and shall be
cumulative, so that if at any time dividends at the rate fixed by the
Board of Directors and designated by the certificates of shares of
the series of which it is a part shall not be paid thereon or set
apart therefor, the deficiency shall be full paid or set apart for
payment before any dividends shall be paid upon or set apart for the
common stock. Dividends shall not be paid exclusively upon any one or
more series of preferred stock but dividends shall be paid ratably
upon all outstanding preferred stock in the proportions that the
annual dividend requirements of each series bears to the total annual
dividend requirements of all outstanding preferred stock. Whenever
all cumulative unpaid dividends on the preferred stock, including the
current quarterly dividend, shall have been fully paid or set apart
for payment, the Board of Directors may declare and pay dividends on
the commons stock.
(c) The preferred stock of one or more series may be
subject to redemption, in which case such preferred stock may be
redeemed and retired in whole, or in part, from time to time at any
time on any quarterly dividend date at the option of the Company at
such redemption prices as may be fixed by the Board of Directors at
the time of the creation and establishment thereof; provided,
however, that all stock of any particular series shall be redeemable
at the same redemption price. The time, place and manner of such
redemption shall be in the discretion of the Board of Directors of
the Company. Preferred stock which shall have been redeemed shall not
be reissued, and the Company shall from time to time cause all such
shares to be retired in the manner provided by law. If less than all
of the outstanding shares of preferred stock subject to redemption
are to be called for redemption, redemption may be less than all of
<PAGE>
the outstanding shares of any one ore more series, in the discretion
of the Board of Directors, and if less than all outstanding shares of
any series are to be redeemed, the shares to be redeemed shall be
determined in such manner as may be prescribed by the Board of
Directors. Redemption shall be made, however, only on at least thirty
(30) days prior written notice to the holders of the stock to be
redeemed, which notice shall be sufficient if contained in a
post-paid envelope addresses and mailed to the holder at his address
of record as shown by the books of the Company, and the time of
mailing such notice shall be deemed to be the time of delivery
thereof. From and after the date fixed in any such notice as the date
of redemption (unless default shall be made by the Company in
providing monies for the payment of the redemption price, pursuant to
such notice) all dividends on the preferred stock thereby called for
redemption shall cease to accrue and all rights of the holders
thereof as stockholders of the Company, except the right to receive
the redemption price upon surrender of the certificates of stock by
such holders, shall cease and determine.
(d) The holders of each series of preferred stock shall be
entitled to receive payment out of the assets of the Company whether
from capital or from earnings, in an amount per share determined and
fixed by the Board of Directors at the time of the creation and
establishment of such series of preferred stock in the event of (i) a
voluntary liquidation, dissolution or winding up of the Company or a
voluntary sale of all or substantially all of the assets of the
Company or upon any voluntary distribution of its capital or (ii) an
involuntary liquidation, dissolution or winding up of the Company or
an involuntary sale of all or substantially all of the assets of the
Company, or upon any involuntary distribution of its capital, before
any payment shall be made or any assets distributed to the holders of
common stock. If upon such liquidation, dissolution, winding up, sale
of assets or distribution of the capital of the Company, the assets
or distribution of the capital of the Company, the assets thus
distributed among the holders of the preferred stock shall be
insufficient to permit the payment to such holders of the full
preferential amounts aforesaid, then the entire assets of the Company
to be distributed shall be distributed ratably among the holders of
the preferred stock in proportion to the full preferential amounts,
if any, to which there are respectively entitled as aforesaid. After
payment or distribution to the holders of preferred stock as
aforesaid and after payment or distribution of remaining assets, if
any, ratably among the holders of preference stock in proportion to
the full preferential amounts, if any, to which such holders are
entitled pursuant to the provisions of Article 7E (c) below, the
holders of common stock shall be entitled to receive, ratably, any
remaining assets of the Company. A consolidation or merger of the
Company with any other corporation or corporations shall not be
deemed to be a liquidation, dissolution, winding up, sale or
distribution of capital, within the meaning of this clause, but no
such consolidation or merger shall in any way impair the rights and
preferences of the preferred stock.
(e) So long as any shares of the preferred stock of any
series are outstanding, the Company shall not, without the consent
(given by vote at a meeting called for that purpose) of the holders
of a majority of the total number of shares of the preferred stock of
all series then outstanding, voting as a class, issue, sell or
otherwise dispose of any additional series of preferred stock or of
<PAGE>
any other class ranking prior to or on a parity with the preferred
stock as to dividends or distributions, unless (i) the stated value
of common stock and surplus earnings on the books of the Company
shall be at least two (2) times the involuntary liquidation
preferences of the entire amount of preferred stock of the Company
already issued and then outstanding, and the preferred stock then
proposed to be issued; and (ii) the earnings of the Company available
for the payment of interest determined in accordance with generally
accepted accounting practices shall have been for a period of twelve
(12) consecutive calendar months within the fifteen (15) calendar
months immediately preceding the issuance of such additional stock,
at least one and one-half (1-1/2) times the annual interest
requirements on all outstanding obligations for the payment of money,
secured and unsecured, of the Company maturing more than twelve (12)
months after the issuance of the shares proposed to be issued plus
annual dividend requirements upon all outstanding preferred stock of
the Company and all other classes of stock ranking prior to or on a
parity with the preferred stock as to dividends and distributions,
including the shares proposed to be issued, minus any interest on any
such obligations and dividends on any such outstanding stock to be
retired or refunded out of the proceeds of the shares proposed to be
issued.
(f) Except as otherwise required by law and subject to the
provisions of subparagraph (e) hereof, no holder of preferred stock
shall have any right to vote for the election of directors or for any
other purpose, anything in ARTICLE 4 hereof to the contrary
notwithstanding; provided, however, that if and whenever dividends on
the preferred stock shall be in arrears and such arrears shall
aggregate an amount at least equal to four (4) quarterly dividends,
which need not be consecutive, then, in such event, the holders of
the outstanding preferred stock of all series shall be entitled, at
the next ensuing annual meeting of stockholders, voting as a class,
to elect two members (herein called `preferred stock directors') of
the Board of Directors, which preferred stock directors shall be in
addition to the directors holding office pursuant to ARTICLE 4
hereof; provided, however, that if and whenever any such fourth
quarterly dividend arrearage shall occur, the Company shall, within
fifteen (15) days after the receipt by the Company of written request
of not less than twenty-five percent (25%) of the holders of the
outstanding preferred stock, as a class and irrespective of series,
cause to be called a special meeting of the holders of outstanding
preferred stock of all series, to be held on the earliest practicable
date, to elect the preferred stock directors, as aforesaid. For
purposes of any such election such holder or holders of preferred
stock as are present in person or by proxy shall constitute a quorum,
irrespective of whether any holders of any other capital stock of the
Company are present at such meeting. Any vacancy in the position of a
preferred stock director, which, but for this provision, could be
filled by such person as the Board of Directors might designate,
shall be filled by the Board of Directors from among such persons as
the remaining preferred stock director shall designate, and such
successor shall hold office for the unexpired term of the prior
incumbent and until his successor shall be duly chosen and shall
<PAGE>
qualify. Such right of the holders of the outstanding preferred stock
to elect two members of the Board of Directors shall continue at each
annual meeting until such time as all arrears of dividends on the
preferred stock shall have been paid and dividends thereon for the
current quarterly period shall have been paid or declared and
provided for, in which event such right of the holders of preferred
stock to elect preferred stock directors as provided in this
subparagraph (f) shall cease at the next ensuing annual meeting of
stockholders, subject always to the same provisions for the vesting
of such right in the case of any such future arrearages in dividends.
In any case in which the holders of preferred stock shall
be entitled to vote pursuant to the provisions of this subparagraph
(f) or pursuant to law, each holder of preferred stock shall be
entitled to one vote for each share thereof held.
ARTICLE 7B. A first series of the Company's preferred stock,, without
nominal or par value, consisting of 2,500 shares, designated as `$7 Series
Cumulative Preferred Stock' was created and established and each of the
outstanding 2,500 shares of 7% Preferred Stock, $100 par value, was changed into
and thereby became a share of such first series.
The preferences, rights, qualifications, limitations and restricting of
the shares of the $7 Series Cumulative Preferred Stock, in the respects in which
the shares of such series vary from shares of other series of the preferred
stock, are and shall be as follows:
(a) The dividend rate for the $7 Series Cumulative
Preferred Stock shall be $7 per share per annum;
(b) The shares of the $7 Series Cumulative Preferred Stock
shall not be subject to redemption.
(c)The preferential amounts to which holders of shares of
the $7 Series Cumulative Preferred Stock shall be entitled upon any
liquidation, dissolution or winding up of the Company, whether
voluntary or otherwise, or upon any distribution of the capital of
the Company, shall be $100 per share, plus accumulated and unpaid
dividends thereon;
(d) There shall not be any sinking fund providing for the
purchase or redemption of shares of the $7 Series Cumulative
Preferred Stock; and
(e) The shares of the $7 Series Cumulative Preferred Stock
shall not be convertible into stock of any other class or classes or
any one or more series of the same class or of another class.
ARTICLE 7C. The Company created and established a second series of
its preferred stock, without nominal or par value, in an amount of ten thousand
(10,000) shares, which is designated as `$4.75 Series Cumulative Preferred
Stock.
The preferences, rights, qualifications, limitations and restrictions
of the shares of the $4.75 Series Cumulative Preferred Stock, in the respects in
which the shares of such series vary from shares of other series of the
Company's preferred stock, are and shall be as follows:
<PAGE>
(a) The dividend rate for the $4.75 Series Cumulative
Preferred Stock shall be $4.75 per share per annum:
(b) The redemption price for the $4.75 Series Cumulative
Preferred Stock shall be $104.75 per share through February 1, 1968,
thereafter $104 per share through February 1, 1973; thereafter $103,
per share through February 1, 1978; thereafter $102 per share through
February 1, 1983; thereafter $102 per share through February 1, 1988;
and thereafter, $100 per share, plus accumulated and unpaid dividends
thereon in any case; provided, however, that prior to February 1,
1968, none of the shares of such series shall be redeemed, directly
or indirectly, out of the proceeds of, or in anticipation of, any
refunding operation involving the incurring of any indebtedness or
the sale of any class of stock ranking senior to the common stock of
the Company, computed by the Company in accordance with generally
accepted accounting practice, of less than 4-3/4% per annum;
(c) The preferential amounts to which holders of shares of
the $4.75 Series Cumulative Preferred Stock shall be entitled upon
any liquidation, dissolution, or winding up of the Company shall be:
(i) Upon any voluntary liquidation, dissolution or
winding up of the Company, the redemption price in effect at that
time thereof; or
(ii) upon any involuntary liquidation, dissolution or
winding up of the Company, $100 per share plus accumulated and
unpaid dividends thereon;
(d) There shall not be any sinking fund provided for the
purchase or redemption of shares of the $4.75 Series Cumulative
Preferred Stock; and
(e) The shares of the $4.75 Series Cumulative Preferred
Stock shall not be convertible into stock of any other class or
classes of any one or more series of the same class or of another
class.
ARTICLE 7D. The Company created and established a fifth series of its
preferred stock, without nominal or par value, in an original amount of
seventeen thousand (17,000) shares, which is designated as `$7 Cumulative and
Convertible Preferred Stock.' The amount of such shares authorized and
outstanding from time to time may be reduced by periodic redemption and
cancellation of such shares by the Company, and the conversion of such shares at
the election of the holder thereof into the common stock of the Company as
expressly permitted under this Article 7D, without the ability to reissue such
shares.
The preferences, rights, qualification, limitations and restrictions of
the shares of the $7 Cumulative and Convertible Preferred Stock, in the respects
in which the shares of such series vary from shares of other series of the
Company's preferred stock, are and shall be as follows:
(a) The dividend rate for the $7 Cumulative and
Convertible Preferred Stock shall be $7 per share per annum;
<PAGE>
(b) the redemption price for any share of $7 Cumulative
and Convertible Preferred stock shall be the Closing Price (as
defined below in this article), on the day the Company's Board of
Directors authorizes such redemption, of three shares of the
Company's common stock plus any accumulated and unpaid dividends
thereon; provided, that prior to five years from the date of
issuance, none of the shares of such series shall be redeemed,
directly or indirectly, out of the proceeds of, or in anticipation
of, any refunding operation involving the incurring of any
indebtedness or the sale of any class of stock ranking senior to the
common stock of the Company which represents a cost of money to the
Company, computed by the Company in accordance with generally
accepted accounting practice, of less than $7 per annum; and
provided, further, that, notwithstanding any thing to the contrary
herein, the Board of Directors shall not redeem in any calendar year
more than 10% of the $7 Cumulative and Convertible Preferred Stock
issued and outstanding on January 1 of such year.
(c) The preferential amounts to which holders of shares of
the $7 Cumulative and Convertible Preferred Stock shall be entitled
upon any liquidation, dissolution, or winding up of the Company shall
be:
(i) Upon any voluntary liquidation, dissolution or
winding up of the Company, the redemption price in effect at the
time thereof; or
(ii) Upon any involuntary liquidation, dissolution or
winding up of the Company, $100 per share plus accumulated and
unpaid dividends thereon.
(d) There shall not be any sinking fund providing for the
purchase or redemption of shares of the $7 Cumulative and Convertible
Preferred Stock.
(e) Unless earlier called for redemption in accordance
with the provisions hereof, each share of the $7 Cumulative and
Convertible Preferred Stock shall be convertible at the election of
the holder thereof at any time after five years from the date of
issuance of such share into:
(i) Shares of the Company's common stock at the Common
Equivalent Rate in effect on the date of conversion (the
"Conversion Date"); plus
(ii) The right to receive an amount in cash equal to
all accrued and unpaid dividends on such share to and including
the Conversion Date, whether or not declared, out of funds
legally available therefor.
Any holder of shares of $7 Cumulative and Convertible Preferred Stock
electing to convert such shares into shares of the Company's common
stock shall provide written notice to the Company of such holder's
election to convert, such notice to be sufficient if contained in a
postage-paid envelope addressed and mailed to the Company. The time
of mailing of such notice shall be deemed to be the date of delivery
thereof. The holder's notice shall also include the following:
<PAGE>
(i) The conversion Date, which shall be not earlier
than 45 days or later than 90 days from the date of delivery of
such notice;
(ii) A description of the shares of $7 Cumulative and
Convertible Preferred Stock to be converted;
(iii) The name or names in which such holder wishes the
Certificate or Certificates for shares of the Company's common
stock to be issued; and
(iv) The holder's agreement to be responsible for the
reasonable fees and expenses of the Company's transfer agent
related to such issuance of common stock upon conversion.
Immediately prior to the effectiveness of a merger or consolidation
of the Company that results in the conversion or exchange of the
common stock into, or the right to receive, other securities or other
property (whether of the Company or any other entity) (any such
merger or consolidation is referred to herein as a "Merger" or
"Consolidation") each outstanding share of $7 Cumulative and
Convertible Preferred stock shall convert into:
(i) Shares of the Company's common stock at the Common
Equivalent Rate in effect on the effective date of a Merger or
Consolidation; plus
(ii) The right to receive an amount of cash equal to
the accrued and unpaid dividends on such share of $7 Cumulative
and Convertible Preferred Stock to and including the Settlement
Date (and dividends shall cease to accrue as of the Settlement
Date),
unless sooner redeemed.
The Common Equivalent Rate to be used to determine the number
of shares of the Company's common stock to be delivered pursuant to
this article shall be initially three shares of the Company's common
stock for each share of $7 Cumulative and Convertible Preferred
Stock; provided, however, that such Common Equivalent Rate shall be
subject to adjustment from time to time as provided below. All
adjustments to the Common Equivalent Rate shall be calculated to the
nearest 1/100th of a share of the Company's common stock. Such rate
in effect any time is herein called the "Common Equivalent Rate."
(i) If the Company shall either:
(1) pay a dividend or make a distribution with
respect to its common stock, in either case,
in shares of such common stock,
(2) subdivide or split its outstanding shares of
common stock,
(3) combine its outstanding shares of common
stock into a smaller number of shares, or
(4) issue by reclassification of its shares of
common stock any shares of common stock of
the Company,
<PAGE>
then, in any such event, the Common Equivalent Rate in effect
immediately prior thereto shall be adjusted so that the holders of a
share of $7 Cumulative and Convertible Preferred Stock shall be
entitled to receive on the conversion of such share, the number of
shares of common stock of the Company which such holder would have
owned or been entitled to receive after the happening of any of the
events described above had such share of $7 Cumulative and
Convertible Preferred Stock been surrendered for conversion at the
Common Equivalent Rate in effect immediately prior to such time. Such
adjustment shall become effective at the opening of business of the
business day next following the record date for determination of
stockholders entitled to receive such stock dividend or distribution
in the case of a stock dividend or distribution and shall become
effective immediately after the effective date in case of a
subdivision, split, combination or reclassification; and any shares
of the Company's common stock issuable in payment of a dividend shall
be deemed to have been issued immediately prior to the close of
business on the record date for such dividend for purposes of
calculating the number of outstanding shares of the Company's common
stock under clauses (ii) and (iii) below.
(ii) If the Company shall issue rights or warrants to all
holders of its common stock entitling them to subscribe for or
purchase shares of the Company's common stock at a price per share
less than the Current Market Price per share (determined as provided
below) of the common stock of the Company on the record date for the
determination of stockholders entitled to receive such rights or
warrants, then in each case the Common Equivalent Rate shall be
adjusted by multiplying the Common Equivalent Rate in effect
immediately prior thereto by a fraction, of which the numerator shall
be the number of shares of the Company's common stock outstanding on
the date of issuance of such rights or warrants, immediately prior to
such issuance, plus the number of additional shares of its common
stock offered for subscription or purchase, and of which the
denominator shall be the number of shares of common stock of the
Company outstanding on the date of issuance of such rights or
warrants, immediately prior to such issuance, plus the number of
shares which the aggregate offering price of the total number of
shares so offered for subscription or purchase would purchase at such
Current Market Price (determined by multiplying such total number of
shares by the exercise price of such rights or warrants and dividing
the product so obtained by such Current Market Price). Shares of
common stock of the Company owned by the Company or by another
company of which a majority of the shares entitled to vote in the
election of directors are held, directly or indirectly, by the
Company shall not be deemed to be outstanding for purposes of such
computation. Such adjustment shall become effective at the opening of
business on the business day next following the record date for the
determination of stockholders entitled to receive such rights or
warrants. To the extent that shares of the Company's common stock are
not delivered after the expiration of such rights or warrants, the
Common Equivalent Rate shall be readjusted to the Common Equivalent
Rate which would then be in effect had the adjustments made upon the
issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock actually
delivered.
<PAGE>
(iii) If the Company shall pay a dividend or make a
distribution to all holders of its common stock of evidence of its
indebtedness or other assets (including shares of capital stock of
the Company but excluding any cash dividends or distributions and
dividends referred to in clause (I) above), or shall distribute to
all holders of its common stock rights or warrants to subscribe for
or purchase securities of the Company (other than those referred to
in clause (ii) above), then in each such case the Common Equivalent
Rate shall be adjusted by multiplying the Common Equivalent Rate in
effect immediately prior to the date of such distribution by a
fraction, of which the numerator shall be the Current Market Price
per share of the Company's common stock (determined pursuant to
clause (v) below) on the record date mentioned below, and of which
the denominator shall be such Current Market Price per share of the
Company's common stock less the fair market value (as determined by
the Board of Directors of the Company, whose determination shall be
conclusive) as of such record date of the portion of the assets or
evidences of indebtedness so distributed, or of such subscription
rights or warrants, applicable to one share of the common stock of
the Company. Such adjustment shall become effective on the opening of
business on the business day next following the record date for the
determination of stockholders entitled to receive such distribution.
(iv) Anything in this article notwithstanding, the Company
shall be entitled to make such upward adjustments in the Common
Equivalent Rate, in addition to those required by this article, as
the Company in its discretion shall determine to be advisable, in
order that any stock dividends, subdivision of shares, distribution
of rights to purchase stock or securities, or a distribution of
securities convertible into or exchangeable for stock (or any
transaction which would be treated as any of the foregoing
transactions pursuant to Section 305 of the Internal Revenue Code of
1986, as amended) hereafter made by the Company to its stockholders
shall not be taxable.
(v) As used in this article, the Current Market Price per
share of the Company's common stock on any date shall be the average
of the daily Closing Prices for the five consecutive Trading Dates
ending on and including the date of determination of the Current
Market Price (appropriately adjusted to take into account the
occurrence during such five-day period of any event that results in
an adjustment of the Common Equivalent Rate).
(vi) In any case in which this article shall require that an
adjustment as a result of any event become effective at the opening
of business on the business day next following a record date and the
date fixed for conversion occurs after such record date, but before
the occurrence of such event, the Company may in its sole discretion
elect to defer paying to such holder any amount in cash in lieu of a
fractional share of common stock of the Company, pursuance to this
article.
Whenever the Common Equivalent Rate is adjusted as
herein provided, the Company shall:
<PAGE>
(i) forthwith compute the adjusted Common
Equivalent Rate in accordance with this article
and prepare a certificate signed by the Chief
Executive Officer, the Chairman, the President,
any Vice President or the Treasurer of the
Company setting forth the adjusted Common
Equivalent Rate, the method of calculation
thereof in reasonable detail and the facts
requiring such adjustment and upon which such
adjustment is based, and file such certificate
forthwith with the transfer agent or agents for
the $7 Cumulative and Convertible Preferred
Stock and the Company's common stock; and
(ii)mail a notice stating that the Common
Equivalent Rate has been adjusted, the facts
requiring such adjustment and upon which such
adjustment is based and setting forth the
adjusted Common Equivalent Rate to the holders
of record of the outstanding shares of the $7
Cumulative and Convertible Preferred Stock at
or prior to the time the Company mails an
interim statement to its stockholders covering
the quarterly-yearly period during which the
facts requiring such adjustment occurred, but
in any event within 45 days of the end of such
quarterly-yearly period.
No fractional shares of the Company's common stock shall be issued upon
redemption or conversion of shares of the $7 Cumulative and Convertible
Preferred Stock but, in lieu of any fraction of a share of the Company's common
stock which would otherwise be issuable in respect of the aggregate number of
shares of the $7 Cumulative and Convertible Preferred Stock surrendered by the
same holder for redemption or conversion on any redemption or conversion date,
the holders shall have the right to receive an amount in cash equal to the same
fraction of the Closing Price.
The term "Closing Price" on any day shall mean the closing sale price regular
way on such day or, in the case no such sale takes place on such day, the
average closing bid and asked prices of the common stock of the Company on the
over-the- counter market on the day in question as reported by the National
Quotation Bureau Incorporated for National Market Securities, or a similarly
generally accepted reporting service, or if not so available in such manner as
furnished by an New York Stock Exchange member firm selected from time to time
by the Board of Directors of the Company for that purpose; provided, however,
that if the Closing Price of the Company's common stock is to be determined with
respect to the redemption of shares of $7 Cumulative and Convertible Preferred
Stock at any time on or before five years from the date of issuance of such
shares of $7 Cumulative and Convertible Preferred Stock, such Closing Price
shall not be less than $26.00 per share.
The term "Current Market Price" per share of the Company's common stock on any
date shall be the average of the daily Closing Prices for the five consecutive
Trading Dates ending on and including the date of determination of the Current
Market Price (appropriately adjusted to take into account the occurrence during
such five-day period of any event that results in an adjustment of the Common
Equivalent Rate).
<PAGE>
The term "Settlement Date" shall mean with respect to a Merger or Consolidation,
the business day immediately prior to the effective date of the Merger or
Consolidation.
The term "Trading Date" shall mean a date on which the New York Stock Exchange
(or any successor exchange) is open for the transaction of business.
(f) Notwithstanding anything in this article to the contrary,
the Common Equivalent Rate shall not be adjusted due to or as a result
of the issuance or distribution to all of the holders of the Company's
common stock of any common stock, right or warrant (i) under or as part
of the Company's dividend reinvestment plan (as presently in existence
or as hereafter amended) or (ii) under or as part of any employee
benefit plan of the Company (as presently in existence or hereafter
adopted). In addition, notwithstanding anything in this article to the
contrary, the Common Equivalent Rate shall not be adjusted due to or as
a result of the issuance or distribution to any or all of the holders
of the Company's common stock of any right, warrant, security
convertible into common stock or other security (sometimes referred to
collectively as "Shareholder Rights Securities") which is issued or
distributed by the Company to deter the occurrence of any merger,
consolidation or other business combination with a third party and/or
to obtain for the holders of common stock of the Company a value which
the Company believes is fair in such a merger, consolidation or other
business combination, so long as either (1) to extent permitted by law,
all holders of the $7 Cumulative and Convertible Preferred Stock
receive the same Shareholder Rights Securities pro rata (based upon the
number of shares of the Company's common stock into which the $7
Cumulative and Convertible Preferred Stock is convertible on the day
prior to issuance or distribution of the Shareholder Rights Securities)
or (2) each share of the Company's common stock into which the $7
Cumulative and Convertible Preferred Stock is converted in connection
with any such merger, consolidation or other business combination of
the Company receives its pro rata entitlement of any Shareholder Rights
Securities immediately upon conversion.
ARTICLE 7E. The Company created and established a sixth series of its
preferred stock, without nominal or par value, in an original amount of
twenty thousand (20,000) shares, which is designated as "$8 Cumulative and
Convertible Preferred Stock." The amount of such shares authorized
outstanding from time to time may be reduced by periodic conversion of such
shares at the election of the holder thereof into the common stock of the
Company as expressly permitted under this Article 7E, without the ability to
reissue such shares.
The preferences, rights, qualification, limitations and restrictions of
the shares of the $8 Cumulative and Convertible Preferred Stock, in the
respects in which the shares of such series vary from shares of other
series of the Company's preferred stock, are and shall be as follows:
(a) The dividend rate for the $8 Cumulative and Convertible
Preferred Stock shall be $8 per share per annum;
(b) The shares of the $8 Cumulative and Convertible Preferred
Stock shall not be subject to redemption.
<PAGE>
(c) The preferential amounts to which holders of shares of
the $8 Cumulative and Convertible Preferred Stock shall be entitled
upon any liquidation, dissolution, or winding up of the Company
whether voluntary or otherwise, or upon any distribution of the
capital of the Company, shall be $120 per share, plus accumulated and
unpaid dividends thereon:
(d) Each share of the $8 Cumulative and Convertible
Preferred Stock shall be convertible at the election of the holder
thereof at any time or from time to time within seven years from the
date of issuance of such share into:
(i) Shares of the Company's common stock at the
Common Equivalent Rate in effect on the date of
conversion (the "Conversion Date"); plus
(ii) The right to receive an amount in cash equal
to all accrued and unpaid dividends on such share to
and including the Conversion Date, whether or not
declared, out of funds legally available therefor.
Any holder of shares of $8 Cumulative and Convertible Preferred Stock
electing to convert such shares into shares of the Company's common
stock shall provide written notice to the Company of such holder's
election to convert, such notice to be sufficient if contained in a
postage-paid envelope addressed and mailed to the Company. The time of
mailing of such notice shall be deemed to be the date of delivery
thereof. The holder's notice shall also include the following:
(i) The Conversion Date, which shall be not
earlier than 45 days or later than 90 days from the
date of delivery of such notice;
(ii) A description of the shares of $8 Cumulative
and Convertible Preferred Stock to be converted;
(iii) The name or names in which such holder
wishes the Certificate or Certificates for shares of
the Company's common stock to be issued; and
(iv) The holder's agreement to be responsible for
the reasonable fees and expenses of the Company's
transfer agent related to such issuance of common
stock upon conversion.
(e) Each share of the $8 Cumulative and Convertible Preferred
Stock shall be convertible at the election of the Company at any
time or from time to time after seven years from the date of
issuance of such share into:
(i) Shares of the Company's common stock at the
Common Equivalent Rate in effect on the date of
conversion (the Conversion Date); plus
(ii) The right to receive an amount in cash equal
to all accrued and unpaid dividends on such share to
and including the Conversion Date, whether or not
declared, out of funds legally available therefor.
<PAGE>
If the Company elects to convert such shares into shares of the
Company's common stock it shall provide written notice to the holders
of $8 Cumulative and Convertible Preferred Stock of the Company's
election to convert, such notice to be sufficient if contained in a
postage-paid envelope addressed and mailed to the holders at the
address of the holders last shown on the records of the Company. The
time of mailing of such notice shall be deemed to be the date of
delivery thereof. The Company's notice shall also include the
following:
(i) The Conversion Date, which shall be not
earlier than 45 days or later than 90 days from the
date of such notice;
(ii) A description of the shares of $8 Cumulative
and Convertible Preferred Stock to be converted;
(iii) A request for the names or names in which
such holder wishes the Certificate or Certificates
for shares of the Company's common stock to be
issued; and
(iv) The Company's agreement to be responsible
for the reasonable fees and expenses of the
Company's transfer agent related to such issuance
of common stock upon conversion.
Immediately prior to the effectiveness of a merger or consolidation
of the Company that results in the conversion or exchange of the
common stock into, or the right to receive, other securities or other
property (whether of the Company or any other entity) (any such
merger or consolidation is referred to herein as a "Merger" or
"Consolidation") each outstanding share of $8 Cumulative and
Convertible Preferred stock shall convert into:
(i) Shares of the Company's common stock at the
Common Equivalent Rate in effect on the effective
date of a Merger or Consolidation; plus the right
to receive an amount of cash equal to the accrued
and unpaid dividends on such share of $8
Cumulative and Convertible Preferred Stock to and
including the Settlement Date (and dividends shall
cease to accrue as of the Settlement Date).
The Common Equivalent Rate to be used to determine the number of
shares of the Company's common stock to be delivered pursuant to
this article shall be initially 6.857 shares of the Company's
common stock for each share of $8 Cumulative and Convertible
Preferred Stock; provided, however, that such Common Equivalent
Rate shall be subject to adjustment from time to time as provided
below. All adjustments to the Common Equivalent Rate shall be
calculated to the nearest 1/100th of a share of the Company's
common stock. Such rate in effect at any time is herein called the
"Common Equivalent Rate."
<PAGE>
(i) If the Company shall either:
(1) pay a dividend or make a
distribution with respect to its common
stock, in either case, in shares of such
common stock, (2) subdivide or split its
outstanding shares of common stock, (3)
combine its outstanding shares of common
stock into a smaller number of shares,
or (4) issue by reclassification of its
shares of common stock any shares of
common stock of the Company, then, in
any such event, the Common Equivalent
Rate in effect immediately prior thereto
shall be adjusted so that the holders of
a share of $8 Cumulative and Convertible
Preferred Stock shall be entitled to
receive on the conversion of such share,
the number of shares of common stock of
the Company which such holder would have
owned or been entitled to receive after
the happening of any of the events
described above had such share of $8
Cumulative and Convertible Preferred
Stock been surrendered for conversion at
the Common Equivalent Rate in effect
immediately prior to such time. Such
adjustment shall become effective at the
opening of business of the business day
next following the record date for
determination of stockholders entitled
to receive such stock dividend or
distribution in the case of a stock
dividend or distribution and shall
become effective immediately after the
effective date in case of a subdivision,
split, combination or reclassification;
and any shares of the Company's common
stock issuable in payment of a dividend
shall be deemed to have been issued
immediately prior to the close of
business on the record date for such
dividend for purposes of calculating the
number of outstanding shares of the
Company's common stock under clauses
(ii) and (iii) below.
(ii) If the Company shall issue rights or
warrants to all holders of its common stock
entitling them to subscribe for or purchase shares
of the Company's common stock at a price per share
less than the Current Market Price per share
(determined as provided below) of the common stock
of the Company on the record date for the
determination of stockholders entitled to receive
such rights or warrants, then in each case the
Common Equivalent Rate shall be adjusted by
multiplying the Common Equivalent Rate in effect
<PAGE>
immediately prior thereto by a fraction, of which
the numerator shall be the number of shares of the
Company's common stock outstanding on the date of
issuance of such rights or warrants, immediately
prior to such issuance, plus the number of
additional shares of its common stock offered for
subscription or purchase, and of which the
denominator shall be the number of shares of common
stock of the Company outstanding on the date of
issuance of such rights or warrants, immediately
prior to such issuance, plus the number of shares
which the aggregate offering price of the total
number of shares so offered for subscription or
purchase would purchase at such Current Market
Price (determined by multiplying such total number
of shares by the exercise price of such rights or
warrants and dividing the product so obtained by
such Current Market Price). Shares of common stock
of the Company owned by the Company or by another
company of which a majority of the shares entitled
to vote in the election of directors are held,
directly or indirectly, by the Company shall not be
deemed to be outstanding for purposes of such
computation. Such adjustment shall become effective
at the opening of business on the business day next
following the record date for the determination of
stockholders entitled to receive such rights or
warrants. To the extent that shares of the
Company's common stock are not delivered after the
expiration of such rights or warrants, the Common
Equivalent Rate shall be readjusted to the Common
Equivalent Rate which would then be in effect had
the adjustments made upon the issuance of such
rights or warrants been made upon the basis of
delivery of only the number of shares of Common
Stock actually delivered.
(iii) If the Company shall pay a dividend or make
a distribution to all holders of its common stock
of evidence of its indebtedness or other assets
(including shares of capital stock of the Company
but excluding any cash dividends or distributions
and dividends referred to in clause (I) above), or
shall distribute to all holders of its common stock
rights or warrants to subscribe for or purchase
securities of the Company (other than those
referred to in clause (ii) above), then in each
such case the Common Equivalent Rate shall be
adjusted by multiplying the Common Equivalent Rate
in effect immediately prior to the date of such
distribution by a fraction, of which the numerator
shall be the Current Market Price per share of the
Company's common stock (determined pursuant to
<PAGE>
clause (v) below) on the record date mentioned
below, and of which the denominator shall be such
Current Market Price per share of the Company's
common stock less the fair market value (as
determined by the Board of Directors of the
Company, whose determination shall be conclusive)
as of such record date of the portion of the assets
or evidences of indebtedness so distributed, or of
such subscription rights or warrants, applicable to
one share of the common stock of the Company. Such
adjustment shall become effective on the opening of
business on the business day next following the
record date for the determination of stockholders
entitled to receive such distribution.
(iv) Anything in this article notwithstanding,
the Company shall be entitled to make such upward
adjustments in the Common Equivalent Rate, in
addition to those required by this article, as the
Company in its discretion shall determine to be
advisable, in order that any stock dividends,
subdivision of shares, distribution of rights to
purchase stock or securities, or a distribution of
securities convertible into or exchangeable for
stock (or any transaction which would be treated as
any of the foregoing transactions pursuant to
Section 305 of the Internal Revenue Code of 1986,
as amended) hereafter made by the Company to its
stockholders shall not be taxable.
(v) As used in this article, the Current Market
Price per share of the Company's common stock on
any date shall be the average of the daily Closing
Prices for the five consecutive Trading Dates
ending on and including the date of determination
of the Current Market Price (appropriately
adjusted to take into account the occurrence
during such five-day period of any event that
results in an adjustment of the Common Equivalent
Rate).
(vi) In any case in which this article shall
require that an adjustment as a result of any
event become effective at the opening of business
on the business day next following a record date
and the date fixed for conversion occurs after
such record date, but before the occurrence of
such event, the Company may in its sole discretion
elect to defer paying to such holder any amount in
cash in lieu of a fractional share of common stock
of the Company, pursuance to this article.
Whenever the Common Equivalent Rate is adjusted as herein
provided, the Company shall:
<PAGE>
(i) forthwith compute the adjusted Common
Equivalent Rate in accordance with this article
and prepare a certificate signed by the Chief
Executive Officer, the Chairman, the President,
any Vice President or the Treasurer of the Company
setting forth the adjusted Common Equivalent Rate,
the method of calculation thereof in reasonable
detail and the facts requiring such adjustment and
upon which such adjustment is based, and file such
certificate forthwith with the transfer agent or
agents for the $8 Cumulative and Convertible
Preferred Stock and the Company's common stock;
and
(ii) mail a notice stating that the Common
Equivalent Rate has been adjusted, the facts
requiring such adjustment and upon which such
adjustment is based and setting forth the adjusted
Common Equivalent Rate to the holders of record of
the outstanding shares of the $8 Cumulative and
Convertible Preferred Stock at or prior to the time
the Company mails an interim statement to its
stockholders covering the quarterly-yearly period
during which the facts requiring such adjustment
occurred, but in any event within 45 days of the
end of such quarterly-yearly period.
No fractional shares of the Company's common stock shall be issued upon
redemption or conversion of shares of the $8 Cumulative and Convertible
Preferred Stock but, in lieu of any fraction of a share of the Company's
common stock which would otherwise be issuable in respect of the aggregate
number of shares of the $8 Cumulative and Convertible Preferred Stock
surrendered by the same holder for redemption or conversion on any
redemption or conversion date, the holders shall have the right to receive
an amount in cash equal to the same fraction of the Closing Price.
The term "Closing Price" on any day shall mean the closing sale price
regular way on such day or, in the case no such sale takes place on such
day, the average closing bid and asked prices of the common stock of the
Company on the over-the-counter market on the day in question as reported
by the National Quotation Bureau Incorporated for National Market
Securities, or a similarly generally accepted reporting service, or if not
so available in such manner as furnished by an New York Stock Exchange
member firm selected from time to time by the Board of Directors of the
Company for that purpose.
The term "Current Market Price" per share of the Company's common stock on
any date shall be the average of the daily Closing Prices for the five
consecutive Trading Dates ending on and including the date of
determination of the Current Market Price (appropriately adjusted to take
into account the occurrence during such five-day period of any event that
results in an adjustment of the Common Equivalent Rate).
The term "Settlement Date" shall mean with respect to a Merger or
Consolidation, the business day immediately prior to the effective date of
the Merger or Consolidation.
The term "Trading Date" shall mean a date on which the New York Stock
Exchange (or any successor exchange) is open for the transaction of
business.
<PAGE>
(f) Notwithstanding anything in this article to the
contrary, the Common Equivalent Rate shall not be adjusted due to
or as a result of the issuance or distribution to all of the
holders of the Company's common stock of any common stock, right
or warrant (i) under or as part of the Company's dividend
reinvestment plan (as presently in existence or as hereafter
amended) or (ii) under or as part of any employee benefit plan of
the Company (as presently in existence or hereafter adopted). In
addition, notwithstanding anything in this article to the
contrary, the Common Equivalent Rate shall not be adjusted due to
or as a result of the issuance or distribution to any or all of
the holders of the Company's common stock of any right, warrant,
security convertible into common stock or other security
(sometimes referred to collectively as "Shareholder Rights
Securities") which is issued or distributed by the Company to
deter the occurrence of any merger, consolidation or other
business combination with a third party and/or to obtain for the
holders of common stock of the Company a value which the Company
believes is fair in such a merger, consolidation or other
business combination, so long as either (1) to extent permitted
by law, all holders of the $8 Cumulative and Convertible
Preferred Stock receive the same Shareholder Rights Securities
pro rata (based upon the number of shares of the Company's common
stock into which the $8 Cumulative and Convertible Preferred
Stock is convertible on the day prior to issuance or distribution
of the Shareholder Rights Securities) or (2) each share of the
Company's common stock into which the $8 Cumulative and
Convertible Preferred Stock is converted in connection with any
such merger, consolidation or other business combination of the
Company receives its pro rata entitlement of any Shareholder
Rights Securities immediately upon conversion.
ARTICLE 7F. The preference stock shall be issuable from time to time in
series with such designations, descriptions and terms thereof, in the manner
and to the extent permitted by the laws of the State of New Jersey, as may
be determined and fixed by the Board of Directors, subject to the provisions
of subparagraph (f) below, as the time of the creation and establishment of
any such series of preference stock. All of the shares of preference stock
of each series shall rank pari passu with all of the shares of preference
stock of each other series, and shall have the same rights and privileges,
preferences and voting powers and shall be subject to the same restrictions
or qualifications thereof, without distinction between the shares of the
respective series except only as to variations in (i) the rates of dividend
payable thereon, (ii) the terms on which shares of the respective series may
be redeemed, (iii) the amount which shall be paid to the holders of shares
of the respective series in case of dissolution or any distribution of
assets, (iv) voting rights, if any, (v) the terms or amounts of any sinking
fund provided for the purchase or redemption thereof, (vi) the terms on
which the holders of shares of the respective series may convert the same
into stock of any other class or classes or of any one or more series of the
same class or of another class or classes, and (vii) in such other respects,
if any, as may at the time be permitted by the laws of the State of New
Jersey.
<PAGE>
(a) The holders of preference stock irrespective of the
series thereof shall be entitled to receive, and the Company
shall be obligated to pay, when and as declared by the Board
of Directors of the Company and subject to the provisions of
subparagraph (f) below, cumulative dividends at such
respective rates as may be fixed by the Board of Directors of
the Company at the time of the creation and establishment of
the respective series, and no more, payable quarterly on the
first date of March, June, September, and December, of each
year. Such dividends shall accumulate from the date of the
original issue of each share of such preference stock. Such
dividends shall be payable before any dividend shall be paid
upon or set apart for the common stock, and shall be
cumulative, so that if at any time dividends at the rate fixed
by the Board of Directors and designated by the certificates
of shares of the series of which it is a part shall not be
paid thereon or set apart therefor, the deficiency shall be
fully paid or set apart for payment before any dividend shall
be paid upon or set apart for the common stock. Dividends
shall not be paid exclusively upon any one or more series of
preference stock but dividends shall be paid ratably upon all
outstanding preference stock in the proportions that the
annual dividend requirements of each series bears to the total
annual dividend requirements of all outstanding preference
stock. Whenever all cumulative unpaid dividends on the
preference stock, including the current quarterly dividend,
shall have been fully paid or set apart for payment, the Board
of Directors may declare and pay dividends on the common
stock.
(b) The preference stock of one or more series may be
subject to redemption, in which case such preference stock may
be deemed and retired in whole, or in part, from time to time
at any time on any quarterly dividend date at the option of
the Company at such redemption prices as may be fixed by the
Board of Directors at the time of the creation and
establishment thereof; provided, however, that all stock of
any particular series shall be redeemable at the same
redemption price. The time, place and manner of such
redemption shall be in the discretion of the Board of
Directors of the Company. Preference stock which shall have
been redeemed shall not be reissued, and the Company shall
have from time to time cause all such shares to be retired in
the manner provided by law. If less than all of the
outstanding shares of preference stock subject to redemption
are to be called for redemption, redemption may be made of any
one or more series, or redemption may be made of less than all
of the outstanding shares of any one or more series, in the
discretion of the Board of Directors, and if less than all
outstanding shares of any series are to be redeemed, the
shares to be redeemed shall be determined in such manner as
may be prescribed by the Board of Directors. Redemption shall
be made, however, only on at least thirty (30) days' prior
written notice to the holders of the shares to be redeemed
which notice shall be sufficient if contained in a post-paid
<PAGE>
envelope addressed and mailed to the holder at his address or
record as shown by the books of the Company, and the time of
mailing such notice shall be deemed to be the time of delivery
thereof. From and after the date fixed in any such notice as
the date of redemption (unless default shall be made by the
Company in providing monies for the payment of the redemption
price, pursuant to such notice) all dividends on the
preference stock thereby called for redemption shall cease to
accrue and all rights of the holders thereof as stockholders
of the Company, except the right to receive the redemption
price upon surrender of the certificates of stock by such
holders, shall cease and determine.
(c) Subject to the provisions of subparagraph (f) below,
the holders of each series of preference stock shall be
entitled to receive payment out of the assets of the Company
whether from capital or from earnings, in an amount per share
determined and fixed by the Board of Directors at the time of
the creation and establishment of such series of preference
stock, in the event of (i) a voluntary liquidation,
dissolution or winding up of the Company or of a voluntary
sale of all or substantially all of the assets of the Company
or upon any voluntary distribution of its capital, or (ii) an
involuntary liquidation, dissolution or winding up of the
Company or an involuntary sale of all or substantially all of
the assets of the Company, or upon any involuntary
distribution of its capital, before any payment shall be made
or any assets distributed to the holders of common stock. If
upon such liquidation, dissolution, winding up, sale of assets
or distribution of the capital among the holders of the
preference stock shall be insufficient to permit the payment
to such holders of the full preferential amounts aforesaid,
then the entire assets of the Company to be distributed shall
be distributed ratably among the holders of the preference
stock in proportion to the full preferential amounts, if any,
to which they are respectively entitled as aforesaid. After
payment or distribution of the assets of the Company ratably
among the holders of preferred stock in accordance with the
provisions of Article 7A (d) and after payment or distribution
of remaining assets, if any, to the holders of preference
stock as provided in this paragraph, the holders of common
stock shall be entitled to receive, ratably, any remaining
assets of the Company. A consolidation or merger of the
Company with any other corporation or corporations shall not
be deemed to be a liquidation, dissolution, winding up, sale
or distribution of capital, within the meaning of this clause,
but no such consolidation or merger shall in any way impair
the rights and preferences of the preference stock.
(d) So long as any shares of the preference stock of any
series are outstanding, the Company shall not, without the
consent (given by vote at a meeting called for that purpose)
of the holders of a majority of the total number of shares of
the preference stock of all series then outstanding, voting as
a class, issue, sell or otherwise dispose of any additional
series of preference stock ranking prior to with the
preference stock as to dividends or distributions, unless (i)
<PAGE>
the stated value of common stock and surplus earnings on the
books of the Company shall be at least two (2) times the
involuntary liquidation preferences of the entire amount of
preference stock of the Company already issued and then
outstanding, and the additional stock then proposed to be
issued; and (ii) the earnings of the Company available for the
payment of interest determined in accordance with generally
accepted accounting practices shall have been for a period of
twelve (12) consecutive calendar months within the fifteen
(15)calendar months immediately preceding the issuance of such
additional stock, at least one and one-half (1-1/2) times the
annual interest requirements on all outstanding obligations
for the payment of money, secured and unsecured, of the
Company maturing more than twelve (12) months after the
issuance of the shares proposed to be issued plus annual
dividend requirements upon all outstanding preference stock of
the Company and all other classes of stock ranking prior to or
on a parity with the preference stock as to dividends and
distributions, including the shares proposed to be issued,
minus any interest on any such obligations and dividends on
any such outstanding stock to be retired or refunded out of
the proceeds of the shares proposed to be issued. The Company
may, without the consent of the holders of preference stock,
increase the number of shares of any class of stock other than
preference stock which the Company is authorized to issue and
may create and establish any series thereof as herein
provided.
(e) Except as required by law, holders of preference
stock shall have such voting rights, if any, with respect to
such preference stock as are fixed by the Board of Directors
at the time of the issuance of the series of such preference
stock; however, no holder of preference stock shall have or be
granted voting rights with respect to each or any share of
preference stock held by such holder which exceed or are
superior to (with respect to number of votes per share, the
subject matter upon which voting is permitted or required, or
otherwise) the voting rights a holder of common stock shall
have with respect to each or any share of common stock held by
such common stock holder. However, notwithstanding the
foregoing provisions of this paragraph, if and whenever
dividends on the preference stock shall be in arrears and such
arrears shall aggregate an amount at least equal to four (4)
quarterly dividends, which need not be consecutive, then and
in such event, the holders of the outstanding preference stock
of all series shall be entitled, at the next ensuing annual
meeting of the stockholders, voting as a class, to elect two
members (herein called "preference stock directors") of the
Board of Directors, which preference stock directors shall be
in addition to the directors holding office pursuant to
ARTICLE 4 hereof and in addition to any directors holding
office or to be elected as preferred stock directors; and
provided further that if and whenever any such four (4)
quarterly dividend arrearage shall occur, the Company shall,
within fifteen (15) days after the receipt by the Company of
written request of not less than twenty-five per cent (25%) of
the holders of the outstanding preference stock, as a class,
<PAGE>
and irrespective of series, cause to be called a special
meeting of the holders of outstanding preference stock of all
series, to be held on the earliest practicable date, to elect
the preference stock directors, as aforesaid. For purposes of
any such election such holder or holders of preference stock
as are present in person or by proxy shall constitute a
quorum, irrespective of whether any holders of any other
capital stock of the Company are present at such meeting. Any
vacancy in the position of preference stock director, which,
but for this provision, could be filled by such person as the
Board of Directors might designate, shall be filled by the
Board of Directors from among such persons as the remaining
preference stock directors shall designate, and such successor
shall hold office for the unexpired term of the prior
incumbent and until his successor shall be duly chosen and
shall qualify. Such right of the holders of the outstanding
preference stock to elect two members of the Board of
Directors shall continue at each annual meeting until such
time as all arrears of dividends thereon for the current
quarterly period shall have been paid or declared and provided
for, in which event such right of the holders of preference
stock to elect preference stock directors as provided in this
subparagraph (e) shall cease at the next ensuing annual
meeting of stockholders, subject always to the same provisions
for the vesting of such right in the case of any such future
arrearages in dividends.
(f) Notwithstanding any of the provisions contained in
subparagraphs (a) through (e) above, (i) the preferred stock
shall rank prior to the preference stock as to both dividends
and the right to receive payment out of the assets of the
Company upon any voluntary liquidation, dissolution or winding
up of the Company, or any voluntary sale of all or
substantially all of the assets of the Company, or any
voluntary distribution of its capital, or any involuntary
liquidation, dissolution or winding up of the Company, or any
involuntary sales of all or substantially all of the assets of
the Company, or any involuntary distribution of its capital,
(ii) the Company shall not pay any dividends on the shares of
preference stock at any time outstanding unless and until all
dividends payable on the shares have been paid or declared and
set aside for payment, and (iii) no distribution shall be made
on any shares of preference stock at any time outstanding, and
no payment of any kind shall be made thereon to any holder
thereof, unless all payments required to be made on the shares
of preferred stock outstanding at such time and to the holders
thereof, whether upon redemption or pursuant to the provisions
of any sinking fund provided therefor, or upon a voluntary
liquidation, dissolution or winding up of the Company or a
voluntary sale of all or substantially all of the assets of
the Company or any voluntary distribution of its capital, or
an involuntary liquidation, dissolution or winding up of the
Company or an involuntary sale of all or substantially all of
the assets of the Company, or any involuntary distribution of
its capital, or otherwise, shall have been paid or shall have
been irrevocably set aside for payment.
<PAGE>
Nothing contained in subparagraph (e) above pertaining to the rights of
the holders of preference stock to elect directors shall be deemed to affect the
rights of holders of preferred stock to elect directors upon default in the
payment of dividends on the preferred stock.
ARTICLE 8. Any action which, at any meeting of stockholders, requires
the vote, assent or consent of two-thirds in interest of all of the stockholders
of the Company, or of two-thirds in interest of each class of stockholders of
the Company having voting power, or which requires such assent or consent in
writing to be filed, may be taken upon the assent of and the assent given and
filed, as the case may be, by two-thirds in interest of the stockholders of the
Company present and voting at such meeting in person or by proxy, but where
assent by classes is required such assent shall be given by two-thirds in
interest of each class so present and voting.
ARTICLE 9. Any and all action requiring stockholder approval may only
be taken at an annual or special meeting of stockholders of the Company and not
by consent in lieu of such meeting.
ARTICLE 10. To the full extent from time to time as permitted by law,
directors and officers of the Corporation shall not be personally liable to the
Corporation or its stockholders for damages for breach of any duty owed to the
Corporation or its stockholders. No amendment or repeal of this provision shall
adversely affect any right or protection of a director or officer of the
Corporation existing at the time of such amendment or repeal.
Dated: February 27, 1997
Iselin, New Jersey
MIDDLESEX WATER COMPANY
-----------------------
/s/J. Richard Tompkins
----------------------
J. Richard Tompkins
Chairman of the Board and President
Attest: __________________________
Marion F. Reynolds
Vice President, Secretary and Treasurer
<PAGE>
CERTIFICATE
OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
To: The Secretary of State of the State of New Jersey
Pursuant to the provisions of N.J.S.A. 14A.9-2(4) and N.J.S.A.
14A:9-4 the undersigned Corporation executes the following Certificate of
Amendment to its Restated Certificate of Incorporation.
1. The Name of the Corporation is MIDDLESEX WATER COMPANY. The
principal office of the Corporation is 1500 Ronson Road, Iselin, New Jersey
08830-3020.
2. The Company adopted the following amendment:
The first sentence of Article 7A of the Company's
Restated Certificate of Incorporation is amended to read as follows:
ARTICLE 7A. The total authorized capital stock of the
Company is 6,250,000 shares, divided into 6,000,000 shares of common stock
without nominal or par value, 150,000 shares of preferred stock without nominal
or par value and 100,000 shares of preference stock without nominal or par
value.
3. Such amendment was adopted by the shareholders on May 28,
1997.
4. The number of shares entitled to vote on the amendment was
4,219,516 shares of the Company's Common Stock, no par value.
5. 2,116,563 shares were voted for the amendment, 430,091
shares were voted against such amendment and 109,167 shares abstained from
voting on such amendment.
MIDDLESEX WATER COMPANY
By: /s/Marion F. Reynolds
---------------------
Marion F. Reynolds
Vice President, Secretary & Treasurer
Dated: May 29, 1997
(S E A L)
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
MIDDLESEX WATER COMPANY
To: The Secretary of State of the State of New Jersey.
Pursuant to the provisions of N.J.S.A. 14A:7-18 the
undersigned Corporation executes the following Certificate of Amendment to its
Restated Certificate of Incorporation:
1. The name of the Corporation is MIDDLESEX WATER COMPANY. The
principal office of the Corporation is 1500 Ronson Road, Iselin, New Jersey
08830-3020.
2. 20 shares of the $7.00 Series Cumulative and Convertible
Preferred Stock of the Corporation have been cancelled.
3. The date of adoption of the resolution of the Board of
Directors cancelling such shares is April 23, 1998.
4. The aggregate number of authorized shares, including shares
outstanding, itemized by classes and series, after giving effect to such
cancellation, is a follows:
Class Authorized Shares
Common Stock, No Par Value: 6,000,000
Cumulative Preferred Stock, No Par Value:
$7 Series 2,500
$8 Series 20,000
$4.75 Series 10,000
Cumulative and Convertible Preferred Stock,
$7 Series 14,881 (Note A)
All Series 149,980 (Note B)
Preference Stock, No Par Value: 100,000
5. The Restated Certificate of Incorporation provides that the
shares cancelled shall not be reissued; and the Restated Certificate of
Incorporation is amended by decreasing the aggregate number of shares which the
corporation is authorized to issue by the number of shares cancelled.
Note A: Reflects an authorization of 17,000 shares reduced by the
number of cancelled shares which are not to be reissued.
Note B: Reflects an authorization of 150,000 shares reduced by the
number of cancelled shares which are not to be reissued.
MIDDLESEX WATER COMPANY
By /s/A. Bruce O'Connor
--------------------
A. Bruce O'Connor
Vice President and Controller
Dated: May 5, 1998
(S E A L)
<PAGE>
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
MIDDLESEX WATER COMPANY
TO: THE SECRETARY OF STATE OF THE STATE OF NEW JERSEY
Pursuant to the provisions of the N.J.S.A. 14A9-2(4) and
N.J.S.A. 14A9-4(3), the undersigned Corporate executes the following Certificate
of Amendment to the Restated Certificate of Incorporation:
1. The name of the Corporation is MIDDLESEX WATER COMPANY.
2. The following amendment to the Restated Certificate of
Incorporation was approved by the Directors of the Corporation on February 26,
1998, and thereafter was duly adopted by the shareholders of the Corporation on
May 27, 1998:
NOW, THEREFORE, BE IT RESOLVED that: the first sentence of
ARTICLE 7A of the Restated Certificate of Incorporation be
amended to read as follows:
"The total authorized capital stock of the Company is
10,169,418, divided into 10,000,000 shares of common stock
without nominal or par value, 69,418 shares of preferred stock
without nominal or par value (out of 100,000 shares of
preferred stock originally authorized) and 100,000 shares of
preference stock without nominal or par value."
FURTHER RESOLVED, that the said amendment of the Restated
Certificate of Incorporation be submitted to a vote of the
stockholders of this Corporation entitled to vote thereon, to
wit, the holders of common stock of record at the close of
business on April 1, 1998, at the Annual Meeting of
Stockholders of this Corporation to be held on May 27, 1998.
3. The total number of shares entitled to vote thereon was
4,315,632.
4. The number of shares voting for, against and abstaining
from such amendment is as follows:
For Against Abstain Total
3,297,443 188,505 44,769 3,530,717
IN WITNESS WHEREOF, the Company has made this Certificate of
Amendment under its seal and the hands of its Chairman of the Board and
President and its Secretary this 27th day of May, 1998.
MIDDLESEX WATER COMPANY
By: /s/J. Richard Tompkins
----------------------
J. Richard Tompkins
Chairman of the Board and President
ATTEST:
- ----------------------------------
Marion F. Reynolds
Vice President and Secretary
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-11717 of Middlesex Water Company on Form S-3 of our report dated February 16,
1999, incorporated by reference in this Annual Report on Form 10-K of Middlesex
Water Company and it subsidiaries for the year ended December 31, 1998.
/s/DELOITTE & TOUCHE LLP/
- ------------------------
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 25, 1999
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