<PAGE>
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
For the fiscal year ended December 31, 1999 Commission File number 1-6659
PHILADELPHIA SUBURBAN CORPORATION
------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1702594
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
762 W. Lancaster Avenue, Bryn Mawr, Pennsylvania 19010-3489
- ------------------------------------------------ -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code: (610)-527-8000
-----------------------
Securities registered pursuant to Section
12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- ------------------------
Common stock, par value $.50 per share New York Stock Exchange, Inc.
Philadelphia Stock Exchange Inc.
Securities registered pursuant to Section
12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to 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 Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 1, 2000.
$612,903,346
For purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Part I of
this 10-K report, (b) all directors of registrant, and (c) each
shareholder that has informed registrant by March 1, 2000, that it has
sole or shared voting power of 5% or more of the outstanding common
stock of registrant.
The number of shares outstanding of each of the registrant's classes of common
stock as of March 1, 2000.
40,997,701
Documents incorporated by reference
(1) Portions of registrant's 1999 Annual Report to Shareholders have
been incorporated by reference into Parts I and II of this Form 10-K
Report.
(2) Portions of the Proxy Statement, relative to the May 15, 2000
annual meeting of shareholders of registrant, to be filed within 120
days after the end of the fiscal year covered by this Form 10-K Report,
have been incorporated by reference into Part III of this Form 10-K
Report.
<PAGE>
PART I
Item 1. Business
The Company
Philadelphia Suburban Corporation (referred to as "we" or "us") is the
holding company for regulated utilities providing water or wastewater services
to approximately 1.8 million people in Pennsylvania, Ohio, Illinois, New Jersey
and Maine. Our two primary subsidiaries are Philadelphia Suburban Water Company,
a regulated public utility that provides water or wastewater services to about 1
million residents in the suburban areas north and west of the City of
Philadelphia, and Consumers Water Company, a holding company for several
regulated public utility companies that provide water or wastewater service to
about 800,000 residents in various communities in Pennsylvania, Ohio, Illinois,
New Jersey and Maine. We are among the largest investor-owned water utilities in
the United States based on the number of customers. In addition, we provide
water service to approximately 25,000 people through operating and maintenance
contracts with municipal authorities and other parties in proximity to the
operating company's service territories.
Consumers Water Company owns 100% of the voting stock of four water
companies, and at least 96% of the voting stock of three water companies,
operating in Pennsylvania, Ohio, Illinois, New Jersey and Maine. Consumers Water
Company's subsidiaries operate 27 divisions in these five states, providing
water service to approximately 800,000 people. The following table indicates by
subsidiary the number of metered water customers and water revenues for the year
ended December 31, 1999:
Water Number
Revenues of Water
Subsidiary (000's) Customers
---------- --------------------------------
Philadelphia Suburban Water Company $150,659 317,843
Consumers Ohio water Company 33,061 78,306
Consumers Illinois Water Company 19,487 51,472
Consumers Pennsylvania Water Company* 20,587 40,951
Consumers New Jersey Water Company 13,790 33,400
Consumers Maine Water Company 8,432 15,703
----------------------------
$246,016 537,675
============================
* Includes Susquehanna, Roaring Creek and Shenango Valley Divisions.
Subsidiaries of Philadelphia Suburban Water Company and Consumers Water
Company provide wastewater collection, treatment and disposal services
(primarily residential) to approximately 30,000 people in Pennsylvania, Illinois
and New Jersey.
2
<PAGE>
Item 1, Continued
The following table indicates by customer class the number of metered
water customers and water revenues for the year ended December 31, 1999:
Water Number
Revenues of Water
Customer class (000's) Customers
-------------- --------------------------------
Residential $154,881 497,937
Commercial 45,192 29,241
Industrial 13,944 1,430
Other 31,999 9,067
-----------------------------
$246,016 537,675
=============================
Our customer base is primarily residential, representing approximately 93% of
our total water sales. Substantially all of our customers are metered, which
allows us to measure our customers' water consumption. Water consumption per
customer is affected by local weather conditions during the year, especially
during the late spring and early summer. In general, during these seasons, an
extended period of dry weather increases consumption, while above average
rainfall decreases water consumption. Also, an increase in the average
temperature generally causes an increase in water consumption.
Excluding customers added through the acquisitions of several small
water systems, during the three-year period of 1997 through 1999, Philadelphia
Suburban Water Company's customer base grew at an annual compound rate of 1.0%.
Including acquisitions, Philadelphia Suburban Water Company's customer base
increased at an annual compound rate of 3.9% during this period. Consumers Water
Company's customer growth rate during this period was 1.5%. Our business
combination with Consumers Water Company on March 10, 1999 will enable us to
grow through acquisitions in the areas where Consumers operates.
Acquisitions and Water Sale Agreements
We believe that there are many potential water system acquisition
candidates throughout the United States because of the fragmented nature of the
water utility industry. We believe the factors driving consolidation of these
water systems are:
o the benefits of economies of scale, including the development of
technological expertise that would not be feasible in a smaller organization;
o increasingly stringent environmental regulations; and
o the need for investment.
We believe that acquisitions will continue to be an important source of
growth for us. We intend to continue to pursue acquisitions of municipally-owned
and investor-owned water systems of all sizes that provide services in areas
adjacent to our existing service territories or in new service areas. We engage
in continuing activities with respect to potential acquisitions, including
performing analyses and investigations of acquisition candidates, making
preliminary acquisition proposals and negotiating the terms of potential
acquisitions.
3
<PAGE>
Item 1, Continued
During the past five years, we have completed 54 acquisitions or other
growth ventures adding approximately 60,000 customers to our customer base. The
largest of these transactions was the acquisition of the water utility assets of
Bensalem Township in December 1999, which has added 14,945 customers. We are
actively exploring other opportunities to expand our utility operations through
acquisitions or otherwise.
Water Supplies and Water Facilities
Our water utility operations obtain their water supplies from surface
water sources such as reservoirs, lakes, ponds, rivers and streams, in addition
to obtaining water from wells and purchasing water from other water suppliers.
Less than 5% of our water sales are purchased from other suppliers. We believe
that we have all of the necessary permits to obtain the water we distribute. Our
supplies are sufficient for anticipated daily demand and normal peak demand
under normal weather conditions. Our supplies by operating subsidiary are as
follows:
o Philadelphia Suburban Water Company - The principal supply of water is
surface water from the Schuylkill River, Delaware River, eight rural streams
which are tributaries of the Schuylkill and Delaware Rivers, and the Upper
Merion Reservoir, a former quarry now impounding groundwater. Wells and
interconnections with adjacent municipal authorities supplement these surface
supplies.
o Consumers Ohio Water Company - Water supply is obtained for customers in Lake
County from Lake Erie. Customers in Mahoning County obtain their water from
man-made lakes and purchased water supplies the Ashtabula division. Water
supply is obtained for customers in Stark and Summit Counties from wells.
o Consumers Illinois Water Company - Water supply is obtained for customers in
Kankakee County from the Kankakee River and satellite wells, while customers
in Vermilion County are supplied from Lake Vermilion. In Will, Lee, Boone and
Knox counties, our customers are served from deep well systems.
o Consumers New Jersey Water Company - Water supply in our three non-contiguous
divisions is obtained from wells.
o Consumers Pennsylvania Water Companies - The Roaring Creek Division draws its
water from a man-made lake within a 12,000 acre watershed and two wells also
located in the watershed. The Susquehanna Division obtains its water supply
from wells. The Shenango Division draws its water from the Shenango River.
o Consumers Maine Water Company - Eleven non-contiguous water systems obtain
their water supply as follows: five systems use groundwater, five systems use
surface water and one system purchases water from a neighboring municipal
district.
We believe that the capacities of our sources of supply, and our water
treatment, pumping and distribution facilities are generally sufficient to meet
the present requirements of our customers. On a continuing basis, we make system
improvements and additions to capacity in response to changing regulatory
standards, changing patterns of consumption and increases in the number of
customers. The various state public utility commissions have generally
recognized the operating and capital costs associated with these improvements in
setting water rates.
4
<PAGE>
Item 1, Continued
In June 1999, the Pennsylvania Department of Environmental Protection declared a
drought warning for most of the counties in Pennsylvania, including the counties
served by Philadelphia Suburban Water Company and Consumers Water Company's
Pennsylvania subsidiaries. A drought warning calls for voluntary restrictions on
water use, particularly nonessential uses of water. In July 1999, the Governor
of Pennsylvania issued a drought emergency order for the counties that were
previously under the drought warning. The drought emergency imposed a mandatory
ban on all nonessential water usage. On September 30, 1999, the drought
emergency order was lifted for nearly all Pennsylvania counties, including those
served by our water companies. While portions of Pennsylvania, particularly
those dependent on ground water, experienced water shortages during this
drought, our water supplies remained adequate. As a result of these actions,
water consumption and water revenues in these areas declined to levels below
those experienced in 1998. As a result of the drought emergency order being
lifted, water revenues have begun to return to normal levels during the fourth
quarter of 1999. In addition, Consumers Water Company's New Jersey subsidiary
experienced a similar drought emergency during most of the third quarter of
1999.
On occasion, there have been other water use restrictions during the
past three years, however, because these warnings were issued at times other
than the summer months, when nonessential and recreational use of water has
traditionally declined, the restrictions did not have a significant impact on
operating revenues and we had sufficient quantities of raw water and maintained
adequate storage levels of treated water.
Economic Regulation
Our water and wastewater utility operations are subject to regulation
by their respective state regulatory commissions, which have broad
administrative power and authority to regulate rates and charges, determine
franchise areas and conditions of service and authorize the issuance of
securities. The regulatory commissions also establish uniform systems of
accounts and approve the terms of contracts with affiliates and customers,
acquisitions of other utility systems, loans and the purchases or sales of
property. The profitability of our utility operations is influenced to a great
extent by the timeliness and adequacy of rate allowances in the various states
in which we operate. Accordingly, we maintain a rate case management capability
to provide that the tariffs of our utility operations reflect, to the extent
practicable, current costs of operations, capital, taxes, energy, materials and
compliance with environmental regulations. Rates for some divisions of our Ohio
water utility can be fixed by negotiated agreements with the municipalities that
are served by those divisions in lieu of regulatory approval from the Public
Utility Commission of Ohio. Currently, two of the four regulated divisions in
Ohio are operating under such rate ordinances.
In 1996, the Pennsylvania Public Utility Commission ("PAPUC") approved
the Distribution System Improvement Charge ("DSIC"). The DSIC is a mechanism
that allows Pennsylvania water utilities to add a surcharge to their water
bills. This surcharge offsets the additional depreciation and capital costs
associated with certain non-revenue producing, non-expense reducing capital
expenditures related to replacing and rehabilitating distribution systems. Prior
to the DSIC, water utilities absorbed all of the depreciation and capital costs
of these projects between base rate increases without the benefit of additional
revenues. The gap between the time that a capital project is completed and the
recovery of its costs in base rates is known as regulatory lag. The DSIC is
intended to eliminate or reduce regulatory lag that often acted as a
disincentive to water utilities in rehabilitating their distribution systems.
The DSIC is adjusted quarterly based on additional qualified capital
expenditures made in the previous quarter. The DSIC may never exceed 5% of the
base rates in effect. The DSIC is reset to zero when new base rates that reflect
the costs of those additions become effective. The PAPUC also limits use of the
DSIC to periods when a company's return on equity is less than a benchmark it
establishes each quarter. We are currently working to establish DSIC mechanisms
in the other states in which we operate.
5
<PAGE>
Item 1, Continued
In May 1999, the Illinois legislature passed a bill to establish a DSIC
mechanism in Illinois. The Illinois Commerce Commission is analyzing the
mechanism currently and considering approval of the DSIC for use by Illinois
water utilities beginning in 2001.
In general, we believe that Philadelphia Suburban Corporation,
Philadelphia Suburban Water Company and Consumers Water Company's subsidiaries
have valid rights, free from unduly burdensome restrictions, to enable us to
carry on our business as presently conducted in the territories we now serve.
The rights to provide water or wastewater service to a particular franchised
service territory are generally non-exclusive, although the applicable
regulatory commissions usually allow only one utility to provide service to a
given area. In some instances, another water utility provides service to a
separate area within the same political subdivision served by one of our
subsidiaries. In the states where our subsidiaries operate, it is possible that
portions of our subsidiaries' operations could be acquired by municipal
governments by one or more of the following methods:
o eminent domain;
o the right of purchase given or reserved by a municipality or political
subdivision when the original franchise was granted; and
o the right of purchase given or reserved under the law of the state in which
the subsidiary was incorporated or from which it received its permit.
The price to be paid upon such an acquisition by the municipal
government is usually determined in accordance with applicable law governing the
taking of lands and other property under eminent domain. In other instances, the
price may be negotiated, fixed by appraisers selected by the parties or computed
in accordance with a formula prescribed in the law of the state or in the
particular franchise or charter. Generally, our strategy is to acquire
additional water and wastewater systems, maintain our existing systems, and
actively oppose efforts by municipal governments to acquire any of our
operations, particularly for less than the fair market value of our operations
or where the municipal government seeks to acquire more than it is entitled to
under the applicable law or agreement.
Environmental Regulation
The primary federal and state laws affecting the provision of water and
wastewater services are the Safe Drinking Water Act, the Clean Water Act, the
Resource Conservation and Recovery Act and the regulations issued under these
laws by the Environmental Protection Agency and state environmental regulatory
agencies. In addition, we are subject to the federal and state laws affecting
dam safety. These laws and regulations establish criteria and standards for
drinking water and for discharges into the waters of the United States. The
states have the right to establish criteria and standards that are stricter than
those established by the Environmental Protection Agency. Some of the states
where our subsidiaries operate have done so. Other federal and state
environmental laws and regulations in addition to the Clean Water Act, the Safe
Drinking Water Act and the dam safety regulations affect the operations of our
subsidiaries.
In addition to the capital expenditures and costs currently
anticipated, changes in environmental regulations, enforcement policies and
practices or related matters may result in additional capital expenditures and
costs. Capital expenditures and costs required as a result of water quality
standards and environmental requirements generally have been recognized by state
public utility commissions as appropriate for inclusion in establishing rates.
6
<PAGE>
Item 1, Continued
Safe Drinking Water Act - The Safe Drinking Water Act establishes criteria and
procedures for the Environmental Protection Agency to develop national quality
standards for drinking water. Regulations issued pursuant to the Safe Drinking
Water Act set standards on the amount of certain inorganic and organic chemical
contaminants, microorganisms and radionuclides allowable in drinking water. The
1996 Amendments to the Safe Drinking Water Act require the Environmental
Protection Agency to analyze both the benefits and the costs of compliance when
considering new or stricter water quality criteria and standards. Current
requirements under the Safe Drinking Water Act are not expected to have a
material impact on our operations or financial condition. We may, in the future,
be required to change our method of treating drinking water at certain sources
of supply if additional regulations become effective. The amended Safe Drinking
Water Act also specifies that the Environmental Protection Agency shall study
certain additional substances and propose rules that may change the standards by
which treatment is required. A proposed rule was issued in 1999 and additional
rulemakings will be proposed in 2000 and 2001. The cost of maintaining
compliance with the new rulemakings is expected to be fully recoverable in water
rates and is not expected to have a material impact on our results from
operations or financial condition.
The Safe Water Drinking Act of 1974 also addressed standards for
nitrate, a regulated inorganic chemical used extensively in crop fertilization.
In 1999, elevated levels of nitrate were observed in the Vermillion River, a
water supply source for Consumers Illinois Water Company. Construction of a
nitrate-removal facility began in 1999 and is expected to be completed by the
end of 2000. The facility is estimated to cost approximately $6.3 million, which
includes past costs associated with the study of the problem. We expect that
these capital expenditures will be fully recoverable in water rates.
The Safe Drinking Water Act provides for the regulation of
radionuclides other than radon, such as radium. The EPA is developing a final
radionuclide rule, including a standard for uranium. No significant impact on
our operations or financial condition is anticipated from the new rulemaking.
However, as a result of revised testing procedures under the current regulation,
additional treatment may be required to remove radium or to find alternate
sources of water supply for a groundwater system in one of the divisions of
Consumers New Jersey Water Company. The cost of the additional treatment
processes and the cost of securing alternate sources of water supply will be
fully recoverable in water rates.
In order to eliminate or inactivate microbial organisms, the Surface
Water Treatment Rule and the Interim Enhanced Surface Water Treatment Rule were
issued by the EPA to improve disinfection or filtration. The EPA developed the
Disinfectants-Disinfection By-products Rule to reduce consumers' exposure to
disinfectants and by-products of the disinfection process. In December 1998,
Stage 1 of these rules were issued by the EPA. Our large surface water systems
are in compliance with these rulemakings as required by December 2001.
Groundwater and smaller surface water systems have until December 2003 to comply
with these rules. In December 1997, construction commenced on a $35 million
water treatment plant at one of Consumer's Pennsylvania operating companies in
order to maintain compliance with the Surface Water Treatment Rule. The plant
will replace an aged, lower-capacity facility and is expected to be completed in
the second quarter of 2000. We may be required in the future to install
filtration or treat groundwater at certain locations that could be reclassified
as being influenced by surface water. These locations include certain small
systems in Maine, New Jersey and Pennsylvania. If such requirements are
implemented, the additional treatment processes would be required over a four
year period and would cost approximately $5 million. It is expected that these
capital expenditures will be fully recoverable in water rates.
Additional rules dealing with water treatment and disinfection are
anticipated during 2000, and are not expected to have a material impact on our
results of operations or financial condition.
7
<PAGE>
Item 1, Continued
Clean Water Act - The Clean Water Act regulates discharges from drinking water
and wastewater treatment facilities into lakes, rivers, streams, and
groundwater. We currently maintain all required permits and approvals for the
disposal of water and wastewater. Wastewater residuals and solids are disposed
of in approved landfills, transferred to larger wastewater treatment facilities
or applied to farmland. Additional capital expenditures and operating costs in
connection with the management and disposal of discharges from our water and
wastewater facilities may be required in the future, particularly if changes are
made in the requirements of the applicable Federal or state laws. We believe
that these capital expenditures would be fully recoverable in our rates.
The Resource Conservation and Recovery Act - The Resource Conservation and
Recovery Act regulates the handling and disposal of residuals and solids from
drinking water facilities. Water treatment residuals and solids are a
combination of the chemicals used in the treatment process and the silt and
other materials removed from the raw water. Water treatment residuals and solids
are either disposed of in a storage facility, such as a lagoon or landfill,
owned by a subsidiary, an off-site facility not owned by a subsidiary, or a
state-approved landfill or municipal sewer system. We currently maintain all
required permits for our water treatment facilities. Additional capital
expenditures and operating costs in connection with the management and disposal
of residuals and solids from our water facilities may be required in the future,
particularly if changes are made in the requirements of the applicable Federal
or state laws. We believe that these capital expenditures would be fully
recoverable in our rates.
Dam Safety - Our subsidiaries own sixteen major dams that are subject to the
requirements of the Federal and state regulations related to dam safety. All
major dams undergo an annual engineering inspection. We believe that all sixteen
dams are structurally sound and well-maintained.
Risk Management Plans (RMP's) - On June 20, 1996 the EPA promulgated Risk
Management Program (RMP) regulations. This rulemaking requires facilities that
use a regulated substance above a specified quantity to develop a formal RMP and
to register and submit the plan to EPA. We have 15 RMP sites and all are in
compliance with the above regulations. The cost to comply with these Rulemakings
was $8,000 to $10,000 per facility.
Year 2000
We actively pursued a Year 2000 Program (the "Program"). The objective
of the program was to provide reasonable assurance that our critical systems and
processes that impact our ability to deliver water to our customers would not
experience significant interruptions that would interfere with such water
service or result in a material business impairment that would have an adverse
impact on our operations, liquidity or financial condition as a result of the
Year 2000 issue. For purposes of the Program, the Year 2000 issue was defined as
whether information technology accurately processes date and time data from,
into and between the twentieth and twenty-first centuries, and the years 1999
and 2000 and leap year calculations. To date, our water treatment plants and
other mission critical systems have not been impacted by the Year 2000 issue,
and there have been no water service interruptions as a result of a Year 2000
issue. We continue to monitor the Year 2000 issue but we do not anticipate that
we will experience a material business impairment or have a material adverse
impact on our operations, liquidity or financial condition as a result of the
Year 2000 issue.
Employee Relations
As of December 31, 1999, we employed a total of 945 full-time persons.
Our subsidiaries are parties to agreements with labor unions covering 487
employees. We consider our employee relations to be good.
8
<PAGE>
Item 2. Properties.
Our properties consist of transmission and distribution mains and
conduits, water treatment plants, pumping facilities, wells, tanks, meters,
supply lines, dams, reservoirs, buildings, vehicles, land, easements, rights and
other facilities and equipment used for the operation of our systems, including
the collection, treatment, storage and distribution of water. Substantially all
of our properties are owned by our subsidiaries and are subject to liens of
mortgage or indentures. These liens secure bonds, notes and other evidences of
long-term indebtedness of our subsidiaries. For certain properties that we
acquired through the exercise of the power of eminent domain and certain other
properties we purchased, we hold title for water supply purposes only. We own,
operate and maintain approximately 7,100 miles of transmission and distribution
mains, 20 water treatment plants and 9 wastewater treatment plants. Some
properties are leased under long-term leases. The following table indicates our
net utility plant as of December 31, 1999 by subsidiary:
Net Property,
Plant and
Equipment
Subsidiary (000's)
---------- -------------
Philadelphia Suburban Water Company $ 698,682
Consumers Ohio Water Company 132,611
Consumers Illinois Water Company 104,428
Consumers Pennsylvania Water Company* 102,709
Consumers New Jersey Water Company 67,038
Consumers Maine Water Company 32,189
Inter-company eliminations and other (2,293)
----------
$1,135,364
==========
*Includes Susquehanna, Roaring Creek and Shenango Valley Divisions.
We believe that our properties are maintained in good condition and in
accordance with current standards of good waterworks industry practice. We
believe that the facilities used in the operation of our business are in good
condition in terms of suitability, adequacy and utilization.
Our corporate offices are leased from Philadelphia Suburban Water
Company and located in Bryn Mawr, Pennsylvania.
Item 3. Legal Proceedings
There are various legal proceedings in which we are involved. Although
the results of legal proceedings cannot be predicted with certainty, there are
no pending legal proceedings to which we or any of our subsidiaries is a party
or to which any of our properties is the subject that present a reasonable
likelihood of a material adverse impact on the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the
fourth quarter of 1999.
Information with respect to our executive officers is contained in Item
10 hereof and is hereby incorporated by reference herein.
9
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related Security
Holder Matters
Our common stock is traded on the New York Stock Exchange and the
Philadelphia Stock Exchange. As of March 1, 2000, there were approximately
21,315 holders of record of our common stock.
The following selected quarterly financial data is in thousands of
dollars, except for per share amounts:
<TABLE>
<CAPTION>
Total
First Second Third Fourth Year
-------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Opeating revenues $58,597 $66,165 $69,527 $63,037 $257,326
Operations and maintenance expense 22,725 24,203 24,645 27,185 98,758
Net income available to common
stock 316 12,033 14,332 9,594 36,275
Basic net income per common share 0.01 0.29 0.35 0.24 0.89
Diluted net income per common share 0.01 0.29 0.35 0.23 0.88
Dividends declared and paid
per common share 0.17 0.17 0.18 0.18 0.70
Price range of common stock
- high 29.75 25.75 25.31 24.19 29.75
- low 19.75 21.31 21.13 20.19 19.75
1998
- ---------------------------------------------------------------------------------------------------
Opeating revenues $57,933 $61,740 $68,991 $62,107 $250,771
Operations and maintenance expense 23,604 24,005 25,216 27,314 100,139
Net income available to common
stock 7,852 14,577 13,787 8,604 44,820
Basic net income per common share 0.20 0.36 0.34 0.21 1.11
Diluted net income per common share 0.19 0.36 0.34 0.21 1.10
Dividend paid per common share 0.1625 0.1625 0.1700 0.1700 0.6650
Dividends declared per common share - 0.1625 0.1700 0.1700 0.5025
Price range of common stock
- high 25.75 22.56 28.19 30.06 30.06
- low 19.56 18.88 20.50 23.00 18.88
</TABLE>
High and low prices of our common stock are as reported on the New York
Stock Exchange Composite Tape.
Dividends paid and declared per common share represents Philadelphia
Suburban Corporation's historical dividends. The cash dividend paid in March
1998 of $0.1625 was declared in December 1997.
Net income available to common stock and net income per common share
for the first quarter of 1999 includes net charges of $6,134,000 ($6,334,000
pre-tax), or $0.15 per share, for the Consumers Water Company merger transaction
costs and a charge for related restructuring costs of $2,462,000 ($3,787,000
pre-tax), or $0.06 per share.
Net income available to common stock and net income per common share
for the second quarter of 1998 includes a net gain of $3,903,000 ($6,680,000
pre-tax), or $0.10 per share, on the sale of the Consumers Water Company's New
Hampshire operations pursuant to the State's condemnation statute.
10
<PAGE>
Item 5, Continued
We have paid common dividends consecutively for 55 years. In 1999, our
Board of Directors authorized an increase of 5.9% in the dividend rate over the
amount Philadelphia Suburban Corporation has historically paid. As a result of
this authorization, beginning with the dividend payment in September, the annual
dividend rate increased to $0.72 per share. We presently intend to pay quarterly
cash dividends in the future, on March 1, June 1, September 1 and December 1,
subject to our earnings and financial condition, regulatory requirements and
such other factors as our Board of Directors may deem relevant. During the past
five years, after restatement for the pooling, our common dividends paid have
averaged 76.2% of income from continuing operations.
Item 6. Selected Financial Data
The information appearing in the section captioned "Summary of Selected
Financial Data" from the portions of our 1999 Annual Report to Shareholders
filed as Exhibit 13.7 to this Form 10-K Report is incorporated by reference
herein.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information appearing in the section captioned "Management's
Discussion and Analysis" from the portions of our 1999 Annual Report to
Shareholders filed as Exhibit 13.7 to this Form 10-K Report is incorporated by
reference herein.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
We are subject to market risks in the normal course of business,
including changes in interest rates and equity prices. The exposure to changes
in interest rates is a result of financings through the issuance of fixed-rate,
long-term debt. Such exposure is typically related to financings between utility
rate increases, since generally our rate increases include a revenue level to
allow recovery of our current cost of capital. The information appearing in the
Long-term Debt and Loans Payable footnote and the Fair Value of Financial
Instruments footnote of the section captioned "Notes to Consolidated Financial
Statements" from our 1999 Annual Report to Shareholders filed as Exhibit 13.7 to
this Form 10-K Report is incorporated by reference herein. From time to time, we
make investments in marketable equity securities. As a result, we are exposed to
the risk of changes in equity prices for the "available-for-sale" marketable
equity securities that we own. As of December 31, 1999, our carrying value of
marketable equity securities was $10,590,983.
Item 8. Financial Statements and Supplementary Data
Information appearing under the captions "Consolidated Statements of
Income and Comprehensive Income", "Consolidated Balance Sheets", "Consolidated
Cash Flow Statements" "Consolidated Statements of Capitalization" and "Notes to
Consolidated Financial Statements" from the portions of our 1999 Annual Report
to Shareholders filed as Exhibit 13.7 to this Form 10-K Report is incorporated
by reference herein. Also, the information appearing in the section captioned
"Reports on Financial Statements" from the portions of our 1999 Annual Report to
Shareholders filed as Exhibit 13.7 to this Form 10-K Report is incorporated by
reference herein.
Item 9. Disagreements on Accounting and Financial Disclosure
None.
11
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Directors of the Registrant
The information appearing in the section captioned "Information
Regarding Nominees and Directors" of the Proxy Statement relating to our May 15,
2000, annual meeting of shareholders, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K Report, is incorporated herein by
reference.
Executive Officers of the Registrant
The following table and the notes thereto set forth information with
respect to the executive officers of the Registrant, including their names,
ages, positions with the Registrant and business experience during the last five
years:
<TABLE>
<CAPTION>
Position with the Registrant
Name Age and date of election (1)
- ---- --- --------------------------
<S> <C> <C>
Nicholas DeBenedictis 54 President and Chairman (May 1993 to present); President and Chief Executive
Officer (July 1992 to May 1993); Chairman and Chief Executive Officer,
Philadelphia Suburban Water Company (July 1992 to present); President,
Philadelphia Suburban Water Company (February 1995 to January 1999) (2)
Morrison Coulter 63 President, Philadelphia Suburban Water Company (January 1999 to present);
Senior Vice President - Production, Philadelphia Suburban Water Company
(February 1996 to January 1999); Vice President - Production, Philadelphia
Suburban Water Company (April 1989 to February 1996) (3)
Richard R. Riegler 53 Senior Vice President - Engineering and Environmental Affairs (January 1999
to present); Senior Vice President - Operations, Philadelphia Suburban Water
Company (April 1989 to January 1999) (4)
Roy H. Stahl 47 Senior Vice President and General Counsel (April 1991 to present) (5)
David P. Smeltzer 41 Senior Vice President - Finance and Chief Financial Officer (December 1999 to
present); Vice President - Finance and Chief Financial Officer (May 1999 to
December 1999); Vice President - Rates and Regulatory Relations, Philadelphia
Suburban Water Company (March 1991 to May 1999) (6)
</TABLE>
(1) In addition to the capacities indicated, the individuals named in the above
table hold other offices or directorships with subsidiaries of the
Registrant. Officers serve at the discretion of the Board of Directors.
(2) Mr. DeBenedictis was Secretary of the Pennsylvania Department of
Environmental Resources from 1983 to 1986. From December 1986 to April 1989,
he was President of the Greater Philadelphia Chamber of Commerce. Mr.
DeBenedictis was Senior Vice President for Corporate and Public Affairs of
Philadelphia Electric Company from April 1989 to June 1992.
(3) Mr. Coulter was Superintendent of Pumping Facilities from 1971 to 1982. From
1982 to 1987 he served as Manager - Electrical/Mechanical Department and
from 1987 to 1989 he was Assistant Vice President - Production.
12
<PAGE>
Item 10, Continued
(4) Mr. Riegler was Chief Engineer of Philadelphia Suburban Water Company from
1982 to 1984. He then served as Vice President and Chief Engineer from 1984
to 1986 and Vice President of Operations from 1986 to 1989.
(5) From January 1984 to August 1985, Mr. Stahl was Corporate Counsel, from
August 1985 to May 1988 he was Vice President - Administration and Corporate
Counsel of the Registrant, and from May 1988 to April 1991 he was Vice
President and General Counsel of the Registrant.
(6) Mr. Smeltzer was Vice President - Controller of Philadelphia Suburban Water
Company from March, 1986 to March 1991.
Item 11. Executive Compensation
The information appearing in the sections captioned "Executive
Compensation" of the Proxy Statement relating to our May 15, 2000, annual
meeting of shareholders, to be filed within 120 days after the end of the fiscal
year covered by this Form 10-K Report, is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information appearing in the sections captioned "Ownership of
Common Stock" of the Proxy Statement relating to our May 15, 2000, annual
meeting of shareholders, to be filed within 120 days after the end of the fiscal
year covered by this Form 10-K Report, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information appearing in the sections captioned "Certain
Relationships and Related Transactions" of the Proxy Statement relating to our
May 15, 2000, annual meeting of shareholders, to be filed within 120 days after
the end of the fiscal year covered by this Form 10-K Report, is incorporated
herein by reference.
13
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements. The following is a list of our consolidated financial
statements and its subsidiaries and supplementary data incorporated by reference
in Item 8 hereof:
Management's Report
Independent Auditors' Report
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Income and Comprehensive Income -
1999, 1998 and 1997
Consolidated Cash Flow Statements - 1999, 1998, and 1997
Consolidated Statements of Capitalization - December 31, 1999 and 1998
Notes to Consolidated Financial Statements
Financial Statement Schedules. The financial statement schedules, or
supplemental schedules, filed as part of this annual report on Form 10-K are
omitted because they are not applicable or not required, or because the required
information is included in the consolidated financial statements or notes
thereto.
Reports on Form 8-K.
Current Report on Form 8-K filed on November 19, 1999, responding to Item 5,
Other Events. (Consolidated financial statements of Philadelphia Suburban
Corporation as of December 31, 1998 and 1997 and for each of the years in the
three-year period ended December 31, 1998, which have been restated to reflect
the recent business combination with Consumers Water Company accounted for under
the pooling-of-interests method of accounting, the notes thereto and the
independent auditors' report of KPMG LLP).
Exhibits, Including Those Incorporated by Reference. The following is a list of
exhibits filed as part of this annual report on Form 10-K. Where so indicated by
footnote, exhibits which were previously filed are incorporated by reference.
For exhibits incorporated by reference, the location of the exhibit in the
previous filing is indicated in parentheses. The page numbers listed refer to
page numbers where such exhibits are located using the sequential numbering
system specified by Rules 0-3 and 403.
14
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ---------- --------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation, as amended (1) -
(Exhibit 3.1)
3.2 By-Laws, as amended (17) (Exhibit 3.2) -
3.3 Amendment to Amended and Restated Articles of Incorporation, -
as amended, to increase the number of authorized shares to
41,770,819 and to provide that 40,000,000 of such shares
be shares of Common Stock (17) (Exhibit 3.3)
3.4 Amendment to Amended and Restated Articles of Incorporation, -
as amended, designating the Series B Preferred Stock (17)
(Exhibit 3.4)
3.5 Amendment to Section 3.03 and addition of Section 3.17 to -
Bylaws (19) (Exhibits 1 and 2)
3.6 Amendment to Amended and Restated Articles of Incorporation, -
designating the terms of the Series A Junior Participating
Preferred Shares (21) (Exhibit 3.6)
3.7 Amendment to Amended and Restated Articles of Incorporation, -
to increase the number of authorized shares to 101,770,819
and to provide that 100,000,000 of such shares be shares
of Common Stock (23) (Annex E)
3.8 Amendment to Section 3.03 of the Bylaws 24
4.1 Indenture of Mortgage dated as of January 1, 1941 between -
Philadelphia Suburban Water Company and The Pennsylvania
Company for Insurance on Lives and Granting Annuities(now
First Pennsylvania Bank, N.A.), as Trustee, with
supplements thereto through the Twentieth Supplemental
Indenture dated as of August 1, 1983 (2) (Exhibits 4.1
through 4.16)
4.2 Revolving Credit Agreement between Philadelphia Suburban Water -
Company and Mellon Bank (East) National Association dated
as of February 16, 1990 (3) (Exhibit 4.3)
4.3 First Amendment to Revolving Credit Agreement between -
Philadelphia Suburban Water Company and Mellon Bank N.A.
dated as of September 1, 1992 (1) (Exhibit 4.3)
4.4 Preferred Stock Agreement between Philadelphia Suburban Water -
Company and Provident Life and Accident Insurance Company
dated as of January 1, 1991 (3) (Exhibit 4.4)
4.5 Indenture dated as of July 1, 1988 between Philadelphia -
Suburban Corporation and the Philadelphia National Bank,
as Trustee. (4) (Exhibit 4)
4.6 Form of Rights Agreement, dated as of February 19, 1988, -
between Philadelphia Suburban Corporation and Mellon Bank
(East) National Association, as amended by Amendment No.
1. (5) (Exhibit 1)
4.7 Agreement to furnish copies of other long-term debt -
instruments (1) (Exhibit 4.7)
4.8 Twenty-first Supplemental Indenture dated as of August 1, 1985 -
(6) (Exhibit 4.2)
</TABLE>
15
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ---------- --------
<S> <C> <C>
4.9 Twenty-second Supplemental Indenture dated as of April 1, 1986 -
(7) (Exhibit 4.3)
4.10 Twenty-third Supplemental Indenture dated as of April 1, 1987 -
(8) (Exhibit 4.4)
4.11 Twenty-fourth Supplemental Indenture dated as of June 1, 1988 -
(9) (Exhibit 4.5)
4.12 Twenty-fifth Supplemental Indenture dated as of January 1, -
1990 (10)(Exhibit 4.6)
4.13 Twenty-sixth Supplemental Indenture dated as of November 1, -
1991 (11) (Exhibit 4.12)
4.14 Twenty-seventh Supplemental Indenture dated as of June 1, 1992 -
(1) (Exhibit 4.14)
4.15 Twenty-eighth Supplemental Indenture dated as of April 1, 1993 -
(12) (Exhibit 4.15)
4.16 Revolving Credit Agreement between Philadelphia Suburban Water -
Company and Mellon Bank, N.A., PNC Bank National
Association, First Union National Bank, N.A. and
CoreStates Bank, N.A. dated as of March 17, 1994 (12)
(Exhibit 4.16)
4.17 Twenty-Ninth Supplemental Indenture dated as of March 30, 1995 -
(14) (Exhibit 4.17)
4.18 Thirtieth Supplemental Indenture dated as of August 15, 1995 -
(15) (Exhibit 4.18)
4.19 First Amendment to Revolving Credit Agreement dated as of May -
22, 1995, between Philadelphia Suburban Water Company and
Mellon Bank, N.A., PNC Bank National Association, First
Fidelity National Bank, N.A., Meridian Bank, N.A. dated as
of March 17, 1994 (17) (Exhibit 4.19)
4.20 Second Amendment to Revolving Credit Agreement dated as of -
July 21, 1995, between Philadelphia Suburban Water Company
and Mellon Bank, N.A., PNC Bank National Association,
First Fidelity National Bank, N.A., Meridian Bank, N.A.
dated as of March 17, 1994 (17) (Exhibit 4.20)
4.21 Third Amendment to Revolving Credit Agreement dated as of -
December 20, 1996, between Philadelphia Suburban Water
Company and Mellon Bank, N.A., PNC Bank National
Association, First Union National Bank, N.A., CoreStates
Bank, N.A. dated as of March 17, 1994 (17) (Exhibit 4.21)
4.22 Thirty-First Supplemental Indenture dated as of July 1, 1997 -
(18) (Exhibit 4.22)
4.23 Fourth Amendment to Revolving Credit Agreement dated as of -
January 15, 1998, between Philadelphia Suburban Water
Company and Mellon Bank, N.A., PNC Bank National
Association, First Union National Bank, N.A., and
CoreStates Bank, N.A. dated as of March 17,1994 (21)
(Exhibit 4.23)
4.24 Rights Agreement, dated as of March 1, 1998 between -
Philadelphia Suburban Corporation and ChaseMellon
Shareholder Services, L.L.C., as Rights Agent (20)
(Exhibit 1)
</TABLE>
16
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ---------- --------
<S> <C> <C>
4.25 Rights Agreement, dated as of March 1, 1998 between
Philadelphia Suburban Corporation and BankBoston, N.A., as -
Rights Agent (24) (Exhibit 4.25)
4.26 Thirty-second Supplement Indenture, dated as of October 1, -
1999 (25) (Exhibit 4.26)
4.27 Thirty-third Supplemental Indenture, dated as of December xx, 25
1999.
4.28 Revolving Credit Agreement between Philadelphia Suburban Water 66
Company and PNC Bank National Association, First Union
National Bank, N.A., Mellon Bank, N.A. dated as of
December 22, 1999.
10.1 1982 Stock Option Plan, as amended and restated effective May -
21, 1992* (1) (Exhibit 10.1)
10.2 1988 Stock Option Plan, as amended and restated effective May -
21, 1992* (1) (Exhibit 10.2)
10.3 Executive Incentive Award Plan, as amended March 21, 1989 and -
February 6, 1990* (10) (Exhibit 10.3)
10.4 Excess Benefit Plan for Salaried Employees, effective December -
1, 1989* (10) (Exhibit 10.4)
10.5 Supplemental Executive Retirement Plan, effective December 1, -
1989* (10) (Exhibit 10.5)
10.6 Supplemental Executive Retirement Plan, effective March 15, -
1992* (1) (Exhibit 10.6)
10.7 1993 Incentive Compensation Plan* (1) (Exhibit 10.7) -
10.8 Employment letter agreement with Mr. Nicholas DeBenedictis* -
(1) (Exhibit 10.8)
10.9 1994 Incentive Compensation Program* (12) (Exhibit 10.9) -
10.10 1994 Equity Compensation Plan, as amended by Amendment 1994-1* -
(16) (Exhibit 10.10)
10.11 1995 Incentive Compensation Plan* (13) (Exhibit 10.11) -
10.12 Placement Agency Agreement between Philadelphia Suburban Water -
Company and PaineWebber Incorporated dated as of March 30,
1995 (14) (Exhibit 10.12)
10.13 Bond Purchase Agreement among the Delaware County Industrial -
Development Authority, Philadelphia Suburban Water Company
and Legg Mason Wood Walker, Incorporated dated August 24,
1995 (15) (Exhibit 10.13)
10.14 Construction and Financing Agreement between the Delaware -
County Industrial Development Authority and Philadelphia
Suburban Water Company dated as of August 15, 1995 (15)
(Exhibit 10.14)
10.15 1996 Annual Cash Incentive Compensation Plan* (16) (Exhibit -
13.4)
10.16 Amendment 1994-2 to 1994 Equity Compensation Plan, as amended* -
(17) (Exhibit 10.16)
10.17 1997 Annual Cash Incentive Compensation Plan* (17) (Exhibit -
10.17)
10.18 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Nicholas
DeBenedictis, dated as of January 1, 1997* (17) (Exhibit
10.18)
</TABLE>
17
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ---------- --------
<S> <C> <C>
10.19 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Roy H. Stahl,
dated as of January 1, 1997* (17) (Exhibit 10.19)
10.20 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Michael P. Graham,
dated as of January 1, 1997* (17) (Exhibit 10.20)
10.21 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Richard R.
Riegler, dated as of January 1, 1997* (17) (Exhibit 10.21)
10.22 Agreement among Philadelphia Suburban Corporation, -
Philadelphia Suburban Water Company and Morrison Coulter,
dated as of January 1, 1997* (17) (Exhibit 10.22)
10.23 Philadelphia Suburban Corporation Amended and Restated -
Executive Deferral Plan* (17) (Exhibit 10.23)
10.24 Philadelphia Suburban Corporation Deferred Compensation Plan -
Master Trust Agreement with PNC Bank, National
Association, dated as of December 31, 1996* (17) (Exhibit
10.24)
10.25 First Amendment to Supplemental Executive Retirement Plan* -
(17) (Exhibit 10.25)
10.26 Placement Agency Agreement between Philadelphia Suburban Water -
Company and A.G. Edwards and Sons, Inc., Janney Montgomery
Scott Inc., HSBC Securities, Inc., and PaineWebber
Incorporated (18) (Exhibit 10.26)
10.27 1998 Annual Cash Incentive Compensation Plan* (21) (Exhibit -
10.27)
10.28 Philadelphia Suburban Corporation Director Deferral Plan* (24) -
(Exhibit 10.28)
10.29 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Nicholas DeBenedictis, dated as
of January 1, 1997* (24) (Exhibit 10.29)
10.30 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Roy H. Stahl, dated as of
January 1, 1997* (24) (Exhibit 10.30)
10.31 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Michael P. Graham, dated as of
January 1, 1997* (24) (Exhibit 10.31)
10.32 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Richard R. Riegler, dated as of
January 1, 1997* (24) (Exhibit 10.32)
10.33 Amendment No. 1 dated as of February 1, 1999 to Agreement -
among Philadelphia Suburban Corporation, Philadelphia
Suburban Water Company and Morrison Coulter, dated as of
January 1, 1997* (24) (Exhibit 10.33)
</TABLE>
18
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ---------- --------
<S> <C> <C>
10.34 1999 Annual Cash Incentive Compensation Plan* (24) (Exhibit -
10.34)
10.35 The Philadelphia Suburban Corporation 1994 Equity Compensation -
Plan (as Amended and Restated Effective March 3, 1998)*
(22) (Exhibit A)
10.36 Amendment 1998-1 to The Philadelphia Suburban Corporation 1994 -
Equity Compensation Plan* (23) (Annex F)
10.37 Bond Purchase Agreement among the Delaware County Industrial -
Development Authority, Philadelphia Suburban Water Company
and Commerce Capital Markets dated September 29, 1999 (25)
(Exhibit 10.37)
10.38 Construction and Financing Agreement between the Delaware -
County Industrial Development Authority and Philadelphia
Suburban Water Company dated as of October 1, 1999
10.39 2000 Annual Cash Incentive Compensation Plan * 153
10.40 Agreement among Philadelphia Suburban Corporation, 159
Philadelphia Suburban Water Company and David P. Smeltzer
dated December 1,1999.
10.41 Placement Agency Agreement between Philadelphia Suburban Water 176
Company and Merrill Lynch & Co., PaineWebber Incorporated,
A.G. Edwards & Sons, Inc., First Union Securities, Inc.,
PNC Capital Markets, Inc. and Janney Montgomery Scott,
Inc., dated as of November 15, 1999
13.1 Selected portions of Annual Report to Shareholders for the -
year ended December 31, 1993 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1993 (12) (Exhibit 13.1)
13.2 Selected portions of Annual Report to Shareholders for the -
year ended December 31, 1994 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1994 (13) (Exhibit 13.2)
13.3 Selected portions of Annual Report to Shareholders for the -
year ended December 31, 1995 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1995 (16) (Exhibit 13.3)
13.4 Selected portions of Annual Report to Shareholders for the -
year ended December 31, 1996 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1996 (17) (Exhibit 13.4)
13.5 Selected portions of Annual Report to Shareholders for the -
year ended December 31, 1997 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1997 (21) (Exhibit 13.5)
</TABLE>
19
<PAGE>
EXHIBIT INDEX, Continued
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ---------- --------
<S> <C> <C>
13.6 Selected portions of Annual Report to Shareholders for the -
year ended December 31, 1998 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1998 (24) (Exhibit 13.6)
13.7 Selected portions of Annual Report to Shareholders for the 261
year ended December 31, 1999 incorporated by reference in
Annual Report on Form 10-K for the year ended December 31,
1999
21. Subsidiaries of Philadelphia Suburban Corporation 302
23. Consent of Independent Accountants 303
24. Power of Attorney (set forth as a part of this report) 22
27. Financial Data Schedule 304
</TABLE>
20
<PAGE>
- Notes -
Documents Incorporated by Reference
(1) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1992.
(2) Indenture of Mortgage dated as of January 1, 1941 with supplements thereto
through the Twentieth Supplemental Indenture dated as of August 1, 1983
were filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1983.
(3) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1990.
(4) Filed as Exhibit 4 to the Registration Statement on Form S-3 filed with the
Securities and Exchange Commission on June 14, 1988.
(5) Filed as Exhibit 1 to the Registration Statement on Form 8-A filed with the
Securities and Exchange Commission on March 1, 1988, with respect to the
New York Stock Exchange, and on November 9, 1988, with respect to the
Philadelphia Stock Exchange.
(6) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1985.
(7) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1986.
(8) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1987.
(9) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1988.
(10) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1989.
(11) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1991.
(12) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1993.
(13) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1994.
(14) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
(15) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1995.
(16) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1995.
(17) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1996.
(18) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997.
(19) Filed as an Exhibit to Form 8-K filed August 7, 1997.
(20) Filed as Exhibit 1 to the Registration Statement on Form 8-A filed on March
17, 1998.
(21) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1997.
(22) Filed as Exhibit A to definitive Proxy Statement dated April 7, 1998.
(23) Filed as an Annex to Registration Statement on Form S-4 filed on September
11, 1998.
(24) Filed as an Exhibit to Annual Report on Form 10-K for the year ended
December 31, 1998.
(25) Filed as an Exhibit to Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999.
* Indicates management contract or compensatory plan or arrangement.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHILADELPHIA SUBURBAN CORPORATION
By /s/ Nicholas DeBenedictis
----------------------------------
Nicholas DeBenedictis
President and Chairman
Date: March 28, 2000
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Nicholas
DeBenedictis, President and Chairman of Philadelphia Suburban Corporation, David
P. Smeltzer, Senior Vice President - Finance and Chief Financial Officer of
Philadelphia Suburban Corporation, and each of them, his or her true and lawful
attorneys-in-fact, in his or her name, place and stead to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to
this report.
22
<PAGE>
/s/ Nicholas DeBenedictis /s/ David P. Smeltzer
- ------------------------------------ ----------------------------------------
Nicholas DeBenedictis David P. Smeltzer
President and Chairman Senior Vice President - Finance and
(principal executive officer) Chief Financial Officer
and Director
/s/ Michel Avenas
- ------------------------------------ ----------------------------------------
Michel Avenas Mary C. Carroll
Director Director
/s/ G. Fred DiBona, Jr.
- ------------------------------------ ----------------------------------------
G. Fred DiBona, Jr. Richard H. Glanton
Director Director
/s/ Alan Hirsig /s/ John E. Menario
- ------------------------------------ ----------------------------------------
Alan Hirsig John E. Menario
Director Director
/s/ John F. McCaughan /s/ John E. Palmer
- ------------------------------------ ----------------------------------------
John F. McCaughan John E. Palmer
Director Director
/s/ Richard L. Smoot /s/ Robert O. Viets
- ------------------------------------ ----------------------------------------
Richard L. Smoot Robert O. Viets
Director Director
- ------------------------------------
Harvey J. Wilson
Director
23
<PAGE>
Exhibit 3.8
Section 3.03 of the Company's Bylaws is hereby replaced in its entirety with the
following:
Section 3.03. Special Meeting. Special meetings of the shareholders may
be called at any time by the chairman, the president, or shareholders entitled
to cast a majority of the votes which all shareholders are entitled to cast at
the particular meeting, or by resolution of the board of directors. Any
authorized person who has called a special meeting may fix the date, time and
place of the meeting. If the person who has called the meeting does not fix the
date, time or place of the meeting, it shall be the duty of the secretary to do
so. A date fixed by the secretary shall not be more than 60 days after receipt
of the request.
<PAGE>
Exhibit 4.27
- --------------------------------------------------------------------------------
THIRTY-THIRD SUPPLEMENTAL
INDENTURE
DATED AS OF NOVEMBER 15, 1999
TO
INDENTURE OF MORTGAGE
DATED AS OF JANUARY 1, 1941
---------------------------
PHILADELPHIA SUBURBAN WATER COMPANY
TO
CHASE MANHATTAN TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee
---------------------------
$300,000,000 FIRST MORTGAGE BONDS,
1999 MEDIUM TERM NOTE SERIES
- --------------------------------------------------------------------------------
<PAGE>
THIRTY-THIRD SUPPLEMENTAL INDENTURE dated as of the 15th day
of November, 1999, by and between PHILADELPHIA SUBURBAN WATER COMPANY, a
corporation duly organized and existing under the laws of the Commonwealth of
Pennsylvania (the "Company"), party of the first part, and CHASE MANHATTAN TRUST
COMPANY, NATIONAL ASSOCIATION, a national banking association (the "Trustee"),
party of the second part.
WHEREAS, the Company heretofore duly executed and delivered to
The Pennsylvania Company for Insurances on Lives and Granting Annuities, as
Trustee, an Indenture of Mortgage dated as of January 1, 1941 (the "Original
Indenture"), which by reference is hereby made a part hereof, and in and by the
Original Indenture the Company conveyed and mortgaged to the Trustee certain
property therein described, to secure the payment of its bonds to be generally
known as its "First Mortgage Bonds" and to be issued under the Original
Indenture in one or more series as therein provided; and
WHEREAS, on March 29, 1947, concurrently with a merger of
Germantown Trust Company into The Pennsylvania Company for Insurances on Lives
and Granting Annuities, the name of the surviving corporation was changed to The
Pennsylvania Company for Banking and Trusts, on September 30, 1955, concurrently
with a merger of The First National Bank of Philadelphia into The Pennsylvania
Company for Banking and Trusts, the name of the surviving corporation was
changed to The First Pennsylvania Banking and Trust Company, and on June 3,
1974, by amendment to its Articles of Association, The First Pennsylvania
Banking and Trust Company was changed and converted into a national bank and
concurrently therewith changed its name to First Pennsylvania Bank N.A., and on
October 1, 1990, First Pennsylvania Bank N.A. merged with and into The
Philadelphia National Bank, which changed its name to CoreStates Bank, N.A., and
on October 10, 1995, Mellon Bank, N.A. succeeded CoreStates Bank, N.A. as
trustee, and on November 24, 1997, Chase Manhattan Trust Company, National
Association succeeded Mellon Bank, N.A. as Trustee, such mergers, changes of
name and succession as trustee not involving any change in the title, powers,
rights or duties of the Trustee, as trustee under the Original Indenture as
supplemented at the respective dates thereof; and
WHEREAS, the Company duly executed and delivered to the
Trustee a First Supplemental Indenture dated as of July 1, 1948, a Second
Supplemental Indenture dated as of July 1, 1952, a Third Supplemental Indenture
dated as of November 1, 1953, a Fourth Supplemental Indenture dated as of
January 1, 1956, a Fifth Supplemental Indenture dated as of March 1, 1957, a
Sixth Supplemental Indenture dated as of May 1, 1958, a Seventh Supplemental
Indenture dated as of September 1, 1959, an Eighth Supplemental Indenture dated
as of May 1, 1961, a Ninth Supplemental Indenture dated as of April 1, 1962, a
Tenth Supplemental Indenture dated as of March 1, 1964, an Eleventh Supplemental
Indenture dated as of November 1, 1966, a Twelfth Supplemental Indenture dated
as of January 1, 1968, a Thirteenth Supplemental Indenture dated as of June 15,
1970, a Fourteenth Supplemental Indenture dated as of November 1, 1970, a
Fifteenth Supplemental Indenture dated as of December 1, 1972, a Sixteenth
Supplemental Indenture dated as of May 15, 1975, a Seventeenth Supplemental
Indenture dated as of December 15, 1976, an Eighteenth Supplemental Indenture
dated as of May 1, 1977, a Nineteenth Supplemental Indenture dated as of June 1,
1980, a Twentieth Supplemental Indenture dated as of August 1, 1983, a
Twenty-First Supplemental Indenture, dated as of August 1, 1985, a Twenty-Second
1
<PAGE>
Supplemental Indenture, dated as of April 1, 1986, a Twenty-Third Supplemental
Indenture, dated as of April 1, 1987, a Twenty-Fourth Supplemental Indenture,
dated as of June 1, 1988, a Twenty-Fifth Supplemental Indenture, dated as of
January 1, 1990, a Twenty-Sixth Supplemental Indenture, dated as of November 1,
1991, a Twenty-Seventh Supplemental Indenture, dated as of June 1, 1992,
Twenty-Eighth Supplemental Indenture, dated as of April 1, 1993, a Twenty-Ninth
Supplemental Indenture dated as of March 1, 1995, a Thirtieth Supplemental
Indenture dated as of August 15, 1995, a Thirty-First Supplemental Indenture
dated as of July 1, 1997 and a Thirty-Second Supplemental Indenture dated as of
October 1, 1999 to subject certain additional property to the lien of the
Original Indenture and to provide for the creation of additional series of
bonds; and
WHEREAS, the Company has issued under the Original Indenture,
as supplemented at the respective dates of issue, thirty-eight series of First
Mortgage Bonds designated, respectively, as set forth in the following table,
the Indenture creating each series and the principal amount of bonds thereof
issued being indicated opposite the designation of such series:
<TABLE>
<CAPTION>
Designation Indenture Amount
<S> <C> <C>
3 1/4% Series due 1971 Original $16,375,000
9 5/8% Series due 1975 Thirteenth Supplemental 10,000,000
9.15% Series due 1977 Fourteenth Supplemental 10,000,000
3% Series due 1978 First Supplemental 2,000,000
3 3/8% Series due 1982 Second Supplemental 4,000,000
3.90% Series due 1983 Third Supplemental 5,000,000
3 1/2% Series due 1986 Fourth Supplemental 6,000,000
4 1/2% Series due 1987 Fifth Supplemental 4,000,000
4 1/8% Series due 1988 Sixth Supplemental 4,000,000
5% Series due 1989 Seventh Supplemental 4,000,000
4 5/8% Series due 1991 Eighth Supplemental 3,000,000
4.70% Series due 1992 Ninth Supplemental 3,000,000
6 7/8% Series due 1993 Twelfth Supplemental 4,500,000
4.55% Series due 1994 Tenth Supplemental 4,000,000
10 1/8% Series due 1995 Sixteenth Supplemental 10,000,000
5 1/2% Series due 1996 Eleventh Supplemental 4,000,000
7 7/8% Series due 1997 Fifteenth Supplemental 5,000,000
8.44% Series due 1997 Twenty-Third Supplemental 12,000,000
9.20% Series due 2001 Seventeenth Supplemental 7,000,000
8.40% Series due 2002 Eighteenth Supplemental 10,000,000
5.95% Series due 2002 Twenty-Seventh Supplemental 4,000,000
12.45% Series due 2003 Twentieth Supplemental 10,000,000
13% Series due 2005 Twenty-First Supplemental 8,000,000
10.65% Series due 2006 Twenty-Second Supplemental 10,000,000
9.89% Series due 2008 Twenty-Fourth Supplemental 5,000,000
7.15% Series due 2008 Twenty-Eighth Supplemental 22,000,000
9.12% Series due 2010 Twenty-Fifth Supplemental 20,000,000
8 7/8% Series due 2010 Nineteenth Supplemental 8,000,000
6.50% Series due 2010 Twenty-Seventh Supplemental 3,200,000
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
9.17% Series due 2011 Twenty-Sixth Supplemental 5,000,000
9.93% Series due 2013 Twenty-Fourth Supplemental 5,000,000
9.97% Series due 2018 Twenty-Fourth Supplemental 5,000,000
9.17% Series due 2021 Twenty-Sixth Supplemental 8,000,000
6.35% Series due 2025 Thirtieth Supplemental 22,000,000
9.29% Series due 2026 Twenty-Sixth Supplemental 12,000,000
1995 Medium Term Note
Series Twenty-Ninth Supplemental 77,000,000
7.72% Subseries A due 2025 15,000,000
6.82% Subseries B due 2005 10,000,000
6.89% Subseries C due 2015 12,000,000
6.99% Subseries D due 2006 10,000,000
7.47% Subseries E due 2003 10,000,000
6.83% Subseries F due 2003 10,000,000
7.06% Subseries G due 2004 10,000,000
1997 Medium Term Note
Series Thirty-First Supplemental 65,000,000
6.75% Subseries A due 2007 10,000,000
6.30% Subseries B due 2002 10,000,000
6.14% Subseries C due 2008 10,000,000
5.80% Subseries D due 2003 10,000,000
5.85% Subseries E due 2004 10,000,000
6.00% Subseries F due 2004 15,000,000
6.00% Series due 2029 Thirty-Second Supplemental 25,000,000
</TABLE>
and
WHEREAS, all of the bonds of each of said series are presently
outstanding other than the bonds listed on Exhibit A attached hereto and made a
part hereof; and
WHEREAS, the Original Indenture and said Supplemental
Indentures were duly recorded in the Commonwealth of Pennsylvania on the dates
and in the office for the Recording of Deeds for the following counties in the
Mortgage Books and at the pages indicated in the following table:
[continued on next page]
3
<PAGE>
<TABLE>
<CAPTION>
COUNTY
- ---------------------------------------------------------------------------------------------------------------------------------
Bucks Chester Delaware Montgomery
- ---------------------------------------------------------------------------------------------------------------------------------
Date of
Indenture Recording Book Page Book Page Book Page Book Page
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original 2/20/41 496 1 H-13.Vol.307 20 1034 1 1625 1
First Supplemental 8/26/48 632 1 F-16.Vol.380 200 1668 169 2031 257
Second Supplemental 7/1/52 768 438 18.Vol.425 186 1962 376 2360 517
Third Supplemental 11/25/53 895 1 18.Vol.442 325 2052 1 2493 1
Fourth Supplemental 1/9/56 1089 155 Z-20.Vol.499 1 2199 1 2722 425
Fifth Supplemental 3/20/57 1181 316 B-22.Vol.536 601 2294 50 2850 335
Sixth Supplemental 5/9/58 1254 1 G-23 201 2380 039 2952 289
Seventh Supplemental 9/25/59 1332 509 B-25 109 2442 1 3090 249
Eighth Supplemental 5/9/61 - - Z-26 17 2526 312 - -
Eighth Supplemental 5/10/61 1409 225 - - - - 3249 289
Ninth Supplemental 4/10/62 1458 372 G-28 126 2581 463 3307 169
Tenth Supplemental 3/19/64 1568 1 M-30 967 2976 1043 3310 237
Eleventh Supplemental 11/4/66 1655 695 Q-32 6682 762 223 3549 129
Twelfth Supplemental 1/23/68 1691 531 N-33 219 2792 708 3542 315
Thirteenth Supplemental 7/2/70 1763 1167 D-35 80 2850 301 3687 23
Fourteenth Supplemental 11/5/70 1774 331 K-35 713 2858 3113 700 548
Fifteenth Supplemental 12/11/72 1869 196 O-37 998 2926 550 3786 96
Sixteenth Supplemental 5/28/75 1979 14 E-44 77 3005 511 4010 307
Seventeenth Supplemental 12/18/77 2072 683 L-51 1 3072 43 5002 436
Eighteenth Supplemental 4/29/77 2082 567 B-52 344 3078 728 5003 291
Nineteenth Supplemental 6/23/80 2303 714 J-62 92 3261 293 5030 502
Twentieth Supplemental 8/2/83 2487 370 D-72 1 96 810 5662 1045
Twenty-First Supplemental 8/27/85 2690 806 54 550 - - 5864 1347
Twenty-First Supplemental 8/28/85 - - - - 264 159 - -
Twenty-Second Supplemental 4/22/86 2774 160 263 275 326 592 5944 360
Twenty-Third Supplemental 4/1/87 2960 693 - - - - - -
Twenty-Third Supplemental 4/2/87 - - 680 337 447 1807 6115 602
Twenty-Fourth Supplemental 7/25/88 3199 1095 1224 389 0593 0585 6324 143
Twenty-Fifth Supplemental 1/12/90 0136 0250 1848 205 731 1571 6538 376
Twenty-Sixth Supplemental 11/8/91 369 2190 2660 205 894 2241 6780 891
Twenty-Seventh Supplemental 6/29/92 0487 1829 3055 182 0969 2023 6918 302
Twenty-Eighth Supplemental 4/22/93 0652 1335 3542 1542 1081 0852 7112 0539
Twenty-Ninth Supplemental 3/30/95 1045 1872 3875 1368 1349 0829 7561 1155
Thirtieth Supplemental 8/30/95 1111 0798 3932 0471 1393 2255 7631 0689
Thirty-First Supplemental 7/11/97 1421 2196 4201 2133 1607 138 7968 797
Thirty -Second Supplemental 10/6/99 1936 1207 8548 1067
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
and
WHEREAS, the Original Indenture was recorded in Berks County
on August 16, 1999 and the Thirty-Second Supplemental Indenture was recorded in
Berks County on October 6, 1999 in Books 3113 and 3132 at Pages 707 and 1510,
respectively; and
WHEREAS, the Company proposes to create under the Original
Indenture, as supplemented, one or more new series of bonds to be designated
"First Mortgage Bonds, 1999 Medium Term Note Series, Subseries __" (the "Bonds")
to be limited in aggregate principal amount to $300,000,000, to be issued
hereunder only as registered bonds without coupons, to be dated as provided in
the Original Indenture and this Thirty-Third Supplemental Indenture, to bear
interest at the rates and mature on the dates as determined hereunder by the
Company; and
WHEREAS, the Bonds may be issued in a single series or from
time to time in more than one series designated as a "subseries" and, if so
issued in more than one subseries, each subseries of the Bonds shall bear a
separate letter designation and the first such subseries of the Bonds shall be
designated "First Mortgage Bonds, 1999 Medium Term Note Series, Subseries A";
and
WHEREAS, the Company proposes to issue $300,000,000 principal
amount of the Bonds under the provisions of Article IV of the Original
Indenture, as supplemented by this Thirty-Third Supplemental Indenture, in one
or more transactions over a period of up to five years from November 18, 1999
through November 17, 2004 (the "Offering Period"), and, for each such
transaction, will comply with the provisions thereof as well as with other
provisions of the Original Indenture and indentures supplemental thereto in
connection with the issuance of additional bonds so that it will be entitled to
procure the authentication and delivery of the Bonds; and
5
<PAGE>
WHEREAS, Article XVIII of the Original Indenture provides that
the Company, when authorized by resolution of its Board of Directors, may with
the Trustee enter into an indenture supplemental to the Original Indenture,
which thereafter shall form a part of the Original Indenture, for the purposes,
inter alia, of subjecting to the lien of the Original Indenture additional
property, of defining the covenants and provisions applicable to any bonds of
any series other than the 3 1/4% Series due 1971, of adding to the covenants and
agreements of the Company contained in the Original Indenture other covenants
and agreements thereafter to be observed by the Company, of surrendering any
right or power in the Original Indenture reserved to or conferred upon the
Company, and of making such provisions in regard to matters or questions arising
under the Original Indenture as may be necessary or desirable and not
inconsistent therewith; and
WHEREAS, in addition to the property described in the Original
Indenture and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth,
Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second,
Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh,
Twenty-Eighth, Twenty-Ninth, Thirtieth, Thirty-First and Thirty-Second
Supplemental Indentures, the Company has acquired or will acquire certain other
property and desires to confirm the lien of the Original Indenture thereon; and
WHEREAS, the Company, by proper corporate action, has duly
authorized the creation of said new series of Bonds (to be issued in accordance
with the terms and provisions of the Original Indenture and indentures
supplemental thereto, including this Thirty-Third Supplemental Indenture, and to
be secured by said Original Indenture and indentures supplemental thereto,
including this Thirty-Third Supplemental Indenture), and has further duly
authorized the execution, delivery and recording of this Thirty-Third
Supplemental Indenture setting forth the terms and provisions of the Bonds
insofar as said terms and provisions are not set forth in said Original
Indenture; and
WHEREAS, the Bonds and the Trustee's certificate upon said
Bonds are to be substantially in the following form - the proper amount, names
of registered owners and numbers to be inserted therein, and such appropriate
insertions, omissions and changes to be made therein as may be required or
permitted by this Thirty-Third Supplemental Indenture to conform to any
pertinent law or usage:
[continued on next page]
6
<PAGE>
THIS BOND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND SALES OR OTHER TRANSFERS HEREOF MAY BE MADE ONLY TO QUALIFIED
INSTITUTIONAL BUYERS AS DEFINED IN RULE 144A UNDER THE ACT ("QUALIFIED
INSTITUTIONAL BUYERS"), APPROVED BY [AGENT(S)] OR ANOTHER DULY APPOINTED
PLACEMENT AGENT (THE "PLACEMENT AGENTS") OR BY THE COMPANY IN TRANSACTIONS
EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION UNDER THE ACT.
BY ITS ACCEPTANCE OF THIS BOND, THE HOLDER REPRESENTS AND AGREES THAT IT IS A
QUALIFIED INSTITUTIONAL BUYER AND THAT THIS BOND IS BEING ACQUIRED FOR ITS OWN
ACCOUNT (AND NOT FOR THE ACCOUNT OF OTHERS) OR AS A FIDUCIARY FOR OTHERS FOR
INVESTMENT AND NOT WITH A VIEW TO, OR FOR SALE IN CONNECTION WITH, THE PUBLIC
DISTRIBUTION HEREOF IN ANY TRANSACTION THAT WOULD BE IN VIOLATION OF FEDERAL OR
STATE SECURITIES LAWS, AND THAT ANY RESALE OR OTHER TRANSFER HEREOF OR ANY
INTEREST HEREIN PRIOR TO THE DATE THAT IS TWO YEARS AFTER THE LATER OF (A) ITS
DATE OF ISSUE OR (B) THE LAST DATE ON WHICH THE COMPANY OR ANY OF ITS AFFILIATES
WAS THE BENEFICIAL OWNER HEREOF WILL BE MADE ONLY (1) TO A PLACEMENT AGENT OR
THE COMPANY, (2) THROUGH ANY PLACEMENT AGENT OR BY ANY PLACEMENT AGENT ACTING AS
PRINCIPAL TO A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE APPROVED BY SUCH
PLACEMENT AGENT, (3) DIRECTLY TO A QUALIFIED INSTITUTIONAL BUYER APPROVED BY THE
COMPANY IN A TRANSACTION APPROVED BY THE COMPANY, (4) THROUGH A DEALER OTHER
THAN A PLACEMENT AGENT TO A QUALIFIED INSTITUTIONAL BUYER, IN EACH CASE IN A
TRANSACTION APPROVED BY THE COMPANY, OR (5) DIRECTLY TO A QUALIFIED
INSTITUTIONAL BUYER IN A TRANSACTION THAT MEETS THE REQUIREMENTS OF RULE 144A
UNDER THE ACT, SUBJECT TO IN EACH CASE THE DISPOSITION OF THE PURCHASER'S
PROPERTY BEING AT ALL TIMES WITHIN ITS CONTROL. IN THE CASE OF CERTIFICATED
BONDS, ANY TRANSFER DESCRIBED IN CLAUSE (3), (4) OR (5) ABOVE REQUIRES THE
SUBMISSION TO THE TRUSTEE (AS DEFINED HEREIN) OR DULY AUTHORIZED PAYING AGENT
(AS DEFINED HEREIN) OF THE CERTIFICATE OF TRANSFER ATTACHED HERETO DULY
COMPLETED OR A DULY COMPLETED TRANSFER INSTRUMENT SUBSTANTIALLY IN THE FORM OF
THE CERTIFICATE OF TRANSFER. THE COMPANY SHALL NOT RECOGNIZE ANY RESALE OR OTHER
TRANSFER, OR ATTEMPTED RESALE OR OTHER TRANSFER, OF THIS BOND NOT MADE IN
COMPLIANCE WITH THE FOREGOING PROVISIONS. THIS BOND AND RELATED DOCUMENTATION
MAY BE AMENDED OR SUPPLEMENTED FROM TIME TO TIME TO MODIFY THE RESTRICTIONS ON
THE PROCEDURES FOR RESALES AND OTHER TRANSFERS OF THIS BOND TO REFLECT ANY
CHANGE IN APPLICABLE LAW OR REGULATION (OR THE INTERPRETATION THEREOF) OR
PROVIDE ALTERNATIVE PROCEDURES IN COMPLIANCE WITH APPLICABLE LAW AND PRACTICES
RELATING TO THE RESALE OR OTHER TRANSFER OF RESTRICTED SECURITIES GENERALLY. THE
HOLDER OF THIS BOND SHALL BE DEEMED, BY THE ACCEPTANCE OF THIS BOND, TO HAVE
AGREED TO ANY SUCH AMENDMENT OR SUPPLEMENT.
[Bonds eligible for deposit at The Depository Trust Company shall also bear the
following legend:]
THIS BOND IS A PERMANENT GLOBAL BOND. UNLESS THIS CERTIFICATE IS PRESENTED BY AN
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OR TRANSFER,
EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
7
<PAGE>
No. R- $_________
PHILADELPHIA SUBURBAN WATER
COMPANY
(Incorporated under the Laws of the Commonwealth
of Pennsylvania)
First Mortgage Bond, 1999 Medium Term Note Series,
Subseries _____
PRINCIPAL AMOUNT ______________________________
ORIGINAL ISSUE DATE ___________________________
INTEREST RATE _________________________________
MATURITY DATE _________________________________
INITIAL REDEMPTION DATE _______________________
INITIAL REDEMPTION PERCENTAGE _________________
ANNUAL REDEMPTION REDUCTION PERCENTAGE ________
[OPTIONAL TENDER DATE__________________________]
Philadelphia Suburban Water Company, a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania (hereinafter
called the "Company", which term shall include any successor corporation as
defined in the Indenture hereinafter referred to), for value received, hereby
promises to pay to Cede & Co., as nominee for The Depository Trust Company
("DTC") or its registered assigns, on the Maturity Date referred to above, the
sum of and to pay interest thereon at the Interest Rate per annum specified
above, until the principal hereof is paid or duly made available for payment,
semiannually on January 1 and July 1 (each an "Interest Payment Date") in each
year commencing on the first Interest Payment Date next succeeding the Original
Issue Date specified above (the "Original Issue Date"), unless the Original
Issue Date or the date of authentication occurs between a Record Date, as
defined below, and the next succeeding Interest Payment Date, in which case
commencing on the second Interest Payment Date succeeding the Original Issue
Date, to the registered holder of this bond of the 1999 Medium Term Note Series,
as defined below, on the Record Date with respect to such Interest Payment Date,
and on the maturity date specified on the face hereof (the "Maturity Date"), any
date fixed for redemption pursuant to the terms hereof (the "Redemption Date")
or any date fixed for the optional tender pursuant to the terms hereof (the
"Tender Date"). Interest on this Bond of the 1999 Medium Term Note Series, as
defined below, will accrue from the most recent Interest Payment Date to which
interest has been paid or duly provided for or, if no interest has been paid,
from the Original Issue Date specified above, until the principal hereof has
been paid or made duly available for payment. If the Maturity Date (or any
Redemption Date or Tender Date) or an Interest Payment Date falls on a day which
is not a Business Day, as defined below, principal (and premium, if any) or
8
<PAGE>
interest payable with respect to such Maturity Date (or Redemption Date or
Tender Date) or Interest Payment Date will be paid on the next succeeding
Business Day with the same force and effect as if made on such Maturity Date (or
Redemption Date or Tender Date) or Interest Payment Date, as the case may be,
and no interest shall accrue with respect to such payment for the period from
and after such Maturity Date (or Redemption Date or Tender Date) or Interest
Payment Date. The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, subject to certain exceptions, be paid to the
nominee of DTC, in whose name this Bond of the 1999 Medium Term Note Series is
registered at the close of business on the Record Date for such interest, which
shall be the 15th day of the calendar month preceding such Interest Payment
Date; provided, however, that interest payable on the Maturity Date (or any
Redemption Date or Tender Date) will be payable to the person to whom the
principal hereof shall be payable. As used herein, "Business Day" means any day
other than a Saturday or Sunday, on which the Trustee, any paying agent, or
banks in New York, New York are not required or authorized by law, or executive
order, to close.
The interest so payable will (except as otherwise provided in
the Thirty-Third Supplemental Indenture referred to herein) be calculated on the
basis of a 360-day year of twelve 30-day months.
This bond is one of a duly authorized issue of bonds of the
Company known as its First Mortgage Bonds, issued and to be issued without
limitation as to aggregate principal amount except as set forth in the Indenture
hereinafter mentioned in one or more series and equally secured (except insofar
as a sinking fund or other similar fund established in accordance with the
provisions of the Indenture may afford additional security for the bonds of any
specific series) by an Indenture of Mortgage (herein called the "Indenture")
dated as of January 1, 1941, executed by the Company to The Pennsylvania Company
for Insurances on Lives and Granting Annuities (now Chase Manhattan Trust
Company, National Association, as successor trustee), as Trustee (hereinafter
called the "Trustee"), to which Indenture and all indentures supplemental
thereto reference is hereby made for a description of the property mortgaged and
pledged, the nature and extent of the security, the rights of the holders and
registered owners of the bonds and of the Trustee in respect of such security,
and the terms and conditions under which the bonds are and are to be secured and
may be issued under the Indenture; but neither the foregoing reference to the
Indenture nor any provision of this bond or of the Indenture or of any indenture
supplemental thereto shall affect or impair the obligation of the Company, which
is absolute and unconditional, to pay at the stated or accelerated maturity
herein and in the Indenture provided, the principal of, (premium if any) and
interest on this bond as herein provided. As provided in the Indenture, the
bonds may be issued in series for various principal amounts, may bear different
dates and mature at different times, may bear interest at different rates and
may otherwise vary as in the Indenture provided or permitted. This bond is one
of the bonds described in an indenture supplemental to said Indenture known as
the "Thirty-Third Supplemental Indenture" dated as of November 15, 1999, and
designated therein as "First Mortgage Bonds, 1999 Medium Term Note Series,
Subseries __" (the "Bonds of the 1999 Medium Term Note Series").
The Bonds of the 1999 Medium Term Note Series will be issued
in fully registered form, without coupons. The Bonds of the 1999 Medium Term
Note Series will be deposited with, or on behalf of DTC and registered in the
name of a nominee of DTC in the form of one or more global securities (the
"Global Bonds")
9
<PAGE>
or will remain in the custody of the Trustee pursuant to a Medium-Term Note
Certificate Agreement, dated December 2, 1988, between DTC and The Chase
Manhattan Bank, which was merged into Chemical Bank, which changed its name to
The Chase Manhattan Bank. DTC was created to hold securities of persons who have
accounts with DTC ("participants") and to facilitate the clearance and
settlement of securities transactions among its participants in such securities
through electronic book-entry changes in accounts of the participants.
Upon the issuance of a Global Bond, DTC or its nominees will
credit the respective Bonds of the 1999 Medium Term Note Series represented by
such Global Bond to accounts of participants. The accounts to be credited shall
be designated by the purchasers. Ownership of beneficial interests in such
Global Bonds will be limited to participants or persons that may hold interests
through participants. Ownership of beneficial interests by participants in such
Global Bonds will be shown on, and the transfer of those ownership interests
will be effected only through, records maintained by DTC or its nominee for such
Global Bonds. Ownership of beneficial interests in such Global Bonds by persons
that hold through participants will be shown on, and the transfer of that
ownership interest within such participant will be effected only through,
records maintained by such participant.
So long as DTC or its nominee is the registered owner of a
Global Bond, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of those Bonds of the 1999 Medium Term Note Series
beneficially owned by other persons for all purposes under the Indenture. Except
as set forth below, owners of beneficial interests in such Global Bonds will not
be entitled to have the Bonds of the 1999 Medium Term Note Series registered in
their names, will not receive or be entitled to receive physical delivery of the
Bonds of the 1999 Medium Term Note Series in definitive form and will not be
considered the owners or holders thereof under the Indenture.
Payment of principal of and any interest on the Bonds of the
1999 Medium Term Note Series registered in the name of or held by DTC or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered owner or the holder of the Global Bond. Neither the Company, the
Trustee nor any paying agent for the Bonds of the 1999 Medium Term Note Series
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in a Global
Bond or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests. Payment of principal or any interest on the
Certificated Bonds (as defined below), if any, will be made to the registered
owners thereof.
The Company expects that DTC, upon receipt of any payment of
principal or interest in respect of a permanent Global Bond, will credit
immediately participants' accounts with payments in amounts proportionate to
their respective beneficial interests in the principal amount of such Global
Bond as shown on the records of DTC. The Company also expects that payments by
participants to owners of beneficial interests in such Global Bond held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
in bearer form or registered in "street name", and will be the responsibility of
such participants.
10
<PAGE>
A Global Bond may not be transferred except as a whole by DTC
to a nominee or a successor of DTC. If DTC is at any time unwilling or unable to
continue as depositary and a successor depositary is not appointed by the
Company within 90 days, the Company will issue Bonds of the 1999 Medium Term
Note Series in definitive registered form (the "Certificated Bonds") in exchange
for the Global Bond or Bonds representing such Bonds of the 1999 Medium Term
Note Series. In addition, the Company may at any time and in its sole discretion
determine not to have some of or all the bonds of the 1999 Medium Term Note
Series represented by one or more Global Bonds and, in such event, will issue
bonds of the 1999 Medium Term Note Series in definitive registered form in
exchange for all of the Global Bonds representing such Bonds of the 1999 Medium
Term Note Series. In any such instance, an owner of a beneficial interest in a
Global Bond will be entitled to physical delivery of Certificated Bonds
represented by such Global Bond equal in amount to that represented by such
beneficial interest and to have such Certificated Bonds registered in its name.
Payments of principal, premium, if any, and interest shall be
made in such coin or currency of the United States as at the time of payment is
legal tender for the payment of public and private debts. Payments of interest,
other than interest payable at the Maturity Date, or any earlier Redemption Date
or Tender Date, will be paid in immediately available funds by wire transfer to
the account of Cede & Co., as nominee for DTC, or, in the case of Certificated
Bonds, by check mailed to the registered holder of such bond at the address
shown in the Register maintained by the Trustee, or at the option of the
registered holder, at such place in the United States of America as the
registered holder shall designate to the Trustee in writing. Notwithstanding the
foregoing, the registered holder of $10,000,000 or more of Certificated Bonds
with the same Interest Payment Date shall be entitled to receive payment by wire
transfer of immediately available funds, provided that written instructions
designating the account number and bank in New York, New York (or other bank
consented to by the Company) shall have been received by the Trustee not less
than ten (10) days prior to the Record Date for such Interest Payment Date. Once
such wire transfer instructions have been received by the Trustee they shall
remain in effect unless (i) the Trustee is notified, in writing, of a change
thereof not less than ten (10) days prior to the Record Date for an Interest
Payment Date; or (ii) the registered holder no longer holds an aggregate
principal amount of at least $10,000,000 of Certificated Bonds having the same
Interest Payment Date.
The principal amount hereof, premium, if any, and interest due
on the Redemption Date, Tender Date or at the Maturity Date will be paid on the
Redemption Date, Tender Date or at the Maturity Date in immediately available
funds by wire transfer to such account at a bank in New York, New York (or such
other bank consented to by the Company) as such holder of the bond of the 1999
Medium Term Note Series shall have designated for such payment or for the
payment of interest as provided above. Payment to a registered holder of Bonds
of the 1999 Medium Term Note Series for which appropriate instructions for
payment have not been received by the Trustee not later than ten (10) days prior
to the related date of payment shall be made by check mailed by the Trustee to
the person entitled thereto at such person's address appearing in the registry
maintained by the Trustee. Wire transfer instructions received by the Trustee in
connection with the payment of principal, premium, if any, and interest due on
the Redemption Date, Tender Date or the Maturity Date of the Bond of the 1999
Medium Term Note Series shall remain in effect unless the Trustee is notified of
a change thereof not less than ten (10) days prior to the Redemption Date,
Tender Date or Maturity Date. Payment of principal, premium, if any, and
interest due on the Redemption Date, Tender Date or the Maturity Date on the
Bond of the 1999 Medium Term Note Series shall only be made against presentation
and surrender of this bond at a delivery office designated by the Trustee and
maintained for that purpose in Dallas, Texas, or at such other office or agency
of the Company as the Company shall designate.
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So long as the Bonds of the 1999 Medium Term Note Series are
in book-entry form represented by Global Bonds registered in the name of Cede &
Co., or another nominee of DTC, then Cede & Co., or such other nominee of DTC,
as the case may be, will be considered the sole owner or holder of the Bonds of
the 1999 Medium Term Note Series represented by such Global Bond for the purpose
of receiving payment on the Bonds of the 1999 Medium Term Note Series, receiving
notices and for all other purposes under the Indenture or the Global Bond.
Ownership of beneficial interests in Global Bonds will be limited to persons who
have accounts with DTC (the "participants") or persons that may hold interests
through participants. Beneficial interests in a Global Bond will be evidenced
only by, and transfers thereof will be effected only through, records maintained
by DTC. Ownership of beneficial interests in such Global Bonds by persons that
hold through participants will be shown on, and the transfer of that ownership
interest within such participant will be effected only through, records
maintained by such participant. In the case of Certificated Bonds, subject to
certain restrictions set forth on the face hereof and in the Indenture, this
bond may be transferred at the aforesaid office of the Trustee by surrendering
this bond for cancellation, accompanied by a written instrument of transfer in
form satisfactory to the Trustee and duly executed by the registered holder
hereof in person or by the holder's attorney duly authorized in writing, and
thereupon the Trustee will issue in the name of the transferee or transferees,
in exchange hereof, a new bond or bonds having identical terms and provisions
and having a like aggregate principal amount in authorized denominations,
subject to the terms and conditions set forth herein; provided, however, that
the Trustee will not be required to register the exchange or transfer of any
Bond of the 1999 Medium Term Note Series after the first notice of redemption of
such bond has been mailed or after the first notice of Tender (hereinafter
defined) of such Bond has been received by the Trustee or during a period
beginning at the opening of business ten (10) days preceding an Interest Payment
Date. Bonds of the 1999 Medium Term Note Series are exchangeable at said office
for other Bonds of the 1999 Medium Term Note Series of other authorized
denominations of equal aggregate principal amount and having identical terms and
provisions. All such exchanges of Bonds of the 1999 Medium Term Note Series will
be free of charge, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge in connection therewith. All bonds of
the 1999 Medium Term Note Series surrendered for exchange shall be accompanied
by a written instrument of transfer in the form attached hereto to the Trustee
and executed by the registered holder in person or by the holder's attorney duly
authorized in writing.
To the extent permitted by and as provided in the Indenture,
modifications or alterations of the Indenture, or of any indenture supplemental
thereto, and of the rights and obligations of the Company and of the holders and
registered owners of bonds issued and to be issued thereunder may be made with
the consent of the Company by an affirmative vote of the holders and registered
owners of not less than 75% in principal amount of bonds then outstanding under
the Indenture and entitled to vote, at a meeting of the bondholders called and
held as provided in the Indenture, and, in case one or more but less than all of
the series of bonds then outstanding under the Indenture are so affected, by an
affirmative vote of the holders and registered owners of not less than 75% in
principal amount of bonds of any series then outstanding under the Indenture and
entitled to vote on and affected by such modification or alteration, or by the
written consent of the holders and registered owners of such percentages of
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bonds; provided, however, that no such modification or alteration shall be made
which shall reduce the percentage of bonds the consent of the holders or
registered owners of which is required for any such modification or alteration
or which shall affect the terms of payment of the principal of or interest on
the bonds, or permit the creation by the Company of any lien prior to or on a
parity with the lien of the Indenture with respect to any property subject to
the lien of the Indenture as a first mortgage lien thereon, or which shall
affect the rights of the holders or registered owners of less than all of the
bonds of any series affected thereby.
The Bonds of the 1999 Medium Term Note Series are subject to
redemption at the option of the Company on or after the Initial Redemption Date
specified on the face hereof (if any), either as a whole or in part, in
increments of $1,000 (provided that any remaining principal hereof shall be at
least $100,000) on any Interest Payment Date in coin or currency of the United
States of America as at the time of payment is legal tender for payment of
public and private debts at the Redemption Price equal to the Initial Redemption
Percentage specified on the face hereof of the principal amount hereof, which
shall decline on each anniversary of the Initial Redemption Date by the Annual
Redemption Reduction Percentage specified on the face hereof of the principal
amount to be redeemed until the Redemption Price is 100% of such principal
amount, in each case plus accrued interest to the Redemption Date.
The Bonds of the 1999 Medium Term Note Series are subject to
mandatory redemption (i) in connection with the sale to or other acquisition by
or on behalf of one or more governments or municipal corporations or other
governmental subdivisions, bodies, authorities or agencies of all or
substantially all of the property of the Company, or (ii) in connection with any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
occurring in connection with or subsequent to the acquisition of all or
substantially all of the stock of the Company ordinarily entitled to voting
rights by or on behalf of one or more governments or municipal corporations or
other governmental subdivisions, bodies, authorities or agencies. In such a
mandatory redemption, the Bonds of the 1999 Medium Term Note Series are
redeemable in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts, at
one hundred per cent (100%) of the principal amount thereof, together with
interest accrued thereon to the Redemption Date.
Any redemption shall be effected by notice mailed to the
registered owners thereof, as provided in the Indenture, at least thirty (30)
days before the Redemption Date, all on the conditions and in the manner
provided in the Indenture.
If this bond or any portion hereof is called for redemption
and payment thereof is duly provided for as specified in the Indenture, interest
shall cease to accrue hereon or on such portion, as the case may be, from and
after the Redemption Date. In the event of redemption of this bond in part only,
a new bond for the unredeemed portion hereof shall be issued in the name of the
holder hereof upon the surrender hereof.
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[Tender Bonds only - This bond is subject to optional tender
("Tender"), in its entirety, by holders thereof on the first Interest Payment
Date ("Tender Date") next succeeding the tenth anniversary of the Original Issue
Date in such coin or currency of the United States of America as at the time of
payment is legal tender for the payment of public and private debts at a tender
price ("Tender Price") of one hundred percent (100%) of the principal amount
thereof, plus accrued interest to the Tender Date.
Any Tender shall be effectuated by (1) notice ("Tender
Notice") mailed (by registered mail with return receipt requested or other
courier or express delivery service) by the registered owner of a Bond of the
1999 Medium Term Note Series to the Trustee at least thirty (30) days prior to
the Tender Date, and (2) presentment to the Trustee of said Bond[s] of the 1999
Medium Term Note Series at least five (5) Business Days prior to the Tender
Date.
If a Bond of the 1999 Medium Term Note Series which is subject
to Tender is tendered and payment thereof is duly provided for, interest shall
cease to accrue hereon from and after the Tender Date.
By delivery of the Tender Notice, the owner irrevocably agrees
to deliver the bond or bonds described therein (if such bonds are in
certificated form) to the delivery office of the Trustee at least five (5)
Business Days prior to the Tender Date. The determination by the Trustee of a
bondholder's compliance with the requirement of the Tender Notice is in its sole
discretion and binding on the Company and the holder of the bond or bonds. Any
Tender Notice which is determined not to be in compliance with the Thirty-Third
Supplemental Indenture shall be of no force and effect.
If a holder who gives a Tender Notice shall fail to deliver
the bond identified in the Tender Notice to the Trustee at or prior to 10:00
a.m. on the Purchase Date, such bond shall be deemed purchased and shall cease
to accrue interest on such Tender Date and the holder thereof shall thereafter
be entitled only to payment of the Tender Price therefor and to no other
benefits of the Thirty-Third Supplemental Indenture.
Notwithstanding anything to the contrary herein, the right of
the holders of a bond to tender the bonds shall cease immediately and without
further notice from and including the date on which the Trustee notifies the
holder of such bond of an acceleration under Article XI of the Indenture.]
The principal hereof may be declared or may become due prior
to its Maturity Date on the conditions, in the manner and with the effect set
forth in the Indenture upon the happening of an event of default, as in the
Indenture provided; subject, however, to the right, under certain circumstances,
of the registered owners of a majority in principal amount of bonds then
outstanding, including the Bonds of the 1999 Medium Term Note Series, to annul
such declaration.
The Company, the Trustee and any Paying Agent may deem and
treat the registered owner of this bond as the absolute owner hereof for the
purpose of receiving payment of or on account of the principal hereof and the
interest hereon, and for all other purposes, and shall not be affected by any
notice to the contrary.
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When any notice to holders of the Bonds of the 1999 Medium
Term Note Series requesting consents, waivers, votes or other actions of such
holders is given by the Trustee hereunder at any time that the Bonds of the 1999
Medium Term Note Series are represented by Global Bonds registered in the name
of Cede & Co., or another nominee of DTC, such notice shall be sent by the
Trustee to DTC with a request that DTC forward (or cause to be forwarded) the
notice to the DTC participants so that DTC participants may forward (or cause to
be forwarded) the notice to the beneficial owners. The Trustee shall be entitled
to rely on any omnibus proxy delivered by DTC and to consider those DTC
participants to whose account the Bonds of the 1999 Medium Term Note Series are
credited on any record date or special record date, as appropriate, and
identified in a listing attached to the omnibus proxy, as owners of the
aggregate amount of Bonds of the 1999 Medium Term Note Series set forth on such
listing for purposes of any consent, waiver, vote or other action of holders of
such Bonds of the 1999 Medium Term Note Series.
No recourse shall be had for the payment of the principal of
or interest on this bond or for any claim based hereon or otherwise in respect
hereof or of the Indenture or of any indenture supplemental thereto against any
incorporator or any past, present or future stockholder, officer or director of
the Company or of any predecessor or successor corporation, as such, either
directly or through the Company, or through any such predecessor or successor
corporation or through any receiver or trustee in bankruptcy, by virtue of any
constitutional provision, statute or rule of law or equity, or by the
enforcement of any assessment or penalty or otherwise; all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released by every holder or registered owner hereof, as
more fully provided in the Indenture.
The Bonds of the 1999 Medium Term Note Series and related
documentation may be amended or supplemented from time to time by the Company
without the consent of any holder of Bonds of the 1999 Medium Term Note Series
to modify the restrictions on and procedures for resale and other transfers of
the Bonds of the 1999 Medium Term Note Series to reflect any change in
applicable law or regulation (or the interpretation thereof) or provide
alternative procedures in compliance with applicable law and practices relating
to the resale or other transfer of restricted securities generally. Each holder
of any bond of the 1999 Medium Term Note Series will be deemed, by the
acceptance of such bond, to have agreed to any such amendment or supplement.
The Company agrees to make available to any holder of Bonds of
the 1999 Medium Term Note Series or a prospective purchaser of Bonds of the 1999
Medium Term Note Series, each of whom is a Qualified Institutional Buyer as
defined in Rule 144A of the Securities Act of 1933, as amended, such information
required by Rule 144A to enable resales of the Bonds of the 1999 Medium Term
Note Series to be made pursuant to Rule 144A. However, the Company shall not be
required to provide more information than was required by Rule 144A as
originally adopted but may elect to do so, if necessary, under subsequent
revisions of Rule 144A.
This Bond shall not be entitled to any benefit under the
Indenture or any indenture supplemental thereto, or become valid or obligatory
for any purpose, until Chase Manhattan Trust Company, National Association, as
Trustee under the Indenture, or a successor trustee thereunder, shall have
signed the certificate of authentication endorsed hereon.
This Bonds of the 1999 Medium Term Note Series shall be deemed
to be a contract and shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania (excluding laws governing conflicts of
law).
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IN WITNESS WHEREOF, Philadelphia Suburban Water Company has
caused this bond to be signed by its President or a Vice President and its
corporate seal to be hereto affixed and attested by its Secretary or an
Assistant Secretary, and this bond to be dated ____________.
PHILADELPHIA SUBURBAN
Attest: WATER COMPANY
By______________________________
- -----------------------------
Assistant Secretary Vice President and Treasurer
[Form of Trustee's Certificate]
This bond is one of the bonds, of the series designated
therein, referred to in the within-mentioned Thirty-Third Supplemental
Indenture.
CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, TRUSTEE
By:____________________________
Authorized Officer
[Form of Certificate of Transfer]
(To be delivered with a Certificated Bond to the Trustee)
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s)
and transfer(s) unto
(please print or typewrite name and address including postal zip code of
assignee and insert Taxpayer Identification No.)
this bond and all rights hereunder, hereby irrevocably constituting and
appointment attorney to transfer this bond the books of the Company with full
power of substitution in the premises.
16
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CERTIFICATE OF TRANSFER
(The following is not required for sales or other transfers of
this bond to or through the Company or a Placement Agent).
In connection with any transfer of this bond occurring prior
to the date which is two years after the later of (a) the Original Issue Date of
this bond, or (b) the last date the Company or any of its affiliates was the
beneficial owner of this bond, the undersigned confirms that:
[ ] This bond is being transferred by the undersigned to a
transferee that is, or that the undersigned reasonably
believes to be, a "qualified institutional buyer" (as defined
in Rule 144A under the Securities Act of 1933, as amended)
pursuant to the exemption from registration under the
Securities Act of 1933, as amended, provided by Rule 144A
thereunder.
If the foregoing box is not checked, then, so long as the
accompanying bond shall bear a legend on its face restricting resales and other
transfers thereof (except in the case of a resale or other transfer made (i) to
the Placement Agent referred to in such legend or to the Company or (ii) through
the Placement Agent or by the Placement Agent acting as principal to a
"qualified institutional buyer" as defined in Rule 144A under the Securities Act
of 1933, as amended, in a transaction approved by the Placement Agent) the
Trustee shall not be obligated to register this bond in the name of any person
other than the registered owner hereof.
Dated:
NOTICE: The signature of the beneficial owner to this
assignment must correspond with the name as written on the face of this bond in
every particular, without alteration or enlargement or any change whatsoever.
TO BE COMPLETED BY PURCHASER IF THE BOX ABOVE IS CHECKED:
The undersigned represents and warrants that it is a
"qualified institutional buyer" as defined in Rule 144A under the Securities Act
of 1933, as amended, and acknowledges that it has received such information
regarding the Company as the undersigned has requested pursuant to Rule 144A or
has determined not to request such information and that it is aware that the
registered owner is relying upon the undersigned's foregoing representations in
order to claim the exemption from registration provided by Rule 144A.
Dated:
NOTICE: To be executed by an officer.
and;
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WHEREAS, all acts and things necessary to make the bonds, when
executed by the Company and authenticated and delivered by the Trustee as in
this Thirty-Third Supplemental Indenture provided and issued by the Company,
valid, binding and legal obligations of the Company, and this Thirty-Third
Supplemental Indenture a valid and enforceable supplement to said Original
Indenture, have been done, performed and fulfilled, and the execution of this
Thirty-Third Supplemental Indenture has been in all respects duly authorized:
NOW, THEREFORE, THIS THIRTY-THIRD SUPPLEMENTAL INDENTURE
WITNESSETH: That, in order to secure the payment of the principal and interest
of all bonds issued under the Original Indenture and all indentures supplemental
thereto, according to their tenor and effect, and according to the terms of the
Original Indenture and of any indenture supplemental thereto, and to secure the
performance of the covenants and obligations in said bonds and in the Original
Indenture and any indenture supplemental thereto respectively contained, and to
provide for the proper issuing, conveying and confirming unto the Trustee, its
successors in said trust and its and their assigns forever, upon the trusts and
for the purposes expressed in the Original Indenture and in any indenture
supplemental thereto, all and singular the estates, property and franchises of
the Company thereby mortgaged or intended so to be, the Company, for and in
consideration of the premises and of the sum of One Dollar ($1.00) in hand paid
by the Trustee to the Company upon the execution and delivery of this
Thirty-Third Supplemental Indenture, receipt whereof is hereby acknowledged, and
of other good and valuable consideration, has granted, bargained, sold, aliened,
infefted, released and confirmed and by these presents does grant, bargain,
sell, alien, enfeoff, release and confirm unto Chase Manhattan Trust Company,
National Association as Trustee, and to its successors in said trust and its and
their assigns forever:
All and singular the premises, property, assets, rights and
franchises of the Company, whether now or hereafter owned, constructed or
acquired, of whatever character and wherever situated (except as herein
expressly excepted), including among other things the following, but reference
to or enumeration of any particular kinds, classes, or items of property shall
not be deemed to exclude from the operation and effect of the Original Indenture
or any indenture supplemental thereto any kind, class or item not so referred to
or enumerated:
I.
REAL ESTATE AND WATER RIGHTS.
The real estate described in the deeds from the grantors named
in Exhibit B hereto, dated and recorded as therein set forth, and any other real
estate and water rights acquired since the date of the Thirty-Second
Supplemental Indenture.
II.
BUILDINGS AND EQUIPMENT.
All mains, pipes, pipe lines, service pipes, buildings,
improvements, standpipes, reservoirs, wells, flumes, sluices, canals, basins,
cribs, machinery, conduits, hydrants, water works, plants and systems, tanks,
shops, structures, purification systems, pumping stations, fixtures, engines,
boilers, pumps, meters and equipment which are now owned or may hereafter be
acquired by the Company (except as herein expressly excepted), including all
improvements, additions and extensions appurtenant to any real or fixed property
now or hereafter subject to the lien of the Original Indenture or any indenture
supplemental thereto which are used or useful in connection with the business of
the Company as a water company or as a water utility, whether any of the
foregoing property is now owned or may hereafter be acquired by the Company.
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<PAGE>
It is hereby declared by the Company that all property of the
kinds described in the next preceding paragraph, whether now owned or hereafter
acquired, has been or is or will be owned or acquired with the intention of
using the same in carrying on the business or branches of the business of the
Company, and it is hereby declared that it is the intention of the Company that
all thereof (except property hereinafter specifically excepted) shall be subject
to the lien of the Original Indenture.
It is agreed by the Company that so far as may be permitted by
law tangible personal property now owned or hereafter acquired by the Company,
except such as is hereafter expressly excepted from the lien hereof, shall be
deemed to be and construed as fixtures and appurtenances to the real property of
the Company.
III.
FRANCHISES AND RIGHTS OF WAY.
All the corporate and other franchises of the Company, all
water and flowage rights, riparian rights, easements and rights of way, and all
permits, licenses, rights, grants, privileges and immunities, and all renewals,
extensions, additions or modifications of any of the foregoing, whether the same
or any thereof, or any renewals, extensions, additions or modifications thereof,
are now owned or may hereafter be acquired, owned, held, or enjoyed by the
Company.
IV.
AFTER ACQUIRED PROPERTY.
All real and fixed property and all other property of the
character hereinabove described which the Company may hereafter acquire.
TOGETHER WITH all and singular the tenements, hereditaments
and appurtenances belonging or in any way appertaining to the aforesaid property
or any part thereof, with the reversion and reversions, remainder and
remainders, tolls, rents, revenues, issues, income, product and profits thereof,
and all the estate, right, title, interest and claim whatsoever, at law as well
as in equity, which the Company now has or may hereafter acquire in and to the
aforesaid premises, property, rights and franchises and every part and parcel
thereof.
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EXCEPTING AND RESERVING, HOWEVER, certain premises, not used
or useful in the supplying of water by the Company, expressly excepted and
reserved from the lien of the Original Indenture and not subject to the terms
thereof.
AND ALSO SAVING AND EXCEPTING from the property hereby
mortgaged and pledged, all of the following property (whether now owned by the
Company or hereafter acquired by it): all bills, notes and accounts receivable,
cash on hand and in banks, contracts, choses in action and leases to others (as
distinct from the property leased and without limiting any rights of the Trustee
with respect thereto under any of the provisions of the Original Indenture or of
any indenture supplemental thereto), all bonds, obligations, evidences of
indebtedness, shares of stock and other securities, and certificates or
evidences of interest therein, all automobiles, motor trucks, and other like
automobile equipment and all furniture, and all equipment, materials, goods,
merchandise and supplies acquired for the purpose of sale in the ordinary course
of business or for consumption in the operation of any properties of the Company
other than any of the foregoing expected property which may be specifically
transferred or assigned to or pledged or deposited with the Trustee hereunder or
required by the provisions of the Original Indenture or any indenture
supplemental thereto so to be; provided, however, that if, upon the happening of
a completed default, as specified in Section I of Article XI of the Original
Indenture, the Trustee or any receiver appointed hereunder shall enter upon and
take possession of the mortgaged property, the Trustee or any such receiver may,
to the extent permitted by law, at the same time likewise take possession of any
and all of the property described in this paragraph then on hand and any and all
other property of the Company then on hand, not described or referred to in the
foregoing granting clauses, which is used or useful in connection with the
business of the Company as a water company or as a water utility, and use and
administer the same to the same extent as if such property were part of the
mortgaged property, unless and until such completed default shall be remedied or
waived and possession of the mortgaged property restored to the Company, its
successors or assigns.
SUBJECT, HOWEVER, to the exceptions, reservations and matters
hereinabove and in the Original Indenture recited, to releases executed since
the date of the Original Indenture in accordance with the provisions thereof, to
existing leases, to easements and rights of way for pole lines and electric
transmission lines and other similar encumbrances and restrictions which the
Company hereby certifies, in its judgment, do not impair the use of said
property by the Company in its business, to liens existing on or claims against,
and rights in and relating to, real estate acquired for right-of-way purposes,
to taxes and assessments not delinquent, to alleys, streets and highways that
may run across or encroach upon said lands, to liens, if any, incidental to
construction, and to Permitted Liens, as defined in the Original Indenture; and,
with respect to any property which the Company may hereafter acquire, to all
terms, conditions, agreements, covenants, exceptions and reservations expressed
or provided in such deeds and other instruments, respectively, under and by
virtue of which the Company shall hereafter acquire the same and to any and all
liens existing thereon at the time of such acquisition.
TO HAVE AND TO HOLD, all and singular the property, rights,
privileges and franchises hereby conveyed, transferred or pledged or intended so
to be unto the Trustee and its successors in the trust heretofore and hereby
created, and its and their assigns forever.
20
<PAGE>
IN TRUST NEVERTHELESS, for the equal pro rata benefit and
security of each and every person or corporation who may be or become the
holders of bonds and coupons secured by the Original Indenture or by any
indenture supplemental thereto, or both, without preference, priority or
distinction as to lien or otherwise of any bond or coupon over or from any other
bond or coupon, so that each and every of said bonds and coupons issued or to be
issued, of whatsoever series, shall have the same right, lien and privilege
under the Original Indenture and all indentures supplemental thereto and shall
be equally secured hereby and thereby, with the same effect as if said bonds and
coupons had all been made, issued and negotiated simultaneously on the date
thereof; subject, however, to the provisions with reference to extended,
transferred or pledged coupons and claims for interest contained in the Original
Indenture and subject to any sinking or improvement fund or maintenance deposit
provisions, or both, for the benefit of any particular series of bonds.
IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between
the parties hereto, that all such bonds and coupons are to be authenticated,
delivered and issued, and that all property subject or to become subject hereto
is to be held subject to the further covenants, conditions, uses and trusts
hereinafter set forth, and the Company, for itself and its successors and
assigns, does hereby covenant and agree to and with the Trustee and its
successor or successors in said trust, for the benefit of those who shall hold
said bonds and coupons, or any of them, issued under this Indenture or any
indenture supplemental hereto, or both, as follows:
ARTICLE I.
Form, Authentication and Delivery of the Bonds;
Redemption and Tender Provisions
-----------------------------------------------
SECTION 1. There shall be a thirty-ninth series (and later
series as described herein) of bonds, limited in aggregate principal amount to
$300,000,000 designated as "Philadelphia Suburban Water Company First Mortgage
Bonds, 1999 Medium Term Note Series, Subseries "__" (the "Bonds"). The Bonds may
be issued at any time during the Offering Period in a single subseries or from
time to time during the Offering Period in more than one subseries pursuant to
this Thirty-Third Supplemental Indenture and the Original Indenture. Each
subseries of the Bonds issued hereunder shall constitute a separate series for
purposes of this Thirty-Third Supplemental Indenture and the Original Indenture.
Each subseries of the Bonds shall be initially authenticated and delivered from
time to time upon delivery to the Trustee of the items specified in Article IV
of the Original Indenture, including the initial authorizing resolution of the
Board of Directors of the Company for the issuance of the Bonds (a "Series
Authorizing Resolution") and a certificate of an authorized officer of the
Company issued pursuant to said resolution (a "Subseries Authorizing
Certificate") specifying the principal amount of the Bonds of such subseries to
be issued on the specified date of issuance, the numbers, denominations,
redemption date or dates, tender date if any, maturity date or dates, redemption
prices and interest rate or rates of such Bonds.
Interest on each subseries of the Bonds shall be payable
semiannually on January 1 and July 1 (each an "Interest Payment Date") in each
year commencing on the first Interest Payment Date next succeeding the date of
authentication of such Bond (the "Original Issue Date"), unless the Original
Issue Date or the date of authentication occurs between a Record Date, as
defined below, and the next succeeding Interest Payment Date, in which case
commencing on the second Interest Payment Date succeeding the Original Issue
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Date or the date of authentication, to the registered holders of the Bonds on
the Record Date with respect to such Interest Payment Date, and on the maturity
date specified on the face of the Bond (the "Maturity Date") or any date fixed
for tender or redemption pursuant to the terms of such Bond (the "Tender Date"
or "Redemption Date" respectively). Interest on each subseries of Bonds will
accrue from the most recent Interest Payment Date to which interest has been
paid or duly provided for or, if no interest has been paid, from its Original
Issue Date, until the principal has been paid or made duly available for
payment. If the Maturity Date (or any Redemption Date or Tender Date) or an
Interest Payment Date falls on a day which is not a Business Day, as defined
below, principal (and premium, if any) or interest payable with respect to such
Maturity Date (or Redemption Date or Tender Date) or Interest Payment Date will
be paid on the next succeeding Business Day with the same force and effect as if
made on such Maturity Date (or Redemption Date or Tender Date) or Interest
Payment Date, as the case may be, and no interest shall accrue with respect to
such payment for the period from and after such Maturity Date (or Redemption
Date or Tender Date) or Interest Payment Date. The term "Record Date" as used in
this Section 1 with respect to any regular Interest Payment Date shall mean the
15th day of the calendar month preceding such Interest Payment Date. As used
herein, "Business Day" means any day other than a Saturday or Sunday, on which
the Trustee, any paying agent or banks in New York, New York are not required or
authorized by law or executive order to close.
Each subseries of the Bonds shall be stated to mature (subject
to the right of earlier redemption or Tender at the prices and dates and upon
the terms and conditions hereinafter set forth) and shall bear interest at the
rates set forth in the Subseries Authorizing Certificate.
The Bonds shall be issuable only as registered bonds without
coupons, shall be in the form hereinabove recited, in the minimum denomination
of $100,000 or any integral multiple of $1,000 in excess thereof, shall be
lettered "R", and shall bear such numbers as the Company may reasonably require.
Payments of principal, premium, if any, and interest shall be
made in such coin or currency of the United States as at the time of payment is
legal tender for the payment of public and private debts. Payments of interest,
other than interest payable at the Maturity Date, or any earlier Redemption Date
or Tender Date, will be paid in immediately available funds by wire transfer to
the account of Cede & Co., as nominee for DTC, or, in the case of Certificated
Bonds, by check mailed to the registered holder of such bond at the address
shown in the Register maintained by the Trustee, or at the option of the
registered holder, at such place in the United States of America as the
registered holder shall designate to the Trustee in writing. Notwithstanding the
foregoing, the registered holder of $10,000,000 or more of Certificated Bonds
with the same Interest Payment Date shall be entitled to receive payment by wire
transfer of immediately available funds, provided that written instructions
designating the account number and bank in New York, New York (or other bank
consented to by the Company) shall have been received by the Trustee not less
than ten (10) days prior to the Record Date for such Interest Payment Date. Once
such wire transfer instructions have been received by the Trustee they shall
remain in effect unless (i) the Trustee is notified, in writing, of a change
thereof not less than ten (10) days prior to the Record Date for an Interest
Payment Date; or (ii) the registered holder no longer holds an aggregate
principal amount of at least $10,000,000 of Certificated Bonds having the same
Interest Payment Date.
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The person in whose name any Bond is registered at the close
of business on any Record Date with respect to any Interest Payment Date shall
be entitled to receive the interest payable on such Interest Payment Date
notwithstanding the cancellation of such Bond upon any transfer or exchange
subsequent to the Record Date and prior to such Interest Payment Date; provided,
however, that if and to the extent the Company shall default in the payment of
the interest due on such Interest Payment Date, such defaulted interest shall be
paid to the persons in whose names outstanding Bonds are registered at the close
of business on a subsequent Record Date established by notice given by mail by
or on behalf of the Company to the holders of Bonds not less than fifteen (15)
days preceding such subsequent Record Date, such Record Date to be not less than
ten (10) days preceding the date of payment of such defaulted interest.
Exchange of any Bonds shall be effected in accordance with the
applicable provisions of Sections 7, 8 and 9 of Article II of the Original
Indenture.
The text of the Bonds and of the certificate of the Trustee
upon such Bonds shall be, respectively, substantially of the tenor and effect
hereinbefore recited.
SECTION 2. Each subseries of the Bonds shall be subject to
redemption at the option of the Company on and after the Initial Redemption Date
indicated on the face of the Bonds. On and after the Initial Redemption Date,
the Bonds of such subseries may be redeemed in whole or in part in increments of
$1,000 (provided that any remaining principal hereof shall be at least $100,000)
at the option of the Company at the Redemption Price (hereinafter defined),
together with interest thereon payable to the Redemption Date.
The Redemption Price shall initially be the Initial Redemption
Percentage specified on the face of such subseries of the Bonds of the principal
amount of such subseries and, if applicable, shall decline on each anniversary
of the Initial Redemption Date by the Annual Redemption Reduction Percentage
specified on the face of such Subseries of the Bonds, of the principal amount to
be redeemed until the Redemption Price is 100% of such principal amount.
SECTION 3. Each subseries of the Bonds shall be subject to
mandatory redemption (i) in connection with the sale to or other acquisition by
or on behalf of one or more governments or municipal corporations or other
governmental subdivisions, bodies, authorities or agencies of all or
substantially all of the property of the Company, or (ii) in connection with any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
occurring in connection with or subsequent to the acquisition of all or
substantially all of the stock of the Company ordinarily entitled to voting
rights by or on behalf of one or more governments or municipal corporations or
other governmental subdivisions, bodies, authorities or agencies. The Bonds are
redeemable in such coin or currency of the United States of America as at the
time of payment is legal tender for the payment of public and private debts, at
one hundred per cent (100%) of the principal amount thereof, together with
interest accrued thereon to the date fixed for redemption.
SECTION 4. Any redemption of the Bonds shall be effected in
accordance with the provisions of Article V of the Original Indenture.
SECTION 5. During the Offering Period, there will be delivered
to the Trustee an adequate number of executed Bonds which will have the Bond
number, principal amount, Original
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Issue Date, interest rate, Maturity Date, Initial Redemption Date, Initial
Redemption Percentage and Annual Redemption Reduction Percentage left blank.
Each Bond will be signed and sealed manually or by facsimile on behalf of the
Company, to be held in safekeeping by the Trustee for the account of the
Company. If an officer of the Company whose signature is on a Bond no longer
holds such office at the time the Trustee delivers the Bond in accordance with
the Indenture, the Bond will be valid nevertheless. Each subseries of the Bonds
may be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered to or upon the order of the Company,
upon receipt by the Trustee of the resolutions, certificates, opinions or other
instruments or all of the foregoing required to be delivered upon the issue of
bonds pursuant to the provisions of the Original Indenture and receipt of a
Series Authorizing Resolution for such subseries.
SECTION 6. A Bond of the 1999 Medium Term Note Series which
has a Maturity Date which is more than ten years after the Original Issue Date
may, at the option of the Company, be issued by the Company subject to optional
tender ("Tender"), in its entirety, by holders thereof on the first Interest
Payment Date next succeeding the tenth anniversary of the Original Issue Date
("Tender Date") in such coin or currency of the United States of America as at
the time of payment is legal tender for the payment of public and private debts
at a tender price ("Tender Price") of one hundred percent (100%) of the
principal amount thereof, plus accrued interest to the Tender Date.
Any Tender shall be effectuated by (1) notice ("Tender
Notice") mailed (by registered mail with return receipt requested or other
courier or express delivery service) by the registered owner of a Bond of the
Medium Term Notes Series to the Trustee at least thirty (30) days prior to the
Tender Date, and (2) presentment to the Trustee of said Bond[s] of the 1999
Medium Term Note Series at least five (5) Business Days prior to the Tender
Date.
If a Bond of the 1999 Medium Term Note Series which is subject
to Tender is tendered and payment thereof is duly provided for, interest shall
cease to accrue hereon from and after the Tender Date.
By delivery of the Tender Notice, the owner irrevocably agrees
to deliver the bond or bonds described therein (if such bonds are in
certificated form) to the delivery office of the Trustee designated in Article
V, Section 2 hereof at least five (5) Business Days prior to the Tender Date.
The determination by the Trustee of a bondholder's compliance with the
requirement of the Tender Notice is in its sole discretion and binding on the
Company and the holder of the bond or bonds. Any Tender Notice which is
determined not to be in compliance with this Thirty-Third Supplemental Indenture
shall be of no force and effect.
If a holder who gives a Tender Notice shall fail to deliver
the bond identified in the Tender Notice to the Trustee at or prior to 10:00
a.m. on the Purchase Date, such bond shall be deemed purchased and shall cease
to accrue interest on such Tender Date and the holder thereof shall thereafter
be entitled only to payment of the Tender Price therefor and to no other
benefits of this Thirty-Third Supplemental Indenture.
Notwithstanding anything to the contrary herein, the right of
the holders of a bond to tender the bonds shall cease immediately and without
further notice from and including the date on which the Trustee notifies the
holder of such bond of an acceleration under Article XI of the Indenture.
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ARTICLE II.
Maintenance or Improvement Deposit.
SECTION 1. The Company covenants that it will deposit with the
Trustee on or before the March 1 next occurring after the bonds of the 9.89%
Series due 2008 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 9.93% Series due 2013 cease to be outstanding,
or on or before the next March 1 next occurring after the bonds of the 9.97%
Series due 2018 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 9.12% Series due 2010 cease to be outstanding,
or on or before the March 1 next occurring after the bonds of the 9.29% Series
due 2026 cease to be outstanding, or on or before the March 1 next occurring
after the bonds of the 9.17% Series due 2021 cease to be outstanding, or on or
before the next March 1 next occurring after the bonds of the 9.17% Series due
2011 cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 6.50% Series due 2010 cease to be outstanding, or on or before
the next March 1 next occurring after the bonds of the 5.95% Series due 2002
cease to be outstanding, or on or before the March 1 next occurring after the
bonds of the 7.15% Series due 2008 cease to be outstanding, or on or before the
March 1 next occurring after the bonds of any of the Subseries of the 1995
Medium Term Note Series issued under the Twenty-Ninth Supplemental Indenture
(consisting of the 7.72% Subseries A due 2025, the 6.82% Subseries B due 2005,
the 6.89% Subseries C due 2015, the 6.99% Subseries D due 2006, the 7.47%
Subseries E due 2003, the 6.83% Subseries F due 2003, and the 7.06% Subseries G
due 2004) shall cease to be outstanding, or on or before the March 1 next
occurring after bonds of the 6.35% Series due 2025 shall cease to be
outstanding, on or before the March 1 next occurring after the bonds of any of
the Subseries of the 1997 Medium Term Note Series issued under the Thirty-First
Supplemental Indenture (consisting of the 6.75% Subseries A due 2007, the 6.30%
Subseries B due 2002, the 6.14% Subseries C due 2008, the 5.80% Subseries D due
2003, the 5.85% Subseries E due 2004 and the 6.00% Subseries F due 2004) cease
to be outstanding, or on or before March 1 next occurring after the bonds of
6.00% Series due 2029 cease to be outstanding, whichever is latest, and on or
before March 1 in each year thereafter if and so long as any of the Bonds are
outstanding, an amount in cash (the "Maintenance or Improvement Deposit") equal
to 9% of the Gross Operating Revenues of the Company during the preceding
calendar year less, to the extent that the Company desires to take such credits,
the following:
(a) the amount actually expended for maintenance
during such calendar year; and
(b) the Cost or Fair Value, whichever is less, of
Permanent Additions acquired during such calendar year which
at the time of taking such credit constitute Available
Permanent Additions; and
(c) the unapplied balance, or any part thereof, of
the Cost or Fair Value, whichever is less, of Available
Permanent Additions acquired by the Company during the five
calendar years preceding such calendar year and specified in
the Officers' Certificates delivered to the Trustee pursuant
to Section 2 of this Article, but only to the extent that the
Permanent Additions with respect to which such Cost or Fair
Value was determined shall at the time of taking such credit
constitute Available Permanent Additions.
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SECTION 2. The Company covenants that it will on or before
March 1 in each year, beginning with the first deposit made with the Trustee
under the provisions of Section 1 of this Article, as long as any of the Bonds
are outstanding, deliver to the Trustee the following:
(A) An Officers' Certificate, which shall state:
(i) The amount of the Gross Operating Revenues for
the preceding calendar year;
(ii) 9% of such Gross Operating Revenues;
(iii) The amount actually expended by the Company for
maintenance during such calendar year;
(iv) The amount set forth in subparagraph (xii) of
each Officers' Certificate delivered to the Trustee pursuant
to the provisions of this Section during the preceding five
calendar years (specifying each such Officers' Certificate),
after deducting from each such amount the aggregate of (a) the
Cost or Fair Value, whichever is less, of all Permanent
Additions represented by such amount which have ceased to be
Available Permanent Additions; and (b) any part of such amount
for which the Company has previously taken credit against any
Maintenance or Improvement Deposit (specifying the Officers'
Certificate in which such credit was taken); and (c) any part
of such amount for which the Company then desires to take
credit against the Maintenance or Improvement Deposit;
(v) An amount which shall be the aggregate of all
amounts set forth pursuant to the provisions of clause (c) of
the foregoing subparagraph (iv);
(vi) The Cost or Fair Value, whichever is less, of
Available Permanent Additions acquired by the Company during
the preceding calendar year;
(vii) That part of the amount set forth in
subparagraph (vi) which the Company desires to use as a credit
against the Maintenance or Improvement Deposit;
(viii) The amount of cash payable to the Trustee
under the provisions of Section 1 of this Article, which shall
be the amount by which the amount set forth in subparagraph
(ii) hereof exceeds the sum of the amounts set forth in
subparagraphs (iii), (v) and (vii) hereof;
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(ix) The sum of all amounts charged on the books of
the Company against any reserve for retirement or depreciation
during the preceding calendar year representing the aggregate
of the Cost when acquired of any part of the Company's plants
and property of the character described in the granting
clauses hereof which has been permanently retired or
abandoned;
(x) The aggregate of the amounts set forth in
subparagraphs (v) and (vii) hereof;
(xi) The amount by which the amount set forth in
subparagraph (x) exceeds the amount set forth in subparagraph
(ix), being the amount required to be deducted from the Cost
or Fair Value of Available Permanent Additions in order to
determine a Net Amount of Available Permanent Additions
pursuant to the provisions of Section 9 of Article I of the
Original Indenture;
(xii) The amount set forth in subparagraph (vi) after
deducting the amount, if any, set forth in subparagraph (vii);
and
(xiii) That all conditions precedent to the taking of
the credit or credits so requested by the Company have been
complied with.
(B) In the event that the Officers' Certificate delivered to
the Trustee pursuant to the provisions of paragraph (A) of this Section shall
state, pursuant to the requirements of subparagraph (vi), the Cost or Fair Value
of Available Permanent Additions acquired by the Company during the preceding
calendar year, the documents specified in paragraphs 2, 3, 5, 6 and 7 of
subdivision (B) of Section 3 of Article IV of the Original Indenture.
(C) An amount in cash equal to the sum set forth in
subparagraph (viii) of the Officers' Certificate provided for in paragraph (A)
hereof.
SECTION 3. All cash deposited with the Trustee as part of any
Maintenance or Improvement Deposit provided for in Section 1 of this Article,
may, at the option of the Company, be applied to the purchase of bonds under the
provisions of Section 2 of Article X of the Original Indenture or to the
redemption of bonds under the provisions of Section 3 of Article X of the
Original Indenture or may be withdrawn by the Company at any time to reimburse
the Company for the cost of a Net Amount of Available Permanent Additions
(excluding, however, from any such Available Permanent Additions all Permanent
Additions included in any certificate delivered to the Trustee for the purpose
of obtaining a credit against any Maintenance or Improvement Deposit provided
for in Section 1 of this Article to the extent that such Permanent Additions
have been used for any such credit). The Trustee shall pay to or upon the
written order of the Company all or any part of such cash upon the receipt by
the Trustee of:
(a) A Resolution requesting such payment; and
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(b) The documents specified in paragraphs 2, 5, 6 and
7 of subdivision (B) of Section 3 of Article IV of the
Original Indenture, with such modifications, additions and
omissions as may be appropriate in the light of the purposes
for which they are used.
ARTICLE III.
Covenants of the Company.
SECTION 1. The Company hereby covenants and agrees with the
Trustee, for the benefit of the Trustee and all the present and future holders
of the Bonds, that the Company will pay the principal of and premium, if any,
the Tender Price of and interest on all bonds issued or to be issued as
aforesaid under and secured by the Original Indenture as hereby supplemented, as
well as all bonds which may be hereafter issued in exchange or substitution
therefor, and will perform and fulfill all of the terms, covenants and
conditions of the Original Indenture and of this Thirty-Third Supplemental
Indenture with respect to the additional bonds to be issued under the Original
Indenture as hereby supplemented.
SECTION 2. The Company covenants and agrees that so long as
any of the Bonds are outstanding (a) the Company will not make any Stock Payment
if, after giving effect thereto, its retained earnings, computed in accordance
with generally accepted accounting principles consistently applied, will be less
than the sum of (i) Excluded Earnings, if any, since December 31, 1998, and (ii)
$20,000,000; (b) Stock Payments made more than forty (40) days after the
commencement, and prior to the expiration, of any Restricted Period shall not
exceed 65% of the Company's Net Income during such Restricted Period; and (c)
the Company will not authorize a Stock Payment if there has occurred and is
continuing an event of default under subsections (a) and (b) of Section 1 of
Article XI of the Original Indenture.
For the purposes of this Section 2 the following terms shall
have the following meanings:
"Stock Payment" shall mean any payment in cash or property
(other than common stock of the Company) to any holder of shares of any class of
capital stock of the Company as such holder, whether by dividend or upon the
purchase, redemption, conversion or other acquisition of such shares, or
otherwise.
"Excluded Earnings" shall mean 35% of the Company's Net Income
during any Restricted Period.
"Restricted Period" shall mean a period commencing on any
Determination Date on which the total Debt of the Company is, or as the result
of any Stock Payment then declared or set aside and to be made thereafter will
be, more than 70% of Capitalization, and continuing until the third consecutive
Determination Date on which the total Debt of the Company does not exceed 70% of
Capitalization.
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"Net Income" for any particular Restricted Period shall mean
the amount of net income properly attributable to the conduct of the business of
the Company for such Restricted Period, as determined in accordance with
generally accepted accounting principles consistently applied, after payment of
or provision for taxes on income for such Restricted Period.
"Determination Date" shall mean the last day of each calendar
quarter. Any calculation with respect to any Determination Date shall be based
on the Company's balance sheet as of such date.
"Debt" means (i) all indebtedness, whether or not represented
by bonds, debentures, notes or other securities, for the repayment of money
borrowed, (ii) all deferred indebtedness for the payment of the purchase price
of property or assets purchased (but Debt shall not be deemed to include
Customer Advances for Construction (as defined in the Indenture) or any bonds
issued under the Indenture which are not Outstanding Bonds), (iii) leases which
have been or, in accordance with generally accepted accounting principles,
should be recorded as capital leases and (iv) guarantees of the obligations of
another of the nature described in clauses (i), (ii) or (iii) which have been
or, in accordance with generally accepted accounting principles, should be
recorded as debt.
"Outstanding Bonds" shall mean bonds which are outstanding
within the meaning indicated in Section 20 of Article I of the Original
Indenture except that, in addition to the bonds referred to in clauses (a), (b)
and (c) of said Section 20, said term shall not include bonds for the retirement
of which sufficient funds have been deposited with the Trustee with irrevocable
instructions to apply such funds to the retirement of such bonds at a specified
time, which may be either the maturity thereof or a specified redemption date,
whether or not notice of redemption shall have been given.
"Capitalization" shall mean the sum of (i) the aggregate
principal amount of all Debt at the time outstanding, (ii) the aggregate par or
stated value of all capital stock of the Company of all classes at the time
outstanding, (iii) premium on capital stock, (iv) capital surplus, and (v)
retained earnings.
SECTION 3. The Company covenants and agrees that so long as
any of the Bonds are outstanding neither the Company nor any subsidiary of the
Company will, directly or indirectly, lend or in any manner extend its credit
to, or indemnify, or make any donation or capital contribution to, or purchase
any security of, any corporation which directly or indirectly controls the
Company, or any subsidiary or affiliate (other than an affiliate which is a
subsidiary of the Company or a natural person (or his estate)) of any such
corporation.
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ARTICLE IV.
The Trustee.
SECTION 1. The Trustee hereby accepts the trust hereby
declared and provided, and agrees to perform the same upon the terms and
conditions in the Original Indenture, as supplemented by this Thirty-Third
Supplemental Indenture, and in this Thirty-Third Supplemental Indenture set
forth, and upon the terms and conditions set forth in Article IV hereof.
SECTION 2. Subject to the provisions of Article XIII of the
Original Indenture, the Trustee may execute any of the trusts or powers hereof
and perform any of its duties by or through and consult with attorneys, agents,
officers or employees selected by the Trustee in its sole discretion. The
Trustee shall be entitled to advice of counsel concerning all matters of trusts
hereof and the duties hereunder and may in all cases pay such reasonable
compensation, including the reimbursement of expenses, to all such attorneys,
agents, officers and employees as may reasonably be employed in connection with
the trusts hereof. The Trustee may act and rely upon the opinion or advice of
any attorney (who may be the attorney or attorneys for the Company) and shall be
free from all liability for any action taken or not taken in reliance on such
opinion or advice. The Trustee may act and rely on written opinions of experts
employed by the Trustee and such advice shall be full and complete authorization
and protection in respect of any action taken, suffered or omitted by the
Trustee hereunder in good faith and in reliance thereon. The Trustee shall not
be responsible for any loss or damage resulting from any action or non-action in
good faith taken in reliance upon such opinion or advice. The Trustee shall not
be bound to confirm, verify or make any investigation into the facts or matters
stated in any financial or other statements, resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order or other
paper or document furnished pursuant to the terms hereof.
SECTION 3. Before the Trustee shall be required to foreclose
on, or to take control or possession of, the real property or leasehold interest
(the "Premises") which may be the subject of any mortgage or mortgages for which
the Trustee is mortgagee in connection with the issuance of the Bonds, the
Trustee shall be indemnified and held harmless by the holders and/or beneficial
owners of the Outstanding Bonds from and against any and all expense, loss, or
liability that may be suffered by the Trustee in connection with any spill, leak
or release which may have occurred on or invaded the Premises or any
contamination by any Hazardous Substance or for any Environmental Claim (as such
terms are hereinafter defined), whether caused by the Company or any other
person or entity, including, but not limited to, (1) any and all reasonable
expenses that the Trustee may incur in complying with any of the Environmental
Statutes (hereinafter defined), (2) any and all reasonable costs that the
Trustee may incur in studying or remedying any spill, leak or release which may
have occurred on or invaded the Premises or any contamination, (3) any and all
fines or penalties assessed upon the Trustee by reason of such contamination,
(4) any and all loss of value of the Premises or the improvements thereon by
reason of such contamination, and (5) any and all legal fees and costs
reasonably incurred by the Trustee in connection with any of the foregoing. As
used in this Section, contamination by any Hazardous Substance shall include
contamination arising from the presence, creation, production, collection,
treatment, disposal, discharge, release, storage, transport, or transfer of any
Hazardous Substance at or from the Premises or any improvements thereon. As used
in this Section, the term "Hazardous Substance" shall mean petroleum
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hydrocarbons or any substance which (a) constitutes a hazardous waste or
substance under any applicable federal, state or local law, rule, order or
regulation now or hereafter adopted; (b) constitutes a "hazardous substance" as
such term is defined under the Comprehensive Environmental Response,
Compensation and Liability Act, as amended (42 U.S.C. ss.9601 et seq.) and the
regulations issued thereunder and any comparable state or local law or
regulation; (c) constitutes a "hazardous waste" under the Resource Conservation
and Recovery Act, (42 U.S.C. ss.6991) and the regulations issued thereunder; (d)
constitutes a pollutant, contaminant, chemical or industrial, toxic or hazardous
substance or waste as such terms are defined under the Federal Clean Water Act,
as amended (33 U.S.C. ss.1251 et seq.), the Toxic Substances Control Act, as
amended (15 U.S.C. ss. 2601 et seq.), or any comparable state or local laws or
regulations; (e) exhibits any of the characteristics enumerated in 40 C.F.R.
Sections 261.20-261.24, inclusive; (f) those extremely hazardous substances
listed in Section 302 of the Superfund Amendments and Reauthorization Act of
1986 (Public Law 99-499, 100 Stat. 1613) which are present in threshold planning
or reportable quantities as defined under such act; (g) toxic or hazardous
chemical substances which are present in quantities which exceed exposure
standards as those terms are defined under Sections 6 and 8 of the Occupational
Safety and Health Act, as amended (29 U.S.C. ss.ss.655 and 657 and 29 C.F.R.
Part 1910, subpart 2); and (h) any asbestos, petroleum-based products, or any
substance contained within or released from any underground or aboveground
storage tanks. As used in this Section, the term "Environmental Statutes" shall
mean the statutes, laws, rules, orders and regulations referred to in (a)
through (h) inclusive in the preceding sentence and the term "Environmental
Claim" shall mean with respect to any person, any action, suit, proceeding,
investigation, notice, claim, complaint, demand, request for information or
other communication (written or oral) by any other person (including any
governmental authority, citizens group or employee or former employee of such
person) alleging, asserting or claiming any actual or potential: (a) violation
of any Environmental Statutes, (b) liability under any Environmental Statutes or
(c) liability for investigatory costs, cleanup costs, governmental response
costs, natural resources damages, property damages, personal injuries, fines or
penalties arising out of, based on, or resulting from, the presence or release
into the environment of any Hazardous Substances at any location, whether or not
owned by such person.
ARTICLE V.
Miscellaneous.
SECTION 1. This instrument is executed and shall be construed
as an indenture supplemental to the Original Indenture, and shall form a part
thereof, and except as hereby supplemented, the Original Indenture and the
First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth,
Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third,
Twenty-Fourth, Twenty-Fifth, Twenty-Sixth, Twenty-Seventh, Twenty-Eighth,
Twenty-Ninth, Thirtieth, Thirty-First and Thirty-Second Supplemental Indentures
are hereby confirmed. All references in this Thirty-Third Supplemental Indenture
to the Original Indenture shall be deemed to refer to the Original Indenture as
heretofore amended and supplemented, and all terms used herein shall be taken to
have the same meaning as in the Original Indenture, as so amended, except in the
cases where the context clearly indicates otherwise.
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SECTION 2. Any notices to the Trustee under this Thirty-Third
Supplemental Indenture shall be delivered to the Trustee at its administrative
office by registered or certified mail, hand delivery or other courier or
express delivery service (with receipt confirmed) or by telecopy (with receipt
confirmed) at the following address:
Chase Manhattan Trust Company, National Association
Capital Markets Fiduciary Services
1650 Market Street, Suite 520
Philadelphia, PA 19103
Attention: Philadelphia Suburban Water Administrator
Telecopy: (215) 972-1685
Any Bonds of the 1999 Medium Term Note Series being delivered to the Trustee for
payment, exchange or which have been tendered, if certificated, shall be
delivered to the Trustee's delivery office currently located at:
Chase Bank of Texas, N.A.
CT Services
1201 Main St., 18th Fl.
Dallas, TX 75202
Any change in such address or telecopy number may be made by notice to the
Company delivered in the manner set forth above.
SECTION 3. All recitals in this Thirty-Third Supplemental
Indenture are made by the Company only and not by the Trustee; and all of the
provisions contained in the Original Indenture in respect of the rights,
privileges, immunities, powers and duties of the Trustee shall be applicable in
respect hereof as fully and with like effect as if set forth herein in full.
SECTION 4. Although this Thirty-Third Supplemental Indenture
is dated for convenience and for the purpose of reference as of November 15,
1999, the actual date or dates of execution hereof by the Company and the
Trustee are as indicated by their respective acknowledgments annexed hereto.
SECTION 5. In order to facilitate the recording or filing of
this Thirty-Third Supplemental Indenture, the same may be simultaneously
executed in several counterparts, each of which shall be deemed to be an
original and such counterparts shall together constitute but one and the same
instrument.
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ARTICLE VI
Environmental Matters
SECTION 1. The Company represents as follows:
(a) It is in compliance with all applicable Environmental Statutes
except for matters which, individually or in the aggregate, could not have a
Material Adverse Effect.
(b) It has all Environmental Approvals necessary or desirable for the
ownership and operation of its properties, facilities and businesses as
presently owned and operated except for matters which, individually or in the
aggregate, could not have a Material Adverse Effect.
(c) There is no Environmental Claim pending or, to its knowledge after
due inquiry, threatened, and there are no past or present acts, omissions,
events or circumstances that could form the basis of any Environmental Claim,
against it except for matters which, individually or in the aggregate, could not
have a Material Adverse Effect.
(d) No facility or property now or previously owned, operated or leased
by it is an Environmental Cleanup Site.
SECTION 2. The Company covenants as follows:
(a) It will comply with all applicable Environmental Statutes.
(b) Promptly upon becoming aware of any Environmental Claim pending or
threatened against it, or any past or present acts, omissions, events or
circumstances that could form the basis of such Environmental Claim, which if
adversely resolved, individually or in the aggregate, could have a Material
Adverse Effect, it shall give the Trustee prompt written notice thereof,
together with a written statement of an Authorized Executive Officer of the
Company setting forth the details thereof and any action with respect thereto
taken or proposed to be taken by the Company.
SECTION 3. The Company agrees to indemnify and hold harmless
the Trustee, all its directors, officers, employees and agents, against any and
all losses, claims, damages or liabilities, joint or several, to which it may
become subject under the law of any jurisdiction insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any violation or breach by the Company of any Environmental Statutes, or
any Environmental Claim arising out of the management, use, control, ownership
or operation of the Premises.
SECTION 4. For purposes of this Article VI, the following
terms shall have the indicated meanings.
"Environmental Concern Materials" shall mean (a) any flammable
substance, explosive, radioactive material, hazardous material, hazardous waste,
toxic substance, solid waste, pollutant, contaminant or any related material,
raw material, substance, product or by-product of any substance specified in, or
regulated by, any "Environmental Statute", (b) any toxic chemical or other
substance from or related to industrial, commercial or institutional activities,
and (c) asbestos, gasoline, diesel fuel, motor oil, waste and used oil, heating
oil and other petroleum products or compounds, polychlorinated biphenyls, radon
and urea formaldehyde.
33
<PAGE>
"Material Adverse Effect" shall mean a material adverse effect
on the business, operations, condition (financial or otherwise) or prospects of
the Company.
"Environmental Cleanup Site" shall mean any location which is
listed or proposed for listing on the National Priorities List, on CERCLIS or on
any similar state list of sites requiring investigation or cleanup, or which is
the subject of any pending or threatened action, suit, proceeding or
investigation related to or arising from any alleged violation of any
Environmental Law.
"Environmental Approvals" shall mean any governmental action
pursuant to or required under any Environmental Law.
34
<PAGE>
IN WITNESS WHEREOF the parties hereto, intending to be legally
bound, have caused their corporate seals to be hereunto affixed and their
Presidents or Vice-Presidents, under and by the authority vested in them, have
hereto affixed their signatures, and their Secretaries or Assistant Secretaries
or Authorized Officers have duly attested the execution hereof, as of the ___
day of November, 1999.
[CORPORATE SEAL] PHILADELPHIA SUBURBAN WATER
COMPANY
Attest /s/ Patricia M. Mycek By:/s/ Kathy Lee Pape
---------------------------- ----------------------------
Secretary Vice President and Treasurer
[CORPORATE SEAL] CHASE MANHATTAN TRUST COMPANY,
NATIONAL ASSOCIATION, as Trustee
Attest: /s/ Michael J. Judge By:/s/ Catherine Lenhardt
-------------------- ----------------------------
Authorized Signer Assistant Vice President
35
<PAGE>
COMMONWEALTH OF PENNSYLVANIA:
COUNTY OF MONTGOMERY:
On the 19th day of November, 1999, before me, the Subscriber,
a Notary Public for the Commonwealth of Pennsylvania, personally appeared Kathy
L. Pape, who acknowledged herself to be the Vice President and Treasurer of
Philadelphia Suburban Water Company, a corporation, and that she as such Vice
President and Treasurer, being authorized to do so, executed the foregoing
Thirty-Third Supplemental Indenture as and for the act and deed of said
corporation and for the uses and purposes therein mentioned, by signing the name
of the corporation by herself as such officer.
In Witness Whereof I hereunto set my hand and official seal.
[NOTARIAL SEAL] /s/ Suzanne Falcone
Notary
36
<PAGE>
COMMONWEALTH OF PENNSYLVANIA
COUNTY OF PHILADELPHIA
On the 18th day of November, 1999 before me, the Subscriber, a
Notary Public for the Commonwealth of Pennsylvania, personally appeared
Catherine Lenhardt, who acknowledged herself to be an Assistant Vice President
of Chase Manhattan Trust Company National Association, Trustee, a national
banking association, and that she as such Assistant Vice President, being
authorized to do so, executed the foregoing Thirty-Third Supplemental Indenture
as and for the act and deed of said national banking association and for the
uses and purposes therein mentioned by signing the name of said national banking
association by herself as such officer.
In Witness Whereof I hereunto set my hand and official seal.
[NOTARIAL SEAL] /s/ Joan F. Wilson
Notary
37
<PAGE>
EXHIBIT A
---------
Exhibit A
Bonds Redeemed or Paid at Maturity
Principal Amount
Paid or Redeemed
(If less than all Date
Series Bonds of Series) Paid Maturity
- ------ ----------------- ---- --------
3.25% Series Due 1971 12/31/1970 Redemption
9.63% Series Due 1975 06/15/1975 Maturity
9.15% Series Due 1977 01/01/1977 Maturity
3.00% Series Due 1978 07/01/1978 Maturity
3.38% Series Due 1982 07/01/1982 Maturity
3.90% Series Due 1983 07/01/1983 Maturity
3.50% Series Due 1986 01/01/1986 Maturity
4.50% Series Due 1987 01/01/1987 Maturity
4.13% Series Due 1988 05/01/1988 Maturity
5.00% Series Due 1989 09/01/1989 Maturity
4.63% Series Due 1991 05/01/1991 Maturity
4.70% Series Due 1992 04/01/1992 Maturity
6.88% Series Due 1993 01/01/1993 Maturity
4.55% Series Due 1994 03/01/1994 Maturity
10.13% Series Due 1995 $ 6,300,000 - Sinking Fund
10.13% Series Due 1995 $ 3,700,000 05/17/1993 Redemption
9.20% Series Due 2001 $ 3,850,000 - Sinking Fund
9.20% Series Due 2001 $ 3,150,000 05/01/1993 Redemption
8.40% Series Due 2002 $ 5,850,000 - Sinking Fund
8.40% Series Due 2002 $ 4,150,000 01/02/1996 Redemption
5.95% Series Due 2002 $ 2,400,000 - Sinking Fund
12.45% Series Due 2003 $ 1,000,000 08/01/1993 Sinking Fund
12.45% Series Due 2003 $ 9,000,000 08/02/1993 Redemption
8.88% Series Due 2010 $ 800,000 - Sinking Fund
8.88% Series Due 2010 $ 7,200,000 06/30/1992 Redemption
13.00% Series Due 2005 08/02/1995 Redemption
7.88% Series Due 1997 01/02/1996 Redemption
10.65% Series Due 2006 04/02/1996 Redemption
5.50% Series Due 1996 11/01/1996 Maturity
8.44% Series Due 1997 04/01/1997 Maturity
7.15% Series Due 2008 $ 4,000,000 - Sinking Fund
A-1
<PAGE>
EXHIBIT B
No New Property
B-1
<PAGE>
This Thirty-Third Supplemental Indenture was recorded on November 30,
1999 in the Office for the Recording of Deeds for each of the five counties
tabulated below in the Mortgage Book and at the page indicated:
Mortgage
Book Page
---- ----
County
Berks......................... ____ ____
Bucks......................... ____ ____
Chester....................... ____ ____
Delaware...................... ____ ____
Montgomery.................... ____ ____
For the recording information with respect to the Original Indenture
and the first thirty-two supplemental indentures, see pages 4 and 5 of this
Thirty-Third Supplemental Indenture.
<PAGE>
Exhibit 4.28
CREDIT AGREEMENT
among
PHILADELPHIA SUBURBAN WATER COMPANY
and
THE BANKS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION
as Agent
Dated as of December 22, 1999
$50,000,000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
BACKGROUND......................................................................................................1
SECTION 1. DEFINITIONS.........................................................................................1
1.1 Defined Terms.................................................................................1
1.2 Other Definitional Provisions................................................................15
1.3 Construction.................................................................................15
SECTION 2. THE CREDITS........................................................................................16
2.1 Revolving Credit Loans.......................................................................16
2.2 Swing Line Loans.............................................................................17
2.3 General Provisions Regarding Loans...........................................................20
2.4 Fees.........................................................................................21
2.5 Revolving Credit Notes; Repayment of Revolving Credit Loans..................................22
2.6 Interest on Revolving Credit Loans...........................................................22
2.7 Default Rate; Additional Interest; Alternate Rate of Interest................................23
2.8 Termination, Reduction, Extension of Commitments; Additional Banks...........................23
2.9 Optional and Mandatory Prepayments of Loans..................................................25
2.10 Illegality...................................................................................25
2.11 Requirements of Law..........................................................................26
2.12 Taxes........................................................................................27
2.13 Indemnity....................................................................................28
2.14 Pro Rata Treatment, etc......................................................................29
2.15 Payments.....................................................................................29
2.16 Conversion and Continuation Options..........................................................29
SECTION 3. REPRESENTATIONS AND WARRANTIES.....................................................................30
3.1 Financial Condition..........................................................................30
3.2 No Adverse Change............................................................................31
3.3 Existence; Compliance with Law...............................................................31
3.4 Corporate Power; Authorization; Enforceable Obligations......................................31
3.5 No Legal Bar.................................................................................32
3.6 No Material Litigation.......................................................................32
3.7 No Default...................................................................................32
3.8 Taxes........................................................................................32
3.9 Federal Regulations..........................................................................32
3.10 ERISA........................................................................................33
3.11 Investment Company Act; Public Utility Holding Company Act...................................33
3.12 Purpose of Loans.............................................................................34
3.13 Environmental Matters........................................................................34
3.14 Ownership of the Borrower....................................................................35
3.15 Patents, Trademarks, etc.....................................................................35
3.16 Ownership of Property........................................................................35
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.17 Licenses, etc................................................................................35
3.18 No Burdensome Restrictions...................................................................35
3.19 Labor Matters................................................................................35
3.20 Partnerships.................................................................................35
3.21 No Material Misstatements....................................................................36
3.22 Year 2000 Compliance.........................................................................36
SECTION 4. CONDITIONS PRECEDENT; CLOSING......................................................................36
4.1 Conditions to Closing........................................................................36
4.2 Conditions to Each Loan......................................................................38
4.3 Closing......................................................................................39
SECTION 5. AFFIRMATIVE COVENANTS..............................................................................39
5.1 Financial Statements.........................................................................39
5.2 Certificates; Other Information..............................................................39
5.3 Payment of Obligations.......................................................................40
5.4 Conduct of Business and Maintenance of Existence.............................................40
5.5 Maintenance of Property; Insurance...........................................................40
5.6 Inspection of Property; Books and Records; Discussions.......................................40
5.7 Notices......................................................................................41
5.8 Environmental Laws...........................................................................41
5.9 Taxes........................................................................................42
5.10 Covenants of the Indenture...................................................................42
5.11 Guarantees of Obligations....................................................................42
SECTION 6. NEGATIVE COVENANTS.................................................................................43
6.1 Financial Covenants..........................................................................43
6.2 Limitation on Debt...........................................................................43
6.3 Limitation on Liens..........................................................................43
6.4 Limitations on Fundamental Changes...........................................................45
6.5 Limitation on Sale of Assets.................................................................45
6.6 Limitations on Acquisitions..................................................................46
6.7 Limitation on Distributions and Investments..................................................46
6.8 Transactions with Affiliates.................................................................46
6.9 Sale and Leaseback...........................................................................46
6.10 Fiscal Year..................................................................................46
6.11 Continuation of or Change in Business........................................................46
SECTION 7. EVENTS OF DEFAULT..................................................................................47
7.1 Events of Default............................................................................47
7.2 Remedies.....................................................................................49
SECTION 8. THE AGENT..........................................................................................51
8.1 Appointment..................................................................................51
8.2 Delegation of Duties.........................................................................52
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
8.3 Exculpatory Provisions.......................................................................52
8.4 Reliance by Agent............................................................................52
8.5 Notice of Default............................................................................52
8.6 Non-Reliance on Agent and Other Banks........................................................53
8.7 Indemnification..............................................................................53
8.8 Agent in its Individual Capacity.............................................................54
8.9 Successor Agent..............................................................................54
8.10 Beneficiaries................................................................................54
SECTION 9. MISCELLANEOUS......................................................................................54
9.1 Amendments and Waivers.......................................................................54
9.2 Notices......................................................................................55
9.3 No Waiver; Cumulative Remedies...............................................................56
9.4 Survival of Representations and Warranties...................................................56
9.5 Payment of Expenses and Taxes................................................................56
9.6 Successors and Assigns.......................................................................57
9.7 Confidentiality..............................................................................61
9.8 Adjustments; Set-off.........................................................................61
9.9 Counterparts.................................................................................62
9.10 Severability.................................................................................62
9.11 Integration..................................................................................62
9.12 GOVERNING LAW................................................................................62
9.13 Submission To Jurisdiction; Waivers..........................................................62
9.14 Acknowledgments..............................................................................63
9.15 WAIVERS OF JURY TRIAL........................................................................63
</TABLE>
iii
<PAGE>
SCHEDULES
SCHEDULE I Bank and Commitment Information
SCHEDULE 3.6 Existing Litigation
SCHEDULE 3.10 ERISA Matters
SCHEDULE 3.11 Regulatory Approvals
SCHEDULE 3.13 Environmental Matters
SCHEDULE 3.20 Interests in Partnerships
SCHEDULE 6.2 Permitted Debt
SCHEDULE 6.3 Existing Liens
EXHIBITS
EXHIBIT A Form of Borrowing Request
EXHIBIT B-1 Form of Note
EXHIBIT B-2 Form of Swing Line Note
EXHIBIT C Form of Assignment and Acceptance
iv
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") dated as of December
22, 1999, by and among PHILADELPHIA SUBURBAN WATER COMPANY, a Pennsylvania
corporation (the "Borrower"), the several banks and other financial institutions
from time to time parties to this Agreement (the "Banks"), and PNC BANK,
NATIONAL ASSOCIATION, a national banking association, as administrative agent
(in such capacity, the "Agent").
BACKGROUND
The Borrower has requested that the Banks make Loans (that
term and certain other terms are defined in Section 1.1 hereof) to the Borrower,
and the Banks severally have agreed to make Loans on the terms and conditions
herein contained. Proceeds of the Loans will be used for refinancing existing
indebtedness and general working capital purposes including financing
acquisitions.
NOW, THEREFORE, the parties hereto, in consideration of their
mutual covenants and agreements herein set forth and for other consideration,
the receipt and sufficiency of which is hereby acknowledged and intending to be
legally bound hereby, covenant and agree as follows:
SECTION 1 DEFINITIONS
1.1 Defined Terms As used in this Agreement, the following
terms shall have the following meanings:
"Administrative Fees": as defined in subsection 2.4(c).
"Affiliate": any Person (other than a Subsidiary, or an
officer, director or employee of the Borrower who would not be an
Affiliate but for such Person's status as an officer, director and/or
employee) which, directly or indirectly, through one or more
intermediaries, controls, or is controlled by, or is under common
control with, the Borrower, and any member, director, officer or
employee of any such Person or any Subsidiary of the Borrower. For
purposes of this definition, "control" shall mean the power, directly
or indirectly, either to (i) vote 5% or more of the securities having
ordinary voting power for the election of directors of such Person or
(ii) direct or in effect cause the direction of the management and
policies of such Person whether by contract or otherwise.
<PAGE>
"Assignment and Acceptance": an assignment and acceptance
entered into by a Bank and an assignee, and acknowledged by the Agent,
in the form of Exhibit C or such other form as shall be approved by the
Agent.
"Base Rate": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/100th of 1%) equal to the Prime Rate in
effect on such day. Any change in the Base Rate due to a change in the
Prime Rate shall be effective on the effective date of such change in
the Prime Rate.
"Base Rate Borrowing": a Borrowing comprised of Base Rate
Loans.
"Base Rate Loan": any Revolving Credit Loan bearing interest
at a rate determined by reference to the Base Rate.
"Borrower": as defined in the heading of this Agreement.
"Borrowing": a Swing Line Loan made by the Swing Line Bank or
each group of Revolving Credit Loans of a single Type made by the Banks
on a single date and, in the case of Eurodollar Loans, as to which a
single Interest Period is in effect.
"Borrowing Request": a request made pursuant to Section 2.1(c)
in the form of Exhibit A.
"Business Day": a day other than a Saturday, Sunday or other
day on which commercial banks in Philadelphia, Pennsylvania are
authorized or required by law to close; provided, however, that, when
used in connection with a Eurodollar Loan, the term "Business Day"
shall also exclude any day on which banks are not open for dealings in
dollar deposits in the London Interbank Market.
"Capital Lease": at any time, a lease with respect to which
the lessee is required to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Stock": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person
(other than a corporation) and any and all warrants or options to
purchase any of the foregoing.
"Closing": as defined in Section 4.3.
"Closing Date": as defined in Section 4.3.
2
<PAGE>
"Closing Fee": as defined in Section 2.4(a)
"Code": the Internal Revenue Code of 1986, as amended from
time to time.
"Commitment": as to any Bank, the obligation of such Bank to
make Loans to the Borrower hereunder in an aggregate principal amount
at any one time outstanding not to exceed the amount set forth opposite
such Bank's name on Schedule I or in the Assignment and Acceptance
pursuant to which such Bank becomes a party to this Agreement, as the
same may be permanently terminated, reduced and extended from time to
time pursuant to the provisions of Section 2.9 or changed by subsequent
assignments pursuant to subsection 9.6(b).
"Commitment Percentage": as to any Bank at any time, the
proportion (expressed as a percentage) that such Bank's Commitment
bears to the Total Commitment (or, at any time after the Commitments
shall have expired or been terminated, the percentage which the amount
of such Bank's Loans constitutes of the aggregate amount of the Loans
of the Banks then outstanding).
"Commonly Controlled Entity": an entity, whether or not
incorporated, which is under common control with the Borrower within
the meaning of Section 4001 of ERISA or is part of a group which
includes the Borrower and which is treated as a single employer under
Section 414 of the Code.
"Consolidated Assets": at any time, the amount at which all
assets (including, without duplication, the capitalized value of any
leasehold interest under any Capital Lease) of the Borrower would be
reflected on a consolidated balance sheet of the Borrower at such time.
"Consolidated EBIT": for any period, Consolidated Net Income
for such period, plus the amount of income taxes and interest expense
deducted from earnings in determining such Consolidated Net Income.
"Consolidated EBITDA": for any period, Consolidated Net Income
for such period, plus the amount of income taxes, interest expense,
depreciation and amortization deducted from earnings in determining
such Consolidated Net Income.
"Consolidated Funded Debt": at any time, all Debt of the
Borrower determined on a consolidated basis consisting of, without
duplication (a) borrowed money Debt, including without limitation
capitalized lease obligations;(b) reimbursement obligations in respect
of letters of credit, bank guarantees and the like; and (c) Debt in the
nature of a Contingent Obligation, whether or not required to be
reflected on a balance sheet of the Borrower in accordance with GAAP.
"Consolidated Interest Expense": for any period, the amount of
cash interest expense deducted from earnings of the Borrower in
determining Consolidated Net Income for such period in accordance with
GAAP.
3
<PAGE>
"Consolidated Net Income": for any fiscal period, net earnings
(or loss) after income and other taxes computed on the basis of income
of the Borrower for such period determined on a consolidated basis in
accordance with GAAP, but excluding:
(a) the amount of any extraordinary items included in
such calculation of net earnings (or loss);
(b) any gain or loss resulting from the write-up or
write-off of fixed assets;
(c) earnings of any Subsidiary accrued prior to the
date it became a Subsidiary;
(d) earnings of any Person, substantially all assets
of which have been acquired in any manner, realized by such
Person prior to the date of such acquisition; and
(e) any gain arising from the acquisition of any
Securities of the Borrower or any Subsidiary thereof.
"Consolidated Shareholders' Equity": at a particular date, the
net book value of the shareholders' equity of the Borrower as would be
shown on a consolidated balance sheet at such time determined in
accordance with GAAP.
"Contingent Obligation": with respect to any Person (for the
purpose of this definition, the "Obligor") any obligation (except the
endorsement in the ordinary course of business of instruments for
deposit or collection) of the Obligor guaranteeing or in effect
guaranteeing any indebtedness of any other Person (for the purpose of
this definition, the "Primary Obligor") in any manner, whether directly
or indirectly, including (without limitation) indebtedness incurred
through an agreement, contingent or otherwise, by the Obligor:
(a) to purchase such indebtedness of the Primary
Obligor or any Property or assets constituting security
therefor;
(b) to advance or supply funds
4
<PAGE>
(i) for the purpose of payment of such
indebtedness (except to the extent such indebtedness
otherwise appears on Borrower's balance sheet as
indebtedness), or
(ii) to maintain working capital or other
balance sheet condition or any income statement
condition of the Primary Obligor or otherwise to
advance or make available funds for the purchase or
payment of such indebtedness or obligation; or
(c) to lease Property or to purchase Securities or
other Property or services primarily for the purpose of
assuring the owner of such indebtedness or obligation of the
ability of the Primary Obligor to make payment of the
indebtedness or obligation.
For purposes of computing the amount of any Contingent Obligation, in
connection with any computation of indebtedness or other liability, it
shall be assumed that, without duplication, the indebtedness or other
liabilities of the Primary Obligor that are the subject of such
Contingent Obligation are direct obligations of the issuer of such
Obligation.
"Contractual Obligation": as to any Person, any provision of
any Security issued by such Person or of any agreement, instrument or
other undertaking to which such Person is a party or by which it or any
of its property is bound.
"Debt": with respect to any Person, at any time, without
duplication, all of (i) its liabilities for borrowed money, (ii)
liabilities secured by any Lien existing on property owned by such
Person (whether or not such liabilities have been assumed), (iii) its
liabilities in respect to Capital Leases; (iv) its liabilities under
Contingent Obligations; and (v) all other obligations which are
required by GAAP to be shown as liabilities on its balance sheet but
excluding (x) deferred taxes and other deferred or long-term
liabilities and other amounts not in respect of borrowed money and (y)
the aggregate amount of accounts receivable sold, factored or otherwise
transferred for value without recourse (other than for breach of
representations).
"Default": any of the events specified in Section 7, whether
or not any requirement for the giving of notice, the lapse of time, or
both, or any other condition precedent therein set forth, has been
satisfied.
"Distribution": in respect of any corporation, (a) dividends,
distributions or other payments on account of any capital stock of the
corporation (except distributions in common stock of such corporation);
(b) the redemption or acquisition of such stock or of warrants, rights
or other options to purchase such stock (except when solely in exchange
for common stock of such corporation); and (c) any payment on account
of,
5
<PAGE>
or the setting apart of any assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other
acquisition of any share of any class of capital stock of such
corporation or any warrants or options to purchase any such stock.
"Dollars" and "$": dollars in lawful currency of the United
States of America.
"Environmental Laws": any and all applicable foreign, Federal,
state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees or binding requirements of any Governmental
Authority, or binding Requirement of Law (including common law)
regulating, relating to or imposing liability or standards of conduct
concerning protection of the environment, as now or may at any time
hereafter be in effect.
"Equity to Capital Ratio": at the date of determination, the
ratio of Consolidated Shareholders' Equity to the sum of (i)
Consolidated Funded Debt and (ii) Consolidated Shareholders' Equity.
"ERISA": the Employee Retirement Income Security Act of 1974,
as amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal
and emergency reserves under any regulations of the Board of Governors
of the Federal Reserve System or other Governmental Authority having
jurisdiction with respect thereto) dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as
"Eurocurrency Liabilities" in Regulation D of such Board) maintained by
a member bank of such System.
"Eurodollar Base Rate": with respect to any Eurodollar Loan
for any Interest Period, an interest rate per annum (rounded upwards,
if necessary, to the next 1/100 of 1%) equal to the rate determined by
the Agent in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) to be the average of the
London interbank offered rates of interest per annum for Dollars set
forth on Telerate display page 3750 or such other display page on the
Telerate System as may replace such page to evidence the average of
rates quoted by banks designated by the British Bankers' Association
(or appropriate successor, or if the British Bankers' Association or
its successor ceases to provide such quotes, a comparable replacement
determined by the Agent), for an amount approximately equal in
principal amount to the Agent's portion of such Eurodollar Loan.
"Eurodollar Borrowing": a Borrowing comprised of Eurodollar
Loans.
6
<PAGE>
"Eurodollar Loan": any Revolving Credit Loan bearing interest
at a rate determined by reference to the Eurodollar Rate in accordance
with the provisions of Section 2.
"Eurodollar Rate": with respect to each Interest Period
pertaining to a Eurodollar Loan, a rate per annum determined in
accordance with the following formula (rounded upward to the nearest
1/100th of 1%):
Eurodollar Base Rate
-----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 7,
provided that any requirement for the giving of notice, the lapse of
time, or both, or any other condition, has been satisfied.
"Exposure": as to any Bank at any date, an amount equal to the
sum of (a) the aggregate principal amount of all Loans made by such
Bank then outstanding and (b) the principal amount of such Bank's pro
rata share of Swing Line Loans then outstanding based on its Commitment
Percentage.
"Facility Fee": as defined in subsection 2.4(b).
"Federal Funds Effective Rate": for any day, the weighted
average of the rates on overnight Federal funds transactions with
members of the Federal Reserve System arranged by Federal funds
brokers, as published on the next succeeding Business Day by the
Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for
the day of such transactions received by the Agent from three Federal
funds brokers of recognized standing selected by it.
"Fee Letter": that certain letter from the Agent to the
Borrower dated December 22, 1999 regarding certain administrative fees.
"Fees": the Closing Fees, the Facility Fees and the
Administrative Fees.
"GAAP": at any time with respect to the determination of the
character or amount of any asset or liability or item of income or
expense, or any consolidation or other accounting computation,
generally accepted accounting principles as applied to the public
utility industry, as such principles shall be in effect on the date of,
or at the end of the period covered by, the financial statements from
which such asset, liability, item of income, or item of expense, is
derived, or, in the case of any such computation, as in effect on the
date when such computation is required to be determined, subject to
Section 1.3(b).
"Governmental Authority": any nation or government, any state
or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
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"Guarantor": any Material Subsidiary which becomes a
"Guarantor" after the date hereof pursuant to Section 5.11.
"Guaranty": any Guaranty Agreement entered into by a Guarantor
pursuant to Section 5.11.
"Indenture": means the Indenture of Mortgage dated as of
January 1, 1941 between the Borrower and Chase Manhattan Trust Company,
National Association, as successor Trustee, as amended and
supplemented.
"Insolvency": with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section
4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Coverage Ratio": at the date of determination, the
ratio of Consolidated EBIT to Consolidated Interest Expense, in each
case for the prior four (4) consecutive fiscal quarters.
"Interest Payment Date": (a) as to any Base Rate Loan or Swing
Line Loan, the last day of each month, (b) as to any Eurodollar Loan
having an Interest Period of three months or less, the last day of such
Interest Period, and (c) as to any Eurodollar Loan having an Interest
Period longer than three months, each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period and
the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially the period commencing on the borrowing or
conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in their notice of borrowing or notice of conversion,
given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Agent not less than three
Business Days prior to the last day of the then current Interest Period
with respect thereto;
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provided that, the foregoing provisions relating to Interest Periods
are subject to the following:
(i) if any Interest Period would end on a day other than a
Business Day, such Interest Period shall be extended to the next
succeeding Business Day unless such next succeeding Business Day would
fall in the next calendar month, in which case such Interest Period
shall end on the next preceding Business Day;
(ii) any Interest Period that begins on the last Business Day
of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall end on the last Business Day of a calendar month;
(iii) an Interest Period that otherwise would extend beyond
the Termination Date shall end on the Termination Date; and
(iv) the Borrower shall select Interest Periods so as not to
require a payment or prepayment of any Eurodollar Loan during an
Interest Period for such Loan.
"Investments": investments (by loan or extension of credit,
purchase, advance, guaranty, capital contribution or otherwise) made in
cash or by delivery of Property, by the Borrower (i) in any Person,
whether by acquisition of stock or other ownership interest,
indebtedness or other obligation or Security, or by loan, advance or
capital contribution, or (ii) in any Property or (iii) any agreement to
do any of the foregoing.
"Lien": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge, or
other security interest or any preference, priority or other security
agreement or preferential arrangement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title
retention agreement and any Capital Lease having substantially the same
economic effect as any of the foregoing).
"Loan Documents": this Agreement, the Notes and any Guaranty.
"Loans": the collective reference to the Revolving Credit
Loans and the Swing Line Loans.
"Material Adverse Effect": a material adverse effect on (a)
the validity or enforceability of this Agreement or any other Loan
Document, (b) the business, prospects, Property, assets, financial
condition, results of operations or prospects of the Borrower, (c) the
ability of the Borrower duly and punctually to pay its Debts and
perform its obligations hereunder, or (d) the ability of the Agent or
any of the Banks,
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to the extent permitted, to enforce their legal remedies pursuant to
this Agreement or any other Loan Document.
"Material Subsidiary": a Subsidiary of the Borrower the assets
or net earnings of which, determined in accordance with GAAP,
constitute more than 5% of the Borrower's Consolidated Assets or
Consolidated Net Income, as the case may be.
"Materials of Environmental Concern": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum
products or any hazardous or toxic substances, materials or wastes,
defined or regulated as such in or under any Environmental Law,
including, without limitation, asbestos, polychlorinated biphenyls, and
ureaformaldehyde insulation.
"Moody's": Moody's Investors Service, Inc.
"Multiemployer Plan": a Plan which is a multiemployer plan as
defined in Section 4001(a) (3) of ERISA.
"Notes": the Revolving Credit Notes and the Swing Line Notes.
"Parent Company": Philadelphia Suburban Corp., a Pennsylvania
corporation.
"Participant": as defined in Section 9.6(f).
"PBGC": the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
"Permitted Acquisition": an acquisition by the Borrower of the
stock or assets of a Person engaged in businesses similar or incidental
or ancillary to Borrower's existing business, provided that at least 30
days prior to the consummation of any such acquisition for which cash
consideration paid by the Borrower (including the assumption of Debt in
connection therewith) exceeds $50,000,000, no Default or Event of
Default shall exist or would exist if such acquisition were consummated
on such date (assuming for purposes of the covenants contained in
Section 6.1 that pro forma adjustments are made to the financial
statements of the Borrower reflecting such acquisition; provided, that
historical EBIT of the Person to be acquired (or the assets of which
are to be acquired) shall be included for purposes of calculating such
covenant compliance only if historical financial statements of such
Person are received by the Agent at least 30 days prior to the
consummation of such acquisition), and the Borrower shall have
delivered to the Agent a certificate of a Responsible Officer showing
calculations in reasonable detail demonstrating such pro forma
compliance with the covenants contained in Section 6.1, and provided
further, that any such acquisition for which cash consideration paid by
the Borrower (including the assumption of Debt in connection therewith)
exceeds $75,000,000, shall also have been consented to by the Required
Banks.
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"Permitted Investments": Investments in:
(a) one or more Material or Wholly-Owned Subsidiaries
thereof;
(b) Property to be used in the ordinary course of
business of the Borrower;
(c) current assets arising from the sale or purchase
of goods and services in the ordinary course of business of
the Borrower;
(d) direct obligations of the United States of
America, or any agency or instrumentality thereof or
obligations guaranteed by the United States of America,
provided that such obligations mature within one (1) year from
the date of acquisition thereof;
(e) certificates of deposit, time deposits or
banker's acceptances, maturing within one (1) year from the
date of acquisition, with banks or trust companies organized
under the laws of the United States, the unsecured long-term
debt obligations of which are rated "A3" or higher by Moody's
or "A-" or higher by S&P, and issued, or in the case of
banker's acceptance, accepted, by a bank or trust company
having capital, surplus and undivided profits aggregating at
least $250,000,000;
(f) commercial paper given the highest rating by
either S&P or Moody's maturing not more than 270 days from the
date of creation thereof;
(g) mutual funds registered with the Securities and
Exchange Commission under the Investment Company Act of 1940
that hold themselves out as "money market funds;"
(h) trade credit extended on usual and customary
terms in the ordinary course of business;
(i) advances to employees to meet expenses incurred
by such employees in the ordinary course of business;
(j) Permitted Acquisitions; and
(k) other loans, advances and investments not
exceeding in the aggregate $2,000,000 at any one time
outstanding.
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"Person": an individual, partnership, corporation, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture, Governmental Authority or
other entity of whatever nature.
"Plan": at a particular time, any employee benefit plan which
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as
defined in Section 3(5) of ERISA.
"PNC": PNC Bank, National Association, a national banking
association.
"Prime Rate": the rate of interest per annum announced from
time to time by PNC as its prime rate in effect at its principal office
in Philadelphia, Pennsylvania; each change in the Prime Rate shall be
effective on the date such change is announced as effective.
"Property": any interest in any kind of property or asset,
whether real, personal or mixed, and whether tangible or intangible.
"Regulation U": Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Regulation X": Regulation X of the Board of Governors of the
Federal Reserve System as from time to time in effect, and all official
rulings and interpretations thereunder or thereof.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of
Section 4241 of ERISA.
"Reportable Event": any of the events set forth in Section
4043(b) of ERISA, except to the extent that notice thereof has been
waived by the PBGC.
"Required Banks": at any time, (a) Banks the Exposures of
which aggregate at least 51% of the Total Exposure at such time of the
Banks, or (b) if there are no Loans outstanding, Banks whose
Commitments aggregate at least 51% of the Total Commitment at such
time.
"Requirement of Law": as to any Person, the Certificate of
Incorporation, By-Laws, Operating Agreement or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case binding upon such Person or any of
its property or to which such Person or any of its property is subject.
"Responsible Officer": as to any Borrower, any officer of such
Borrower or of the manager of such Borrower.
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"Revolving Credit Loans": the revolving loans made by the
Banks to the Borrower pursuant to Section 2.1(a). Each Loan shall be a
Eurodollar Loan or a Base Rate Loan.
"Revolving Credit Note": a promissory note of the Borrower in
the form of Exhibit B-1, as the same may be amended, supplemented or
otherwise modified from time to time.
"S&P": Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Security": "security" as defined in Section 2(1) of the
Securities Act of 1933, as amended.
"Single Employer Plan": any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Solvent": as to any Person, as of the time of determination,
the financial condition under which the following conditions are
satisfied:
(a) the fair market value of the assets of such
Person will exceed the debts and liabilities, subordinated,
contingent or otherwise, of such Person; and
(b) the present fair saleable value of the Property
of such Person will be greater than the amount that will be
required to pay the probable liability of such Person on its
debts and other liabilities, subordinated, contingent or
otherwise, as such debts and other liabilities become absolute
and matured; and
(c) such Person will be able to pay its debts and
liabilities, subordinated, contingent or otherwise, as such
debts and liabilities become absolute and matured; and
(d) such Person will not have unreasonably small
capital with which to conduct the businesses in which it is
engaged as such businesses are then conducted and are proposed
to be conducted after the date thereof.
"Subordinated Debt": at any time, all Debt of the Borrower
subordinated to all of the obligations of the Borrower to the Banks on
terms satisfactory to the Banks.
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"Subsidiary": as to any Person, (i) any corporation, limited
liability company, company or trust of which 50% or more (by number of
shares or number of votes) of the outstanding capital stock, interests,
shares or similar items of beneficial interest normally entitled to
vote for the election of one or more directors, managers or trustees
(regardless of any contingency which does or may suspend or dilute the
voting rights) is at such time owned directly or indirectly by such
person or one or more of such Person's Subsidiaries, or any partnership
of which such Person is a general partner or of which 50% or more of
the partnership interests is at the time directly or indirectly owned
by such Person or one or more of such Person's Subsidiaries, and (ii)
any corporation, company, trust, partnership or other entity which is
controlled or capable of being controlled by such Person or one or more
of such Person's subsidiaries. Unless otherwise indicated, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement
shall refer to a Subsidiary of the Borrower.
"Supplemental Indenture": means the 33rd Supplemental
Indenture to the Indenture dated as of November 15, 1999.
"Swing Line Bank": PNC Bank, National Association, or any
other Bank to which the Swing Line Commitment is assigned pursuant to
the terms of Section 9.6.
"Swing Line Commitment": the amount set forth opposite the
Swing Line Bank's name under the heading "Swing Line Commitment" on
Schedule I hereto, as such amount may be reduced pursuant to Section
2.2(f).
"Swing Line Loans": has the meaning given to such term in
Section 2.2(a).
"Swing Line Note": has the meaning given to such term in
Section 2.2(c), as the same may be amended, supplemented or otherwise
modified from time to time.
"Swing Line Repayment Date": has the meaning given to such
term in Section 2.2(b).
"Termination Date": December 20, 2000, or any later date to
which the Termination Date shall have been extended pursuant to
subsection 2.8(d).
"Total Commitment": at any time, the aggregate amount of the
Banks' Commitments, as in effect at such time.
"Total Commitment Percentage": as to any Bank at any time, the
proportion (expressed as a percentage) that such Bank's Commitment
bears to the Total Commitment.
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"Total Exposure": at any time, the aggregate amount of the
Banks' Exposures at such time.
"Tranche": the collective reference to Eurodollar Loans whose
Interest Periods begin on the same date and end on the same later date
(whether or not such Loans originally were made on the same date).
"Type": when used in respect of any Revolving Credit Loan or
Borrowing of Revolving Credit Loans, shall refer to the Rate by
reference to which interest on such Revolving Credit Loan or on the
Revolving Credit Loans comprising such Borrowing is determined. For
purposes hereof, "Rate" shall include the Eurodollar Rate and the Base
Rate.
"Voting Stock": capital stock of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the directors (or
Persons performing similar functions) and, as applicable, any equity,
participation or ownership interests in any partnership, business
trust, joint stock company, limited liability company, trust,
unincorporated association, joint venture or any other Person which
interests are similar by analogy to capital stock or ownership rights
giving rise to voting or governance rights.
"Wholly-Owned Subsidiary": at any time, any Subsidiary one
hundred percent (100%) of all of the equity Securities (except
directors' qualifying shares) and voting Securities of which are owned
by any one or more of the Borrower at such time.
1.2 Other Definitional Provisions. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
subsection, Schedule and Exhibit references are to this Agreement unless
otherwise specified.
1.3 Construction. (a) Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole, "or" has the inclusive meaning
represented by the phrase "and/or," and "including" has the meaning represented
by the phrase "including without limitation." References in this Agreement to
"determination" of or by the Agent or the Banks shall be deemed to include good
faith estimates by the Agent or the Banks (in the case of quantitative
determinations) and good faith beliefs by the Agent or the Banks (in the case of
qualitative determinations). Whenever the Agent or the Banks are granted the
right herein to act in their sole discretion or to grant or withhold consent
such right shall be exercised in good faith, except as otherwise
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provided herein. Except as otherwise expressly provided, all references herein
to the "knowledge of" or "best knowledge of" the Borrower shall be deemed to
refer to the knowledge of a Responsible Officer thereof. The words "hereof,"
"herein," "hereunder", "hereby" and similar terms in this Agreement refer to
this Agreement as a whole and not to any particular provision of this Agreement.
The section and other headings contained in this Agreement and the Table of
Contents preceding this Agreement are for reference purposes only and shall not
control or affect the construction of this Agreement or the interpretation
thereof in any respect. Section, subsection, schedule and exhibit references are
to this Agreement unless otherwise specified.
(b) Except as otherwise provided in this Agreement, all
computations and determinations as to accounting or financial matters and all
financial statements to be delivered pursuant to this Agreement shall be made
and prepared in accordance with GAAP (including principles of consolidation
where appropriate). As used herein and in the Notes, and any certificate or
other document made or delivered pursuant hereto, accounting terms relating to
the Borrower and any Subsidiary thereof not defined in subsection 1.1 and
accounting terms partly defined in subsection 1.1, to the extent not defined,
shall have the respective meanings given to them under GAAP. In the event that
any future change in GAAP, without more, materially affects the Borrower's
compliance with any financial covenant herein, the Borrower, the Banks and the
Agent shall use their best efforts to modify such covenant in order to account
for such change and to secure for the Banks the intended benefits of such
covenant.
SECTION 2. THE CREDITS
2.1 Revolving Credit Loans. (a) Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Bank, severally and not jointly, agrees to make Revolving Credit Loans to
the Borrower, at any time or from time to time on or after the date hereof and
until the Termination Date or until the Commitment of such Bank shall have been
terminated in accordance with the terms hereof, in an aggregate principal amount
at any time outstanding which, when added to such Bank's Commitment Percentage
of the principal amount of Swing Line Loans then outstanding does not exceed
such Bank's Commitment subject, however, to the conditions that (i) at no time
shall (x) the sum of the outstanding aggregate principal amount of all Loans
made by all Banks exceed (y) the Total Commitment and (ii) at all times the
outstanding aggregate principal amount of all Revolving Credit Loans required to
be made by each Bank shall equal the product of (x) its Commitment Percentage
times (y) the outstanding aggregate principal amount of all Revolving Credit
Loans required to be made pursuant to subsection 2.1 at such time. Such
Commitments may be terminated or reduced from time to time pursuant to Section
2.8. Within the foregoing limits, the Borrower may borrow, repay and reborrow
under the Commitment on or after the date hereof and prior to the Termination
Date, subject to the terms, provisions and limitations set forth herein.
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(b) Each Revolving Credit Loan shall be made as part of a
Borrowing consisting of Revolving Credit Loans made by the Banks ratably in
accordance with their Commitment Percentages; provided, however, that the
failure of any Bank to make any Revolving Credit Loan shall not in itself
relieve any other Bank of its obligation to lend hereunder (it being understood,
however, that no Bank shall be responsible for the failure of any other Bank to
make any Revolving Credit Loan required to be made by such other Bank). The
Revolving Credit Loans comprising any Eurodollar Borrowing shall be in a minimum
aggregate principal amount of $500,000 or a whole multiple of $100,000 in excess
thereof (or an aggregate principal amount equal to the remaining balance of the
available Commitments) and the Revolving Credit Loans comprising any Base Rate
Borrowing shall be in a minimum aggregate principal amount of $250,000 or a
whole multiple of $50,000 in excess thereof (or an aggregate principal amount
equal to the remaining balance of the available Commitments). Each Borrowing of
Revolving Credit Loans shall be comprised entirely of Eurodollar Loans or Base
Rate Loans, as the Borrower may request pursuant to Section 2.1.
(c) In order to request a Borrowing, the Borrower shall
hand deliver or telecopy (or notify by telephone and promptly confirm by hand
delivery or telecopy) to the Agent the information requested by the form of
Borrowing Request attached as Exhibit A hereto (i) in the case of a Eurodollar
Borrowing, not later than 11:00 a.m., Philadelphia time, three Business Days
before a proposed Borrowing and (ii) in the case of a Base Rate Borrowing, not
later than 11:00 a.m., Philadelphia time, on the day of a proposed Borrowing.
Such notice shall be irrevocable and shall in each case specify (x) whether the
Borrowing then being requested is to be a Eurodollar Borrowing or a Base Rate
Borrowing; (y) the date of such Borrowing (which shall be a Business Day) and
the amount thereof; and (z) if such Borrowing is to be a Eurodollar Borrowing,
the Interest Period with respect thereto. If no election as to the Type of
Borrowing is specified in any such notice, then the requested Borrowing shall be
a Base Rate Borrowing. If no Interest Period with respect to any Eurodollar
Borrowing is specified in any such notice, then the Borrower shall be deemed to
have selected an Interest Period of one month's duration. The Agent shall
promptly advise the Banks of any notice given pursuant to this Section 2.1 and
of each Bank's portion of the requested Borrowing.
2.2 Swing Line Loans. (a) Subject to the terms and conditions
hereof, the Swing Line Bank may in its discretion make swing line loans (the
"Swing Line Loans") to the Borrower from time to time until the Termination Date
or until the Swing Line Commitment is terminated in accordance with the terms
hereof in the aggregate up to the amount of the Swing Line Commitment for
periods requested by the Borrower and agreed to by the Swing Line Bank;
provided, that, no Swing Line Loan shall be made if, after giving effect to the
making of such Loan and the simultaneous application of the proceeds thereof,
the Total Exposure would exceed the Total Commitment. Within the foregoing
limits, the Borrower may borrow, repay and reborrow under the Swing Line
Commitment, subject to and in accordance with the terms and limitations hereof.
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(b) The Borrower may request a Swing Line Loan to be made
on any Business Day. Each request for a Swing Line Loan shall be in writing (or
by telephone promptly confirmed in writing) and delivered to the Swing Line Bank
not later than 12:00 noon, Philadelphia time, on the Business Day such Swing
Line Loan is to be made, specifying in each case (i) the amount to be borrowed,
(ii) the requested borrowing date, (iii) whether the interest rate applicable to
such Swing Line Loan is to be: (A) the Federal Funds Effective Rate plus seventy
five basis points (.75%) or (B) an interest rate mutually agreed upon by the
Borrower and the Swing Line Bank and (iv) the date such Swing Line Loan is to be
repaid (the "Swing Line Repayment Date"). The request for such Swing Line Loan
shall be irrevocable. Provided that all applicable conditions precedent
contained in Section 4.2 hereof have been satisfied, the Swing Line Bank shall,
not later than 4:00 p.m., Philadelphia time, on the date specified in the
Borrower's request for such Swing Line Loan, make such Swing Line Loan by
crediting the Borrower's deposit account with the Swing Line Bank.
(c) The obligation of the Borrower to repay the Swing Line
Loans shall be evidenced by a promissory note of the Borrower dated the date
hereof, payable to the order of the Swing Line Bank in the principal amount of
the Swing Line Commitment and substantially in the form of Exhibit B-2 (as
amended, supplemented or otherwise modified from time to time, the "Swing Line
Note").
(d) Interest shall accrue on the outstanding principal
balance of a Swing Line Loan at the interest rate chosen by the Borrower in
accordance with Section 2.2(b) with respect to such Swing Line Loan and shall be
payable on each applicable Interest Payment Date and upon the repayment of such
Swing Line Loan.
(e) A Swing Line Loan shall be repaid on the earlier of
(i) the Termination Date and (ii) the Swing Line Repayment Date for such Swing
Line Loan. Unless the Borrower shall have notified the Agent prior to 11:00
a.m., Philadelphia time, on such Swing Line Repayment Date that the Borrower
intends to repay such Swing Line Loan with funds other than the proceeds of a
Revolving Credit Loan, the Borrower shall be deemed to have given notice to the
Agent requesting the Banks to make a Revolving Credit Loan which shall be a Base
Rate Borrowing in accordance with Section 2.1 on the Swing Line Repayment Date
in an aggregate amount equal to the amount of such Swing Line Loan plus interest
thereon, and (A) subject to satisfaction or waiver of the conditions specified
in Section 4.2, the Banks shall, on the Swing Line Repayment Date, make a
Revolving Credit Loan which shall be a Base Rate Borrowing, in an aggregate
amount equal to the amount of such Swing Line Loan plus interest thereon, the
proceeds of which shall be applied directly by the Agent to repay the Swing Line
Bank for such Swing Line Loan plus accrued interest thereon; and provided,
further, that if for any reason the proceeds of such Base Rate Borrowing are not
received by the Swing Line Bank on the Swing Line Repayment Date in an aggregate
amount equal to the amount of such Swing Line Loan plus accrued interest, the
Borrower shall reimburse the Swing Line Bank on the day immediately following
the Swing Line Repayment Date, in same day funds, in an amount equal to the
excess of the amount of such Swing Line Loan over the aggregate amount of such
Base Rate Borrowing, if any, received plus accrued interest thereon.
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(f) In the event that the Borrower shall fail to repay the
Swing Line Bank as provided in Section 2.2(e) in an amount equal to the amount
required under Section 2.2(e), the Agent shall promptly notify each Bank of the
unpaid amount of such Swing Line Loan and of such Bank's respective
participation therein in an amount equal to such Bank's Commitment Percentage of
such Swing Line Loan. Each Bank shall make available to the Agent for payment to
the Swing Line Bank an amount equal to its respective participation therein
(including without limitation its pro rata share of accrued but unpaid interest
thereon), in same day funds, at the office of the Agent specified in such
notice, not later than 11:00 a.m., Philadelphia time, on the Business Day after
the date the Agent notifies each Bank. In the event that any Bank fails to make
available to the Agent the amount of such Bank's participation in such unpaid
amount as provided herein, the Swing Line Bank shall be entitled to recover such
amount on demand from such Bank together with interest thereon at a rate per
annum equal to the Base Rate for each day during the period between the Swing
Line Repayment Date and the date on which such Bank makes available its
participation in such unpaid amount. The failure of any Bank to make available
to the Agent its pro rata share of any such unpaid amount shall not relieve any
other Bank of its obligations hereunder to make available to the Agent its pro
rata share of such unpaid amount on the Swing Line Repayment Date. The Agent
shall distribute to each Bank which has paid all amounts payable by it under
this Section 2.2(f) with respect to the unpaid amount of any Swing Line Loan,
such Bank's Commitment Percentage of all payments received by the Agent from the
Borrower in repayment of such Swing Line Loan when such payments are received.
Notwithstanding anything to the contrary herein, each Bank which has paid all
amounts payable by it under this Section 2.2(f) shall have a direct right to
repayment of such amounts from the Borrower subject to the procedures for
repaying Banks set forth in this Section 2.2.
(g) In the event the Commitments are terminated in
accordance with Section 2.8 hereof, the Swing Line Commitment shall also be
terminated automatically. In the event the Borrower reduces the Total Commitment
to less than the Swing Line Commitment, the Swing Line Commitment shall
immediately be reduced to an amount equal to the Total Commitment. In the event
the Borrower reduces the Total Commitment to less than the outstanding principal
amount of the Swing Line Loans, the Borrower shall immediately repay the amount
by which the outstanding Swing Line Loans exceed the Swing Line Commitment as so
reduced plus accrued interest thereon.
(h) At no time shall there be more than two outstanding
Swing Line Loans.
(i) Each Swing Line Loan shall be in an original principal
amount of $100,000 or multiples of $50,000 in excess thereof.
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(j) The Borrower shall have the right at any time and from
time to time to prepay any Swing Line Loan, in whole or in part, without premium
or penalty, upon prior written, telecopy or telephonic notice to the Swing Line
Bank given no later than 1:00 p.m., Philadelphia time, on the date of any
proposed prepayment. Each notice of prepayment shall specify the Swing Line Loan
to be prepaid and the amount to be prepaid, shall be irrevocable and shall
commit the Borrower to prepay such amount on such date, with accrued interest
thereon.
2.3 General Provisions Regarding Loans. Subject to Section
2.3(b), each Bank shall make each Revolving Credit Loan to be made by it
hereunder on the proposed date thereof by wire transfer of immediately available
funds to the Agent in Philadelphia, Pennsylvania, not later than 1:00 p.m.,
Philadelphia time, and the Agent shall by 3:00 p.m., Philadelphia time, credit
the amounts so received to the general deposit account of the Borrower with the
Agent or, if a Borrowing shall not occur on such date because any condition
precedent herein specified shall not have been met, return the amounts so
received to the respective Banks. Loans shall be made by the Banks pro rata in
accordance with Section 2.14. Unless the Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Agent such Bank's portion of such Borrowing, the Agent may assume that
such Bank has made such portion available to the Agent on the date of such
Borrowing in accordance with this paragraph (c) and the Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have made
such portion available to the Agent, such Bank and the Borrower severally agree
to repay to the Agent forthwith on demand such corresponding amount together
with interest thereon, for each day from the date such amount is made available
to the Borrower until the date such amount is repaid to the Agent at (i) in the
case of the Borrower, the interest rate applicable at the time to the Revolving
Credit Loans comprising such Borrowing and (ii) in the case of such Bank, the
Federal Funds Effective Rate. If such Bank shall repay to the Agent such
corresponding amount, such amount shall constitute such Bank's Revolving Credit
Loan as part of such Borrowing for purposes of this Agreement.
(b) The Borrower may refinance all or any part of any
Borrowing with any other Borrowing, subject to the conditions and limitations
set forth herein and elsewhere in this Agreement. Any Borrowing or part thereof
so refinanced shall be deemed to be repaid in accordance with Section 2.5 with
the proceeds of a new Borrowing hereunder and the proceeds of the new Borrowing,
to the extent they do not exceed the principal amount of the Borrowing being
refinanced, shall not be paid by the Banks to the Agent or by the Agent to the
Borrower; provided, however, that (i) if the principal amount extended by a Bank
in a refinancing is greater than the principal amount extended by such Bank in
the Borrowing being refinanced, then such Bank shall pay such difference to the
Agent for distribution to the Banks described in (ii) below, (ii) if the
principal amount extended by a Bank in the Borrowing being refinanced is greater
than the principal amount agreed to be extended by such Bank in the refinancing,
the Agent shall return the difference to such Bank out of amounts received
pursuant to (i) above, and (iii) to the extent any Bank fails to pay the Agent
amounts due from it pursuant to (i) above, any Revolving Credit Loan or portion
thereof being refinanced with such amounts shall not be deemed repaid in
accordance with Section 2.5 and shall be payable by the Borrower without
prejudice to the Borrower's rights against any such Bank.
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(c) Each Bank may at its option fulfill its commitment
hereunder with respect to any Eurodollar Loan by causing any domestic or foreign
branch or Affiliate of such Bank to make such Revolving Credit Loan; provided,
however, that (A) any exercise of such option shall not affect the obligation of
the Borrower to repay such Revolving Credit Loan in accordance with the terms of
the Agreement and the applicable Note and (B) the Borrower shall not be liable
for increased costs under Sections 2.11 or 2.12 to the extent that (x) such
costs could be avoided by the use of a different branch or Affiliate to make
Eurodollar Loans and (y) such use would not, in the judgment of such Bank,
entail any significant additional expense for which such Bank shall not be
indemnified hereunder or otherwise be disadvantageous to it; and
(d) All Borrowings, conversions and continuations of
Revolving Credit Loans hereunder and all selections of Interest Periods
hereunder shall be in such amounts and be made pursuant to such elections that,
after giving effect thereto, (A) the aggregate principal amount of the Revolving
Credit Loans comprising each Tranche of Eurodollar Loans shall be equal to
$500,000 or a whole multiple of $100,000 in excess thereof and (B) the Borrower
shall not have outstanding at any one time more than in the aggregate five (5)
separate Tranches of Eurodollar Loans.
(e) Notwithstanding any other provision of this Agreement,
the Borrower shall not be entitled to request any Borrowing if the Interest
Period requested with respect thereto would end after the Termination Date.
2.4 Fees. (a) The Borrower shall pay to each Bank, through the
Agent, on the Closing Date a closing fee (the "Closing Fee") equal to eight
basis points (.08%) on the amount of such Bank's initial Commitment.
(b) The Borrower agrees to pay to each Bank, through the
Agent, on each April 30, July 31, October 31 and January 31 and on the date on
which the Commitment of such Bank shall be terminated as provided herein, a
Facility Fee (a "Facility Fee") at a rate per annum equal to ten basis points
(.10%) on the average daily amount of the Commitment of such Bank during the
preceding quarter (or shorter period commencing with the date hereof or ending
with the Termination Date or any date on which the Commitment of such Bank shall
be terminated). All Facility Fees shall be computed on the basis of the actual
number of days elapsed over a year of 360 days. The Facility Fee due to each
Bank shall commence to accrue on the date hereof, and shall cease to accrue on
the earlier of the Termination Date and the termination of the Commitment of
such Bank as provided herein.
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(c) The Borrower agrees to pay to the Agent for its own
account administrative and other fees at the times and in the amounts as are set
forth in the Fee Letter (collectively, the "Administrative Fees").
(d) All Fees shall be paid on the dates due, in
immediately available funds, to the Agent for distribution, if and as
appropriate, among the Banks. Once paid, none of the Fees shall be refundable
under any circumstances.
2.5 Revolving Credit Notes; Repayment of Revolving Credit
Loans. The Revolving Credit Loans made by each Bank shall be evidenced by a
single Revolving Credit Note duly executed on behalf of the Borrower, dated the
Closing Date, in substantially the form attached hereto as Exhibit B-1 with the
blanks appropriately filled, payable to such Bank in a principal amount equal to
the Commitment of such Bank. Each Revolving Credit Note shall bear interest from
the date thereof on the outstanding principal balance thereof as set forth in
Section 2.6. Each Bank shall, and is hereby authorized by the Borrower to,
endorse on the schedule attached to the relevant Revolving Credit Note held by
such Bank (or on a continuation of such schedule attached to each such Revolving
Credit Note and made a part thereof), or otherwise to record in such Bank's
internal records, an appropriate notation evidencing the date and amount of each
Revolving Credit Loan of such Bank, each payment or prepayment of principal of
any Revolving Credit Loan, and the other information provided for on such
schedule; provided, however, that the failure of any Bank to make such a
notation or any error therein shall not in any manner affect the obligation of
the Borrower to repay the Revolving Credit Loans made by such Bank in accordance
with the terms of the relevant Revolving Credit Note. The outstanding principal
balance of each Revolving Credit Loan, as evidenced by the relevant Revolving
Credit Note, shall be payable on the Termination Date.
2.6 Interest on Revolving Credit Loans. (a) Subject to the
provisions of Section 2.7, each Base Rate Loan shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365 or 366 days,
as the case may be) at a rate per annum equal to the Base Rate.
(b) Subject to the provisions of Section 2.7, each
Eurodollar Loan shall bear interest (computed on the basis of the actual number
of days elapsed over a year of 360 days) at a rate per annum equal to the
Eurodollar Rate for the Interest Period in effect for such Loan plus twenty two
and one-half basis points (.225%).
(c) Interest on each Revolving Credit Loan shall be
payable on each Interest Payment Date applicable to such Revolving Credit Loan;
provided that, interest accruing on overdue amounts pursuant to Section 2.7
shall be payable on demand as provided in the Revolving Credit Notes. The
Eurodollar Rate and the Base Rate shall be determined by the Agent, and such
determination shall be conclusive absent error.
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2.7 Default Rate; Additional Interest; Alternate Rate of
Interest. (a) To the extent not contrary to any Requirement of Law, upon the
occurrence and during the continuation of an Event of Default, any principal,
past due interest, fee or other amount outstanding hereunder shall, at the
option of the Required Banks, bear interest for each day thereafter until paid
in full (after as well as before judgment) at a rate per annum which shall be
equal to two percent (2%) above the Base Rate (but in no event shall any such
rate exceed the maximum rate permitted by any Requirement of Law). The Borrower
acknowledges that such increased interest rate reflects, among other things, the
fact that such loans or other amounts have become a substantially greater risk
given their default status and that the Banks are entitled to additional
compensation for such risk.
(b) In the event, and on each occasion, that on the day
two Business Days prior to the commencement of any Interest Period for a
Eurodollar Loan, the Agent shall have determined (which determination absent
manifest error shall be conclusive and binding upon the Borrower) that dollar
deposits in the principal amount of such Eurodollar Loan are not generally
available in the London Interbank Market, or that the rate at which such dollar
deposits are being offered will not adequately and fairly reflect the cost to
the Banks of making or maintaining the principal amount of such Eurodollar Loan
during such Interest Period, or that reasonable means do not exist for
ascertaining the Eurodollar Rate, the Agent shall, as soon as practicable
thereafter, give written, telegraphic or telephonic notice of such determination
to the Borrower and the Banks, and any request by the Borrower for a Eurodollar
Loan or for conversion to or maintenance of a Eurodollar Loan pursuant to the
terms of this Agreement shall be deemed a request for a Base Rate Loan. After
such notice shall have been given and until the circumstances giving rise to
such notice no longer exist, each request for a Eurodollar Loan shall be deemed
to be a request for a Base Rate Loan. Each determination by the Agent hereunder
shall be conclusive absent manifest error.
2.8 Termination, Reduction, Extension of Commitments;
Additional Banks. (a) The Commitments shall be automatically terminated on the
Termination Date.
(b) Subject to the last sentence of this paragraph, upon
at least three Business Days' prior irrevocable written or telecopy notice to
the Agent, the Borrower may at any time in whole permanently terminate, or from
time to time permanently reduce, the Total Commitment. Each partial reduction of
the Total Commitment shall be in a minimum principal amount of $1,000,000 or in
whole multiples of $500,000 in excess thereof, and no such termination or
reduction shall be made which would reduce the Total Commitment to an amount
less than the aggregate outstanding principal amount of the Loans.
(c) Each reduction in the Total Commitment hereunder shall
be made ratably among the Banks in accordance with their respective Commitment
Percentages. In connection with any reduction of the Total Commitment, the
Borrower shall make any prepayment required under subsection 2.9(b).
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(d) During the period beginning ninety days prior to the
Termination Date then in effect and ending sixty days prior to such Termination
Date, the Borrower may deliver to the Agent (which shall promptly transmit to
each Bank) a notice requesting that the Commitments be extended for a 364 day
period beyond the Termination Date then in effect. Within thirty days after its
receipt of any such notice, each Bank shall notify the Agent of its willingness
or unwillingness so to extend its Commitment. Any Bank that shall fail so to
notify the Agent within such period shall be deemed to have declined to extend
its Commitment. If each (but only if each) Bank agrees to extend its Commitment,
the Agent shall so notify the Company and each Bank, whereupon (i) the
respective Commitments of the Banks shall without further act by any party
hereto, be extended for a 364 day period beyond the Termination Date then in
effect and (ii) the term "Termination Date" shall thereafter mean the last day
of such period. Any such extension shall be evidenced by a written agreement
among the Agent, the Banks and the Borrower, such agreement to be in form and
substance acceptable to the Agent, the Banks and the Borrower. In the event that
one or more Banks (each a "Non-Electing Bank") shall have declined or been
deemed to have declined to extend its or their Commitment and Banks holding a
majority in amount of the Commitments shall have notified the Agent of their
desire to extend their Commitments, the Borrower shall have the right, but not
the obligation, at its own expense, upon notice to each such Non-Electing Bank
and the Agent, to replace all (but not less than all) such Non-Electing Banks
(in accordance with and subject to the restrictions contained in Section 9.6) at
any time before the twentieth (20th) day prior to the Termination Date with one
or more assignees (each a "Replacement Bank") willing to purchase the
Non-Electing Banks' interests hereunder and to agree to extend its or their
Commitment in accordance with the notice referred to in the first sentence of
this clause (d). In such event, each Non-Electing Bank shall promptly upon
request transfer and assign without recourse (in accordance with and subject to
the restrictions contained in Section 9.6) all its interests, rights and
obligations under this Agreement to the applicable Replacement Bank; provided,
however, that (i) no such assignment shall conflict with any law or any rule,
regulation or order of any Governmental Authority, (ii) the applicable
Replacement Bank shall pay to the applicable Non-Electing Bank in immediately
available funds on the date of such assignment the principal of and interest
accrued to the date of payment on the Loans made by such Non-Electing Bank
hereunder and all other amounts accrued for such Non-Electing Bank's account or
owed to it hereunder (including any unpaid costs or expenses), and (iii) a
Non-Electing Bank shall not be required to sell its interests hereunder unless
the Borrower has arranged for one or more Replacement Banks to acquire the
interests of all other Non-Electing Banks. If, as a result of the foregoing,
each Bank (including Replacement Banks, but excluding Non-Electing Banks whose
interests have been purchased as provided above) has agreed to extend its
Commitment, the Commitments shall be extended as provided in clause (i) of the
fourth sentence of this paragraph and the term Termination Date shall have the
meaning set forth in clause (ii) in such fourth sentence of this clause (d).
(e) Any bank or financial institution becoming a party to
this Agreement in compliance with the provisions of subsection 2.8(d) hereof
shall execute and deliver to the Agent and the Banks and the Borrower a joinder
and assumption agreement in form and substance satisfactory to the Agent. Upon
execution and delivery of such joinder such additional bank or financial
institution shall be a party hereto and one of the Banks hereunder for all
purposes, all as of the date of such joinder. Simultaneously therewith the
Borrower shall execute and deliver to such additional Bank an additional Note to
the order of such additional Bank in an amount equal to the Commitment assumed
by such additional Bank.
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2.9 Optional and Mandatory Prepayments of Loans. (a) The
Borrower shall have the right at any time and from time to time to prepay any
Borrowing, in whole or in part, without premium or penalty (but in any event
subject to Section 2.13), upon prior written, telecopy or telephonic notice to
the Agent given no later than 11:00 a.m., Philadelphia time, one Business Day
before any proposed prepayment; provided, however, that each such partial
prepayment of a Eurodollar Borrowing shall be in the principal amount of at
least $500,000 or in whole multiples of $100,000 in excess thereof and each such
partial prepayment of a Base Rate Borrowing shall be in the principal amount of
at least $250,000 or in whole multiples of $50,000 in excess thereof.
(b) On the date of any termination or reduction of the
Total Commitment pursuant to Section 2.8, the Borrower shall pay or prepay so
much of the Borrowings as shall be necessary in order that the aggregate
principal amount of the Loans then outstanding will not exceed the Total
Commitment after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing to be prepaid, shall be
irrevocable and shall commit the Borrower to prepay such Borrowing (or portion
thereof) by the amount stated therein. All prepayments under this Section on
other than Base Rate Borrowings shall be accompanied by accrued interest on the
principal amount being prepaid to the date of prepayment.
2.10 Illegality. Notwithstanding any other provision herein,
if any change in any Requirement of Law or in the interpretation or application
thereof shall make it unlawful for any Bank to make or maintain Eurodollar Loans
as contemplated by this Agreement, (a) the commitment of such Bank hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert or
refinance Base Rate Loans to Eurodollar Loans shall forthwith be cancelled and
(b) such Bank's Revolving Credit Loans then outstanding as Eurodollar Loans, if
any, shall be converted automatically to Base Rate Loans on the respective last
days of the then current Interest Periods with respect to such Revolving Credit
Loans or within such earlier period as required by law. If any such conversion
of a Eurodollar Loan occurs on a day which is not the last day of the then
current Interest Period with respect thereto, the Borrower shall pay to such
Bank such amounts, if any, as may be required pursuant to Section 2.13.
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2.11 Requirements of Law. (a) In the event that any change in
any Requirement of Law or in the interpretation, or application thereof or
compliance by any Bank with any request or directive (whether or not having the
force of law) from any central bank or other Governmental Authority made
subsequent to the date hereof:
(i) shall subject any Bank to any tax of any
kind whatsoever with respect to this Agreement, any Note or any
Eurodollar Loan made by it, or change the basis of taxation of payments
to such Bank in respect thereof (except for taxes covered by Section
2.12 and changes in the rate of tax on the overall net income, gross
receipts or revenue of such Bank);
(ii) shall impose, modify or hold applicable
any reserve, special deposit or similar requirement against assets held
by, deposits or other liabilities in or for the account of, advances,
loans or other extensions of credit by, or any other acquisition of
funds by, any office of such Bank which is not otherwise included in
the determination of the interest rate on such Eurodollar Loan
hereunder; or
(iii) shall impose on such Bank any other
condition;
and the result of any of the foregoing is to increase the cost to such Bank, by
an amount which such Bank reasonably deems to be material, of making, converting
into, continuing or maintaining Eurodollar Loans or to reduce any amount
receivable hereunder in respect thereof then, in any such case, the Borrower
shall as promptly as practicable pay such Bank, upon its demand, any additional
amounts necessary to compensate such Bank for such increased cost or reduced
amount receivable; provided, that the Borrower shall not be liable for any such
amounts incurred by such Bank more than 180 days prior to the date of such
Bank's notification to the Borrower. If any Bank becomes entitled to claim any
additional amounts pursuant to this subsection, it shall as promptly as
practicable notify the Borrower, through the Agent, of the event by reason of
which it has become so entitled. A certificate describing in reasonable detail
the determination of any additional amounts payable pursuant to this subsection
submitted by such Bank, through the Agent, to the Borrower shall be conclusive
in the absence of manifest error. This covenant shall survive the termination of
this Agreement and the payment of the Notes and all other amounts payable
hereunder. If any amount is refunded to such Bank, such Bank will reimburse
Borrower for amounts paid in respect of the refunded amount.
(b) In the event that any Bank shall have determined that
any change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Bank or any
corporation controlling such Bank with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof does or shall have the effect of
reducing the rate of return on such Bank's or such corporation's capital as a
consequence of its obligations hereunder to a level below that which such Bank
or such corporation could have
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achieved but for such change or compliance (taking into consideration such
Bank's or such corporation's policies with respect to capital adequacy) by an
amount reasonably deemed by such Bank to be material, then from time to time,
after submission as promptly as practicable by such Bank to the Borrower (with a
copy to the Agent) of a written request therefor, the Borrower shall pay to such
Bank such additional amount or amounts as will compensate such Bank for such
reduction.
(c) Each Bank agrees that it will use reasonable efforts
in order to avoid or to minimize, as the case may be, the payment by the
Borrower of any additional amount under subsections 2.11(a) and (b); provided,
however, that no Bank shall be obligated to incur any expense, cost or other
amount in connection with utilizing such reasonable efforts. Notwithstanding any
other provision of this Section 2.11, no Bank shall apply the provisions of
subsections 2.11(a) or (b) hereof with respect to the Borrower if it shall not
at the time be the general policy or practice of the Bank exercising its rights
hereunder to apply the provisions similar to those of this Section 2.11 to other
Borrower in substantially similar circumstances under substantially comparable
provisions of other credit agreements.
2.12 Taxes. (a) All payments made by the Borrower under this
Agreement and the Notes shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or withholdings,
now or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding, in the case of the Agent and each Bank, net
income taxes and franchise or gross receipts taxes (imposed in lieu of net
income taxes) imposed on the Agent or such Bank, as the case may be, as a result
of a present or former connection between the jurisdiction of the government or
taxing authority imposing such tax and the Agent or such Bank or any political
subdivision or taxing authority thereof or therein (all such non-excluded taxes,
levies, imposts, duties, charges, fees, deductions and withholdings being
hereinafter called "Taxes"). Except as provided in Section 2.12(c) and the
penultimate sentence of this Section 2.12(a), if any Taxes are required to be
withheld from any amounts payable to the Agent or any Bank hereunder or under
the Notes, the amounts so payable to the Agent or such Bank shall be increased
to the extent necessary to yield to the Agent or such Bank (after payment of all
Taxes) interest or any such other amounts payable hereunder at the rates or in
the amounts specified in this Agreement and the Notes. Whenever any Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Agent for its own account or for the account of such Bank, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Taxes when
due to the appropriate taxing authority or fail to remit to the Agent the
required receipts or other required documentary evidence, the Borrower shall
indemnify the Agent and the Banks for any incremental taxes, interest or
penalties that may become payable by the Agent or any Bank as a result of any
such failure. If as a result of a payment by the Borrower of Taxes pursuant to
this subsection a Bank receives a tax benefit or tax savings such as by
receiving a credit against, refund of, or reduction in Taxes which such Bank
would not have received but for the payment by the Borrower of Taxes pursuant to
this subsection, then such Bank shall promptly pay to the Borrower the amount of
such credit, refund, reduction or any other similar item. The agreements in this
subsection shall survive the termination of this Agreement and the payment of
the Notes and all other amounts payable hereunder.
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(b) Each Bank that is not incorporated under the laws of
the United States of America or a state thereof agrees that it will deliver to
the Borrower and the Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, and (ii) an Internal Revenue Service Form W-8 or W-9 or successor
applicable form. Each such Bank also agrees to deliver to the Borrower and the
Agent two further copies of the said Form 1001 or 4224 and Form W-8 or W-9, or
successor applicable forms or other manner of certification, as the case may be,
on or before the date that any such form expires or becomes obsolete or after
the occurrence of any event requiring a change in the most recent form
previously delivered by it to the Borrower, and such extensions or renewals
thereof as may reasonably be requested by the Borrower or the Agent, unless in
any such case an event (including, without limitation, any change in treaty, law
or regulation) has occurred prior to the date on which any such delivery would
otherwise be required which renders all such forms inapplicable or which would
prevent such Bank from duly completing and delivering any such form with respect
to it and such Bank so advises the Borrower and the Agent. Such Bank shall
certify (i) in the case of a Form 1001 or 4224, that it is entitled to receive
payments under this Agreement without deduction or withholding of any United
States federal income taxes and (ii) in the case of a Form W-8 or W-9, that it
is entitled to an exemption from United States backup withholding tax. Each Bank
shall deliver to the Borrower and the Agent, with respect to Taxes imposed by
any Governmental Authority other than the United States of America, similar
forms, if available (or the information that would be contained in similar forms
if such forms were available), to the forms which are required to be provided
under this subsection with respect to Taxes of the United States of America.
(c) The Borrower shall not be required to pay any
additional amounts to the Agent or any Bank in respect of payments of United
States withholding tax or other Taxes made by the Borrower which are consistent
with the forms and information delivered to the Borrower and the Agent or if the
payment of such amounts would not have arisen but for a failure by the Agent or
such Bank to comply with the requirements of subsection 2.12(b) or the Agent or
such Bank did not timely deliver to the Borrower the forms listed or described
in subsection 2.12(b) or did not take such other steps as reasonably may be
available to it under applicable tax laws and any applicable tax treaty or
convention to obtain an exemption from, or reduction (to the lowest applicable
rate) of, such United States withholding tax and other Taxes or, if such steps
were taken, the information was not timely and duly delivered to Borrower.
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2.13 Indemnity. The Borrower agrees to indemnify each Bank and
to hold each Bank harmless from any loss or expense which such Bank may sustain
or incur as a consequence of (a) default by the Borrower in payment when due of
the principal amount of or interest on any Eurodollar Loan, (b) default by the
Borrower in making a borrowing of, conversion into or continuation of Eurodollar
Loans after the Borrower has given a notice requesting the same in accordance
with the provisions of this Agreement, (c) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (d) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto, including, without limitation, in each case, any such loss or expense
arising from the reemployment of funds obtained by it or from fees payable to
terminate the deposits from which such funds were obtained. This covenant shall
survive the termination of this Agreement and the payment of the Notes and all
other amounts payable hereunder.
2.14 Pro Rata Treatment, etc. Except as required under
Sections 2.2 and 2.10, each Borrowing, each payment or prepayment of principal
of any Borrowing, each payment of interest on the Loans, each reduction of the
Commitments, each refinancing of any Borrowing with a Borrowing of any Type and
each conversion of Loans, shall be made pro rata among the Banks in accordance
with their respective Commitment Percentages. Each Bank agrees that in computing
such Bank's portion of any Borrowing to be made hereunder, the Agent may, in its
discretion, round each Bank's percentage of such Borrowing to the next higher or
lower whole dollar amount.
2.15 Payments. (a) The Borrower shall make each payment
(including principal of or interest on any Loan or any Fees or other amounts)
hereunder not later than 12:00 (noon), Philadelphia time, on the date when due
in Dollars to the Agent at its offices at 1600 Market Street, Philadelphia,
Pennsylvania, or at such other place as may be designated by the Agent, in
immediately available funds.
(b) Whenever any payment (including principal of or
interest on any Loan or any Fees or other amounts) hereunder shall become due,
or otherwise would occur, on a day that is not a Business Day, such payment may
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of interest or Fees, if applicable.
2.16 Conversion and Continuation Options. The Borrower shall
have the right at any time upon prior irrevocable notice to the Agent (i) not
later than 11:00 a.m., Philadelphia time, on the Business Day of conversion, to
convert any Eurodollar Loan to a Base Rate Loan, (ii) not later than 11:00 a.m.,
Philadelphia time, three Business Days prior to conversion or continuation, (y)
to convert any Base Rate Loan into a Eurodollar Loan, or (z) to continue any
Eurodollar Loan as a Eurodollar Loan for any additional Interest Period, and
(iii) not later than 11:00 a.m., Philadelphia time, three Business Days prior to
conversion, to convert the Interest Period with respect to any Eurodollar Loan
to another permissible Interest Period, subject in each case to the following:
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(a) a Eurodollar Loan may not be converted at a time
other than the last day of the Interest Period applicable thereto;
(b) any portion of a Revolving Credit Loan maturing
or required to be repaid in less than one month may not be converted into or
continued as a Eurodollar Loan;
(c) no Eurodollar Loan may be continued as such and
no Base Rate Loan may be converted to a Eurodollar Loan when any Default or
Event of Default has occurred and is continuing;
(d) any portion of a Eurodollar Loan that cannot be
converted into or continued as a Eurodollar Loan by reason of paragraph 2.16(b)
or 2.16(c) automatically shall be converted at the end of the Interest Period in
effect for such Revolving Credit Loan to a Base Rate Loan;
(e) if by the third Business Day prior to the last
day of any Interest Period for Eurodollar Loans, the Borrower has failed to give
notice of conversion or continuation as described in this subsection, the Agent
shall give notice thereof to the Banks and such Revolving Credit Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period; and
(f) each request by the Borrower to convert or
continue a Revolving Credit Loan shall constitute a representation and warranty
that each of the representations and warranties made by the Borrower herein is
true and correct in all material respects on and as of such date as if made on
and as of such date.
Accrued interest on a Revolving Credit Loan (or portion thereof) being converted
shall be paid by the Borrower at the time of conversion.
SECTION 3. REPRESENTATIONS AND WARRANTIES
To induce the Banks to enter into this Agreement, and to make
the Loans, the Borrower hereby represents and warrants to the Agent and each
Bank that:
3.1 Financial Condition. (a) The audited consolidated balance
sheet of the Borrower and its Subsidiaries as at December 31, 1998 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, and the consolidated balance sheet as at September 30, 1999
and the statements of income and cash flow of the Borrower and its Subsidiaries
for the nine month period ended September 30, 1999, copies of all of which have
heretofore been furnished to each Bank, present fairly the consolidated
financial condition of the Borrower as at such dates, and the consolidated
results of its operations and its consolidated cash flows for the periods
covered thereby.
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All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved. Neither the Borrower nor any of its
Subsidiaries had, at the date of the most recent balance sheet referred to
above, any material Contingent Obligation, liability for taxes, or any long-term
lease or unusual forward or long-term commitment, including, without limitation,
any interest rate or foreign currency swap or exchange transaction, which is
required by GAAP to be but is not reflected in the foregoing statements or in
the notes thereto.
(b) (i) As of the Closing Date and after giving
effect to this Agreement and any Loans to be made on the Closing Date, the
Borrower is Solvent.
(ii) The Borrower does not intend to incur debts
beyond its ability to pay such debts as they mature, taking into account the
timing of and amounts of cash to be received by it and the timing of the amounts
of cash to be payable on or in respect of its Debt.
3.2 No Adverse Change. Since December 31, 1998, there has been
no development or event which has had a Material Adverse Effect.
3.3 Existence; Compliance with Law. The Borrower (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization, (b) has the corporate power and authority, and
the legal right, to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently engaged,
(c) is duly qualified as a foreign entity and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification, except to the extent that
the failure to be so qualified would not, in the aggregate, have a Material
Adverse Effect and (d) is in compliance with all Requirements of Law the
non-compliance with which would have a Material Adverse Effect.
3.4 Corporate Power; Authorization; Enforceable Obligations.
The Borrower has the corporate power, authority, and legal right, to make,
deliver and perform this Agreement, the Notes and the other Loan Documents to
which it is a party and to borrow hereunder and has taken all necessary
corporate action to authorize the borrowings on the terms and conditions of this
Agreement and the Notes and to authorize the execution, delivery and performance
of this Agreement, the Notes and the other Loan Documents to which it is a
party. No consent or authorization of, filing with or other act by or in respect
of, any Governmental Authority or any other Person (including stockholders and
creditors of the Borrower) is required in connection with the borrowings
hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement, the Notes or the other Loan Documents. This
Agreement has been, and each Note and other Loan Document will be, duly executed
and delivered on behalf of the Borrower. This Agreement constitutes, and each
Note and other Loan Document when executed and delivered will constitute, a
legal, valid and binding obligation of the Borrower enforceable against the
Borrower in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (whether enforcement is sought by
proceedings in equity or at law).
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3.5 No Legal Bar. The execution, delivery and performance of
this Agreement, the Notes and the other Loan Documents by the Borrower, the
borrowings hereunder and the use of the proceeds thereof will not violate any
Requirement of Law or Contractual Obligation of the Borrower or of any of the
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation.
3.6 No Material Litigation Except as set forth on Schedule
3.6, no litigation, investigation or proceeding of or before any arbitrator or
Governmental Authority is pending or, to the knowledge of the Borrower,
threatened against the Borrower or against any of the properties or revenues of
the Borrower or against any Plan (a) with respect to this Agreement, the Notes
or the other Loan Documents or any of the transactions contemplated hereby, or
(b) as to which there is a reasonable likelihood of an adverse determination and
which, if adversely determined, would have a Material Adverse Effect.
3.7 No Default. The Borrower is not in default under or with
respect to any of its Contractual Obligations, including without limitation,
those under the Indenture in any respect which would have a Material Adverse
Effect. No Event of Default has occurred and is continuing.
3.8 Taxes. The Borrower has filed or caused to be filed all
tax returns which are required to be filed (or has obtained authorized
extensions for such filings) and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower, as the case may be); no material tax Lien has been filed
against the Borrower, and, to the knowledge of the Borrower, no claim is being
asserted, with respect to any such tax, fee or other charges.
3.9 Federal Regulations No part of the proceeds of any Loans
will be used for "purchasing" or "carrying" any "margin stock" within the
respective meanings of each of the quoted terms under Regulation U or for any
purpose which violates the provisions of Regulation U. If requested by any Bank
or the Agent, the Borrower will furnish to the Agent and each Bank a statement
to the foregoing effect in conformity with the requirements of FR Form U-l
referred to in said Regulation U. No part of the proceeds of the Loans hereunder
will be used for any purpose which violates, or which is inconsistent with, the
provisions of Regulation X.
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3.10 ERISA (a) Each Plan has complied in all respects with the
applicable provisions of ERISA and the Code, except to the extent that failure
to so comply would not have a Material Adverse Effect. No prohibited transaction
or accumulated funding deficiency (each as defined in subsection 7(h)) or
Reportable Event has occurred with respect to any Single Employer Plan which
would have a Material Adverse Effect, except as disclosed on Schedule 3.10.
(b) The present value of all accrued benefits under each
Single Employer Plan maintained by the Borrower or a Commonly Controlled Entity
(based on those assumptions used to fund the Plans), as calculated on a
termination basis, did not, as of the last annual valuation date, exceed the
value of the assets of the Plans allocable to such benefits by an amount which
exceeds $1,000,000 or which would have a Material Adverse Effect.
(c) Neither the Borrower nor any Commonly Controlled
Entity has had a complete or partial withdrawal from any Multiemployer Plan for
which any liability remains unsatisfied which would exceed $500,000 or which,
together with liabilities referred in subsections (b) and (d) hereof, would
exceed $1,000,000 or which in either event would have a Material Adverse Effect,
and neither the Borrower nor any Commonly Controlled Entity would become subject
under ERISA to any liability which would exceed $250,000 or which, together with
other liabilities referred in subsections (b) and (d) hereof or this subsection
(c), would exceed $500,000 or which in either event would have a Material
Adverse Effect if the Borrower or such Commonly Controlled Entity were to
withdraw completely from any Multiemployer Plan as of the valuation date most
closely preceding the date this representation is made or deemed made. To the
best of the Borrower's knowledge, such Multiemployer Plans are neither in
Reorganization as defined in Section 4241 of ERISA nor Insolvent.
(d) The present value (determined using actuarial and
other assumptions which are reasonable in respect of the benefits provided and
the employees participating) of the liability of the Borrower and each Commonly
Controlled Entity for post-retirement benefits to be provided to their current
and former employees under Plans which are welfare benefit plans (as defined in
Section 3(1) of ERISA) does not, in the aggregate, exceed the assets under all
such Plans allocable to such benefits by an amount (i) which exceeds the amount
being recovered by the Borrower to cover such deficiency amortized over a twenty
year period as part of its revenue requirement as most recently approved by the
Pennsylvania Public Utility Commission or (ii) which together with liabilities
referred to in subsections (b) and (c) hereof would have a Material Adverse
Effect.
3.11 Investment Company Act; Public Utility Holding Company
Act Except as set forth on Schedule 3.11, the Borrower is not (a) an "investment
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended; (b) a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the meaning of
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the Public Utility Holding Company Act of 1935, as amended, or (c) subject to
any other federal or state law or regulation which purports to restrict or
regulate its ability to borrow money.
3.12 Purpose of Loans The proceeds of the Loans shall be used
by the Borrower for refinancing existing indebtedness of the Borrower and the
Borrower's general working capital purposes including the financing of Permitted
Acquisitions.
3.13 Environmental Matters To the best knowledge of the
Borrower, except as may be disclosed on Schedule 3.13 and except to the extent
that the aggregate cost of any remediation or other expense to the Borrower as a
consequence of the failure of any of the following representations to be true
and correct does not exceed $1,000,000, each of the representations and
warranties set forth in paragraphs (a) through (e) of this subsection is true
and correct with respect to each parcel of real property owned or operated by
the Borrower (the "Properties"):
(a) the Properties do not contain, and have not
previously contained, in, on, or under, including, without limitation, the soil
and groundwater thereunder, any Materials of Environmental Concern in
concentrations which violate Environmental Laws;
(b) the Properties and all operations and facilities at
the Properties are in compliance with Environmental Laws in all material
respects, and there is no Materials of Environmental Concern contamination or
violation of any Environmental Law which would materially interfere with the
continued operation of any of the Properties or materially impair the fair
saleable value of any thereof;
(c) the Borrower has not received any written complaint,
notice of violation, alleged violation, investigation or advisory action or of
potential liability or of potential responsibility regarding a violation of
Environmental Law or permit compliance with regard to the Properties, nor is the
Borrower aware that any Governmental Authority is contemplating delivering to
the Borrower any such notice;
(d) Materials of Environmental Concern have not been
generated, treated, stored, disposed of, at, on or under any of the Properties,
nor have any Materials of Environmental Concern been transferred from the
Properties to any other location except in either case in the ordinary course of
business of the Borrower and in material compliance with all Environmental Laws;
and
(e) there are no governmental, administrative actions or
judicial proceedings pending or contemplated under any Environmental Laws to
which the Borrower or any of its Subsidiaries is or will be named as a party
with respect to the Properties, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any Environmental Law
with respect to any of the Properties.
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3.14 Ownership of the Borrower As of the Closing Date the
Borrower is a wholly-owned Subsidiary of the Parent Company.
3.15 Patents, Trademarks, etc The Borrower has obtained and
holds in full force and effects all patents, trademarks, servicemarks, trade
names, copyrights or licenses therefor and other such rights, free from
burdensome restrictions, which are necessary for the operation of its business
as presently conducted. To the Borrower's best knowledge, no material product,
process, method, substance, part or other material presently sold by or employed
by the Borrower in connection with such business infringes any patent,
trademark, service mark, trade name, copyright, license or other right owned by
any other Person so as to have a Material Adverse Effect. There is not pending
or, to the Borrower's knowledge, threatened any claim or litigation against or
affecting the Borrower contesting its right to sell or use any such product,
process, method, substance, part or other material.
3.16 Ownership of Property The Borrower has good and
marketable fee simple title to or valid leasehold interests in all real property
owned or leased by the Borrower (except in the case of certain properties not
material to its business as to which its title was obtained by quit-claim or
special warranty deed), and good title to all of its personal property subject
to no Lien of any kind except Liens permitted hereby. The Borrower enjoys
peaceful and undisturbed possession under all of its respective material leases.
3.17 Licenses, etc. The Borrower has obtained and holds in
full force and effect, all franchises, licenses, permits, certificates,
authorizations, qualifications, easements, rights of way and other rights,
consents and approvals which are necessary for the operation of its business as
presently conducted.
3.18 No Burdensome Restrictions. The Borrower is not a party
to any agreement or instrument or subject to any other Contractual Obligation or
any charter or corporate restriction or any provision of any applicable law,
rule or regulation which, to the best of the Borrower's knowledge, individually
or in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
3.19 Labor Matters. The Borrower has not suffered any strikes,
walkouts, work stoppages or other material labor difficulty within the last five
years and to the best of the Borrower's knowledge, there are none now
threatened.
3.20 Partnerships. Except as disclosed on Schedule 3.20, as
of the Closing Date, the Borrower is not a partner in any partnership or in
any joint venture.
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3.21 No Material Misstatements. To the best of the Borrower's
knowledge, no information, report, financial statement, exhibit or schedule
furnished by or on behalf of the Borrower to the Agent or any Bank in connection
with the negotiation of this Agreement or any Note or other Loan Document or
included therein contains any misstatement of fact, or omitted or omits to state
any fact necessary to make the statements therein not misleading, where such
misstatement or omission would in the Borrower's judgment be material to the
interests of the Banks with respect to the Borrower's performance of its
obligations hereunder.
3.22 Year 2000 Compliance. The Borrower has reviewed the areas
within its business and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the risk that
certain computer applications used by the Borrower may be unable to recognize
and perform properly date-sensitive functions involving dates prior to and after
December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem will not
result in any Material Adverse Effect.
All of the foregoing representations and warranties shall
survive the execution and delivery of the Notes and the making by the Banks of
the Loans hereunder.
SECTION 4 CONDITIONS PRECEDENT; CLOSING
4.1 Conditions to Closing. The agreement of each Bank to enter
into this Agreement and make its initial Loan hereunder is subject to the
satisfaction, immediately prior to or concurrently with such Loans, of the
following conditions precedent:
(a) Loan Documents. The Agent shall have received (i) this
Agreement, executed and delivered by a duly authorized officer of the Borrower,
with a counterpart for each Bank, (ii) for the account of each Bank, a Revolving
Credit Note conforming to the requirements hereof and executed by a duly
authorized officer of the Borrower and (iii) for the account of the Swing Line
Bank, the Swing Line Note conforming to the requirements hereof and executed by
a duly authorized officer of the Borrower.
(b) Corporate Proceedings of the Borrower. The Agent shall
have received a copy of the resolutions or other corporate proceedings or
action, in form and substance satisfactory to the Agent, taken on behalf of the
Borrower authorizing (i) the execution, delivery and performance of this
Agreement, the Notes and the other Loan Documents to which it is a party, and
(ii) the borrowings contemplated hereunder, certified by a Responsible Officer
of the Borrower as of the Closing Date, which certificate shall state that such
resolutions, or other proceedings or action thereby certified have not been
amended, modified, revoked or rescinded and shall be in form and substance
satisfactory to the Agent.
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(c) Representations and Warranties True; No Default. The
representations and warranties of the Borrower contained in Section 3 hereof
shall be true and accurate on and as of the Closing Date in all material
respects with the same effect as though such representations and warranties had
been made on and as of such date (except representations and warranties which
relate solely to an earlier date or time, which representations and warranties
shall be true and correct on and as of the specific dates or times referred to
therein), and the Borrower shall have performed and complied with all covenants
and conditions hereof; and no Event of Default or Default under this Agreement
shall have occurred and be continuing or shall exist.
(d) Corporate Documents. The Agent shall have received,
with a counterpart for each Bank, true and complete copies of (i) the articles
of incorporation and bylaws of the Borrower, certified as of the Closing Date as
complete and correct copies thereof by a Responsible Officer of the Borrower;
and (ii) good standing certificates issued by the Secretaries of State (or the
equivalent thereof) of each state in which the Borrower has been formed or is
required to be qualified to transact business no earlier than thirty days prior
to the Closing Date.
(e) Incumbency. The Agent shall have received a written
certificate dated the Closing Date by a Responsible Officer of the Borrower as
to the names and signatures of the officers of the Borrower authorized to sign
this Agreement and the other Loan Documents. The Agent may conclusively rely on
such certificate until it shall receive a further certificate by a Responsible
Officer of the Borrower amending such prior certificate.
(f) Indenture. The Agent shall have received, with a
counterpart for each Bank, true and complete copies of the Indenture and the
Supplemental Indenture.
(g) Fees. The Borrower shall have paid or caused to be
paid to the Agent (i) all Fees then due hereunder and (ii) all other fees and
expenses due and payable hereunder on or before the Closing Date (if then
invoiced), including without limitation the reasonable fees and expenses of
counsel to the Agent.
(h) Legal Opinion. The Agent shall have received, with a
counterpart for each Bank, the executed legal opinion of the Senior Vice
President - Law and Administration of the Borrower, addressed to the Banks and
satisfactory in form and substance to the Agent and its counsel covering such
matters incident to the transactions contemplated by this Agreement as the Agent
may reasonably require. The Borrower hereby directs such counsel to deliver such
opinion, upon which the Banks and the Agent may rely.
(i) No Material Adverse Change. There shall be no material
adverse change in the business, operations, Property, prospects or financial or
other condition of the Borrower nor any material change in the management of the
Borrower or an event which would cause or constitute a Material Adverse Effect;
and there shall be delivered to the Agent for the benefit of each Bank a
certificate dated the Closing Date and signed on behalf of the Borrower by a
Responsible Officer to each such effect.
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(j) No Litigation. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of this Agreement or the consummation
of the transactions contemplated hereby or which, in the Agent's sole
discretion, would make it inadvisable to consummate the transactions
contemplated by this Agreement.
(k) Evidence of Insurance. The Borrower shall have
provided to each of the Banks copies of the evidence of insurance required by
subsection 5.5(b).
(l) Existing Indebtedness. The existing loans owed the
Borrower pursuant to a Revolving Credit Agreement by and among the Borrower, the
banks party thereto and Mellon Bank, N.A., as Agent, dated as of March 17, 1994,
shall have been repaid in full or arrangements satisfactory to the Agent shall
exist for the repayment thereof from the proceeds of the initial Loans
hereunder, and the commitments thereunder terminated.
(m) Evidence of Regulatory Approval. The Borrower shall
have provided to the Agent a copy of each and every authorization, permit,
consent, and approval of and other actions by, and notice to and filing with,
every Governmental Authority which is required to be obtained or made by the
Borrower for the due execution, delivery and performance of this Agreement and
the other Loan Documents, if any.
(n) Additional Documents. The Agent shall have received
such additional documents, certificates and information as the Agent may require
pursuant to the hereof or as the Agent may otherwise reasonably request.
4.2 Conditions to Each Loan. The agreement of each Bank to
make any Loan requested to be made by it on any date (including, without
limitation, the first such Loan hereunder) is subject to the satisfaction of the
following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower herein or which are
contained in any certificate, document or financial or other statement furnished
at any time under or in connection herewith or therewith shall be true and
correct in all material respects on and as of such date as if made on and as of
such date.
(b) No Default. No Default or Event of Default shall have
occurred and be continuing on such date or after giving effect to the Loans
requested to be made or the Letter of Credit is to be issued on such date.
(c) No Contravention of Law. The making of the Loans or
the issuance of the Letter of Credit shall not contravene any Requirement of Law
applicable to the Borrower or any of the Banks.
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Each borrowing by the Borrower hereunder shall constitute a representation and
warranty by the Borrower as of the date of such Loan that the conditions
contained in this Section 4.2 have been satisfied.
4.3 Closing. The closing (the "Closing") of the transactions
contemplated hereby shall take place at the offices of Ballard Spahr Andrews &
Ingersoll, LLP, commencing at 10:00 a.m., Philadelphia time, on December 22,
1999 or such other place or date as to which the Agent, the Banks and the
Borrower shall agree. The date on which the Closing shall be completed is
referred to herein as the "Closing Date".
SECTION 5. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Note remains outstanding and unpaid, any Letter of Credit
remains outstanding or any other amount is owing to any Bank or the Agent
hereunder, the Borrower shall:
5.1 Financial Statements. Furnish to each Bank (i) within 45
days after the end of each of the first three fiscal quarters of each fiscal
year a consolidated balance sheet of the Borrower and its Subsidiaries as of the
end of each such fiscal quarter and statements of income for the period from the
beginning of such fiscal year to the end of such fiscal quarter, and (ii) within
90 days after the end of each fiscal year a consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of each fiscal year and statements
of income, statements of retained earnings and cash flow for such fiscal year.
All financial statements will be prepared in accordance with GAAP applied on a
basis consistently maintained throughout the period involved and with the prior
periods, such annual financial statements to be certified by independent
certified public accountants selected by the Borrower and reasonably acceptable
to the Agent, without any exception or qualification arising out of the
restricted or limited nature of the examination made by such accountants.
5.2 Certificates; Other Information. Furnish to each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsection 5.1, a certificate on behalf of the
Borrower executed by a Responsible Officer, (i) showing in detail the
calculations supporting such statements in respect of Section 6.1; and (ii)
stating that, to the best of his or her knowledge, the Borrower during such
period has kept, observed, performed and fulfilled each and every covenant and
condition contained in this Agreement and in the Notes and the other Loan
Documents applicable to it and that he or she obtained no knowledge of any
Default or Event of Default except as specifically indicated;
(b) on or prior to February 15 of each fiscal year, a
budgeted balance sheet, income statement and statement of cash flow for the
current fiscal year; and
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(c) promptly, such additional financial and other
information as any Bank or the Agent may from time to time reasonably request.
5.3 Payment of Obligations. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its obligations of whatever nature, except (x) in the case of
indebtedness other than that described in subsection 7.1(f), when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or (y) where the failure so to pay such
indebtedness is in the normal course of the Borrower's business as now conducted
and would not have a Material Adverse Effect.
5.4 Conduct of Business and Maintenance of Existence. Subject
to Section 6.4 hereof, continue to engage in business of the same general type
as now conducted by it and, except to the extent that failure to do so would not
have a Material Adverse Effect, preserve, renew and keep in full force and
effect its corporate existence and take all reasonable action to maintain all
rights, privileges, trademarks, trade names, licenses, franchises and other
authorizations necessary or desirable in the normal conduct of its business;
comply with all Contractual Obligations and Requirements of Law except to the
extent that failure to comply therewith would not reasonably be expected to
have, in the aggregate, a Material Adverse Effect.
5.5 Maintenance of Property; Insurance. (a) Maintain in good
repair, working order and condition (ordinary wear and tear excepted) in
accordance with the general practice of other businesses of similar character
and size, all of those properties material or necessary to its business, and
from time to time make or cause to be made all appropriate repairs, renewals or
replacements thereof.
(b) Insure its properties and assets against loss or
damage by fire and such other insurable hazards as such assets are commonly
insured (including fire, extended coverage, property damage, worker's
compensation, public liability and business interruption insurance) and against
other risks (including errors and omissions) in such amounts as similar
properties and assets are insured by prudent companies in similar circumstances
carrying on similar businesses, and with reputable and financially sound
insurers, including self-insurance to the extent customary. The Borrower shall
deliver at the request of the Agent from time to time a summary schedule
indicating all insurance then in force with respect to the Borrower.
5.6 Inspection of Property; Books and Records; Discussions (a)
Permit any of the officers or authorized employees or representatives of the
Agent or any of the Banks to visit and inspect during normal business hours any
of its properties and to examine and make excerpts from its books and records
and discuss its business affairs, finances and accounts (including those of its
Affiliates) with its officers, all in such detail and at such times and as often
as any of the Banks may reasonably request, provided that each Bank shall
provide the Borrower and the Agent with reasonable notice prior to any visit or
inspection. In the event Required Banks desire to conduct an audit of the
Borrower (to which the Borrower hereby consents), such Banks shall make a
reasonable effort to conduct such audit contemporaneously with any audit to be
performed by the Agent.
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(b) Maintain and keep proper books of record and account
which enable the Borrower and the Parent Company to issue financial statements
in accordance with GAAP and as otherwise required by applicable Requirements of
Law, and in which full, true and correct entries shall be made in all material
respects of all its dealings and business and financial affairs.
5.7 Notices. Promptly, upon the Borrower becoming aware, give
notice to the Agent and each Bank of:
(a) the occurrence of any Default or Event of Default;
(b) any (i) default or event of default under any
Contractual Obligation of the Borrower, including, without limitation, the
Indenture, or (ii) litigation, investigation or proceeding which may exist at
any time between the Borrower and any Governmental Authority, which in either
case, if not cured or if adversely determined, as the case may be, would have a
Material Adverse Effect;
(c) any litigation or proceeding which, if adversely
determined, would have a Material Adverse Effect;
(d) the following events, as soon as possible and in any
event within 30 days after the Borrower knows or has reason to know thereof: (i)
the occurrence of any Reportable Event with respect to any Single Employer Plan,
or any withdrawal from, or the termination, Reorganization or Insolvency of any
Multiemployer Plan which may, individually or in the aggregate, result in a
liability which would have a Material Adverse Effect or (ii) the institution of
proceedings or the taking of any other action by the PBGC or the Borrower or any
Commonly Controlled Entity or any Multiemployer Plan with respect to the
withdrawal from, or the terminating, Reorganization or Insolvency of, any Single
Employer Plan in a distress termination under Section 4041(c) of ERISA or
Multiemployer Plan; and
(e) an event which has had a Material Adverse Effect.
Each notice pursuant to this subsection shall be accompanied by a statement of
the Borrower, executed on its behalf by a Responsible Officer, setting forth
details of the occurrence referred to therein and stating what action the
Borrower propose to take with respect thereto.
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5.8 Environmental Laws (a) Comply with, and require compliance
by all tenants and to the extent possible, all subtenants, if any, with, all
Environmental Laws and obtain and comply with and maintain, and require that all
tenants and to the extent possible, all subtenants obtain and comply with and
maintain, any and all licenses, approvals, registrations or permits required by
Environmental Laws except to the extent that failure to so comply or obtain or
maintain such documents would not have a Material Adverse Effect.
(b) Except as set forth in Schedule 3.13, comply with all
lawful and binding orders and directives of all Governmental Authorities
respecting Environmental Laws except to the extent that failure to so comply
would not have a Material Adverse Effect.
(c) Defend, indemnify and hold harmless the Agent and the
Banks, and their respective employees, agents, officers and directors, from and
against any claims, demands, penalties, fines, liabilities, settlements,
damages, costs and expenses of whatever kind or nature known or unknown,
contingent or otherwise, arising out of, or in any way relating to the violation
of or noncompliance with any Environmental Laws applicable to the real property
owned or operated by the Borrower, or any orders, requirements or demands of
Governmental Authorities related thereto, including, without limitation,
attorneys' and consultants' fees, investigation and laboratory fees, court costs
and litigation expenses, except to the extent that any of the foregoing arise
out of the negligence or willful misconduct of any of the foregoing enumerated
parties.
5.9 Taxes. Pay when due all taxes, assessments and
governmental charges imposed upon it or any of its properties or that it is
required to withhold and pay over, except where contested in good faith and
where adequate reserves have been set aside to the extent required under GAAP.
5.10 Covenants of the Indenture. Comply at all times with the
covenants contained in the Supplemental Indenture, as such Supplemental
Indenture supplements the Indenture, without regard to any amendment of or
supplement to the Indenture occurring after November 15, 1999.
5.11 Guarantees of Obligations. It is the intent of the
parties hereto that all of the obligations of the Borrower hereunder shall be
unconditionally guaranteed by all of its Material Subsidiaries to the maximum
extent permitted under the laws of the jurisdiction of organization of any such
Material Subsidiary. Accordingly, in the event that any Material Subsidiary
shall be formed, acquired or come into existence after the date hereof then the
Borrower will cause such Material Subsidiary to (i) execute and deliver a
Guaranty Agreement in form and substance satisfactory to the Agent pursuant to
which such Material Subsidiary will become a "Guarantor" hereunder, and
guarantee the obligations of the Borrower hereunder and under the Notes and
other Loan Documents and (ii) deliver such proof of corporate or other action,
incumbency of officers, opinions of counsel and other documents as is consistent
with those delivered by the Borrower pursuant to Section 4.1 on the Closing Date
or as the Agent shall have reasonably requested.
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SECTION 6. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as the Commitments
remain in effect, any Note remains outstanding and unpaid or any other amount is
owing to any Bank or the Agent hereunder, the Borrower shall not directly or
indirectly:
6.1 Financial Covenants.
(a) Equity to Capital Ratio. Permit as of the end of any
fiscal quarter the Equity to Capital Ratio to be less than thirty eight percent
(38%).
(b) Interest Coverage Ratio. Permit as of the end of any
fiscal quarter the Interest Coverage Ratio to be less than 1.8 to 1.
6.2 Limitation on Debt. At any time incur, create, assume, or
suffer to exist any Debt except:
(i) amounts outstanding hereunder as Loans;
(ii) Debt existing as of the date hereof described on
Schedule 6.2 (including any extensions or renewals or refinancings
thereof provided there is no increase in the amount thereof or other
significant change in the terms thereof);
(iii) Debt issued under and secured by the Indenture;
(iv) Subordinated Debt;
(v) Debt to commercial banks under additional lines of
credit in an aggregate outstanding amount of up to $10,000,000;
(vi) unsecured indebtedness to the Parent Company in
each case having a maturity not in excess of 180 days and in an
aggregate amount outstanding at any one time not exceeding $24,000,000;
and
(vi) other indebtedness incurred in the ordinary
course of business for the purchase of capital assets.
6.3 Limitation on Liens. Create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, including, without
limitation, the stock of its Subsidiaries, whether now owned or hereafter
acquired, except for:
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(a) The following, (i) if the validity or amount thereof
is being contested in good faith by appropriate and lawful proceedings
diligently conducted so long as levy and execution thereon have been stayed and
continue to be stayed or (ii) if a final judgment is entered and such judgment
is discharged within thirty (30) days of entry, and in either case they do not
materially impair the ability of the Borrower to perform its obligations
hereunder or under the other Loan Documents:
(A) Claims or Liens for taxes, assessments or charges
due and payable and subject to interest or penalty, provided that the
Borrower maintains such reserves or other appropriate provisions as
shall be required by GAAP and pays all such taxes, assessments or
charges forthwith upon the commencement of proceedings to foreclose any
such Lien;
(B) Claims, Liens or encumbrances upon, and defects of
title to, real or personal property including any attachment of
personal or real property or other legal process prior to adjudication
of a dispute on the merits; and
(C) Claims or Liens of mechanics, materialmen,
warehousemen, carriers, or other statutory nonconsensual Liens;
(b) pledges or deposits in connection with workers'
compensation, unemployment insurance and other social security legislation;
(c) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), leases, statutory obligations, surety
and appeal bonds, performance bonds and other obligations of a like nature
incurred in the ordinary course of business of the Borrower;
(d) easements, rights-of-way, restrictions and other
similar encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not interfere with the
ordinary conduct of the business of the Borrower;
(e) Liens which were in existence on the date hereof and
shown on Schedule 6.3 and replacements, extensions or replacements thereof;
(f) Liens on assets acquired by the Borrower in
acquisitions permitted by Section 6.6 (which liens were in existence at the time
of such acquisitions);
(g) Liens upon real property, which property was acquired
after the Closing Date by the Borrower, each of which Liens existed on such
property before the time of its acquisition or was created to finance, refinance
or refund the cost (including the cost of construction) of the respective
property; provided, however, that no such Lien shall extend to or cover any
accounts receivable or inventory under any circumstances or any property of the
Borrower other than the respective property so acquired and improvements
thereon, and the principal amount of indebtedness secured by any such Lien shall
not exceed the fair market value of the respective property at the time it was
acquired;
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(h) Capital Leases as and to the extent permitted under
this Agreement;
(i) purchase money security interests on capital equipment
purchased in the ordinary course of business; and
(j) the Lien of the Indenture and other Liens in
connection with the issuance of industrial revenue bonds or pollution control
bonds, to the extent such Liens are permitted under the Indenture.
6.4 Limitations on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets except:
(a) the Borrower may merge into the Parent Company, so
long as the Parent Company is the surviving entity;
(b) any corporation or limited liability company (other
than the Parent Company) may be merged or consolidated with or into the Borrower
(provided that the Borrower shall be the continuing or surviving corporation);
and
(c) a merger in connection with a Permitted Acquisition in
accordance with Section 6.6 in which the surviving entity is the Borrower;
provided that, immediately after each such transaction and after giving effect
thereto, the Borrower is in compliance with this Agreement and no Default or
Event of Default shall be in existence or result from such transaction.
6.5 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, accounts receivable and leasehold interests),
whether now owned or hereafter acquired, except:
(i) obsolete or worn out property disposed of in the
ordinary course of business;
(ii) the sale of inventory or other assets, or the
licensing of intellectual property, in each case in the ordinary course of
business;
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(iii) any sale, transfer or lease of assets (i) which
are replaced by like-kind assets or (ii) the proceeds of the sale of which are
used within one-hundred and twenty (120) days of such sale to purchase like-kind
assets;
(iv) any sale, transfer or lease of assets the
proceeds of the sale of which are used to permanently reduce the Commitments;
and
(v) in addition to the above subsections 6.5(a)(i)
through 6.5(a)(iv), inclusive, any such conveyances, sales, leases, assignments,
transfers or other disposals, the aggregate amount of which for any fiscal year
does not exceed 5% of the Borrower's Consolidated Shareholders' Equity as at the
end of the immediately preceding fiscal year.
6.6 Limitations on Acquisitions. Purchase, hold or acquire
beneficially any stock, other securities or evidences of indebtedness of, or
make or permit any investment or acquire any interest whatsoever in, any other
Person, except for Permitted Acquisitions.
6.7 Limitation on Distributions and Investments. (a) At any
time make (or incur any liability to make) or pay any Distribution in respect of
the Borrower (other than a Distribution payable to the Parent Company);
provided, however, that as of the declaration date of any such Distribution and
after giving effect to the declaration or payment of any such Distribution no
Default or Event of Default would exist; or
(b) Make any Investments other than Permitted Investments.
6.8 Transactions with Affiliates. Except as expressly
permitted in this Agreement, directly or indirectly enter into any transaction
or arrangement whatsoever or make any payment to or otherwise deal with any
Affiliate, except, as to all of the foregoing in the ordinary course of and
pursuant to the reasonable requirements of the Borrower's business and upon fair
and reasonable terms no less favorable to the Borrower than would be obtained in
a comparable arm's length transaction with a Person not an Affiliate of the
Borrower.
6.9 Sale and Leaseback. Except if reasonably contemporaneous
with the Borrower's purchase, enter into any arrangement with any Person
providing for the leasing by the Borrower of real or personal property which has
been or is to be sold or transferred by such Borrower to such Person or to any
other Person to whom funds have been or are to be advanced by such Person on the
security of such property or rental obligations of such Borrower.
6.10 Fiscal Year. Permit its Fiscal Year to end on a day other
than December 31.
6.11 Continuation of or Change in Business. Discontinue any
substantial part, or change the nature of, the existing business activities of
the Borrower, or engage in any business either directly or through any
Subsidiary except for businesses in which the Borrower is engaged on the date of
this Agreement and any business activities directly related, similar or
incidental or ancillary to such existing businesses.
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SECTION 7 EVENTS OF DEFAULT
7.1 Events of Default If any of the following events shall
occur and be continuing:
(a) The Borrower shall fail to pay when due any principal
of any Note, or shall fail to pay within five (5) days after the date when due
any interest, Fees or other amount payable hereunder; or
(b) Any representation or warranty made or deemed made by
the Borrower or any Guarantor herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement furnished
at any time under or in connection with this Agreement shall prove to have been
incorrect in any material respect on or as of the date made or deemed made; or
(c) The Borrower shall default in the observance or
performance of any agreement contained in Section 6; or
(d) The Borrower or any Guarantor shall default in the
observance or performance of any other agreement contained in this Agreement
(other than as provided in paragraphs (a), (b) or (c) of this Section 7.1) or
any other Loan Document, and such default shall continue unremedied for a period
of thirty (30) days after notice of such default is given by the Agent; or
(e) One or more judgments or decrees shall be entered
against the Borrower or any Guarantor involving in the aggregate a liability
(not paid or fully covered by insurance) of $1,000,000 or more and all such
judgments or decrees shall not have been vacated, discharged, settled, satisfied
or paid, or stayed or bonded pending appeal, within thirty (30) days from the
entry thereof; or
(f) The Borrower shall (i) default in the payment of any
amount due under any Debt of the Borrower in excess of $1,000,000 in the
aggregate (other than the Notes), beyond the period of grace, if any, provided
in the instrument or agreement under which such Debt was created; or (ii)
default in the observance or performance of any other agreement contained in any
such Debt or in any instrument or agreement evidencing, securing or relating
thereto beyond any applicable notice and grace period, or any other event shall
occur the effect of which default or other event is to cause, or to permit the
holder or holders or beneficiary or beneficiaries of such Debt (or a trustee or
agent on behalf of such holder or holders or beneficiary or beneficiaries) to
cause such Debt to become due and payable prior to its stated maturity or any
such Debt is declared to be due and payable prior to its stated maturity unless
such default, event or declaration referred to in this subparagraph (ii) is
waived or cured to the satisfaction of such other party as demonstrated to the
satisfaction of the Agent by the Borrower prior to the Agent taking any action
under Section 7.2 in respect of such occurrence; or
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(g) (i) The Borrower or any Guarantor shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
Guarantor shall make a general assignment for the benefit of its creditors; or
(ii) there shall be commenced against the Borrower or any Guarantor any case,
proceeding or other action of a nature referred to in clause (i) above which (A)
results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
sixty (60) days; or (iii) there shall be commenced against the Borrower or any
Guarantor any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process on a claim in excess of
$1,000,000 against all or any substantial part of its assets which results in
the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within sixty (60) days from the
entry thereof; or (iv) the Borrower or any Guarantor shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in clause (i), (ii), or (iii) above; or (v) the
Borrower or any Guarantor shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due; or
(h) (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
involving any Plan, (ii) any "accumulated funding deficiency" (as defined in
Section 302 of ERISA), whether or not waived, shall exist with respect to any
Plan, (iii) a Reportable Event shall occur with respect to, or proceedings shall
commence to have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which Reportable Event or
institution of proceedings is, in the reasonable opinion of the Required Banks,
likely to result in the termination by action of the PBGC or any court of such
Plan for purposes of Title IV of ERISA, or (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA; and in each case in clauses (i)
through (iv) above, such event or condition, together with all other such events
or conditions, if any would have a Material Adverse Effect; or
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(i) Any change in control of the Borrower shall occur (as
used herein, the term "change in control" means either (A) any change in
ownership of any class of stock or capital stock generally of the Borrower which
would result in a change or transfer in the power to control the election of a
majority of the board of directors or in other indicia of majority voting
control to persons or entities other than those persons who have such majority
voting control on the Closing Date or (B) a decrease in such persons' right to
vote at shareholders' meetings to an aggregate level less than 51%); or
(j) Any of the Loan Documents shall cease to be legal,
valid and binding agreements enforceable against the party executing the same or
such party's successors and assigns (as permitted under the Loan Documents) in
accordance with the respective terms thereof or shall in any way be terminated
(except in accordance with its terms) or become or be declared ineffective or
inoperative or shall in any way be challenged and thereby deprive or deny the
Banks and the Agent the intended benefits thereof or they shall thereby cease
substantially to have the rights, titles, interests, remedies, powers or
privileges intended to be created thereby; or
(k) A notice of lien or assessment in excess of $1,000,000
is filed of record with respect to all or any part of the Borrower's or any
Guarantor's assets having a value of at least that amount by the United States,
or any department, agency or instrumentality thereof, or by any state, county,
municipal, or other governmental agency, including, without limitation, the
PBGC, becomes payable and the same is not paid, vacated, bonded or stayed
pending appeal within thirty (30) days after the same becomes payable; or
(l) The Borrower ceases to be Solvent; or
(m) Except as otherwise permitted in this Agreement, the
Borrower ceases to conduct its business as contemplated or the Borrower is
enjoined, restrained or in any way prevented by court order from conducting all
or any material part of its business so as to cause or result in a Material
Adverse Effect, and such injunction, restraint or other preventive order is not
dismissed within thirty (30) days after the entry thereof.
7.2 Remedies (a) If an Event of Default specified under
subsections 7.1 (a) through (f) or (h) through (m) shall occur and be
continuing, the Banks shall be under no further obligation to make Loans
hereunder, and the Agent upon the request of the Required Banks shall by written
notice to the Borrower, terminate the Commitments and the Swing Line Commitment
and/or declare the unpaid principal amount of the Notes then outstanding and all
interest accrued thereon, any unpaid fees and all other obligations of the
Borrower to the Banks hereunder and thereunder to be forthwith due and payable,
and the same shall thereupon become and be immediately due and payable to the
Agent for the benefit of each Bank without presentment, demand, protest or any
other notice of any kind, all of which are hereby expressly waived.
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(b) If an Event of Default specified under subsections
7.1(g) hereof shall occur, the Commitments and the Swing Line Commitment shall
immediately terminate and the Banks shall be under no further obligations to
make Loans hereunder, and the unpaid principal amount of the Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other
obligations of the Borrower to the Banks hereunder and thereunder shall be
immediately due and payable, without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived.
(c) If an Event of Default shall occur and be continuing,
any Bank to whom any obligation is owed by the Borrower hereunder or under any
other Loan Document or any participant of such Bank which has agreed in writing
to be bound by the provisions of Section 9.6 hereof and any branch, subsidiary
or Affiliate of such Bank or Participant shall have the right, in addition to
all other rights and remedies available to it, without notice to the Borrower,
to set-off against and apply to the then unpaid balance of all the Loans and all
other obligations of the Borrower hereunder or under any other Loan Document any
debt owing to, and any other funds held in any manner for the account of, the
Borrower by such Bank or participant or by such branch, Subsidiary or Affiliate,
including, without limitation, all funds in all deposit accounts (whether time
or demand, general or special, provisionally credited or finally credited, or
otherwise) now or hereafter maintained by the Borrower for its own account (but
not including funds held in custodian or trust accounts or other accounts
established solely for the benefit of parties other than the Borrower) with such
Bank or Participant or such branch, Subsidiary or Affiliate. Such right shall
exist whether or not any Bank or the Agent shall have made any demand under this
Agreement or any other Loan Document, whether or not such debt owing to or funds
held for the account of the Borrower is or are matured or unmatured and
regardless of the existence or adequacy of any collateral, guaranty or any other
security, right or remedy available to any Bank or the Agent.
(d) Notwithstanding any provision herein to the contrary
or in the other Loan Documents, any proceeds received by the Agent from any
payment made by the Borrower under this Agreement or the other Loan Documents
after the Commitments and the Swing Line Commitment have been terminated, or
received by the Agent from the foreclosure, sale, lease, collection upon,
realization of or other disposition of any collateral which may have been
provided to the Agent for the obligations of the Borrower hereunder after the
Commitments and the Swing Line Commitment have been terminated (including
without limitation insurance proceeds), shall be applied by the Agent as
follows, unless otherwise agreed by all the Banks:
(i) first, to reimburse the Agent for out-of-pocket
costs, expenses and disbursements, including without limitation reasonable
attorneys' fees and legal expenses, incurred by the Agent in connection with
collection of any obligations of the Borrower under any of the Loan Documents;
(ii) second, to accrued and unpaid interest on the
Loans;
(iii) third, to the principal amount of the Loans then
outstanding;
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(iv) fourth, to fees payable under this Agreement or
any of the other Loan Documents (ratably according to the respective amounts
then outstanding);
(v) fifth, to the repayment of all other indebtedness
then due and unpaid of the Borrower to the Banks incurred under this Agreement
or any of the other Loan Documents, whether of principal, interest, fees,
expenses or otherwise (ratably according to the respective amounts then
outstanding); and
(vi) the balance, if any, as required by law.
(e) Each Bank agrees that (i) if at any time it shall
receive the proceeds of any collateral or any proceeds thereof or (ii) if after
the Commitments and the Swing Line Commitment have been terminated it shall
receive any payment on account of the Loans or any other amounts owing hereunder
or under the other Loan Documents, under an Interest Rate Protection Agreement
(in either case other than through application by the Agent in accordance with
subsection 7.2(d)), it shall promptly turn the same over to the Agent for
application in accordance with the terms of subsection 7.2(d).
(f) In addition to the other rights and remedies contained
in this Agreement or in the other Loan Documents, the Loans shall, at the
Required Banks' option, bear the interest rates provided in Section 2.7 hereof.
(g) In addition to all of the rights and remedies
contained in this Agreement or in any of the other Loan Documents, the Agent
shall have all of the rights and remedies under applicable Law, all of which
rights and remedies shall be cumulative and non-exclusive, to the extent
permitted by Law. The Agent may, and upon the request of the Required Banks
shall, exercise all post-default rights granted to it and the Banks under the
Loan Documents or applicable Law.
SECTION 8. THE AGENT
8.1 Appointment Each Bank hereby irrevocably designates and
appoints PNC as the Agent of such Bank under this Agreement. Each such Bank
irrevocably authorizes the Agent, as the agent for such Bank to take such action
on its behalf under the provisions of this Agreement and to exercise such powers
and perform such duties as are expressly delegated to the Agent by the terms of
this Agreement, together with such other powers as are reasonably incidental
thereto. Notwithstanding any provision to the contrary elsewhere in this
Agreement, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, or any fiduciary relationship with any Bank, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Agent. The Agent agrees to act as the Agent on behalf of the Banks to the extent
provided in this Agreement.
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8.2 Delegation of Duties The Agent may execute any of its
duties under this Agreement by or through agents or attorneys-in-fact and shall
be entitled to engage and pay for the advice and services of counsel concerning
all matters pertaining to such duties. The Agent shall not be responsible to the
Banks for the negligence or misconduct of any agents or attorneys in-fact
selected by it with reasonable care.
8.3 Exculpatory Provisions Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by them or such
Person under or in connection with this Agreement (except for their or such
Person's own gross negligence or willful misconduct) or (ii) responsible in any
manner to any of the Banks for any recitals, statements, representations or
warranties made by the Borrower or any officer thereof contained in this
Agreement or in any certificate, report, statement or other document referred to
or provided for in, or received by the Agent under or in connection with, this
Agreement or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement, the Notes or the other Loan Documents or for
any failure of the Borrower to perform its obligations hereunder or thereunder.
The Agent shall not be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or the other Loan Documents, or to inspect
the properties, books or records of the Borrower.
8.4 Reliance by Agent The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower), independent accountants and other
experts selected by the Agent. The Agent may deem and treat the payee of any
Note as the owner thereof for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Agent. The Agent shall be fully justified in failing or refusing to take any
action under this Agreement unless it shall first receive such advice or
concurrence of the Required Banks as they deem appropriate or they shall first
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement, the Notes and the other Loan
Documents in accordance with a request of the Required Banks, and such request
and any action taken or failure to act pursuant thereto shall be binding upon
all the Banks and all future holders of the Notes.
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8.5 Notice of Default The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless they have received notice from a Bank or the Borrower referring
to this Agreement, describing such Default or Event of Default and stating that
such notice is a "notice of default". In the event that the Agent receives such
a notice, the Agent shall give notice thereof to the Banks. The Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Banks; provided that unless and until the
Agent shall have received such directions, the Agent may (but shall not be
obligated to) take such action, or refrain from taking such action, with respect
to such Default or Event of Default as it shall deem advisable in the best
interests of the Banks.
8.6 Non-Reliance on Agent and Other Banks Each Bank expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower, shall be deemed to constitute any
representation or warranty by the Agent to any Bank. Each Bank represents to the
Agent that it has, independently and without reliance upon the Agent or any
other Bank, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
operations, property, financial and other condition and creditworthiness of the
Borrower and made its own decision to make its Loans hereunder and enter into
this Agreement. Each Bank also represents that it will, independently and
without reliance upon the Agent or any other Bank, and based on such documents
and information as it shall deem appropriate at the time, continue to make its
own credit analysis, appraisals and decisions in taking or not taking action
under this Agreement and the other Loan Documents, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and creditworthiness of the
Borrower. Except for notices, reports and other documents expressly required to
be furnished to the Banks by the Agent hereunder, the Agent shall not have any
duty or responsibility to provide any Bank with any credit or other information
concerning the business, operations, property, condition (financial or
otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
8.7 Indemnification The Banks agree to indemnify the Agent in
its capacity as such (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so), ratably according to their
respective Commitment Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind whatsoever which may at any time
(including, without limitation, at any time following the payment of the Notes)
be imposed on, incurred by or asserted against the Agent in any way relating to
or arising out of this Agreement, the other Loan Documents, or any documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agent under
or in connection with any of the foregoing; provided that no Bank shall be
liable for the payment of any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
resulting solely from the Agent's gross negligence or willful misconduct. The
agreements in this Section 8.7 shall survive the payment of the Notes and all
other amounts payable hereunder.
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8.8 Agent in its Individual Capacity. The Agent and its
Affiliates may make loans to, accept deposits from and generally engage in any
kind of business with the Borrower as though it was not the Agent hereunder.
With respect to its Loans made or renewed by it and any Note issued to it, the
Agent shall have the same rights and powers under this Agreement as any Bank and
may exercise the same as though it were not the Agent, and the terms "Bank" and
"Banks" shall include the Agent in its individual capacity.
8.9 Successor Agent The Agent may resign as Agent upon sixty
(60) days' notice to the Banks and the Borrower. If such Agent shall resign as
Agent under this Agreement, then the Required Banks shall appoint from among the
Banks a successor agent for the Banks, which appointment shall be subject to the
approval of the Borrower (which approval shall not be unreasonably withheld),
whereupon such successor agent shall succeed to the rights, powers and duties of
an Agent, and the term "Agent" shall mean such successor agent effective upon
its appointment, and the former Agent's rights, powers and duties as Agent shall
be terminated, without any other or further act or deed on the part of such
former Agent or any of the parties to this Agreement or any holders of the
Notes. After any retiring Agent's resignation as Agent, the provisions of this
Section 8.9 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under this Agreement.
8.10 Beneficiaries Except as expressly provided herein, the
provisions of this Section 8 are solely for the benefit of the Agent and the
Banks, and the Borrower shall not have any rights to rely on or enforce any of
the provisions hereof. In performing their functions and duties under this
Agreement the Agent shall act solely as agent of the Banks and does not assume
and shall not be deemed to have assumed any obligation toward or relationship of
agency or trust with or for the Borrower.
SECTION 9. MISCELLANEOUS
9.1 Amendments and Waivers. Neither this Agreement, any Note
or any other Loan Document, nor any terms hereof of thereof may be amended,
supplemented or modified except in accordance with the provisions of this
subsection. With the written consent of the Required Banks, the Agent and the
Borrower may, from time to time, enter into written amendments, supplements or
modifications hereto and to the Notes and the other Loan Documents for the
purpose of adding any provisions to this Agreement or the Notes or the other
Loan Documents or changing in any manner the rights of the Banks or of the
Borrower hereunder or thereunder or waiving, on such terms and conditions as the
Agent may specify in such instrument, any of the requirements of this Agreement
or the Notes or the other Loan Documents or any Default or Event of Default and
its consequences; provided, however, that no such waiver and no such amendment,
supplement or modification shall directly or indirectly (a) reduce the amount or
extend the maturity of any Note or any installment thereof, or reduce the rate
or extend the time of payment of interest thereon, or reduce any Fees payable to
any Bank hereunder, or change the duration or amount of any Bank's Commitment,
in each case
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without the consent of the Bank affected thereby or (b) amend, modify or waive
any provision of this Section 9.1 or reduce the percentages specified in the
definition of Required Banks or consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement, the Notes
and the other Loan Documents, in each case without the written consent of all
the Banks, (c) amend, modify or waive any provision of Section 2.2 without the
written consent of the then Swing Line Bank or (d) amend, modify or waive any
provision of Section 8 without the written consent of the then Agent. Any such
waiver and any such amendment, supplement or modification shall apply equally to
each of the Banks and shall be binding upon the Borrower, the Banks, the Agent
and all future holders of the Notes. In the case of any waiver, the Borrower,
the Banks and the Agent shall be restored to their former position and rights
hereunder and under the outstanding Notes, and any Default or Event of Default
waived shall be deemed to be cured and not continuing; but no such waiver shall
extend to any subsequent or other Default or Event of Default, or impair any
right consequent thereon.
9.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including
electronic transmission, facsimile transmission or posting on a secured web
site), and, unless otherwise expressly provided herein, shall be deemed to have
been duly given or made when delivered by hand, or three days after being
deposited in the mail, postage prepaid, or, in the case of facsimile
transmission notice, when sent during normal business hours with electronic
confirmation or otherwise when received, or in the case of electronic
transmission, when received and in the case of posting on a secured web site,
upon receipt of (i) notice of such posting and (ii) rights to access such web
site, addressed as follows in the case of the Borrower and the Agent, and as set
forth in Schedule I in the case of the other parties hereto, or to such other
address as may be hereafter notified by the respective parties hereto and any
future holders of the Notes:
the Borrower: Philadelphia Suburban Water Company
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Attention: Kathy L. Pape,
Vice President and Treasurer
Facsimile: (610) 645-1141
with a copy to: Philadelphia Suburban Water Company
762 West Lancaster Avenue
Bryn Mawr, PA 19010
Attention: Roy H. Stahl
Senior Vice President - Law and
Administration
(provided that failure to send a copy of
any notice to said counsel shall in no
way affect, limit or invalidate any
notice sent to the Borrower or the
exercise of any of the Banks' or the
Agent's rights or remedies pursuant to a
notice sent to the Borrower.)
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The Agent or the PNC Bank, National Association
Swing Line Bank: 1000 Westlakes Drive, Suite 200
Berwyn, PA 19312
Attention: Frank A. Pugliese
Facsimile: (610) 725-5799
and
PNC Agency Services
One PNC Plaza
249 Fifth Avenue
22nd Floor
Pittsburgh, PA 15222
Attention: Arlene Ohler
Facsimile: (412) 762-8672
provided that any notice, request or demand to or upon the Agent, the Swing Line
Bank or the Banks pursuant to Sections 2.1, 2.2, 2.8 or 2.9 shall not be
effective until received.
9.3 No Waiver; Cumulative Remedies No failure to exercise and
no delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.
9.4 Survival of Representations and Warranties All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith shall survive
the execution and delivery of this Agreement, the Notes and the other Loan
Documents.
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9.5 Payment of Expenses and Taxes. The Borrower agrees (a) to
pay or reimburse the Agent for all of its reasonable out-of-pocket costs and
expenses incurred in connection with any amendment, supplement or modification
to this Agreement, the Notes, the other Loan Documents and any other documents
prepared in connection therewith, including, without limitation, the reasonable
fees and disbursements of counsel to the Agent (which counsel may or may not
include employees of the Agent), (b) to pay or reimburse each Bank and the Agent
for all of their costs and expenses incurred in connection with the enforcement
or preservation of any rights under this Agreement, the other Loan Documents and
any such other documents, including, without limitation, reasonable fees and
disbursements of counsel to the Agent (which counsel may or may not include
employees of the Agent) and to the several Banks, and (c) to pay, indemnify, and
hold each Bank and the Agent harmless from, any and all recording and filing
fees and any and all liabilities with respect to, or resulting from any delay in
paying, stamp, excise and other similar taxes, if any (other than Taxes
expressly excluded from the definition of Taxes in Section 2.12 and Taxes for
which the Borrower has no liability under subsection 2.12(c)) which may be
payable or determined to be payable in connection with the execution and
delivery of, or consummation of any of the transactions contemplated by, or any
amendment, supplement or modification of, or any waiver or consent under or in
respect of, this Agreement, the Notes, the other Loan Documents, and any such
other documents, and (d) to pay, indemnify, and hold each Bank and the Agent
harmless from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever with respect to the execution, delivery,
enforcement, and, incident to a Default or Event of Default, the performance and
administration, of this Agreement, the Notes, the other Loan Documents and any
such other documents or the transactions contemplated hereby or thereby or any
action taken or omitted under or in connection with any of the foregoing (all
the foregoing, collectively, the "indemnified liabilities"), provided, that the
Borrower shall have no obligation hereunder to the Agent or any Bank with
respect to indemnified liabilities arising from the gross negligence or willful
misconduct of the Agent or any such Bank. The Borrower shall be given notice of
any claim for indemnified liabilities and shall be afforded a reasonable
opportunity to participate in the defense, compromise or settlement thereof. The
agreements in this subsection shall survive repayment of the Notes and all other
amounts payable hereunder.
9.6 Successors and Assigns (a) Whenever in this Agreement any
of the parties hereto is referred to, such reference shall be deemed to include
the successors and assigns of such party, and all covenants, promises and
agreements by or on behalf of the Borrower, the Agent or the Banks that are
contained in this Agreement shall bind and inure to the benefit of their
respective successors and assigns. The Borrower may not assign or transfer any
of its rights or obligations under this Agreement or the other Loan Documents
without the prior written consent of each Bank.
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(b) Each Bank may, in accordance with applicable law,
assign to all or a portion of its interests, rights and obligations under this
Agreement and the other Loan Documents (including all or a portion of its
Commitment or the Swing Line Commitment, and the Loans at the time owing to it
and the Notes held by it); provided, however, that (i) each such assignment
shall be to a Bank or Affiliate thereof, or, with the consent of the Agent and,
prior to the occurrence of an Event of Default, of the Borrower (which consent
shall not be unreasonably withheld or delayed) to one or more banks or other
financial institutions, (ii) so long as the Commitments are in effect, the
amount of each such assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the Agent) shall not
be less than $5,000,000, (iii) the parties to each such assignment shall execute
and deliver to the Agent an Assignment and Acceptance, together with the Note or
Notes subject to such assignment and a processing and recordation fee of $3,500
(except in the case of an assignment by any Bank to one of its Affiliates), (iv)
any assignment of the Swing Line Commitment may be made only to a Bank which
holds a Commitment hereunder and must be of the entire Swing Line Commitment and
(v) each such assignment of Revolving Credit Loans and all or any portion of a
Bank's Commitment shall be of a constant, and not a varying, percentage of the
assigning Bank's Commitment and Revolving Credit Loans then outstanding. Upon
acceptance and recording pursuant to paragraph (d) of this Section 9.6, from and
after the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution thereof,
(A) the assignee thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the rights and
obligations of a Bank under this Agreement and (B) the assigning Bank thereunder
shall, to the extent of the interest assigned by such Assignment and Acceptance,
be released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Bank's rights and obligations under this Agreement, such Bank shall cease to be
a party hereto but shall continue to be entitled to the benefits of Sections
2.11, 2.12, 2.13 and 9.5 (to the extent that such Bank's entitlement to such
benefits arose out of such Bank's position as a Bank prior to the applicable
assignment)). Notwithstanding any provision of this subsection 9.6, after the
Commitments and the Swing Line Commitments have been terminated, any Bank may
assign all or any portion of its interests, rights and obligations under this
Agreement and the other Loan Documents to any Person (whether or not an entity
described in clause (i) above).
(c) By executing and delivering an Assignment and
Acceptance, the assigning Bank thereunder and the assignee thereunder shall be
deemed to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Bank warrants that it is the legal and beneficial
owner of the interest being assigned thereby, free and clear of any adverse
claim, and that its Commitment and/or the Swing Line Commitment, as the case may
be, and the outstanding balances of its Loans, in each case without giving
effect to assignments thereof which have not become effective, are as set forth
in such Assignment and Acceptance, (ii) except as set forth in (i) above, such
assigning Bank makes no representation or warranty and assumes no responsibility
with respect to any statements, warranties or representations made in or in
connection with this Agreement or the other Loan Documents, or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of this
Agreement or the other Loan Documents, or any other instrument or document
furnished pursuant hereto or thereto, or the financial condition of the Borrower
or the performance or observance by the Borrower of any of its obligations under
this Agreement or any other instrument or document furnished pursuant hereto;
(iii) such assignee represents and warrants that it is legally authorized to
enter into such
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Assignment and Acceptance; (iv) such assignee confirms that it has received a
copy of this Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.1 and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Agent, such assigning Bank or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement; (vi) such assignee appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement as are delegated to the Agent by the terms
hereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Agreement are required to be
performed by it as a Bank.
(d) The Agent shall maintain at its offices in
Philadelphia, Pennsylvania a copy of each Assignment and Acceptance and the
names and addresses of the Banks, and the Commitment and/or the Swing Line
Commitment of, and principal amount of the Loans owing to, each Bank pursuant to
the terms hereof from time to time (the "Register"). The entries in the Register
shall be conclusive in the absence of error and the Borrower, the Agent and the
Banks may treat each person whose name is recorded in the Register pursuant to
the terms hereof as a Bank hereunder for all purposes of this Agreement. The
Register shall be available for inspection by the Borrower and any Bank, at any
reasonable time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Bank and an assignee together with the Note
or Notes subject to such assignment, the processing and recordation fee referred
to in paragraph (b) above, the Agent shall (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Banks. Within five Business Days after
receipt of notice, the Borrower, at its own expense, shall execute and deliver
to the Agent, in exchange for the surrendered original Note(s), (x) a new
Revolving Credit Note to the order of such assignee in an amount equal to the
portion of the Commitment assumed by it pursuant to such Assignment and
Acceptance and, if applicable, a new Swing Line Note to the order of such
assignee in an amount equal to the Swing Line Commitment and, (y) if the
assigning Bank has retained a Commitment, a new Revolving Credit Note to the
order of such assigning Bank in a principal amount equal to the applicable
Commitment retained by it. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes; such
new Notes shall be dated the date of the surrendered Notes which they replace
and shall otherwise be in substantially the form of Exhibit B-1 or Exhibit B-2
hereto, as appropriate. Canceled Notes shall be returned to the Borrower.
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(f) Each Bank may without the consent of the Borrower or
the Agent sell participations to one or more banks or other entities (each a
"Participant") in all or a portion of its rights and obligations under this
Agreement (including all or a portion of its Commitment or Swing Line Commitment
and the Loans owing to it and the Notes held by it); provided, however, that (i)
such Bank's obligations under this Agreement shall remain unchanged, (ii) such
Bank shall remain solely responsible to the other parties hereto for the
performance of such obligations, (iii) such Bank shall remain the holder of any
such Note for all purposes under this Agreement, (iv) the Borrower, the Agent
and the other Banks shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement, (v) in
any proceeding under the Bankruptcy Code such Bank shall be, to the extent
permitted by law, the sole representative with respect to the obligations held
in the name of such Bank whether for its own account or for the account of any
Participant and (vi) such Bank shall retain the sole right to enforce the
obligations of the Borrower relating to the Loans and to approve any amendment,
modification or waiver of any provision of this Agreement or the Note or Notes
held by such Bank other than any such amendment, modification or waiver with
respect to any Loan or Commitment in which such Participant has an interest and
which is described in subsection 9.1(a) hereof.
(g) If amounts outstanding under this Agreement and the
Notes are due or unpaid, or shall have been declared or shall have become due
and payable upon the occurrence of an Event of Default, each Participant shall
be deemed to have the right of set-off in respect of its participating interest
in amounts owing under this Agreement and any Note to the same extent as if the
amount of its participating interest were owing directly to it as a Bank under
this Agreement or any Note, provided that in purchasing such participation such
Participant shall be deemed to have agreed to share with the Banks the proceeds
thereof as provided in Section 9.8. The Borrower also agree that each
Participant shall be entitled to the benefits of Sections 2.11, 2.12, 2.13 and
9.5 with respect to its participation in the Commitments and the Loans
outstanding from time to time; provided, that no Participant shall be entitled
to receive any greater amount pursuant to such Sections than the Bank selling
the participation would have been entitled to receive in respect of the amount
of the participation transferred by such Bank to such Participant had no such
transfer occurred.
(h) If any Participant is organized under the laws of any
jurisdiction other than the United States or any state thereof, the Bank selling
the participation, concurrently with the sale of a participating interest to
such Participant, shall cause such Participant (i) to represent to the Bank
selling the participation (for the benefit of such Bank, the other Banks, the
Agent and the Borrower) that under applicable law and treaties no taxes will be
required to be withheld by the Agent, the Borrower or the Bank selling the
participation with respect to any payments to be made to such Participant in
respect of its participation in the Loans and (ii) to agree (for the benefit of
such Bank, the other Banks, the Agent and Borrower) that it will deliver the tax
forms and other documents required to be delivered pursuant to Section 2.12 and
comply from time to time with all applicable U.S. laws and regulations with
respect to withholding tax exemptions.
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(i) Any Bank may at any time assign all or any portion of
its rights under this Agreement and the Notes issued to it to a Federal Reserve
Bank; provided that no such assignment shall release a Bank from any of its
obligations hereunder.
9.7 Confidentiality The Banks agree that they will maintain
all information and financial statements provided to them or otherwise obtained
by them with respect to the Borrower and its Subsidiaries confidential and that
they will not disclose the same or use it for any purposes; provided that
nothing herein shall prevent any Bank from disclosing any such information (a)
to the Agent or any other Bank, (b) to any prospective assignee or participant
in connection with any assignment or participation of Loans permitted by this
Agreement, (c) to its employees, directors, agents, attorneys, accountants and
other professional advisers, provided that any such person is advised by such
Bank that such information is subject to the confidentiality limitations of this
Section, (d) upon the request or demand of any Governmental Authority having
jurisdiction over such Bank, (e) in response to any order of any court or other
Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, provided that the Borrower has (unless prohibited by the
terms of any such order or requirement) been advised at least ten (10) days (or
if such is not possible or practicable, such lesser number of days as is
possible or practicable under the circumstances) prior to such disclosure of the
existence of such order or requirement, (f) which has been publicly disclosed
other than in breach of this Agreement, or (g) in connection with the exercise
of any remedy hereunder or under the Notes.
9.8 Adjustments; Set-off (a) If any Bank (a "benefitted Bank")
shall at any time receive any payment of all or part of its Loans, or interest
thereon, or receive any collateral in respect thereof (whether voluntarily or
involuntarily, by set-off, pursuant to events or proceedings of the nature
referred to in subsection 7(g), or otherwise), in a greater proportion than any
such payment to or collateral received by any other Bank, if any, in respect of
such other Bank's Loans, or interest thereon, being paid in respect of Loans
being repaid simultaneously therewith or Loans required hereby to be paid
proportionately such benefitted Bank shall purchase for cash from the other
Banks such portion of each such other Bank's Loan, or shall provide such other
Banks with the benefits of any such collateral, or the proceeds thereof, as
shall be necessary to cause such benefitted Bank to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Banks;
provided, however, that if all or any portion of such excess payment or benefits
is thereafter recovered from such benefitted Bank, such purchase shall be
rescinded, and the purchase price and benefits returned, to the extent of such
recovery, but without interest. The Borrower agrees that each Bank so purchasing
a portion of another Bank's Loan may exercise all rights of payment (including,
without limitation, rights of set-off) with respect to such portion as fully as
if such Bank were the direct holder of such portion.
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(b) In addition to any rights and remedies of the Banks
provided by law, upon the occurrence of an Event of Default, each Bank shall
have the right, without prior notice to the Borrower, any such notice being
expressly waived by the Borrower to the extent permitted by applicable law, upon
any amount becoming due and payable by the Borrower hereunder or under the Notes
(whether at the stated maturity, by acceleration or otherwise) to set-off and
appropriate and apply against such amount any and all deposits (general or
special, time or demand, provisional or final), in any currency, and any other
credits, indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Bank to or for the credit or the account of the Borrower. Each
Bank agrees promptly to notify the Borrower and the Agent after any such set-off
and application made by such Bank, that the failure to give such notice shall
not affect the validity of such set-off and application.
9.9 Counterparts. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. A set of the copies of this Agreement signed by all the
parties shall be lodged with the Borrower and each of the Banks.
9.10 Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9.11 Integration This Agreement represents the agreement of
the Borrower, the Agent and the Banks with respect to the subject matter hereof,
and there are no promises, undertakings, representations or warranties by the
Agent or any Bank relative to subject matter hereof not expressly set forth or
referred to herein or in the Notes or the other Loan Documents.
9.12 GOVERNING LAW THIS AGREEMENT, THE NOTES AND THE OTHER
LOAN DOCUMENTS HAVE BEEN EXECUTED IN THE COMMONWEALTH OF PENNSYLVANIA AND SAID
DOCUMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT, THE
NOTES AND THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF PENNSYLVANIA.
9.13 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement, the Notes or the other Loan
Documents, or for recognition and enforcement of any judgement in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the
Commonwealth of Pennsylvania located in Montgomery and Philadelphia Counties,
the courts of the United States of America for the Eastern District of
Pennsylvania, and appellate courts from any thereof;
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(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or that
such action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Borrower at the address set forth in Section 9.2 for the Borrower or at such
other address of which the Agent shall have been notified pursuant thereto; and
(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction.
9.14 Acknowledgments The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation,
execution and delivery of this Agreement, the Notes and the other Loan
Documents;
(b) neither the Agent nor any Bank has any fiduciary
relationship to the Borrower, and the relationship between the Agent and the
Banks, on one hand, and the Borrower, on the other hand, is solely that of
debtor and creditor; and
(c) no joint venture exists among the Banks or between the
Borrower and the Banks.
9.15 WAIVERS OF JURY TRIAL EACH OF THE BORROWER, THE AGENT AND
THE BANKS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT, THE NOTES OR THE OTHER
LOAN DOCUMENTS AND FOR ANY COUNTERCLAIM THEREIN.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
PHILADELPHIA SUBURBAN WATER COMPANY
By: /s/ Kathy L. Pape
-------------------------------
Title: Vice President & Treasurer
----------------------------
PNC BANK, NATIONAL ASSOCIATION,
as Agent and as a Bank
By: /s/ Frank A. Pugliese
-------------------------------
Title: Assistant Vice President
----------------------------
FIRST UNION NATIONAL BANK
By: /s/ Joey K. Dancy
-------------------------------
Title: Vice President
----------------------------
MELLON BANK, N.A.
By /s/ Mark W.Torie
-------------------------------
Title: Vice President
----------------------------
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Schedule I
Bank and Commitment Information
Swing Line
Bank Commitment Commitment
---- ---------- ----------
PNC Bank, National Association $22,500,000 $2,000,000
1000 Westlakes Drive, Suite 200
Berwyn, PA 19312
Attention: Frank A. Pugliese
First Union National Bank $15,000,000 N/A
One First Union Center
301 South College Street, TW-5
Charlotte, NC 28288-0735
Attention: Michael Kolosowsky, Director
Mellon Bank, N.A. $12,500,000 N/A
610 W. Germantown Avenue
Plymouth Meeting, PA 19462
Attention: Mark W. Torie
<PAGE>
Schedule 3.6
Existing Litigation
None.
<PAGE>
Schedule 3.10
ERISA Matters
None.
<PAGE>
Schedule 3.11
Regulatory Approvals
The Pennsylvania Public Utility Commission regulates Borrower's issuance of
debt, the maturity date of which is one year or more from the date of execution.
(66 Pa. C.S.ss. 1901)
<PAGE>
Schedule 3.13
Environmental Matters
A. In its water treatment process, the Borrower uses chemicals, including
chlorine, caustic soda and sodium chlorite, which are listed as
hazardous substances. These chemicals are, in all materials respects,
stored and used at the Borrower's plants and facilities in accordance
with the Environmental Laws.
B. The Borrower operates a central laboratory at its Bryn Mawr facility
for analysis of drinking water samples. To perform required analyses,
the Borrower maintains small quantities of solvents, reagents and
chemical standards, some of which are listed as hazardous substances.
These materials, in all material respects, are stored and used in
compliance with the Environmental Laws.
<PAGE>
Schedule 3.20
Interests in Partnerships
None.
<PAGE>
Schedule 6.2
Permitted Debt
A. Credit facility with Mellon Bank, N.A. for up to $3,000,000 in Letters
of Credit.
B. $1,000,000 discretionary line of credit facility between Mellon Bank,
N.A. and the Borrower.
C. Deferred taxes as are deducted from the Borrower?s Rate Base in
calculating its Revenue Requirement in setting rates before the
Pennsylvania Public Utility Commission.
D. Suretyship agreements which arise from the bonding requirements under
the Pennsylvania Residual Waste Regulations relating to the future
closure of landfills used to dispose of water treatment plant sludge.
Additional surety bonds support various licenses, permits and
condemnations.
E. Agreements for the purchase of water are maintained with Chester Water
Authority and Bucks County Water and Sewer Authority.
F. In the normal course of business, after the Borrower performs
excavation work in various highways in order to access water mains and
other underground facilities, the Borrower is required by township and
state permits to restore the excavated area.
G. The Borrower leases motor vehicles and other equipment under operating
leases that are noncancellable and expire on various dates through
2003. The Borrower leases parcels of land on which its Media treatment
plant and other facilities are situated and adjacent parcels that are
used for watershed protection. The operating lease is noncancellable,
expires in 2045, and contains certain renewal provisions. The lease is
subject to an adjustment every five years based on changes in the
Consumer Price Index.
Schedule 6.3
Existing Liens
A. Indenture of Mortgage dated as of January 1, 1941 from the Borrower to
Chase Manhattan Trust Company, National Association (successor to the
Pennsylvania Company for Insurance on Lives and Granting Annuities), as
amended and supplemented.
<PAGE>
EXHIBIT A
FORM OF
BORROWING REQUEST
PNC Bank, National Association
as Agent for the
Banks referred to below
PNC Agency Services
One PNC Plaza
249 Fifth Avenue
22nd Floor
Pittsburgh, PA 15222
Attention: Arlene Ohler
[Date]
Ladies and Gentlemen:
The undersigned, Philadelphia Suburban Water Company (the "Borrower"),
refers to the Credit Agreement dated as of December __, 1999 (as amended,
modified, extended or restated from time to time, the "Agreement"), among the
Borrower, the Banks party thereto and PNC Bank, National Association as Agent.
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to such terms in the Agreement. The Borrower hereby gives you
notice pursuant to Section 2.1 of the Agreement that it requests a Borrowing
under the Agreement, and in that connection sets forth below the terms on which
such Borrowing is requested to be made:
(A) Date of Borrowing _____________________
(which is a Business Day)
(B) Principal Amount of
Borrowing (1) $____________________
- ----------------
(1) Not less than $500,000 or a whole multiple of $100,000 in excess thereof
for a Eurodollar Borrowing nor less than $250,000 or a whole multiple of $50,000
in excess thereof for a Base Rate Borrowing.
A-72
<PAGE>
(C) Interest rate basis (2) _____________________
(D) Interest Period and the
last day thereof (3) _____________________
Upon acceptance of any or all of the Revolving Credit Loans made by the
Banks in response to this request, the Borrower shall be deemed to have
represented and warranted that the conditions to lending specified in Section
4.2 of the Agreement have been satisfied.
Very truly yours,
PHILADELPHIA SUBURBAN WATER COMPANY
By:__________________________________
Title:
- -------------
(2) Eurodollar Loan or Base Rate Loan.
(3) Which shall be subject to the definition of "Interest Period" and end
not later than the Termination Date.
A-73
<PAGE>
EXHIBIT B-1
NOTE
$________________ Philadelphia, Pennsylvania
December __, 1999
FOR VALUE RECEIVED, the undersigned, PHILADELPHIA SUBURBAN WATER
COMPANY (the "Borrower"), hereby promises to pay to the order of
___________________ (the "Bank"), at the office of PNC Bank, National
Association (the "Agent"), at 1600 Market Street, Philadelphia, PA 19103, on the
Termination Date, the lesser of the principal sum of ___________ ___________
Dollars ($__________) and the aggregate unpaid principal amount of all Loans
made by the Bank to the Borrower pursuant to Section 2.1 of the Credit Agreement
dated as of December __, 1999, among the Borrower, the Banks party thereto and
the Agent (as amended, modified, extended or restated from time to time, the
"Agreement"), in lawful money of the United States of America in same day funds,
and to pay interest from the date hereof on such principal amount from time to
time outstanding, in like funds, at said office, at a rate or rates per annum
and payable on the dates determined pursuant to the Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at the rate or rates determined as set forth in the Agreement.
The Borrower hereby waives diligence, presentment, demand, protest and
notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Note and all payments and prepayments
of the principal hereof and interest hereon and the respective dates thereof
shall be endorsed by the holder hereof on the schedule attached hereto and made
a part hereof, or on a continuation thereof which shall be attached hereto and
made a part hereof, or otherwise recorded by such holder in its internal
records; provided, however, that the failure of the holder hereof to make such a
notation or any error in such a notation shall not in any manner affect the
obligations of the Borrower to make payments of principal and interest in
accordance with the terms of this Note and the Agreement.
B-1-1
<PAGE>
This Note is one of the Notes referred to in, evidences indebtedness
incurred under, and is entitled to the benefits of the Agreement. The Agreement,
among other things, contains provisions for the acceleration of the maturity
hereof upon the happening of certain events, for optional and mandatory
prepayments of the principal hereof prior to the maturity hereof, for a higher
rate of interest hereunder after an Event of Default and for the amendment or
waiver of certain provisions of the Agreement, all upon the terms and conditions
therein specified. This Note shall be construed in accordance with and governed
by the laws of the Commonwealth of Pennsylvania and any applicable laws of the
United States of America. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Agreement.
PHILADELPHIA SUBURBAN WATER COMPANY
By:________________________________
Name:
Title:
B-1-2
<PAGE>
Loans and Payments
<TABLE>
<CAPTION>
Payments Unpaid Name of
-------- Principal Person
Amount Interest Interest Balance of Making
Date of Loan Rate Period Principal Interest Note Notation
- ---- ------- -------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-1-3
<PAGE>
EXHIBIT B-2
SWING LINE NOTE
$2,000,000 Philadelphia, Pennsylvania
December __, 1999
FOR VALUE RECEIVED, the undersigned, PHILADELPHIA SUBURBAN WATER
COMPANY (the "Borrower"), hereby promises to pay to the order of PNC BANK,
NATIONAL ASSOCIATION (the "Bank"), at the office of the Agent (as hereinafter
defined), at 1600 Market Street, Philadelphia, PA 19103, in accordance with the
terms of the Agreement (as hereinafter defined), the lesser of the principal sum
of Two Million Dollars ($2,000,000) and the aggregate unpaid principal amount of
all Swing Line Loans made by the Bank to the Borrower pursuant to Section 2.2 of
the Credit Agreement dated as of December __, 1999, among the Borrower, the
Banks party thereto and PNC Bank, National Association, as agent for the Banks
(the "Agent") (as amended, modified, extended or restated from time to time, the
"Agreement"), in lawful money of the United States of America in same day funds,
and to pay interest from the date hereof on such principal amount from time to
time outstanding, in like funds, at said office, at a rate or rates per annum
and payable on the dates determined pursuant to the Agreement.
The Borrower promises to pay interest, on demand, on any overdue
principal and, to the extent permitted by law, overdue interest from their due
dates at the rate or rates determined as set forth in the Agreement.
The Borrower hereby waives diligence, presentment, demand, protest
and notice of any kind whatsoever. The nonexercise by the holder of any of its
rights hereunder in any particular instance shall not constitute a waiver
thereof in that or any subsequent instance.
All borrowings evidenced by this Swing Line Note and all payments
and prepayments of the principal hereof and interest hereon and the respective
dates thereof shall be endorsed by the holder hereof on the schedule attached
hereto and made a part hereof, or on a continuation thereof which shall be
attached hereto and made a part hereof, or otherwise recorded by such holder in
its internal records; provided, however, that the failure of the holder hereof
to make such a notation or any error in such a notation shall not in any manner
affect the obligations of the Borrower to make payments of principal and
interest in accordance with the terms of this Swing Line Note and the Agreement.
B-2-1
<PAGE>
This Swing Line Note is the Swing Line Note referred to in,
evidences indebtedness incurred under, and is entitled to the benefits of the
Agreement. The Agreement, among other things, contains provisions for the
acceleration of the maturity hereof upon the happening of certain events, for
optional and mandatory prepayments of the principal hereof prior to the maturity
hereof, for a higher rate of interest hereunder after an Event of Default and
for the amendment or waiver of certain provisions of the Agreement, all upon the
terms and conditions therein specified. This Swing Line Note shall be construed
in accordance with and governed by the laws of the Commonwealth of Pennsylvania
and any applicable laws of the United States of America. Capitalized terms not
otherwise defined herein shall have the meanings set forth in the Agreement.
PHILADELPHIA SUBURBAN WATER COMPANY
By:___________________________________
Name:
Title:
B-2-2
<PAGE>
Loans and Payments
<TABLE>
<CAPTION>
Payments Unpaid Name of
Swing Line -------- Principal Person
Amount Interest Repayment Balance of Making
Date of Loan Rate Date Principal Interest Note Notation
- ---- ------- -------- ------ --------- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
B-2-3
<PAGE>
EXHIBIT C
FORM OF
ASSIGNMENT AND ACCEPTANCE
Reference is made to the Credit Agreement dated as of December __,
1999 (as amended, modified, extended or restated from time to time, the
"Agreement"), among Philadelphia Suburban Water Company (the "Borrower"), the
banks party thereto (the "Banks") and PNC Bank, National Association, as Agent.
Terms defined in the Agreement are used herein with the same meanings.
________________ (the "Assignor") and ________________ (the
"Assignee") hereby agree as follows:
The Assignor hereby sells and assigns, without recourse, to the
Assignee, and the Assignee hereby purchases and assumes, without recourse, from
the Assignor, effective as of the Effective Date set forth on Schedule A
attached hereto, the interests set forth on Schedule A (the "Assigned Interest")
in the Assignor's rights and obligations under the Agreement, including, without
limitation, the interests set forth on Schedule A in the Commitment of the
Assignor on the Effective Date and the Loans owing to the Assignor which are
outstanding on the Effective Date, together with unpaid interest accrued on the
assigned Loans to the Effective Date and the amount, if any, set forth on
Schedule A of the Fees accrued to the Effective Date for the account of the
Assignor. Each of the Assignor and the Assignee hereby makes and agrees to be
bound by all the representations, warranties and agreements set forth in Section
9.6(c) of the Agreement, a copy of which has been received by each such party.
From and after the Effective Date (i) the Assignee shall be a party to and be
bound by the provisions of the Agreement and, to the extent of the interests
assigned by this Assignment and Acceptance, have the rights and obligations of a
Bank thereunder and under the Agreement or any other document issued in
connection therewith and (ii) the Assignor shall, to the extent of the interests
assigned by this Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement.
This Assignment and Acceptance is being delivered to the Agent
together with (i) the Notes evidencing the Loans included in the Assigned
Interest, (ii) if the Assignee is organized under the laws of a jurisdiction
outside the United States, the forms prescribed by the Internal Revenue Service
of the United States certifying as to the Assignee's exemption from withholding
taxes with respect to all payments to be made to the Assignee under the
Agreement or such other documents as are necessary to indicate that all such
payments are subject to such tax at a rate reduced by an applicable tax treaty,
all duly completed and executed by such Assignee, and (iii) a processing and
recordation fee of $3,500, if required.
This Assignment and Acceptance shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania.
C-1
<PAGE>
The terms set forth above and on Schedule A attached hereto are
hereby agreed to as of the date hereof.
______________________, as Assignor
By:________________________________
Name:
Title:
_____________________, as Assignee
By:________________________________
Name:
Title:
Acknowledged:
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By:________________________________
Name:
Title:
Consented to:
PHILADELPHIA SUBURBAN WATER COMPANY
By:________________________________
Name:
Title:
C-2
<PAGE>
SCHEDULE A
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
___________________________________
___________________________________
Attention: ________________________
Telecopy: _________________________
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment):____________________
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Percentage of Loans and
Revolving Credit Facility Principal Amount Assigned Commitment Assigned
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitment Assigned: $ %
- -------------------------------------------------------------------------------------------------------
Loans: $ %
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
Percentage of Loans and
Swing Loan Facility Principal Amount Assigned Commitment Assigned
- -------------------------------------------------------------------------------------------------------
Commitment Assigned: $ 100%
- -------------------------------------------------------------------------------------------------------
Swing Line Loans: $ 100%
- -------------------------------------------------------------------------------------------------------
</TABLE>
C-3
<PAGE>
Exhibit 10.39
PHILADELPHIA SUBURBAN CORPORATION
PHILADELPHIA SUBURBAN WATER COMPANY
2000 ANNUAL CASH INCENTIVE COMPENSATION PLAN
BACKGROUND
o During the first quarter of 1989, the Company and its compensation
consultant conducted a feasibility study to determine whether the
Company should implement an incentive compensation plan. The study was
prompted by the positive experience of other investor-owned water
companies and PSC's experience with incentive compensation.
o The study included interviews with PSWC and PSC executives and an
analysis of competitive compensation levels. Based on the results, the
compensation consultant recommended that the Company's objectives and
competitive practice supported the adoption of an annual incentive plan
(the "Plan). The Company has had a cash incentive compensation plan in
place since 1990 and management and the Board of Directors feel it has
had a positive effect on the Company's operations, aiding employees,
shareholders (higher earnings) and customers (better service and
controlling expenses).
o The Plan has two components - a Management Incentive Program and an
Employee Recognition ("Chairman's Award") Program.
o The Plan is designed to provide an appropriate incentive to the
officers and managers of the Company. The 2000 Management Incentive
Program will cover all officers and managers of Philadelphia Suburban
Corporation, and its subsidiaries, other than those employees covered
under the Consumers Water Company Incentive Compensation Plan.
o The plan is periodically reviewed by the Company's outside compensation
consultant and the target bonus percentages are reviewed and approved
each year as part of the compensation consultant's annual review of the
Company's total compensation plan.
1
<PAGE>
MANAGEMENT INCENTIVE PROGRAM
o Performance Measures
-- Annual incentive bonus awards are calculated by multiplying an
individual's Target Bonus by a Company Rating Factor based on
the Company's performance and an Individual Rating Factor
based on the individual employee's performance.
The approach of having a plan tied to the Company's income
performance is appropriate as the participants' assume some of
the same risks and rewards as the shareholders who are
investing in the Company and making its capital construction
and acquisition programs possible. Customers also benefit from
the Company's employees' objectives being met as improvements
in performance are accomplished by controlling costs,
improving efficiencies and enhancing customer service. For
these reasons, future rate relief should be lessened and less
frequent, which directly benefits all customers.
-- The Company's actual after-tax net income from continuing
operations relative to the annual budget will be the primary
measure for the Company's performance. Each year a "Target Net
Income" level will be established. Starting in 2000, portions
of the Company Rating Factor may be allocated to the net
income targets of various operating units for each
participant. For purposes of the Plan, the Target Net Income
may differ from the budgeted net income level. For 2000, the
Target Net Income will exclude the impact of any unbudgeted
extraordinary gains or losses as a result of changes in
accounting principles.
-- Based on a review of historic performance, the minimum or
threshold level of performance is set at 90 percent of the
Target Net Income. That is, no bonus awards will be made if
actual net income is less than 90 percent of the Target Net
Income for the year. No additional bonus will be earned for
results exceeding 110 percent of the Target Net Income.
-- Each individual's performance and achievement of his or her
objectives will also be evaluated and factored into the bonus
calculation (the "Individual Factor"). Performance objectives
for each participant are established at the beginning of the
year and are primarily directed toward controlling costs,
improving efficiencies and productivity and enhancing customer
service. Each objective has specific performance measures that
are used to determine the level of achievement for each
objective.
2
<PAGE>
o Participation
-- Participation in the Management Incentive Program will be
determined each year. Each participant will be assigned a
"Target Bonus Percentage" ranging from 5 to 50 percent of
salary depending on duties and responsibilities.
-- Actual bonuses may range from 0, if the Company's financial
results fall below the minimum threshold or the participant
does not make sufficient progress toward achieving his or her
objectives (i.e. performance measure points totaling less than
70 points), to 187.5 percent if performance -- both Company
and individual -- is rated at the maximum.
o Company Performance
-- Company performance will be measured on the following
schedule:
Percent of Company
2000 Plan Rating
---------- -------
Threshold.............. 90% 0%
90 50
92 65
95 80
96 85
97 90
98 94
99 97
Plan................... 100 100
105 110
110 125
-- The actual Company Factor should be calculated by
interpolation between the points shown in the table above.
-- Regardless of the Company rating resulting from this Schedule,
the Executive Compensation and Employee Benefits Committee
retains the authority to determine the final Company Rating
for purposes of this Plan.
3
<PAGE>
o Individual Performance
-- Individual performance will be measured on the following
scale:
Performance Measure Individual
Points Rating Factor
------------------- -------------
0 - 69 0%
70 70%
80 80%
90 90%
100 100%
110 110%
-- In addition, up to 40 additional points and additional
percentage points may be awarded to a participant at the
discretion of the Chief Executive Officer for exemplary
performance. Individual performance points for the Chief
Executive Officer are determined by the Executive Compensation
and Employee Benefits Committee.
Sample Calculations
o Example 1
Salary $70,000
Target Bonus 10 percent ($7,000)
Company Rating 100 percent
Individual Rating 90 percent
Calculation:
Company Individual
Target Bonus x Rating x Rating = Bonus Earned
------------ ------- ---------- ------------
$7,000 x 100% x 90% = $6,300
======
o Example 2
-- Using the same salary and target bonus, but assuming Company
performance was less than 90 percent of Target Net Income,
there would be no bonus earned.
Calculation:
$7,000 x 0 x 90% = 0
4
<PAGE>
o Example 3
-- Similarly, if the Individual Factor is rated below 70 points,
no bonus would be earned regardless of the Company Factor.
Calculation:
$7,000 x 100% x 0 = 0
5
<PAGE>
EMPLOYEE RECOGNITION ("CHAIRMAN'S AWARD") PROGRAM
o In addition to the Management Incentive Program, the Company maintains
an Employee Recognition Program known as the Chairman's Award program
to reward employees not eligible for the management bonus plan for
general superior performance that contains costs, improves efficiency
and productivity of the workforce and better serves our customers.
Awards may also be made for a special action, or heroic deed, or for a
project that positively impacts the performance or image of the
Company.
o Awards will be made from an annual pool, not to exceed $175,000 (which
represents approximately 2% of the base payroll for the non-union
employees who do not participate in the Management Incentive Program),
established at the beginning of the year. Unused funds will not be
carried over to the next year. If financial performance warrants,
management may request permission from the Executive Compensation and
Employee Benefits Committee for special awards under the program.
o Awards will be made throughout the year and through the first quarter
of the following year with payment as close to the timing of the event
being rewarded as possible.
o Department Heads may nominate individuals in their unit to the
applicable Vice President and document the reasons for the
recommendations. The applicable Vice President will review the
nominations and forward their recommendations to the Chief Executive
Officer.
o The Chief Executive Officer will determine the individuals to actually
receive a bonus and the amount.
6
<PAGE>
Exhibit 10.40
AGREEMENT
Agreement made as of the 1st day of December, 1999, by and
among Philadelphia Suburban Corporation, a Pennsylvania corporation ("PSC" or
the "Company") and David P. Smeltzer (the "Executive").
WHEREAS, the Executive is presently employed by the Company,
as its Senior Vice President - Finance; and
WHEREAS, the Company considers it essential to foster the
employment of well-qualified, key management personnel, and, in this regard, the
board of directors of the Company recognize that, as is the case with many
publicly-held corporations, the possibility of a change of control of the
Company may exist and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of key management personnel to the detriment of the Company;
WHEREAS, the board of directors of the Company have determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of key members of the Company's management to their
assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change of control of the
Company, although no such change is now contemplated;
WHEREAS, in order to induce the Executive to remain in the
employ of the Company, the Company, for which certain of the employees of the
Company, such as the Executive, provide key executive services, agree that the
Executive shall receive the compensation set forth in this Agreement in the
event his employment with the Company is terminated subsequent to a "Change of
Control" (as defined in Section 1 hereof) as a cushion against the financial and
career impact on the Executive of any such Change of Control;
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements hereinafter set forth and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Definitions. For all purposes of this Agreement, the
following terms shall have the meanings specified in this Section unless the
context clearly otherwise requires:
(a) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the "Exchange
Act").
(b) "Base Compensation" shall mean the average of the total
cash base salary, annual bonus and dividend equivalents (paid under the
Company's Equity Compensation Plan) received by the Executive in all capacities
with the Company, and its Subsidiaries or Affiliates, as reported for Federal
income tax purposes on Form W-2, together with any amounts the payment of which
has been deferred by the Executive under any deferred compensation plan of the
Company, and its Subsidiaries or Affiliates, or otherwise, and any and all
salary reduction authorized amounts under any of the benefit plans or programs
of the Company, and its Subsidiaries or Affiliates, but excluding any amounts
attributable to the exercise of stock options or the receipt of Restricted Stock
granted to the Executive under the Company's Equity Compensation Plan and its
predecessors or successors, for the three calendar years (or such number of
actual full calendar years of employment, if less than three) immediately
preceding the calendar year in which occurs a Change of Control or the
Executive's Termination Date, whichever period produces the higher amount.
-2-
<PAGE>
(c) A Person shall be deemed the "Beneficial Owner" of any
securities: (i) that such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such right
is exercisable immediately or only after the passage of time) pursuant to any
agreement, arrangement or understanding (whether or not in writing) or upon the
exercise of conversion rights, exchange rights, rights, warrants or options, or
otherwise; provided, however, that a Person shall not be deemed the "Beneficial
Owner" of securities tendered pursuant to a tender or exchange offer made by
such Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for payment, purchase or exchange; (ii) that such Person
or any of such Person's Affiliates or Associates, directly or indirectly, has
the right to vote or dispose of or has "beneficial ownership" of (as determined
pursuant to Rule 13d-3 of the General Rules and Regulations under the Exchange
Act), including without limitation pursuant to any agreement, arrangement or
understanding, whether or not in writing; provided, however, that a Person shall
not be deemed the "Beneficial Owner" of any security under this clause (ii) as a
result of an oral or written agreement, arrangement or understanding to vote
such security if such agreement, arrangement or understanding (A) arises solely
from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable provisions
of the General Rules and Regulations under the Exchange Act, and (B) is not then
reportable by such Person on Schedule 13D under the Exchange Act (or any
comparable or successor report); or (iii) that are beneficially owned, directly
or indirectly, by any other Person (or any Affiliate or Associate thereof) with
which such Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing) for the
purpose of acquiring, holding, voting (except pursuant to a revocable proxy as
described in the proviso to clause (ii) above) or disposing of any voting
securities of PSC; provided, however, that nothing in this Section 1(c) shall
cause a Person engaged in business as an underwriter of securities to be the
"Beneficial Owner" of any securities acquired through such Person's
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
-3-
<PAGE>
(d) "Board" shall mean the board of directors of PSC.
(e) "Change of Control" shall mean:
(i) any Person (including any individual, firm, corporation,
partnership or other entity except PSC or its subsidiaries or any employee
benefit plan of the PSC or its subsidiaries or of any Affiliate or Associate,
any Person or entity organized, appointed or established by PSC or its
subsidiaries for or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall become the
Beneficial Owner in the aggregate of 20% or more of the Common Stock of PSC then
outstanding;
(ii) during any twenty-four month period, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute a majority thereof, unless the election, or the nomination for
election by PSC's shareholders, of at least seventy-five percent of the
directors who were not directors at the beginning of such period was approved by
a vote of at least seventy-five percent of the directors in office at the time
of such election or nomination who were directors at the beginning of such
period; or
-4-
<PAGE>
(iii) there occurs a sale of substantially all of the assets
of PSC or its liquidation is approved by a majority of its shareholders or PSC
is merged into or is merged with an unrelated entity such that following the
merger the shareholders of PSC no longer own more than 51% of the resultant
entity.
Notwithstanding anything in this Section 1(e) to the contrary, a Change of
Control shall not be deemed to have taken place under clause (e)(i) above if (a)
such Person becomes the beneficial owner in the aggregate of 20% or more of the
Common Stock of the Company then outstanding as a result of an inadvertent
acquisition by such Person if such Person, as soon as practicable, divests
itself of a sufficient amount of its Common Stock so that it no longer owns 20%
or more of the Common Stock then outstanding, as determined by the Board of
Directors of the Company, or (ii) the shares of Common Stock required to be
counted in order to meet the 20% minimum threshold described under such clause
(i) include any of the shares described in subsections (i) through (iv) of
section 2543(b) of the Pennsylvania Business Corporation Law of 1988 (15
Pa.C.S.A. section 2543(b)) as in effect on the date of adoption of the Plan.
(f) "Cause" shall mean 1) misappropriation of funds, 2)
habitual insobriety or substance abuse, 3) conviction of a crime involving moral
turpitude, or 4) gross negligence in the performance of duties, which gross
negligence has had a material adverse effect on the business, operations,
assets, properties or financial condition of the Company.
-5-
<PAGE>
(g) "Good Reason Termination" shall mean a Termination of
Employment initiated by the Executive upon one or more of the following
occurrences:
(i) any failure of the Company to comply with and
satisfy any of the terms of this the Agreement;
(ii) any significant involuntary reduction of the
authority, duties or responsibilities held by the Executive
immediately prior to the Change of Control;
(iii) any involuntary removal of the Executive from
the employment grade, compensation level or officer positions
which the Executive holds with the Company or, if the
Executive is employed by a Subsidiary, with a Subsidiary, held
by him immediately prior to the Change of Control, except in
connection with promotions to higher office;
(iv) any involuntary reduction in the Executive's
target level of annual and long-term compensation as in effect
immediately prior to the Change of Control;
(v) any transfer of the Executive, without his
express written consent, to a location which is outside the
Bryn Mawr, Pennsylvania area by more than 50 miles, other than
on a temporary basis (less than 6 months); or
(vi) the Executive being required to undertake
business travel to an extent substantially greater than the
Executive's business travel obligations immediately prior to
the Change of Control.
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<PAGE>
(h) "Normal Retirement Date" shall mean the first day of the
calendar month coincident with or next following the Executive's 65th birthday.
(i) "Subsidiary" shall mean any corporation in which the
Company, directly or indirectly, owns at least a 50% interest or an
unincorporated entity of which the Company, directly or indirectly, owns at
least 50% of the profits or capital interests.
(j) "Termination Date" shall mean the date of receipt of the
Notice of Termination described in Section 2 hereof or any later date specified
therein, as the case may be.
(k) "Termination of Employment" shall mean the termination of
the Executive's actual employment relationship with the Company and any of it
Subsidiaries that actually employs the Executive.
2. Notice of Termination. Any Termination of Employment
following a Change of Control shall be communicated by a Notice of Termination
to the other party hereto given in accordance with Section 14 hereof. For
purposes of this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific provision in this Agreement relied upon, (ii)
briefly summarizes the facts and circumstances deemed to provide a basis for the
Executive's Termination of Employment under the provision so indicated, and
(iii) if the Termination Date is other than the date of receipt of such notice,
specifies the Termination Date (which date shall not be more than 15 days after
the giving of such notice).
3. Severance Compensation upon Termination.
(a) Subject to the provisions of Section 11 hereof, in the
event of the Executive's involuntary Termination of Employment for any reason
other than Cause or in the event of a Good Reason Termination, in either event
within two years after a Change of Control, the Company shall pay to the
Executive, upon the execution of a release in the form required by the Company
of its terminating executives prior to the Change of Control, within 15 days
after the Termination Date (or as soon as possible thereafter in the event that
the procedures set forth in Section 11(b) hereof cannot be completed within 15
days), an amount in cash equal to two times the Executive's Base Compensation,
subject to required employment taxes and deductions.
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<PAGE>
(b) In the event the Executive's Normal Retirement Date would
occur prior to 12 months after the Termination Date, the aggregate cash amount
determined as set forth in (a) above shall be reduced by multiplying it by a
fraction, the numerator of which shall be the number of days from the
Termination Date to the Executive's Normal Retirement Date and the denominator
of which shall be 365 days. In the event the Termination Date occurs after the
Executive's Normal Retirement Date, no payments shall be made under this Section
3.
4. Other Payments. The payment due under Section 3 hereof
shall be in addition to and not in lieu of any payments or benefits due to the
Executive under any other plan, policy or program of the Company, and its
Subsidiaries or Affiliates. In addition, the Executive shall be entitled to a
continuation of health, dental, life and welfare benefits, excluding disability
benefits, otherwise provided to senior level executives or employees generally,
as the same may be amended for all such individuals from time to time, for the
period of two (2) years.
5. Trust Fund. PSC sponsors an irrevocable trust fund pursuant
to a trust agreement to hold assets to satisfy its obligations to the Executive
under this Agreement. Funding of such trust fund shall be subject to the
discretion of PSC's President, as set forth in the agreement pursuant to which
the fund has been established.
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<PAGE>
6. Enforcement.
(a) In the event that the Company shall fail or refuse to make
payment of any amounts due the Executive under Sections 3 and 4 hereof within
the respective time periods provided therein, the Company shall pay to the
Executive, in addition to the payment of any other sums provided in this
Agreement, interest, compounded daily, on any amount remaining unpaid from the
date payment is required under Section 3 or 4, as appropriate, until paid to the
Executive, at the rate from time to time announced by PNC Bank as its "prime
rate" plus 1%, each change in such rate to take effect on the effective date of
the change in such prime rate.
(b) It is the intent of the parties that the Executive not be
required to incur any expenses associated with the enforcement of his rights
under this Agreement by arbitration, litigation or other legal action because
the cost and expense thereof would substantially detract from the benefits
intended to be extended to the Executive hereunder. Accordingly, the Company
shall pay the Executive on demand the amount necessary to reimburse the
Executive in full for all reasonable expenses (including all attorneys' fees and
legal expenses) incurred by the Executive in enforcing any of the obligations of
the Company under this Agreement.
7. No Mitigation. The Executive shall not be required to
mitigate the amount of any payment or benefit provided for in this Agreement by
seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for herein be reduced by any compensation earned by other
employment or otherwise.
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<PAGE>
8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in or rights
under any benefit, bonus, incentive or other plan or program provided by the
Company, or any of its Subsidiaries or Affiliates, and for which the Executive
may qualify.
9. No Set-Off. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
10. Taxes. Any payment required under this Agreement shall be
subject to all requirements of the law with regard to the withholding of taxes,
filing, making of reports and the like, and the Company shall use its best
efforts to satisfy promptly all such requirements.
11. Certain Reduction of Payments.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event that it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise (a "Payment"), would constitute an "excess parachute
payment" within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), the aggregate present value of amounts payable or
distributable to or for the benefit of the Executive pursuant to this Agreement
(such payments or distributions pursuant to this Agreement are hereinafter
referred to as "Agreement Payments") shall be reduced (but not below zero) to
the Reduced Amount. The "Reduced Amount" shall be an amount expressed in present
value which maximizes the aggregate present value of Agreement Payments without
causing any Payment to be subject to the loss of deduction under Section 280G of
the Code. For purposes of this Section 11, present value shall be determined in
accordance with Section 280G(d)(4) of the Code.
-10-
<PAGE>
(b) All determinations to be made under this Section 11 shall
be made by the Company's independent public accountant immediately prior to the
Change of Control (the "Accounting Firm"), which firm shall provide its
determinations and any supporting calculations both to the Company and the
Executive within 10 days of the Termination Date. Any such determination by the
Accounting Firm shall be binding upon the Company and the Executive. The
Executive shall then have the right to determine which of the Agreement Payments
shall be eliminated or reduced in order to produce the Reduced Amount in
accordance with the requirements of this Section. Within five days after this
determination, the Company shall pay (or cause to be paid) or distribute (or
cause to be distributed) to or for the benefit of the Executive such amounts as
are then due to the Executive under this Agreement.
(c) As a result of the uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Agreement Payments, as the case
may be, will have been made by the Company which should not have been made
("Overpayment") or that additional Agreement Payments which have not been made
by the Company could have been made ("Underpayment"), in each case, consistent
with the calculations required to be made hereunder. Within two years after the
Termination of Employment, the Accounting Firm shall review the determination
made by it pursuant to the preceding paragraph and the Company shall cooperate
and provide all information necessary for such review. In the event that the
Accounting Firm determines that an Overpayment has been made, any such
Overpayment shall be treated for all purposes as a loan to the Executive which
the Executive shall repay to the Company together with interest from the date of
payment under this Agreement at the applicable Federal rate provided for in
Section 7872(f)(2) of the Code (the "Federal Rate"); provided, however, that no
amount shall be payable by the Executive to the Company if and to the extent
such payment would not reduce the limit on the amount that is deductible under
Section 280G of the Code. In the event that the Accounting Firm determines that
an Underpayment has occurred, any such Underpayment shall be promptly paid by
the Company to or for the benefit of the Executive together with interest from
the date of payment under this Agreement at the Federal Rate.
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<PAGE>
(d) All of the fees and expenses of the Accounting Firm in
performing the determinations referred to in subsections (b) and (c) above shall
be borne solely by the Company. The Company agrees to indemnify and hold
harmless the Accounting Firm of and from any and all claims, damages and
expenses resulting from or relating to its determinations pursuant to
subsections (b) and (c) above, except for claims, damages or expenses resulting
from the gross negligence or willful misconduct of the Accounting Firm.
12. Term of Agreement. The term of this Agreement shall be
indefinite until the Company notifies the Executive in writing that this
Agreement will not be renewed at least sixty days prior to the proposed
termination; provided, however, that (i) after a Change of Control during the
term of this Agreement, this Agreement shall remain in effect until all of the
obligations of the parties hereunder are satisfied or have expired, and (ii)
this Agreement shall terminate if, prior to a Change of Control, the employment
of the Executive with the Company and its Subsidiaries, as the case may be,
shall terminate for any reason; provided, however, that if a Change of Control
occurs within 18 months after (a) the Executive's termination incurred for any
reason other than a voluntary resignation or retirement ( a Good Reason
Termination shall not be deemed voluntary) or termination for Cause or (b) the
termination of this Agreement, the Executive shall be entitled to all of the
terms and conditions of this Agreement as if the Executive's termination had
occurred on the date of the Change of Control.
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<PAGE>
13. Successor Company. PSC shall require any successor or
successors (whether direct or indirect, by purchase, merger or otherwise) to all
or substantially all of the business and/or assets of PSC or of any of its
Subsidiaries that actually employ the Executive, by agreement in form and
substance satisfactory to the Executive, to acknowledge expressly that this
Agreement is binding upon and enforceable against the successor or successors,
in accordance with the terms hereof, and to become jointly and severally
obligated with PSC to perform this Agreement in the same manner and to the same
extent that PSC would be required to perform if no such succession or
successions had taken place. Failure of PSC to notify the Executive in writing
as to such successorship, to provide the Executive the opportunity to review and
agree to the successor's assumption of this Agreement or to obtain such
agreement prior to the effectiveness of any such succession shall be a breach of
this Agreement. As used in this Agreement, PSC and the Company shall mean PSC
and its Subsidiaries as hereinbefore defined and any such successor or
successors to their business and/or assets, jointly and severally.
-13-
<PAGE>
14. Notice. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and shall be delivered personally or mailed by registered or
certified mail, return receipt requested, or by overnight express courier
service, as follows:
If to PSC to:
Philadelphia Suburban Corporation
762 W. Lancaster Avenue
Bryn Mawr, PA 19010-3489
Attention: President
If to the Executive, to:
Mr. David P. Smeltzer
910 Ridgeview Lane
Lower Gwynedd, PA 19002
or to such other names or addresses as the Company or the Executive, as the case
may be, shall designate by notice to the other party hereto in the manner
specified in this Section; provided, however, that if no such notice is given by
the Company following a Change of Control, notice at the last address of the
Company or to any successor pursuant to Section 13 hereof shall be deemed
sufficient for the purposes hereof. Any such notice shall be deemed delivered
and effective when received in the case of personal delivery, five days after
deposit, postage prepaid, with the U.S. Postal Service in the case of registered
or certified mail, or on the next business day in the case of overnight express
courier service.
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<PAGE>
15. Governing Law. This Agreement shall be governed by and
interpreted under the laws of the Commonwealth of Pennsylvania without giving
effect to any conflict of laws provisions.
16. Contents of Agreement, Amendment and Assignment. This
Agreement supersedes all prior agreements, sets forth the entire understanding
between the parties hereto with respect to the subject matter hereof and cannot
be changed, modified, extended or terminated except upon written amendment
executed by the Executive and the Company's Chairman of the Company's Executive
Compensation and Employee Benefits Committee, or its successor. The provisions
of this Agreement may require a variance from the terms and conditions of
certain compensation or bonus plans under circumstances where such plans would
not provide for payment thereof in order to obtain the maximum benefits for the
Executive. It is the specific intention of the parties that the provisions of
this Agreement shall supersede any provisions to the contrary in such plans, and
such plans shall be deemed to have been amended to correspond with this
Agreement without further action by the Company or the Board.
17. No Right to Continued Employment. Nothing in this
Agreement shall be construed as giving the Executive any right to be retained in
the employ of the Company.
18. Successors and Assigns. All of the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs, representatives, successors and assigns of
the parties hereto, except that the duties and responsibilities of PSC hereunder
shall not be assignable in whole or in part.
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<PAGE>
19. Severability. If any provision of this Agreement or
application thereof to anyone or under any circumstances shall be determined to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions or applications of this Agreement which can be given
effect without the invalid or unenforceable provision or application.
20. Remedies Cumulative; No Waiver. No right conferred upon
the Executive by this Agreement is intended to be exclusive of any other right
or remedy, and each and every such right or remedy shall be cumulative and shall
be in addition to any other right or remedy given hereunder or now or hereafter
existing at law or in equity. No delay or omission by the Executive in
exercising any right, remedy or power hereunder or existing at law or in equity
shall be construed as a waiver thereof.
21. Miscellaneous. All section headings are for convenience
only. This Agreement may be executed in several counterparts, each of which is
an original. It shall not be necessary in making proof of this Agreement or any
counterpart hereof to produce or account for any of the other counterparts.
22. Arbitration. In the event of any dispute under the
provisions of this Agreement other than a dispute in which the sole relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in
Bryn Mawr, Pennsylvania, in accordance with the National Rules for the
Settlement of Employment Disputes of the American Arbitration Association,
before one arbitrator who shall be an executive officer or former executive
officer of a publicly traded corporation, selected by the parties. Any award
entered by the arbitrator shall be final, binding and nonappealable and judgment
may be entered thereon by either party in accordance with applicable law in any
court of competent jurisdiction. This arbitration provision shall be
specifically enforceable. The arbitrator shall have no authority to modify any
provision of this Agreement or to award a remedy for a dispute involving this
Agreement other than a benefit specifically provided under or by virtue of the
Agreement. The Company shall be responsible for all of the fees of the American
Arbitration Association and the arbitrator and any expenses relating to the
conduct of the arbitration (including reasonable attorneys' fees and expenses).
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<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally
bound, have executed this Agreement as of the date first above written.
ATTEST: PHILADELPHIA SUBURBAN CORPORATION
[Seal]
/s/ Patricia M. Mycek By /s/ Roy H. Stahl
- ------------------------------------ ------------------------------
Secretary
/s/ Grace J. Lennon /s/ David P. Smeltzer
- ------------------------------------ ------------------------------
Witness Executive
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<PAGE>
Exhibit 10.41
FIRST MORTGAGE BONDS
1999 MEDIUM TERM NOTE SERIES
Up to U.S. $300,000,000
Maturities from One Year to Thirty-Five Years
PLACEMENT AGENCY AGREEMENT
By and Among
PHILADELPHIA SUBURBAN WATER COMPANY
as Issuer
and
AGENTS LISTED ON SCHEDULE I ATTACHED HERETO
Dated December 3, 1999
<PAGE>
PHILADELPHIA SUBURBAN WATER COMPANY
U.S. $300,000,000
First Mortgage Bonds
1999 Medium Term Note Series
Maturities from One Year
to Thirty-Five Years from Date of Issue
Placement Agency Agreement
New York, New York
December 3, 1999
To Each of the Addressees Names
on Schedule I Hereto Acting
Severally and Not Jointly in the
Capacities of Agent and Purchaser
or in Either Such Capacity
Gentlemen and Ladies:
Philadelphia Suburban Water Company, a corporation organized
and existing under the laws of the Commonwealth of Pennsylvania (the "Issuer")
which is a wholly-owned subsidiary of Philadelphia Suburban Corporation, a
Pennsylvania corporation ("PSC"), confirms its agreement with you with respect
to the issue and sale by the Issuer of its First Mortgage Bonds, 1999 Medium
Term Note Series (the "Notes"). The Notes will be issued in one or more
subseries under and secured in accordance with the Thirty-Third Supplemental
Indenture dated as of November 15, 1999 (the "Supplemental Indenture") to the
Indenture of Mortgage dated as of January 1, 1941 (the "Indenture of Mortgage")
between the Issuer and Chase Manhattan Trust Company, National Association (as
successor in interest to The Pennsylvania Company for Insurance on Lives and
Granting Annuities), as Trustee (the "Trustee"). The Notes may be sold during
the five year period from November 18, 1999 through November 17, 2004 (the
"Offering Period"), by the Issuer in an aggregate principal amount of up to U.S.
$300,000,000.
It is understood, however, that the Issuer may from time to
time, if permitted under the Indenture of Mortgage and pursuant to subsequent
supplemental indentures, authorize the issuance of additional notes and that
such additional notes may be sold through or to you subject to and in accordance
with the terms of this Placement Agency Agreement (the "Agreement"), all as
though the issuance of such additional Notes or the sale of Notes after the
expiration of the Offering Period were authorized as of the date hereof. In
addition, it is understood that the Issuer may from time to time during the
Offering Period issue notes, bonds or other evidences of indebtedness to the
extent permitted by the Indenture of Mortgage and any subsequent Supplemental
Indenture.
<PAGE>
The Notes will be offered during the Offering Period from time
to time on a private placement basis without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance upon the
exemption therefrom provided by Section 4(2) of the Securities Act. The Notes
will be offered only to "Qualified Institutional Buyers" (as defined in Rule
144A under the Securities Act) pursuant to this Placement Agreement. All Notes
having a common issue date, maturity date, interest rate and otherwise identical
terms are referred to herein as a "Tranche". This Agreement is non-exclusive as
the Notes of each Tranche may be offered through one or more Agents (hereinafter
defined) pursuant to this Agreement. The Notes will be issued, and the terms
thereof established, in accordance with the terms of the Indenture of Mortgage
and the Supplemental Indenture, and in the case of Notes sold pursuant to
Section 2(a), in accordance with the Medium Term Notes Administrative Procedures
attached hereto as Exhibit A (the "Administrative Procedures"). The Notes will
be payable in accordance with a Paying Agency Agreement dated December 3, 1999
(the "Paying Agency Agreement"), among the Issuer, Chase Manhattan Trust
Company, National Association, as paying agent (the "Paying Agent"), the Trustee
and the Agents. The Administrative Procedures set forth in Exhibit A shall
remain in effect with respect to sales solicited by the Agents until changed by
the Issuer, the Agents and the Paying Agent. For the purposes of this Agreement,
the term "Agent" shall refer to each addressee named on Schedule I hereto acting
severally and not jointly in the sole capacity as agent for the Issuer pursuant
to Section 2(a) and not as principal; the term "Agents" shall refer in general
terms to all addressees named on Schedule I acting in the capacity as agent to
the Issuer pursuant to Section 2(a); the term "Purchaser" shall refer to the
same addressees named on Schedule I hereto acting severally and not jointly in
the sole capacity as principal pursuant to Section 2(b) and not as agent; and
the term "you" shall refer to each or any addressee named on Schedule I hereto
acting severally and not jointly in both such capacities or in either such
capacity.
1. Representations and Warranties. The Issuer represents and warrants
to you as of the date hereof, and shall be deemed to represent and warrant to
you at and as of each time the Issuer gives a notice requesting you to solicit
offers as Agent, at and as of each acceptance of an offer by the Issuer, at and
as of the date of each Terms Agreement (as defined in Section 2(b)), and upon
the delivery to the purchaser (or its agent) pursuant to such offer or to the
Purchaser of any Note pursuant to such Terms Agreement, as the case may be,
that:
3
<PAGE>
(a) The Issuer confirms that it has prepared a confidential
Offering Memorandum (defined below) and authorizes you to distribute
copies thereof in connection with the offering of Notes as provided
herein. The Offering Memorandum does not and will not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing representation and warranty shall not apply
to statements or omissions in the Offering Memorandum made in reliance
upon and in conformity with information furnished to the Issuer in
writing by you or on your behalf which has been furnished by a person
authorized to do so, specifically for use therein. As used in this
Agreement, the term "Offering Memorandum" means the confidential
offering memorandum dated the same date as this Agreement relating to
the Notes, as it may be amended or supplemented from time to time,
including with respect to each Tranche, the related pricing supplement
(each, a "Pricing Supplement"), any documents expressly incorporated by
reference therein and any quarterly or annual reports of the Issuer
delivered to any Agent for delivery together with the Offering
Memorandum, which amendment or supplement may be in the form of a
separate document that does not state that it is a supplement to the
Offering Memorandum, and any reference to the terms "amend",
"amendment" or "supplement" with respect to the Offering Memorandum
shall refer to and include the filings with the Securities and Exchange
Commission (the "Commission") of any documents expressly incorporated
by reference into the Offering Memorandum after the date hereof.
(b) The financial statements and schedules included in, or as
an exhibit, attachment or appendix to, the Offering Memorandum present
fairly the consolidated financial condition of the Issuer as of the
respective dates thereof, and the consolidated results of operations
and changes in financial condition of the Issuer for the respective
periods covered thereby, all in conformity with generally accepted
accounting principles applied on a consistent basis throughout the
entire period involved, except as otherwise disclosed in the Offering
Memorandum. KPMG LLP (the "Accountants"), who have reported on the
annual financial statements and schedules of the Issuer, are
independent certified public accountants with respect to the Issuer and
its subsidiaries within the meaning of Rule 1.01 of the Code of
Professional Conduct of the American Institute of Certified Public
Accountants.
4
<PAGE>
(c) Subsequent to the respective dates as of which information
is given in the Offering Memorandum, except as otherwise set forth
therein, (i) there has been no material adverse change, or to the
knowledge of the Issuer any development involving a prospective
material adverse change, in the financial condition, earnings, business
or business prospects or properties of the Issuer and its subsidiaries,
considered as a single enterprise (a "Material Adverse Effect"), (ii)
neither the Issuer nor any of its subsidiaries have incurred any
material liabilities or obligations, direct or contingent, nor have any
of them entered into any material transactions other than pursuant to
this Agreement, the Supplemental Indenture and the Paying Agency
Agreement and the transactions referred to herein and therein and (iii)
no rating of any of the securities of the Issuer has been lowered by
any "nationally recognized statistical rating organization" (as defined
for purposes of Rule 436(g) of the Securities Act) (each, a "Rating
Agency"), nor has there been any notice given by any Rating Agency of
any intended or potential decrease in any such rating or of a possible
change in any such rating where such notice does not indicate the
direction of the possible change.
(d) The Issuer and each of its subsidiaries is a corporation
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Issuer and each of its subsidiaries
has full power and authority to conduct all the activities conducted by
it, to own or lease all the assets owned or leased by it and to conduct
its business as described in the Offering Memorandum. The Issuer and
each of its subsidiaries is duly licensed or qualified to do business
and in good standing as a foreign corporation in all jurisdictions in
which the nature of the activities conducted by it or the character of
the assets owned or leased by it makes such license or qualification
necessary, except where the failure to so qualify or be in good
standing would not have a Material Adverse Effect.
(e) Except for stock of its subsidiaries, or as disclosed in
the Offering Memorandum, the Issuer does not own, directly or
indirectly, any shares of stock or any other equity or long-term debt
securities of any corporation or have any equity interest in any firm,
partnership, joint venture, association or other entity, other than
equity investments made by the Issuer for business development purposes
or otherwise which are not material to the Issuer.
5
<PAGE>
(f) The Issuer has full corporate power and authority to enter
into this Agreement, the Supplemental Indenture, and the Paying Agency
Agreement, to issue the Notes, and to perform its obligations under
this Agreement, the Supplemental Indenture, the Paying Agency Agreement
and the Notes. This Agreement, the Indenture, the Supplemental
Indenture and the Paying Agency Agreement have been duly authorized,
executed and delivered by the Issuer and, when authorized, executed and
delivered by the other parties hereto and thereto, will constitute
valid and binding agreements of the Issuer and will be enforceable
against the Issuer in accordance with their terms (subject to
applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws affecting creditors' rights generally
from time to time in effect, and subject, as to enforceability, to
general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law). The Supplemental
Indenture and the Paying Agency Agreement conform in all material
respects to the descriptions thereof in the Offering Memorandum.
(g) The execution and delivery of the Notes has been duly
authorized by all necessary corporate action on the part of the Issuer;
each Note, when completed, executed, authenticated and delivered in
accordance with the Indenture of Mortgage and the Supplemental
Indenture against payment of the consideration therefor will constitute
a legal, valid and binding obligation of the Issuer, enforceable
against the Issuer in accordance with the terms of such Note (subject
to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws affecting creditors'
rights generally from time to time in effect, and subject, as to
enforceability, to general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law),
and will entitle its holder to the benefits of the Indenture of
Mortgage and the Supplemental Indenture. Each Note will conform in all
material respects to the description thereof in the Offering
Memorandum.
(h) Other than the liens created by the Indenture of Mortgage
as supplemented by supplemental indentures in accordance with the terms
of the Indenture, including as supplemented by the Supplemental
Indenture, the performance by the Issuer of this Agreement and the
Paying Agency Agreement, the issuance of any Notes and the consummation
of the transactions contemplated hereby and thereby will not result in
the creation or imposition of any lien, charge or encumbrance upon any
of the assets of the Issuer or any of its subsidiaries pursuant to the
terms or provisions of, or result in a breach or violation of any of
the terms or provisions of, or constitute a default under, or give any
other party a right to terminate any of its obligations under, or
result in the acceleration of any obligation under, the certificate of
incorporation or by-laws of the Issuer or any of its subsidiaries, any
indenture, mortgage, deed of trust, voting trust agreement, loan
agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument to which
the Issuer or any of its subsidiaries is a party or by which the Issuer
or any of its subsidiaries or any of its properties is bound or
affected, or violate or conflict with any judgment, ruling, decree,
order, statute, rule or regulations of any court or governmental agency
or body applicable to the business or properties of the Issuer or any
of its subsidiaries.
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(i) Except as set forth in or contemplated by the Offering
Memorandum, there are no actions, suits or proceedings pending or
threatened against or affecting the Issuer or any of its subsidiaries,
or any of their respective officers or directors in their capacity as
such, before or by any Federal or state court, commission, regulatory
body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding is likely
that would materially and adversely affect (i) the financial condition,
earnings, business or business prospects or properties of the Issuer
and its subsidiaries, considered as a single enterprise, or (ii) the
ability of the Issuer to perform its obligations under this Agreement,
the Supplemental Indenture, the Paying Agency Agreement and the Notes.
There are no such actions, suits or proceedings pending or, to the
knowledge of the Issuer, threatened, relating to the Notes, their
offering, or the Offering Memorandum.
(j) In each of the following cases except for such exceptions
which would not have a Material Adverse Effect and do not interfere
with the conduct of the business of the Company, the Issuer and each of
its subsidiaries has (i) all governmental licenses, permits, consents,
orders, approvals and other authorizations (collectively, "Approvals")
necessary to carry on its business as described in the Offering
Memorandum, (ii) complied with all laws, regulations and orders
applicable to it or its business, and (iii) performed all its
obligations required to be performed by it, and is not in default under
any material contract or other instrument to which it is a party or by
which its property is bound or affected. To the best knowledge of the
Issuer, no other party under any material contract or other instrument
to which it is a party is in default in any respect thereunder that
would have a Material Adverse Effect. Neither the Issuer nor any of its
subsidiaries is in violation of any provision of its certificate of
incorporation or by-laws.
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(k) The Issuer and each of its subsidiaries has good and
marketable title to all properties and assets described in the Offering
Memorandum as owned by it, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the
Offering Memorandum or are not material to the business of the Issuer
or its subsidiaries. The Issuer and each of its subsidiaries has valid,
subsisting and enforceable leases for the properties described in the
Offering Memorandum as leased by it, with such exceptions as are not
material and do not materially interfere with the use made and proposed
to be made of such properties by the Issuer and such subsidiaries.
(l) No consent, approval, authorization or other order of, or
any filing with, any government, governmental or other administrative
agency or body is required in connection with the execution and
delivery by the Issuer of this Agreement, the Supplemental Indenture
and the Paying Agency Agreement, the solicitation of offers to purchase
Notes, the issuance of any Note or the performance by the Issuer of any
of its obligations hereunder or thereunder, except such as may be
required under the blue sky laws of any jurisdiction in connection with
the offering and sale of the Notes or as required by the Pennsylvania
Public Utility Commission. All necessary approvals have been obtained
from the Pennsylvania Public Utility Commission to authorize the
issuance and sale of the Notes and such approvals remain in full force
and effect on the date hereof.
(m) The Notes satisfy the requirements set forth in paragraph
(d)(3) of Rule 144A ("Rule 144A") under the Securities Act.
(n) Neither the Issuer nor any affiliate (which, for purposes
of this Agreement, shall have the meaning given in Rule 501(b) under
the Securities Act) of the Issuer has directly or indirectly, (i) sold,
offered for sale, solicited offers to buy or otherwise negotiated in
respect of, any of the Notes or, within the six-month period prior to
the date hereof, any other debt security of the same class as the Notes
which is or will be integrated with any sale of the Notes in a manner
that would require the registration of the Notes under the Securities
Act or (ii) engaged or will engage in any form of general solicitation
or general advertising (within the meaning of Rule 502(c) under the
Securities Act) in connection with the offering of the Notes.
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(o) Assuming (A) compliance by you with the offering and
transfer procedures and restrictions described in the Offering
Memorandum and under Rule 144A and Section 4(2) of the Securities Act,
(B) the accuracy of the acknowledgments, representations, warranties
and agreements made in accordance with this Agreement and the Offering
Memorandum by you and the purchasers to whom you initially offer, sell
or resell the Notes and (C) purchasers to whom you initially offer,
sell or resell the Notes receive a copy of the Offering Memorandum
prior to such sale or resale, the offer, sale and delivery of the Notes
in the manner contemplated by this Agreement and the Offering
Memorandum will be exempt from the registration requirements of the
Securities Act by reason of Section 4(2) thereof, and the initial
resale of the Notes in the manner contemplated by this Agreement will
be exempt from the registration requirements of the Securities Act by
reason of Rule 144A thereunder or Section 4(2) thereunder, as the case
may be, and the Notes are not required to be issued pursuant to an
indenture that qualifies under the Trust Indenture Act of 1939, as
amended.
(p) Each Note will be an unconditional and direct debt
obligation of the Issuer and will rank pari passu with other senior
secured existing and future obligations of the Issuer.
(q) The Issuer is not an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
(r) Neither the Issuer nor any agent thereof acting on behalf
of the Issuer has taken or will take any action that is reasonably
likely to cause this Agreement or the issuance or sale of the Notes to
violate Regulation T, Regulation U or Regulation X (collectively, the
"Margin Rules") of the Board of Governors of the Federal Reserve
System.
(s) The Issuer is in material compliance with all applicable
Federal, state and local environmental laws and regulations, including,
without limitation, those applicable to safe drinking water, emissions
to the environment, waste management and waste disposal (collectively,
the "Environmental Laws"), except for such noncompliance as is not
reasonably likely to have a Material Adverse Effect, or as disclosed in
the Offering Memorandum, and, to the knowledge of the Issuer, there are
no circumstances that would prevent, interfere with or materially
increase the cost of such compliance in the future.
(t) Except as disclosed in the Offering Memorandum, there is
no claim under any Environmental Law, including common law, pending or
threatened against the Issuer (an "Environmental Claim") which would be
reasonably likely to have a Material Adverse Effect and, to the
knowledge of the Issuer, under applicable law, there are not past or
present actions, activities, circumstances, events or incidents,
including, without limitation, releases of any material into the
environment, that are reasonably likely to form the basis of any
Environmental Claim against the Issuer which would be reasonably likely
to have a Material Adverse Effect.
9
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(u) No statement, representation, warranty or covenant made by
the Issuer in this Agreement, or made in any certificate or document
required by this Agreement to be delivered to any Agent was or will be,
when made, inaccurate, untrue or incorrect.
2. Appointment of an Agent; Solicitation by an Agent of Offers to
Purchase; Sales of Notes to a Purchaser.
(a) (i) The Issuer shall deliver a Request for Bids with
respect to a Tranche to each Agent via electronic transmission
substantially in the form attached as Exhibit H hereto prior to 10:00
a.m. on any Business Day. Each Agent interested in submitting a bid for
a particular Tranche shall submit such bid to the Issuer by 2:00 p.m.
on the date of receipt of the Request for Bids or such later deadline
as may be specified in writing by the Issuer. The Issuer, in its sole
discretion and subject to its right to reject any and all bids for any
reason, shall select one or more Agents to participate in offering of
each Tranche. Subject to the terms and conditions set forth herein,
Agents are to be appointed, in accordance with the terms of a Notice or
Notices of Appointment (in the form attached as Exhibit I hereto)
executed by the Issuer, to act as the Issuer's agent to accept offers
for the purchase of Notes from the Issuer. The appointment by the
Issuer of an Agent shall not authorize such Agent to take any action on
behalf of the Issuer other than as set forth in this Agreement and the
Administrative Procedures. Other than Section 4(a)(v) of this
Agreement, this Agreement shall not in any way restrict or limit the
Issuer from selling, offering to sell or accepting offers to sell any
debt securities other than the Notes.
(ii) On the basis of the representations and
warranties and subject to the terms and conditions, set forth herein,
upon appointment pursuant to Notice of Appointment each Agent agrees,
as agent of the Issuer, to use its reasonable efforts (commensurate
with those efforts customarily made in offerings of a similar nature)
to place the Notes on behalf of the Issuer upon the terms and
conditions described in the Notice of Appointment, the Offering
Memorandum and in the Administrative Procedures. In soliciting offers
as agent, each Agent is acting solely as agent of the Issuer and not as
principal. Each Agent shall use its reasonable efforts to assist the
Issuer in obtaining performance by each purchaser whose offer to
purchase Notes has been solicited by such Agent and accepted by the
Issuer, however such Agent shall not have any liability to the Issuer
in the event any such purchase is not consummated for any reason;
provided that the foregoing shall not operate to release the Agent from
any liability it may otherwise have as a result of its failure to
perform its obligations under this Agreement. Except as provided in
Section 2(b), under no circumstances will any Agent be obligated to
purchase any Notes for its own account. It is understood and agreed,
however, that any Agent may purchase Notes for its own account as
Purchaser pursuant to Section 2(b) or otherwise as may be agreed or
permitted by the Issuer and such Agent.
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(iii) The Issuer reserves the right, in its sole
discretion, to instruct the Agents to suspend at any time, for any
period of time or permanently, the solicitation of offers to purchase
Notes. Within one business day of receipt of instructions to that
effect from the Issuer, each Agent will forthwith suspend solicitation
of offers to purchase Notes from the Issuer until such time as the
Issuer has advised it that such solicitation may be resumed.
(iv) The Issuer agrees to pay each Agent a
commission, upon closing, with respect to each sale of Notes by the
Issuer as a result of a solicitation made by such Agent, including any
sale for the account of any affiliate of such Agent, in an amount equal
to that percentage of the aggregate principal amount of the Notes sold
by the Issuer specified on Schedule II hereto for Notes with the
relevant term. Such commission shall be payable as specified in the
Administrative Procedures.
(v) Subject to the provisions of this Agreement, the
Notice of Appointment and the Administrative Procedures, offers for the
purchase of Notes may be solicited by the Agent, as agent for the
Issuer, at such time and in such amounts as the Agent and the Issuer
deem advisable. The Issuer may, subject to Sections 4(a)(v) and
4(a)(xviii) of this Agreement, from time to time offer other debt
obligations for sale on its own behalf directly to purchasers otherwise
than through an Agent, in which case no commission would be payable
with respect to such sale, provided such direct sales are made in
compliance with all applicable law. As long as this Agreement shall be
in effect, the Issuer shall not solicit or accept offers to purchase
Notes through any agent other than Agents named on Schedule I hereto;
provided, however, that the Issuer may amend Schedule I hereto from
time to time to appoint additional Agents provided that the Issuer (i)
has appointed such agent as an additional Agent hereunder on the same
terms and conditions as provided herein for the Agents, and (ii) has
caused such additional agent to execute this Agreement.
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<PAGE>
(vi) Each Agent may, in the exercise of its
reasonable discretion, reject any offer to purchase Notes received by
it as agent of the Issuer and not communicate such offer to the Issuer.
Each Agent shall communicate to the Issuer, orally or in writing, each
such offer that it does not reject and, if such Agent or any of its
affiliates shall be the offeror, shall advise the Issuer of that fact.
The Issuer shall have sole and absolute discretion to accept any offer,
and may reject any offer to purchase Notes in whole or, if permitted by
the terms of such offer, in part.
(vii) If the Issuer shall default in its obligations
to deliver Notes to a purchaser whose offer it has accepted, the Issuer
shall hold you harmless against any loss, claim or damage arising from
or as a result of such default by the Issuer (except to the extent that
such default by the Issuer shall result from the failure by you to
perform your obligations hereunder).
(b) (i) Subject to the terms and conditions stated herein,
whenever the Issuer and any one (or more) of you jointly determine that
the Issuer shall sell Notes directly to any one (or more) of you as the
Purchaser, each such sale of Notes shall be made in accordance with the
terms of this Agreement and, unless specifically waived by the
Purchaser, a supplemental agreement relating thereto between the Issuer
and the Purchaser. Each such supplemental agreement (which shall be
substantially in the form of Exhibit B) is herein referred to as a
"Terms Agreement". A Purchaser's commitment to purchase Notes pursuant
to any Terms Agreement shall be deemed to have been made on the basis
of the representations and warranties of the Issuer contained herein or
therein (if any) and shall be subject to the terms and conditions set
forth herein and in such Terms Agreement. Unless the context otherwise
requires, each reference contained herein to "this Agreement" shall be
deemed to include any applicable Terms Agreement between any one (or
more) of you and the Issuer. Each Terms Agreement shall describe the
Notes to be purchased by the Purchaser pursuant thereto, specify the
principal amount of such Notes, the price to be paid to the Issuer for
such Notes specified by reference to the principal amount of the Notes
and the discount to the Purchaser from the principal amount thereof,
the rate at which interest will be paid on such Notes, the date of
issuance of such Notes (the "Closing Date"), the place of delivery of
the Notes and payment therefor, the method of payment, any modification
of, or addition to, the requirements for the delivery of the opinions
of counsel set forth in Section 6(a)(ii), the certificates from the
Issuer or its officers and the letter from the Issuer's independent
certified public accountants, and such other terms and conditions as
may be specified therein from time to time. The discount to the
Purchaser with respect to any Notes sold pursuant to this Section 2(b)
shall be equal to that percentage of the principal amount thereof
specified in Schedule II hereto for Notes with the relevant term,
unless a higher percentage is specified in the applicable Terms
Agreement.
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(ii) The settlement details for Notes sold to a
Purchaser pursuant to any Terms Agreement shall be agreed to between
the Issuer and such Purchaser in the respective Terms Agreement. If
there is no such Terms Agreement, the settlement details specified in
the Administrative Procedures shall apply with the Purchaser filling
the roles specified therein of the Agent and the beneficial owner.
(iii) Nothing contained in this Agreement shall
obligate an Agent to enter into a Terms Agreement with the Issuer or to
otherwise agree to purchase Notes for its own account.
3. Offering and Sale of Notes. Each party hereto agrees to perform the
respective duties and obligations specifically provided to be performed by it
in the Administrative Procedures.
4. Agreements.
(a) The Issuer agrees with you that:
(i) If information that is material to an investment
in a Note is not otherwise contained in the Offering Memorandum, or if
at any time an event occurs as a result of which the Offering
Memorandum as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if it is
necessary at such time to amend or supplement the Offering Memorandum
to comply with any applicable law, the Issuer promptly will prepare an
amendment or supplement which will correct such statement or omission
or effect such compliance, and will not effect any amendment or
supplement to the Offering Memorandum without your consent, which
consent shall not be unreasonably withheld; provided, however, that the
foregoing consent requirement shall not apply to periodic and other
filings with the Commission by the Issuer under the federal securities
laws including, without limitation, Current Reports on Form 8-K,
Quarterly Reports on Form 10-Q, or Annual Reports on Form 10-K under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")
("Federal Securities Filings"). Neither your consent to, nor your
delivery of, any such amendment or supplement shall constitute a waiver
of any of the conditions set forth in Section 5 hereto.
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<PAGE>
(ii) The Issuer shall furnish to you such information
and documents relating to the business, operations and affairs of the
Issuer, the Offering Memorandum and any amendments thereof or
supplements thereto, the Notes, the Supplemental Indenture, this
Agreement, any Terms Agreement, the Administrative Procedures, the
Paying Agency Agreement and the performance by the parties hereto of
their respective obligations hereunder and thereunder as you may from
time to time and at any time prior to the termination of this Agreement
reasonably request in connection with soliciting offers to purchase
Notes. The Issuer shall notify you promptly (1) if at any time any
event occurs which constitutes (or after notice or lapse of time or
both would constitute) a default or an event of default under the
Notes, the Supplemental Indenture, the Paying Agency Agreement, this
Agreement or any agreement evidencing additional indebtedness of the
Issuer or (2) of any material adverse change, or to the knowledge of
the Issuer any development involving a prospective material adverse
change, in the financial condition, earnings, business or business
prospects or properties of the Issuer and its subsidiaries considered
as a single enterprise.
(iii) The Issuer shall, whether or not any sale of
Notes is consummated, (1) pay, or reimburse if paid by any Agent, all
reasonable costs and expenses incident to the performance of its
obligations under this Agreement and any Terms Agreement, including,
but not limited to, the cost of preparation, printing or other
production and delivery of the Offering Memorandum, all amendments
thereof and supplements thereto, the Supplemental Indenture, the Paying
Agency Agreement, this Agreement, any Terms Agreement and all other
documents relating to the offering of Notes pursuant hereto and
thereto, the cost of preparing, printing, packaging and delivering the
Notes, the fees and disbursements of counsel to and accountants for the
Issuer, the fees and disbursements of the Trustee, the fees and
disbursements of the Paying Agent, and the fees of any Rating Agency,
(2) reimburse you on a quarterly basis for all reasonable out-of-pocket
expenses incurred by you in connection with this Agreement and the
transactions contemplated hereby and (3) pay the reasonable fees and
expenses of your counsel incurred in connection with this Agreement and
the transactions contemplated hereby.
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<PAGE>
(iv) On each date of settlement for any Tranche of
Notes (a "Settlement Date"), or if at any time that the Offering
Memorandum is amended or supplemented (excluding an amendment or
supplement solely by reason of the incorporation of documents by
reference), in the reasonable judgement of the Agent the information
disclosed in such amendment or supplement is of such a nature that an
officer's certificate and an opinion of counsel need be furnished, the
Issuer shall deliver or cause to be delivered promptly to you an
officer's certificate, an opinion of counsel and an opinion of its
Senior Vice President-Law and Administration or General Counsel, dated
the Settlement Date or the date of such amendment or supplement, as the
case may be, in form reasonably satisfactory to the Agent, of the same
tenor as the certificate and opinions referred to in Sections 5(a)(ii)
and (iii), but modified to relate to the Offering Memorandum, this
Agreement and the Paying Agency Agreement, each as then in effect.
(v) Unless otherwise specified in any Terms
Agreement, the Issuer shall not, without the prior consent of the
Purchaser thereunder, issue or announce the proposed issuance of any of
its debt securities (including Notes), which are denominated in the
same currency as, and have similar maturities, similar interest rates
and other terms (including in respect of the method of computing
interest) substantially similar to those of, the Notes being purchased
pursuant to such Terms Agreement, during the period commencing on the
date on which the Issuer accepts an offer to purchase any Note in
accordance with such Terms Agreement and terminating on the Closing
Date for the sale of such Note.
(vi) The Issuer shall furnish to you without charge,
from time to time, as many copies of the following as you may
reasonably request: (A) the Offering Memorandum and any amendment or
supplement that has been prepared with respect thereto, (B) any Pricing
Supplement, and (C) any financial statements and other periodic reports
that the Issuer may furnish generally to holders of its debt
securities.
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<PAGE>
(vii) The Issuer shall furnish to you in written form
all quarterly financial statement information for the first three
fiscal quarterly periods of the Issuer promptly upon publication of
such quarterly information and, within two months of the end of each
such quarterly period, cause the Offering Memorandum to be supplemented
to include such financial information and corresponding information for
the comparable period of the preceding fiscal year, as well as such
other information and explanations as shall be necessary for an
understanding of such financial information, which supplement may be in
the form of a separate quarterly report, or a report filed by the
Issuer under the Exchange Act.
(viii) The Issuer shall furnish to you the audited
consolidated financial statements updating the audited consolidated
financial statements and the financial information included in the
Offering Memorandum for each corresponding fiscal year as promptly as
practicable after the publication of such financial statements, but in
any event not later than four months after the end of such fiscal year,
and cause the Offering Memorandum to be supplemented to include such
audited financial statements and the accountants' report with respect
thereto, as well as such other information and explanations as shall be
necessary for an understanding of such financial statements, which
supplement may be in the form of a separate annual report or report
filed by the Issuer under the Exchange Act.
(ix) The Issuer shall (1) furnish to you copies of
any proposed supplement or amendment to the Offering Memorandum
(including any document incorporated by reference therein) in advance
of using such supplement or amendment, such copies, to the extent
practicable, to be furnished to you five business days in advance of
using such supplement or amendment, except for Federal Securities
Filings, copies of which filings the Issuer will cause to be delivered
to the Agent by facsimile or other means of delivery, on or prior to
the date of filing with the Commission, and (2) permit you to review
and comment as to the form and content thereof and, subject to the
proviso in Section 4(a)(i), shall not use any such amendment or
supplement to which you have reasonably objected in good faith;
provided, however, that an amendment or supplement prepared to set
forth terms and conditions of any Notes, including any Pricing
Supplement, need not be furnished to or reviewed by those of you who
are not named therein, who shall not have solicited offers for such
Notes and who are not to be Purchasers of such Notes. Any Agent who
shall have an objection in good faith to such proposed amendment or
supplement may immediately terminate this Agreement as to such Agent by
notice to the Issuer. At the request of any Agent so terminating, the
Issuer shall promptly amend and supplement the Offering Memorandum and
Schedule I hereto to indicate those firms that remain Agents.
16
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(x) The Issuer shall not offer or sell any securities
under circumstances which would require the registration of any of the
Notes under the Securities Act.
(xi) The Issuer will take appropriate steps to ensure
that the aggregate principal amount of Notes issued during the Offering
Period does not exceed U.S. $300,000,000, will not issue any Notes if
such issuance would cause such limit to be exceeded, will promptly
notify you in the event that at any time such limit has been reached
and will promptly notify you if such limit is increased pursuant to
this Agreement.
(xii) The Issuer shall not, without having given
prior written notice to you, consent to any amendment of the Paying
Agency Agreement. The Issuer shall promptly notify you of any
resignation or removal of the Paying Agent and the appointment of any
successor thereto.
(xiii) For so long as any of the Notes are
outstanding, the Issuer will provide to any holder of Notes that are
"restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, and to any prospective purchaser of such Notes
designated by a holder thereof, upon the request of such holder or
prospective purchaser in connection with a transfer or proposed
transfer pursuant to Rule 144A, any information required to be provided
to such holder or prospective purchaser to comply with the conditions
set forth in Rule 144A as in effect as of the date the Notes of the
corresponding Tranche shall have been first issued (together with any
such information added by an amendment to Rule 144A after such date, to
the extent such information can be provided without unreasonable
additional expense to the Issuer).
(xiv) You shall not be liable or responsible to the
Issuer for any losses, damages or liabilities suffered or incurred by
the Issuer, including any losses, damages or liabilities under the
Securities Act, arising from or relating to any resale or transfer of a
Note by a holder (other than yourself) in any manner that does not
comply with the applicable restrictions on resale and transfer or the
procedures required for resale and transfer set forth herein, in the
Offering Memorandum and in the Notes; provided that each of you,
severally and not jointly, shall remain liable for the performance of
your own obligations under this Agreement.
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<PAGE>
(xv) The Issuer will at all times ensure that all
approvals, authorizations, consents or other orders of, and all filings
with, any governmental or other administrative agency or body will be,
prior to the time required (taking into account any permitted
extensions), obtained or made (1) so that the Issuer may lawfully
perform its obligations under the Notes, the Supplemental Indenture,
this Agreement, the Administrative Procedures and the Paying Agency
Agreement and (2) so that performance of such obligations will, in all
respects material to the Issuer and its subsidiaries considered as a
single enterprise, or material to the Issuer's ability to perform its
obligations under the Notes, the Supplemental Indenture, this
Agreement, the Administrative Procedures and the Paying Agency
Agreement, comply with any laws, decrees, regulations, judgments or
orders of any court, government, governmental authority or agency to
which the Issuer or any of its subsidiaries or any of their respective
properties or assets is subject.
(xvi) During the Offering Period, the Issuer will
send to you a copy of every notice of a meeting of the holders of the
Notes (or any of them) that is sent by the Issuer or the Trustee to
such holders at the same time it is sent to such holders and will
promptly notify you immediately upon its becoming aware that a meeting
of the holders of the Notes (or any of them) has been convened by any
of such holders.
(xvii) During the Offering Period, the Issuer shall
promptly notify you of any lowering in the ratings of any of the
Issuer's securities by any Rating Agency, or of any notice given by any
Rating Agency of any intended or possible decrease in any such rating
or of any possible change in any such rating where such notice does not
indicate the direction of the possible change.
(xviii) During the six-month period preceding and the
six-month period following the issue date of any Note, neither the
Issuer nor any affiliate of the Issuer will directly or indirectly,
sell, offer for sale, solicit offers to buy or otherwise negotiate in
respect of, any of the Notes or any other security (as defined in the
Securities Act) which will be integrated with such sale of Notes in a
manner that would require the registration of the Notes under the
Securities Act.
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(xix) Until the expiration of two years after the
issuance of each Tranche of Notes, the Issuer will not, and will cause
its affiliates not to resell any Notes which are "restricted
securities" (as such term is defined under Rule 144(a)(3) of the Act)
whether as beneficial owner or otherwise (except as agent acting as a
securities broker on behalf of and for the account of customers in the
ordinary course of business in unsolicited broker's transactions).
(xx) The Issuer will apply the net proceeds from the
offering and sale of the Notes in the manner set forth in the Offering
Memorandum under "Use of Proceeds".
(b) The obligations of the Issuer under Sections 4(a)(i),
(ii), (iv), (vi), (vii), (viii) and (ix) shall be suspended during any
period of time during which the Issuer shall have suspended the
solicitation of offers to purchase Notes by written notice to each
Agent; provided, however, that such obligations of the Issuer shall
remain in effect (i) for a period of two years following the date of
notice of such suspension if such Agent shall own any Notes with the
intention of reselling them as contemplated by Section 2(b) or (ii) if
the Issuer has accepted an offer to purchase Notes solicited by such
Agent pursuant to this Agreement and the settlement for such sale shall
not have occurred. At least one week prior to the end of any such
period during which solicitations shall have been suspended, the Issuer
shall notify you of any event or change contemplated by Section 4(a)(i)
or by the last sentence of Section 4(a)(ii) of which the Issuer would
have been obligated to notify you, and shall provide you all written
information, documents and supplements referred to in Sections
4(a)(ii), (iv), (vii), (viii) and (ix) that the Issuer would have been
obligated to deliver to you, had the Issuer not so suspended the
solicitation of offers.
5. Conditions to the Obligations of the Agent.
(a) The obligations of each Agent to solicit offers to
purchase any Notes shall be subject to the accuracy of the
representations and warranties on the part of the Issuer contained
herein as of the date hereof and as of each time the Issuer gives a
notice requesting any Agent to solicit offers as Agent, at and as of
each acceptance of an offer by the Issuer and upon delivery of any Note
to the purchaser (or its agent) pursuant to such offer, to the accuracy
of the statements of the Issuer made in any certificates delivered
pursuant to the provisions hereof as of the respective dates of such
certificates, to the performance and observance by the Issuer of all
covenants and agreements herein contained on its part to be performed
and observed and to the following additional conditions precedent:
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(i) The Issuer shall have obtained all
authorizations, consents and approvals of any court or governmental or
other regulatory agency or body required in connection with the
issuance and sale of the Notes and the performance of its obligations
hereunder and under the Notes, the Notice of Appointment, the
Supplemental Indenture and the Paying Agency Agreement.
(ii) The Issuer shall have furnished to you an
accurate certificate dated as of the date thereof, signed by the Chief
Executive Officer or the Chief Financial Officer of the Issuer, in form
and substance satisfactory to you, to the effect that, to the best of
his or her knowledge after reasonable inquiry:
(1) the representations and warranties
of the Issuer in this Agreement are true and correct
in all material respects on and as of the date of the
certificate and the Issuer has performed in all
material respects all its obligations and satisfied
all the conditions on its part to be satisfied at or
prior to the date of the certificate;
(2) since the date of the most recent
financial statements included in the current Offering
Memorandum, there has been no material adverse
change, or to the knowledge of the Issuer any
development involving a prospective material adverse
change, in the financial condition, earnings,
business or business prospects or properties of the
Issuer and its subsidiaries, considered as a single
enterprise, except as set forth in the Offering
Memorandum; and
(3) the Offering Memorandum (other than
statements made therein in reliance upon and in
conformity with information furnished to the Issuer
in writing by any Agent specifically for use therein,
as to which no representation shall be made) does not
contain any untrue statement of a material fact or
omit to state any material fact necessary to make the
statements therein, in light of the circumstances
under which they were made, not misleading.
(iii) (A) The Issuer shall have furnished to each
Agent the opinion of Dilworth Paxson LLP, counsel to the Issuer,
substantially in the form of Exhibit C hereto, which may be subject to
any assumptions, qualifications and limitations that are reasonably
acceptable to each Agent.
20
<PAGE>
(B) The Issuer shall have furnished to each
Agent and to Dilworth Paxson LLP the opinion of the Senior Vice
President-Law and Administration or General Counsel of the Issuer
substantially in the form of Exhibit D hereto, which may be subject to
any assumptions, qualifications and limitations that are reasonably
acceptable to each Agent.
(iv) Each Agent shall have received from Chase
Manhattan Trust Company National Association, as Trustee under the
Indenture of Mortgage and the Supplemental Indenture, a certificate
substantially in the form of Exhibit E hereto, which may be subject to
any assumptions, qualifications and limitations that are reasonably
acceptable to each Agent.
(v) Each Agent shall have received from your counsel
such opinion with respect to the proposed issue and sale of the Notes
and other related matters as the Agent may reasonably require.
(vi) KPMG LLP, independent accountants for the
Issuer, shall have furnished to the Agent an executed copy of a letter
in the form attached hereto as Exhibit F.
(vii) The Issuer shall have furnished to each Agent
such further information, certificates and documents as any Agent may
reasonably request.
(viii) The documents required to be delivered by this
Section 5 shall be delivered at, or transmitted by telecopy (with an
undertaking promptly to forward the original copies thereof) to, the
offices of Dilworth Paxson LLP, counsel for the Issuer, 3200 Mellon
Bank Center, 1735 Market Street, Philadelphia, PA 19103, at 4:00 P.M.,
Philadelphia time, on the date thereof, and an original of each such
document will be sent to you.
(b) Each of the conditions precedent in clauses (i) through
(viii) above shall be satisfied on each Settlement Date unless waived
by the Agent or Agents appointed for the relevant Tranche, at the sole
discretion of such Agent or Agents. Each of the items listed in clauses
(ii), (iii) and (iv) above shall be dated the applicable Settlement
Date. The items listed in clause (vi) shall be dated the applicable
Settlement Date, if the Company shall have prepared updated quarterly
or annual financial statements since the date of the last such letter
delivered to you.
21
<PAGE>
6. Conditions to the Obligations of a Purchaser.
(a) The obligations of any Purchaser to purchase any Notes
shall be subject to the accuracy of the representations and warranties
on the part of the Issuer contained herein or in the corresponding
Terms Agreement, if any, at and as of the date of the corresponding
Terms Agreement and upon the delivery to any Purchaser of any Note
pursuant to such Terms Agreement, to the performance and observance by
the Issuer of all covenants and agreements herein or therein contained
on its part to be performed and observed and to the following
additional conditions precedent:
(i) The Issuer shall have obtained all
authorizations, consents and approvals of any court or governmental or
other regulatory agency or body required in connection with the
issuance and sale of the Notes and the performance of its obligations
hereunder and under the Notes, the Notice of Appointment, the
Supplemental Indenture and the Paying Agency Agreement.
(ii) To the extent provided by such Terms Agreement,
the Purchaser shall have received, appropriately updated, (1) a
certificate of the Issuer dated as of the Closing Date to the effect
set forth in Section 5(a)(ii), (2) the opinion of Dilworth Paxson LLP
dated the Closing Date to the effect set forth in Section 5(a)(iii)(A),
(3) the opinion of the Senior Vice President-Law and Administration or
General Counsel, dated the Closing Date to the effect set forth in
Section 5(a)(iii)(B), (4) the Trustee's certificate dated the Closing
Date to the effect set forth in Section 5(a)(iv), (5) the opinion of
your counsel dated the Closing Date to the effect set forth in Section
5(a)(v) and (6) the letter of KPMG LLP dated the Closing Date to the
effect set forth in Section 5(a)(vi).
(iii) Prior to the Closing Date, the Issuer shall
have furnished to the Purchaser such further information, certificates
and documents as the Purchaser may reasonably request.
(b) If any of the conditions specified in this Section 6 shall
not have been fulfilled in all material respects when and as provided
in this Agreement and any Terms Agreement, or if any other event occurs
which permits cancellation under this Agreement, such Terms Agreement
and all obligations of the Purchaser thereunder and with respect to the
Notes subject thereto may be canceled at, or at any time prior to, the
respective Closing Date by the Purchaser. Notice of such cancellation
shall be given to the Issuer in writing or by telephone, promptly
confirmed in writing, which confirmation may be made by telex or
telecopy.
22
<PAGE>
7. Conditions to all Purchases. The consummation of the sale of any
Note pursuant to this Agreement shall be subject to the further condition that,
at the date of issuance thereof, in the reasonable judgment of the Purchaser or
the Agent that obtained the offer, (a) each condition set forth in Section 5 or
6, as applicable, shall have been satisfied and (b) subsequent to the respective
dates as of which information is given in the Offering Memorandum (current as of
the date of such agreement to purchase a Note), except as set forth therein or
contemplated thereby, there shall not have occurred any material adverse change,
or to the knowledge of the Issuer any development involving a prospective
material adverse change, in or affecting the financial condition, earnings,
business or business prospects or properties of the Issuer and its subsidiaries,
considered as a single enterprise, the effect of which makes it impracticable or
inadvisable to market the Notes or to proceed with completion of the sale and
payment for such Notes.
8. Restrictions on Offers and Sales of the Notes. Each party hereto
represents, warrants and agrees, severally and not jointly, as follows:
(a) It will solicit offers to purchase Notes only from, and it
will offer and sell Notes only to, (i) institutional purchasers that
are, or that it reasonably believes are, "qualified institutional
buyers" as such term is defined in paragraph (a)(1) of Rule 144A
("QIBs") or (ii) any Agent. If it is an Agent, any resales or transfers
of Notes through, or arranged by, such Agent similarly will be made
only to QIBS. Neither it, its affiliates, nor any person acting on its
or their behalf (except that no representation is made with respect to
any other party to this Agreement) has engaged or will engage in any
form of general solicitation or general advertising (within the meaning
of Rule 502(c) under the Securities Act) in the United States with
respect to the Notes.
(b) It will make reasonable inquiry to determine whether a
purchaser is purchasing for such purchaser's own account as a QIB or
for the account of others and not with a view to, or for sale in
connection with, the public distribution thereof in any transaction
that would be in violation of Federal or state securities laws and, in
the case of any purchaser acting on behalf of one or more third
parties, it shall make reasonable inquiry to determine that each such
third party is a QIB and that the amount being purchased on behalf of
each such third party is not less than the authorized minimum
denomination of such Notes; provided that the Issuer shall have no duty
to make any such inquiry in connection with sales to any Agent or
pursuant to offers transmitted to it by any Agent.
23
<PAGE>
9. Indemnification and Contribution.
(a) The Issuer agrees to indemnify and hold harmless each
Agent and each person who controls any Agent within the meaning of
either the Securities Act or Section 20 of the Exchange Act against any
and all losses, claims, damages or liabilities, joint or several, to
which any such person may become subject under the law of any
jurisdiction insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon any untrue
statement of a material fact contained in the Offering Memorandum, in
any amendment thereof or supplement thereto or in any information
provided by the Issuer and furnished to any purchaser of the Notes
pursuant to Section 4(a)(xiii), or arise out of or are based upon the
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and agrees
to reimburse each such indemnified party, as incurred, for any legal or
other expenses reasonably incurred by it in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that (i) the Issuer will not be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any such untrue statement or
omission made in the Offering Memorandum or in any amendment thereof or
supplement thereto in reliance upon and in conformity with written
information furnished to the Issuer by the person seeking
indemnification, or on behalf of another person authorized to do so,
specifically for use in connection with the preparation thereof. This
indemnity will be in addition to any liability which the Issuer may
otherwise have.
(b) Each Agent, severally and not jointly, agrees to indemnify
and hold harmless the Issuer and each person who controls the Issuer
within the meaning of either the Securities Act or the Exchange Act, to
the same extent as the foregoing indemnity from the Issuer, but only
with reference to written information relating to the indemnifying
party furnished to the Issuer by it, or on its behalf by a person
authorized to do so, specifically for use, in the preparation of the
Offering Memorandum or any amendment thereof or supplement thereto.
This indemnity will be in addition to any liability which any Agent may
otherwise have.
24
<PAGE>
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 9, notify the indemnifying party
in writing of the commencement thereof; however, the omission so to
notify the indemnifying party (i) will not relieve it from any
liability under paragraph (a) or (b) above unless and to the extent it
did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of any substantial rights and
defenses and (ii) will not, in any event, relieve the indemnifying
party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraph (a) or (b) above. In
case any such action is brought against any indemnified party, and it
notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and to the
extent that it may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and
the indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assert such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of its election
so to assume the defense of such action and approval by the indemnified
party of counsel (which approval shall not be unreasonably withheld),
the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate
counsel in connection with the assertion of legal defenses in
accordance with the proviso to the next preceding sentence (it being
understood, however, that the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to any
local counsel), representing the indemnified parties under paragraph
(a) of this Section 9 who are parties to such action), (ii) the
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party; and except
that, if clause (i) or (iii) is applicable, such liability shall be
only in respect of the counsel referred to in such clause (i) or (iii).
The indemnifying party shall not be liable for any settlement of any
action or claim effected without its consent, which consent shall not
be unreasonably withheld.
25
<PAGE>
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section
9 is due in accordance with its terms but is for any reason held by a
court to be unavailable on grounds of policy or otherwise, the Issuer
and each Agent shall contribute to the aggregate losses, claims,
damages and liabilities (including legal or other expenses reasonably
incurred in connection with investigating or defending same) to which
the Issuer and any Agent may be subject in such proportion so that each
Agent is responsible only for that portion represented by the
percentage that the aggregate commissions received by each such Agent
pursuant to Section 2 in connection with the Notes from which such
losses, claims, damages and liabilities arise (or, in the case of Notes
sold to a Purchaser, the discount to such Purchaser), bears to the
aggregate principal amount of such Notes sold, and the Issuer is
responsible for the balance; provided, however, that in no case shall
any Agent be responsible for any amount in excess of the commissions
received by each such Agent in connection with the Notes from which
such losses, claims, damages and liabilities arise (or, in the case of
Notes sold to the Purchaser, the discount to such Purchaser). For
purposes of this Section 9, each person who controls any Agent within
the meaning of either the Securities Act or the Exchange Act shall have
the same rights to contribution as such Agent and each person who
controls the Issuer within the meaning of either the Securities Act or
the Exchange Act shall have the same rights to contribution as the
Issuer, subject in each case to the proviso to the preceding sentence.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
hereunder from any person who was not guilty of such fraudulent
misrepresentation. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim or
contribution may be made against another party or parties under this
paragraph (d), notify such party or parties from whom contribution may
be sought (which obligation to give notice shall be deemed to be
satisfied by the delivery of notice pursuant to paragraph (c) of this
Section 9), but the omission so to notify such party or parties shall
not relieve the party or parties from whom contribution may be sought
from any other obligation it or they may have hereunder or otherwise
than under this paragraph (d).
26
<PAGE>
10. Termination.
(a) This Agreement will continue in effect until terminated as
provided in this Section 10 or Section 4(a)(ix). This Agreement may be
terminated by the Issuer as to any Agent or, in the case of any Agent
by such Agent, by giving at least 30 days' written notice of such
termination to the other parties hereto, at which time the Issuer shall
cause Schedule I hereto to be amended. Notwithstanding any such
termination, the rights and liabilities of each party under Sections
2(a)(iv) and (vii), Sections 4(a)(iii), (xiv) and (xvi), Sections 8(a)
and (b) (with respect to resales and transfers of Notes), Section 9,
Section 11 and any Terms Agreement executed prior to the date of
termination hereof shall survive any termination of this Agreement, in
whole or in part. In addition, if any termination shall occur either
(i) at a time when any Purchaser shall own any Notes, purchased under
this Agreement from the Issuer, with the intention of reselling them or
(ii) after the Issuer has accepted an offer to purchase Notes and prior
to the related settlement, all agreements, terms and conditions
relating to the purchase and sale of such Notes shall also remain in
effect.
(b) Each agreement to purchase Notes pursuant to a
solicitation by an Agent hereunder, and each agreement by a Purchaser
to purchase Notes hereunder, shall be subject to termination in the
absolute discretion of such Agent or the Purchaser (as the case may
be), by notice given to the Issuer prior to delivery of any payment for
Notes to be purchased, if prior to such time (i) trading in any
securities issued by the Issuer or by PSC shall have been suspended or
halted on any exchange (whether U.S. or foreign), or trading in
securities generally on the New York Stock Exchange shall have been
suspended or limited or minimum or maximum prices shall have been
generally established on such Exchange, or additional material
government restrictions, not in force on the date of this Agreement or
the date of any Terms Agreement with respect to such Notes, shall have
been imposed upon trading in securities generally by such Exchange or
by order of the Commission or any court or other governmental
authority, (ii) a general banking moratorium shall have been declared
by either U.S. Federal or New York State authorities, (iii) there shall
have been a lowering in the ratings of any of the Issuer's securities
by any Rating Agency or a notice given by any Rating Agency of any
intended or potential decrease in any such rating or of any possible
change in any such rating where such notice does not indicate the
direction of the possible change, or (iv) there shall have occurred any
material adverse changes in the financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis in
national or international political, financial or economic conditions
that makes it in the reasonable judgment of such Agent or Purchaser (as
the case may be) impracticable or inadvisable to market the Notes or to
proceed with completion of the sale of and payment for such Notes.
27
<PAGE>
11. Representations and Indemnities to Survive. The respective
agreements, representations, warranties, indemnities and other statements of the
Issuer or its officers and of the Agent set forth in or made pursuant to this
Agreement will remain in full force and effect, regardless of any investigation
made by or on behalf of any Agent or by or on behalf of the Issuer or any of the
controlling persons referred to in Section 9, and will survive delivery of and
payment for the Notes.
12. Increases in the Amount of the Notes; Extension of Offering Period.
The aggregate principal amount of Notes that may be sold by the Issuer may be
increased, or the Offering Period may be extended, if permitted under the
Indenture of Mortgage and pursuant to the laws of the Commonwealth of
Pennsylvania, pursuant to (x) a subsequent supplemental indenture to the
Indenture of Mortgage and (y) an amendment to this Agreement in the form
attached hereto as Exhibit G executed by the Issuer and the Agent named in
Schedule I hereto. Upon the execution and delivery of any such amendment, to the
extent agreed upon by the Issuer and the Agent, the Issuer shall deliver to such
Agent, appropriately updated, (a) a certificate of the Issuer dated as of the
date of such amendment to the effect set forth in Section 5(a)(ii), (b) the
opinion of Dilworth Paxson LLP dated the date of such amendment to the effect
set forth in Section 5(a)(iii)(A), (c) the opinion of its Senior Vice
President-Law and Administration or General Counsel, dated the Closing Date to
the effect set forth in Section 5(a)(iii)(B), (d) the certificate of the Trustee
dated the date of such amendment to the effect set forth in Section 5(a)(iv),
and (e) the letter of KPMG LLP dated the date of such amendment to the effect
set forth in Section 5(a)(vi), and the Issuer shall furnish to you such further
information, certificates and documents as you may reasonably request.
13. Notices. All communications hereunder will be in writing, and
effective only on receipt, or (but only where specifically provided in the
Administrative Procedures) by telephone and, if sent to the Agent, will be
mailed, delivered, telecopied and confirmed or telexed and confirmed to the
Agent, at the address(es) specified in Schedule I hereto; or, if sent to the
Issuer, will be mailed, delivered, telecopied and confirmed or telexed and
confirmed to it at 762 Lancaster Avenue, Bryn Mawr, PA 19010, Attention:
Treasurer, (telephone: (215) 527-8000; telecopy: (215) 645-1141).
28
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14. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors and the
controlling persons referred to in Section 9, and no other person will have any
right or obligation hereunder.
15. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE Commonwealth of Pennsylvania (EXCLUDING LAWS
GOVERNING CONFLICTS OF LAW).
16. Counterparts. This Agreement may be signed in counterparts with the
same effect as if the signatures thereto and hereto were upon the same
instrument.
29
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement between the
Issuer and you.
Very truly yours,
PHILADELPHIA SUBURBAN WATER
COMPANY,
By: /s/ Kathy L. Pape
-------------------------
Name: Kathy L. Pape
Title: Vice President and
Treasurer
[confirmations and acceptances on following pages]
30
<PAGE>
The foregoing Placement Agency Agreement is hereby confirmed and accepted as of
the date hereof.
A.G. Edwards & Sons
By: /s/ Lester H. Krone
----------------------------
Lester H. Krone:
Managing Director
Investment Banking
Janney Montgomery Scott, Inc.
By: /s/ Anthony J. Spatacco, Jr.
----------------------------
Anthony J. Spatacco, Jr.
Vice President
First Union Securities, Inc.
By: /s/ William Ingram
----------------------------
William Ingram
Managing Director
PaineWebber Incorporated
By: /s/ David Zahka
----------------------------
Name: David Zahka
Title: Senior Vice President
PNC Capital Markets, Inc.
By: /s/ Robert W. Thomas
----------------------------
Name: Robert W. Thomas
Title: Managing Director
31
<PAGE>
Merrill, Lynch, Pierce, Fenner & Smith Incorporated
By: /s/ Scott Primrose
----------------------------
Name: Scott Primrose
Title: Authorized Signatory
32
<PAGE>
INDEX OF DEFINITIONS
Term Section
---- -------
Accountants 1(b)
Administrative Procedures Introductory Paragraph
Agent Introductory Paragraph
Agreement Introductory Paragraph
Closing Date 2(b)(i)
Commission 1(a)
Exchange Act 4(a)(i)
Federal Securities Filings 4(a)(i)
Issuer Introductory Paragraph
Material Adverse Effect 1(c)
Notes Introductory Paragraph
Notice of Appointment 2(a)(i)
Offering Memorandum 1(a)
Offering Period Introductory Paragraph
Paying Agency Agreement Introductory Paragraph
Pricing Supplement 1(a)
PSC Introductory Paragraph
Purchaser Introductory Paragraph
QIBs 8(a)
Rating Agency 1(c)
Request for Bids 2(a)(i)
Rule 144A 1(m)
Securities Act Introductory Paragraph
Settlement Date 4(a)(iv)(A)
Terms Agreement 2(b)(i)
Tranche Introductory Paragraph
You Introductory Paragraph
33
<PAGE>
SCHEDULE I
Placement Agents:
A.G. Edwards & Sons
1 North Jefferson
St. Louis, MO 63103
Lester Krone Phone: (314) 955-2358
Fax: (314) 955-7387
Janney Montgomery Scott, Inc.
Times Bldg., Suite 400
Suburban Square
Ardmore, PA 19003-2415
Anthony Spatacco Phone: (610) 896-2800
Fax: (610) 896-9943
PaineWebber Incorporated
1285 Avenue of the Americas
New York, NY 10019
David Zahka Phone: (212) 713-2960
Fax: (212) 247-0371
First Union Securities, Inc.
One First Union Center
301 South College Street
Charlotte, NC 28288-0735
Jim Williams
PNC Capital Markets, Inc
One PNC Plaza
249 Fifth Avenue
26th Floor, Pittsburgh PA 15222
Robert Thomas
Merrill Lynch & Co.
World Financial Center
North Tower
New York, NY 10281-1311
Timothy Sheerer Phone: (212) 449-1727
Fax: (212) 449-0599
34
<PAGE>
SCHEDULE II
The Issuer agrees to pay each Agent a commission equal to the following
percentage of the principal amount of each Note sold by the Agent, and to pay
the Purchaser a commission in the form of a discount to the purchase price equal
to the following percentage of the principal amount of each Note purchased by a
Purchaser under Section 2(b):
Term Commission Rate
- ---- ---------------
From 9 months to less than 1 year .125%
From 1 year to less than 18 months .150%
From 18 months to less than 2 years .200%
From 2 years to less than 3 years .250%
From 3 years to less than 4 years .350%
From 4 years to less than 5 years .450%
From 5 years to less than 6 years .500%
From 6 years to less than 7 years .550%
From 7 years to less than 10 years .600%
From 10 years to less than 15 years .625%
From 15 years to less than 20 years .700%
From 20 years up to and including 35 years .750%
35
<PAGE>
EXHIBIT A
MEDIUM TERM NOTE ADMINISTRATIVE PROCEDURES
December 3, 1999
First Mortgage Bonds, 1999 Medium Term Notes Series (the
"Notes"), due from one year to thirty-five years, are to be offered on a
continuing basis during the five year period from November 18, 1999 through
November 17, 2004. The Agent or Agents listed on Schedule I to the Placement
Agency Agreement (collectively, the "Agent) have agreed to use reasonable
efforts to solicit offers to purchase Notes in fully registered form. The Agent
may also purchase Notes as principal for resale, but no Agent will be obligated
to purchase Notes for its own account. One or more of the Agents may participate
in the placement or purchase of the Notes of each Tranche upon their receipt of
a Notice of Appointment from the Issuer for said Tranche.
The Notes are being sold pursuant to a Placement Agency
Agreement between the Issuer and the Agent dated as of the date hereof (the
"Placement Agency Agreement"). The Notes will be issued under and secured in
accordance with the Thirty-Third Supplemental Indenture dated as of November 15,
1999 (the "Supplemental Indenture") to the Indenture of Mortgage dated as of
January 1, 1941 (the Indenture of Mortgage") between the Issuer and Chase
Manhattan Trust Company, National Association (as successor trustee to The
Pennsylvania Company for Insurance on Lives and Granting Annuities), as Trustee
(the "Trustee").
All Notes shall be represented by Global Securities (as
defined hereinafter) registered in the name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"), and beneficial ownership of such Notes will be
represented and maintained in book-entry form on the books of DTC (the
"Book-Entry Notes"). An owner of a Book-Entry Note will not be entitled to
receive a certificate representing such Note. However, if DTC is at any time
unwilling or unable to continue as depositary and a successor depositary is not
appointed by the Issuer within 90 days, the Issuer will issue Notes in
definitive registered form (the "Certificated Notes") in exchange for the Global
Security or Securities representing such Notes. In addition, the Issuer may at
any time and in its sole discretion determine not to have some of or all the
Notes represented by one or more Global Securities and, in such event, will
issue certificated Notes in exchange for all of the Global Securities
representing such Notes. In any such instance, an owner of a beneficial interest
in a Global Security will be entitled to physical delivery of Certificated Notes
represented by such Global Security equal in amount to that represented by such
beneficial interest and to have such Certificated Notes registered in its name.
<PAGE>
The procedures to be followed during, and the specific terms
of, the solicitation of offers by each Agent and the sale as a result thereof by
the Issuer are explained below. Administrative and record-keeping
responsibilities will be handled for the Issuer by its Treasurer. The Issuer
will advise each Agent and the Trustee in writing of those persons handling
administrative responsibilities with whom the Agent and the Trustee are to
communicate regarding offers to purchase Notes and the details of their
delivery. The Issuer will promptly advise each Agent and the Trustee in writing
if any such person shall cease to handle such responsibilities or of the
authorization of any additional person to handle such responsibilities.
Administrative procedures and specific terms of the offering
are explained below. Book-Entry Notes will be issued in accordance with the
administrative procedures set forth in Part I hereof, as adjusted in accordance
with changes in DTC's operating requirements, and Certificated Notes will be
issued in accordance with the administrative procedures set forth in Part II
hereof. Capitalized terms not defined herein shall have the meanings assigned in
the Placement Agency Agreement or, if not defined therein, in the Supplemental
Indenture or the Offering Memorandum. To the extent the procedures set forth
below conflict with the provisions of the Notes, the Indenture of Mortgage, the
Supplemental Indenture, DTC's operating requirements or the Placement Agency
Agreement, the relevant provisions of the Notes, the Indenture of Mortgage, the
Supplemental Indenture, DTC's operating requirements and the Placement Agency
Agreement shall control.
PART I
Administrative Procedures for
Book-Entry Notes
In connection with the qualification of the Book-Entry Notes
for eligibility in the book-entry system maintained by DTC, the Trustee will
perform the custodial, document control and administrative functions assigned to
it as described below, unless certain duties are otherwise designated to a duly
authorized paying agent, in accordance with its respective obligations under a
Letter of Representations from the Issuer and the Trustee to DTC dated as of the
date hereof and a Medium Term Note Certificate Agreement between The Chase
Manhattan Bank and DTC dated as of December 2, 1988, as amended, and its
obligations as a participant in DTC, including DTC's Same-Day Funds Settlement
system ("SDFS").
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Issuance: On any date of settlement (as defined
under "Settlement" below) for one or more
Notes, the Issuer will issue a single
global security in fully registered form
without coupons (a "Global Security")
representing all such Notes that have the
same rank (senior or subordinated),
original issue date, original issue
discount provisions, if any, Interest
Payment Dates, Record Dates, Interest
Payment Period, redemption provisions, if
any, tender provisions, if any, Maturity
Date, and interest rate (collectively,
the "Terms"). Each Global Security will
be dated and issued as of the date of its
authentication by the Trustee. Each
Global Security will bear an original
issue date, which will be (i) with
respect to an original Global Security
(or any portion thereof), the original
issue date specified in such Global
Security and (ii) following a
consolidation of Global Securities, with
respect to the Global Security resulting
from such consolidation, the most recent
Interest Payment Date to which interest
has been paid or duly provided for on the
predecessor Global Securities, regardless
of the date of authentication of such
resulting Global Security. No Global
Security will represent any Certificated
Note.
Identification The Issuer has arranged with the CUSIP
Numbers: Service Bureau of Standard & Poor's (the
"CUSIP Service Bureau") for the
reservation of one series of CUSIP
numbers, which consists of approximately
900 CUSIP numbers and relates to Global
Securities representing Book-Entry Notes.
The Issuer has obtained from the CUSIP
Service Bureau a written list of such
reserved CUSIP numbers, which the Issuer
shall deliver to the Trustee and DTC. The
Issuer will assign CUSIP numbers to
Global Securities as described below
under Settlement Procedure "B". DTC will
notify the CUSIP Service Bureau
periodically of the CUSIP numbers that
the Issuer has assigned to Global
Securities. At any time when fewer than
100 of the reserved CUSIP numbers remain
unassigned to Global Securities for
either series, if it deems necessary, the
Issuer will reserve additional CUSIP
numbers for assignment to Global
Securities. Upon obtaining such
additional CUSIP numbers, the Issuer
shall deliver a list of such additional
CUSIP numbers to the Trustee and DTC.
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<PAGE>
Registration: Global Securities will be issued only in
fully registered form without coupons.
Each Global Security will be registered
in the name of Cede & Co., as nominee for
DTC, on the securities register for the
Notes maintained under the Indenture of
Mortgage. The beneficial owner of a
Book-Entry Note (or one or more indirect
participants in DTC designated by such
owner) will designate one or more
participants in DTC (with respect to such
Book-Entry Note, the "Participants") to
act as agent or agents for such owner in
connection with the book-entry system
maintained by DTC, and DTC will record in
book-entry form, in accordance with
instructions provided by such
Participants, a credit balance with
respect to such beneficial owner in such
Book-Entry Note in the account of such
Participants. The ownership interest of
such beneficial owner (or such
Participant) in such Book-Entry Note will
be recorded through the records of such
Participants or through the separate
records of such Participants and one or
more indirect participants in DTC.
Transfers: Transfers of a Book-Entry Note will be
accomplished by book entries made by DTC
and, in turn, by Participants (and, in
certain cases, one or more indirect
participants in DTC) acting on behalf of
beneficial transferors and transferees of
such Note.
Exchanges: The Trustee may deliver to DTC and the
CUSIP Service Bureau at any time a
written notice of consolidation (a copy
of which shall be attached to the
resulting Global Security described
below) specifying (i) the CUSIP numbers
of two or more Outstanding Global
Securities that represent fixed rate
Notes having the same Terms and for which
interest has been paid to the same date,
(ii) a date, occurring at least thirty
(30) days after such written notice is
delivered and at least thirty (30) days
before the next Interest Payment Date for
such Book-Entry Notes, on which such
Global Securities shall be exchanged for
a single replacement Global Security and
(iii) the single CUSIP number to be
assigned to such replacement Global
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<PAGE>
Security (which shall be the CUSIP number
previously assigned to the Global
Security with the earliest date of
issuance). Upon receipt of such a notice,
DTC will send to its Participants
(including the Trustee) a written
reorganization notice to the effect that
such exchange will occur on such date.
Prior to the specified exchange date, the
Trustee will deliver to the CUSIP Service
Bureau a written notice setting forth
such exchange date and such single CUSIP
number and stating that, as of such
exchange date, the CUSIP numbers of the
individual Global Securities not assigned
to the replacement Global Security will
no longer be valid. On the specified
exchange date, the Trustee will exchange
such Global Securities for a single
Global Security bearing the single CUSIP
number and the CUSIP numbers of the
individual Global Securities not assigned
will, in accordance with CUSIP Service
Bureau procedures, be retired and not
reassigned. Each Book-Entry Note will
mature on a date not less than one year
nor more than thirty-five years after the
settlement date for such Note.
Denomination: Book-Entry Notes will be issued in a
minimum principal amount of $100,000 or
an integral multiple of $1,000 in excess
thereof. Global Securities will be
denominated in principal amounts not in
excess of $150,000,000. If one or more
Book Entry Notes having an aggregate
principal amount in excess of
$150,000,000 would, but for the preceding
sentence, be represented by a single
Global Security, then one Global Security
will be authenticated and issued to
represent each $150,000,000 principal
amount of such Book-Entry or Notes and an
additional Global Security will be
authenticated and issued to represent any
remaining principal amount of such
Book-Entry Note or Notes. In such a case,
each of the Global Securities
representing such Book-Entry Note or
Notes shall be assigned the same CUSIP
number.
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<PAGE>
Interest: General. Interest, if any, on each
Book-Entry Note will accrue from the
original issue date for the first
interest period or the last date to which
interest has been paid, if any, for each
subsequent interest period, on the Global
Security representing such Book-Entry
Note,and will be calculated and paid in
the manner described in such Book-Entry
Note and in the Offering Memorandum (as
defined in the Placement Agency
Agreement), as supplemented by the
applicable Pricing Supplement thereto.
Unless otherwise specified therein,
eachpayment of interest on a Book-Entry
Note will include interest accrued up to
but excluding the Interest Payment Date
or up to but excluding the Maturity Date.
Interest payable upon Maturity of a
Book-Entry Note will be payable to the
Person to whom the principal of such Note
is payable. Standard & Poor's Corporation
will use the information received in the
pending deposit message described under
Settlement Procedure "C" below in order
to include the amount of any interest
payable and certain other information
regarding the related Global Security in
the appropriate (daily or weekly) bond
report published by Standard & Poor's
Corporation.
Record Dates. The Record Date with
respect to any Interest Payment Date
shall be the December 15 or June 15
immediately preceding such Interest
Payment Date, whether or not such date
shall be a Business Day.
Interest Payment Dates. Interest payments
will be made semiannually on January 1
and July 1 of each year and at Maturity
or earlier redemption or Tender;
provided, however, that in the case of a
Book-Entry Note issued between a Record
Date and an Interest Payment Date, or on
an Interest Payment Date, the first
interest payment will be made on the
Interest Payment Date following the next
succeeding Record Date. If any Interest
Payment Date for a Book-Entry Note is not
a Business Day, the payment due on such
day shall be made on the next succeeding
Business Day and no interest shall accrue
on such payment for the period from and
after such Interest Payment Date.
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<PAGE>
Calculation of Interest: Book-Entry Notes. Interest on Book-Entry
Notes (including interest for partial
periods) will be calculated on the basis
of a 360-day year of twelve 30-day
months.
Payments of Principal and Interest: Payment of Interest Only. Promptly after
each Record Date, the Trustee will
deliver to the Issuer and DTC a written
notice setting forth, by CUSIP number,
the amount of interest to be paid on each
Global Security on the following Interest
Payment Date (other than an Interest
Payment Date coinciding with Maturity or
earlier redemption or Tender of such
Global Security) and the total of such
amounts. DTC will confirm the amount
payable on each Global Security on such
Interest Payment Date by reference to the
appropriate (daily or weekly) bond
reports published by Standard & Poor's
Corporation. The Issuer will pay to the
Trustee, as paying agent, the total
amount of interest due on such Interest
Payment Date (other than at Maturity or
earlier redemption or Tender of such
Global Security), and the Trustee will
pay such amount to DTC, at the times and
in the manner set forth below under
"Manner of Payment".
Payments at Maturity. On or about the
last Business Day of each month, the
Trustee will deliver to the Issuer and
DTC a written list of principal, premium
(if any) and interest to be paid on each
Global Security maturing (on a Maturity
or Redemption Date or otherwise) in the
following month. The Trustee, the Issuer
and DTC will confirm the amounts of such
principal, premium (if any) and interest
payments with respect to each such Global
Security on or about the fifth Business
Day preceding the Maturity of such Global
Security. On or before the Maturity Date,
the Issuer will pay to the Trustee, as
paying agent, the principal amount of
such Global Security, together with any
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<PAGE>
premium and interest due at such
Maturity. The Trustee will pay such
amount to DTC at the times and in the
manner set forth below under "Manner of
Payment". If any Maturity of a Global
Security representing Book Entry Notes is
not a Business Day, the payment due on
such day shall be made on the next
succeeding Business Day and no interest
shall accrue on such payment for the
period from and after such Maturity.
Promptly after payment to DTC of the
principal, premium (if any) and interest
due at Maturity, earlier redemption or
Tender of such Global Security (the
"Cancelled Security"), the Trustee will
cancel such Global Security (the
"Cancelled Security") in accordance with
the Indenture of Mortgage and so advise
the Issuer; provided, however, if such
Global Security is not being redeemed or
tendered in its entirety, the Trustee
shall authenticate a new Global Security
in an amount equal to the principal
portion of the Cancelled Security not
paid. On the first Business Day of each
month, the Trustee will deliver to the
Issuer a written statement indicating the
total principal amount of Outstanding
Global Securities as of the immediately
preceding Business Day.
Manner of Payment. The total amount of
any principal, premium (if any) and
interest due on Global Securities on any
Interest Payment Date or at Maturity
shall be paid by the Issuer to the
Trustee in immediately available funds no
later than 9:30 a.m. (New York City time)
on such date. The Issuer will make such
payment on such Global Securities by wire
transfer of funds available for immediate
use to the Trustee. The Issuer will
confirm any such instructions in writing
to the Trustee. Prior to 10:00 a.m. (New
York City time) on the date of Maturity
or as soon as possible thereafter, the
Trustee will pay, from funds received
from the Issuer, by separate wire
transfer (using Fed wire message entry
instructions in a form previously
specified by DTC) to an account at the
Federal Reserve Bank of New York
previously specified by DTC, in funds
available for immediate use by DTC, each
payment of principal (together with any
premium and interest thereon) due on a
Global Security on such date. On each
Interest Payment Date (other than at
Maturity), interest payments shall be
made to DTC, in funds available for
immediate use by DTC, in accordance with
existing arrangements between the Trustee
and DTC. On each such date, DTC will pay,
in accordance with its SDFS operating
procedures then in effect,such amounts in
funds available for immediate use to the
respective Participants in whose names
the Book-Entry Notes represented by such
Global Securities are recorded in the
book-entry system maintained by DTC.
Neither the Issuer (as issuer or as
paying agent) nor the Trustee shall have
any direct responsibility or liability
for the payment by DTC to such
Participants of the principal of and
interest on the Book-Entry Notes.
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<PAGE>
Withholding Taxes. The amount of any
taxes required under applicable law to be
withheld from any interest payment on a
Book-Entry Note will be determined and
withheld by the Participant, indirect
participant in DTC or other Person
responsible for forwarding payments and
materials directly to the beneficial
owner of such Note.
Procedure for Rate Setting and The Issuer and the Agent will discuss
Posting: from time to time the aggregate principal
amount of, the issuance price of, and the
interest rates to be borne by, Book-Entry
Notes that may be sold as a result of the
solicitation of orders by the Agent. If
the Issuer decides to set prices of, and
rates borne by, any Book-Entry Notes in
respect of which the Agent is to solicit
orders (the setting of such prices and
rates to be referred to herein as
"posting")or if the Issuer decides to
change prices or rates previously posted
by it, it will promptly advise the Agent
of the prices and rates to be posted.
Acceptance and Rejection of Orders: Unless otherwise instructed by the
Issuer, each Agent will advise the Issuer
promptly by telephone of all orders to
purchase Book-Entry Notes received by
such Agent, other than those rejected by
it in whole or in part in the reasonable
exercise of its discretion. The Issuer
has the right to accept orders to
purchase Book-Entry Notes and may reject
any such orders in whole or in part.
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<PAGE>
Preparation of Pricing Supplement: If any order to purchase a Book-Entry
Note is accepted by or on behalf of the
Issuer, the Issuer, with the approval of
the Presenting Agent (defined below) will
prepare a supplement (a "Pricing
Supplement") reflecting the terms of such
Book-Entry Note and will supply at least
ten copies thereof (and additional copies
if requested) to the Agents which
presented the order (the "Presenting
Agent") at the address set forth on
Schedule I to the Placement Agency
Agreement, and one copy thereof to the
Trustee, to be delivered by overnight
courier or telecopy to arrive no later
than 11:00 a.m., New York City time, on
the Business Day following the date of
acceptance.
The Presenting Agent will cause an
Offering Memorandum and Pricing
Supplement to be delivered to the
purchaser of such Book-Entry Note.
Outdated Pricing Supplements (other than
those retained for files), will be
destroyed.
Suspension of Solicitation The Issuer may instruct each Agent to
suspend at any time, for any period of
time or permanently, the solicitation of
orders to purchase Book-Entry Notes. Upon
receipt of such instructions, each Agent
will forthwith suspend solicitation until
such time as the Issuer has advised them
that such solicitation may be resumed.
In the event that at the time the Issuer
suspends solicitation of purchases there
shall be any orders outstanding for
settlement, the Issuer will promptly
advise each Agent and the Trustee whether
such orders may be settled and whether
copies of the Offering Memorandum as in
effect at the time of the suspension,
together with the appropriate Pricing
Supplement, may be delivered in
connection with the settlement of such
orders. The Issuer will have the sole
responsibility for such decision and for
any arrangements that may be made in the
event that the Issuer determines that
such orders may not be settled or that
copies of such Offering Memorandum or
Pricing Supplement may not be so
delivered.
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<PAGE>
Procedure For Rate Changes: When the Issuer has determined to change
the interest rates of Book Entry Notes
being offered, it will promptly advise
each Agent and each Agent will forthwith
suspend solicitation of orders. Each
Agent will telephone the Issuer with
recommendations as to the changed
interest rates. At such time as the
Issuer has advised the Agent of the new
interest rates, the Agent may resume
solicitation of orders. Until such time
only "indications of interest" may be
recorded.
Delivery of Offering Memorandum: A copy of the Offering Memorandum and
Pricing Supplement relating to a
Book-Entry Note must accompany or precede
the earliest of any written offer of such
Book-Entry Note, confirmation of the
purchase of such Book-Entry Note and
payment for such Book-Entry Note by its
purchaser. If notice of a change in the
terms of the Book-Entry Notes is received
by the Agent between the time an order
for a Book-Entry Note is placed and the
time written confirmation thereof is sent
by the Presenting Agent to a customer or
his agent, such confirmation shall be
accompanied by an Offering Memorandum and
Pricing Supplement setting forth the
terms in effect when the order was
placed. Subject to "Suspension of
Solicitation" above, the Presenting Agent
will deliver an Offering Memorandum and
Pricing Supplement as herein described
with respect to each Book Entry Note sold
by it. The Issuer will make such delivery
if such Book-Entry Note is sold directly
by the Issuer to a purchaser (other than
an Agent).
Confirmation: For each order to purchase a Book Entry
Note solicited by any Agent and accepted
by or on behalf of the Issuer, the
Presenting Agent will issue a
confirmation to the purchaser, with a
copy to the Issuer, setting forth the
details set forth above and delivery and
payment instructions.
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<PAGE>
Settlement: The receipt by the Issuer of immediately
available funds in payment for a
Book-Entry Note and the authentication
and issuance of the Global Security
representing such Book-Entry Note shall
constitute "settlement" with respect to
such Book-Entry Note. All orders accepted
by the Issuer will be settled on the
tenth Business Day following the date of
sale of such Book-Entry Note pursuant to
the timetable for settlement set forth
below unless the Issuer and the purchaser
agree to settlement on another day which
shall be no earlier than one Business Day
following the date of sale.
Settlement Procedures: Procedures with regard to each Book-Entry
Note sold by the Issuer through any
Agent, as agent, shall be as follows:
A. The Presenting Agent will advise
the Issuer by telephone of the
following settlement information:
1. Principal amount.
2. Maturity Date.
3. The interest rate.
4. Interest Payment Dates and
the Interest Payment
Period.
5. Redemption or repayment
provisions, if any.
6. Optional Tender
Provisions, if any
7. Settlement date.
8. Price.
9. The Presenting Agent's DTC
participant account number
and commission, determined
as provided in Section 2
of the Placement Agency
Agreement.
10. Whether such Book-Entry
Note is issued at an
original issue discount
("OID") and, if so, the
total amount of OID, the
yield to maturity and the
initial accrual period
OID.
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<PAGE>
B. The Issuer will assign a CUSIP
number to the Global Security
representing such Book-Entry Note
and then advise the Trustee and the
Presenting Agent by telephone
(confirmed in writing at any time
on the same date) or electronic
transmission of the information set
forth in Settlement Procedure "A"
above, such CUSIP number and the
name of the Presenting Agent.
C. The Trustee will enter a pending
deposit message through DTC's
Participant Terminal System
providing the settlement
information to DTC specified in the
Letter of Representations from the
Issuer and the Trustee to DTC dated
as of the date hereof.
D. To the extent the Issuer has not
already done so, the Issuer will
deliver to the Trustee a Global
Security in a form that has been
approved by the Issuer, the Agent
and the Trustee.
E. The Trustee will complete such
Global Security, stamp the
appropriate legend, as instructed
by DTC, if not already set forth
thereon, and authenticate the
Global Security representing such
Book-Entry Note in accordance with
the terms of the written order of
the Issuer then in effect.
F. DTC will credit such Book-Entry
Note to the Trustee's participant
account at DTC.
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<PAGE>
G. Upon delivery of the pending
deposit message referenced in "C"
above, an SDFS deliver order
through DTC's Participant Terminal
System will be created instructing
DTC to debit such Book-Entry Note
to the Trustee's participant
account and credit such Book-Entry
Note to the Presenting Agent's
participant account and debit the
Presenting Agent's settlement
account and credit the Trustee's
settlement account for an amount
equal to the price of such
Book-Entry Note less the Presenting
Agent's commission. The entry of
such a pending deposit message by
the Trustee shall constitute a
representation and warranty by the
Trustee to DTC that (i) the Global
Security representing such
Book-Entry Note has been issued and
authenticated and (ii) the Trustee
is holding such Global Security
pursuant to the Medium Term Note
Certificate Agreement between The
Chase Manhattan Bank and DTC.
H. The Presenting Agent will enter :an
SDFS deliver order through DTC's
Participant Terminal System
instructing DTC (i) to debit such
Book-Entry Note to the Presenting
Agent's participant account and
credit such Book-Entry Note to the
participant accounts of the
Participants with respect to such
Book-Entry Note and (ii) to debit
the settlement accounts of such
Participants and credit the
settlement account of the
Presenting Agent for an amount
equal to the price of such
Book-Entry Note.
I. Transfers of funds in accordance
with SDFS deliver orders described
in Settlement Procedures "G" and
"H" will be settled in accordance
with SDFS operating procedures in
effect on the settlement date.
J. The Trustee will, upon receipt of
funds from the Agent in accordance
with Settlement Procedure "G",
credit to an account of the Issuer
maintained at Mellon Bank, N.A.,
funds available for immediate use
in the amount transferred to the
Trustee in accordance with
Settlement Procedure "G". However,
the Trustee shall not credit the
account of the Issuer unless and
until the Trustee has confirmed
receipt of the funds in the
appropriate amount transferred in
accordance with Settlement
Procedure "G".
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<PAGE>
K. The Presenting Agent will confirm
the purchase of such Book-Entry
Note to the purchaser either by
transmitting to the Participants
with respect to such Book-Entry
Note a confirmation order or orders
through DTC's institutional
delivery system or by mailing a
written confirmation to such
purchaser.
Settlement Procedures Timetable: For orders of Book-Entry Notes solicited
by any Agent and accepted by the Issuer
for settlement on the Business Day after
the sale date, Settlement Procedures "A"
through "K" set forth above shall be
completed as soon as possible but not
later than the respective times (New York
City time) set forth below:
Settlement
Procedure Time
---------- ----
A 11:00 a.m. on the sale date
B 12:00 Noon on the sale date
C 12:00 Noon on the Business
Day before settlement date
D 3:00 p.m. on the day before
settlement
E 9:00 a.m. on settlement date
F 10:00 a.m. on settlement date
G-H 2:00 p.m. on settlement date
I 4:30 p.m. on settlement date
J-K 5:00 p.m. on settlement date
If a sale is to be settled more than one
Business Day after the sale date,
Settlement Procedures "A", "B" and "C"
shall be completed as soon as practicable
but no later than 11:00 a.m. and 12:00
Noon on the first Business Day after the
sale date and no later than 2:00 p.m. on
the Business Day before the settlement
date, respectively. Settlement Procedure
"I" is subject to extension in accordance
with any extension of Fed wire closing
deadlines and in the other events
specified in SDFS operating procedures in
effect on the settlement date.
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<PAGE>
If settlement of a Book-Entry Note is
rescheduled or canceled, the Trustee, to
the extent it has received written notice
of such rescheduling or cancellation,
will deliver to DTC, through DTC's
Participant Terminal System, a
cancellation, message to such effect by
no later than 2:00 p.m. on the Business
Day immediately preceding the scheduled
settlement date.
Failure to Settle: If the Trustee has not entered an SDFS
deliver order with respect to a
Book-Entry Note pursuant to Settlement
Procedure "G", then, upon written request
(which may be by telecopy) of the Issuer,
the Trustee shall deliver to DTC, through
DTC's Participant Terminal System, as
soon as practicable, a withdrawal message
instructing DTC to debit such Book Entry
Note to the Trustee's participant
account. DTC will process the withdrawal
message, provided that the Trustee's
participant account contains a principal
amount of the Global Security
representing such Book-Entry Note that is
at least equal to the principal amount to
be debited. If a withdrawal message is
processed with respect to all the
Book-Entry Notes represented by a Global
Security, the Trustee will cancel such
Global Security in accordance with the
Indenture of Mortgage and so advise the
Issuer, and will make appropriate entries
in its records. The CUSIP number assigned
to such Global Security shall, in
accordance with CUSIP Service Bureau
procedures, be canceled and not
immediately reassigned. If a withdrawal
message is processed with respect to one
or more, but not all, of the Book-Entry
Notes represented by a Global Security,
the Trustee will exchange such Book-Entry
Note for two Global Securities, one of
which shall represent such Book Entry
Notes and shall be canceled immediately
after issuance and the other of which
shall represent the other Book-Entry
Notes previously represented by the
surrendered Global Security and shall
bear the CUSIP number of the surrendered
Global Security.
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<PAGE>
If the purchase price for any Book Entry
Note is not timely paid to the
Participants with respect to such Note by
the beneficial purchaser thereof (or a
Person, including an indirect participant
in DTC, acting on behalf of such
purchaser), such Participants and, in
turn, the Presenting Agent may enter SDFS
deliver orders through DTC's Participant
Terminal System debiting such Note to
such Presenting Agent's participant
account and crediting such Note free to
the participant account of the Trustee
and shall notify the Trustee and the
Issuer thereof. Thereafter, the Trustee
(i) will promptly notify the Issuer
thereof, once the Trustee has confirmed
that such Note has been credited to its
participant account, and the Issuer shall
immediately transfer by Fed wire (in
immediately available funds) to such
Agent an amount equal to the price of
such Note which was previously credited
to the account of the Issuer maintained
at Mellon Bank, N.A., or wire transferred
at the Issuer's direction in accordance
with Settlement Procedure J and (ii) the
Trustee will deliver the withdrawal
message and take the related actions
described in the preceding paragraph. If
such failure shall have occurred for any
reason other than a default by the
Presenting Agent in the performance of
its obligations hereunder and under the
Placement Agency Agreement, then the
Issuer will reimburse the Presenting
Agent or the Trustee, as applicable, on
an equitable basis for the loss of the
use of the funds during the period when
they were credited to the account of the
Issuer.
Notwithstanding the foregoing, upon any
failure to settle with respect to a
Book-Entry Note, DTC may take any actions
in accordance with its SDFS operating
procedures then in effect. In the event
of a failure to settle with respect to
one or more, but not all, of the
Book-Entry Notes to have been represented
by a Global Security, the Trustee will
provide, in accordance with Settlement
Procedure "E", for the authentication and
issuance of a Global Security
representing the other Book-Entry Notes
to have been represented by such Global
Security and will make appropriate
entries in its records.
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<PAGE>
Trustee Not to Risk Funds: Nothing herein shall be deemed to require
the Trustee to risk or expend its own
funds in connection with any payment to
the Issuer, DTC, the Agent or the
purchaser, it being understood by all
parties that payments made by the Trustee
to the Issuer, DTC, the Agent or the
purchaser shall be made only to the
extent that funds are provided to the
Trustee for such purpose.
Authenticity of Signatures: The Issuer will cause the Trustee to
furnish the Agent from time to time with
the specimen signatures of each of the
Trustee's officers, employees or agents
who have been authorized by the Trustee
to authenticate Book-Entry Notes, but no
Agent will have any obligation or
liability to the Issuer or the Trustee in
respect of the authenticity of the
signature of any officer, employee or
agent of the Issuer or the Trustee on any
Book-Entry Note.
Payment of Expenses: Each Agent shall forward to the Issuer,
on a monthly basis, a statement of the
out-of-pocket expenses incurred by such
Agent during that month that are
reimbursable to it pursuant to the terms
of the Placement Agency Agreement. The
Issuer will remit payment to each Agent
currently on a monthly basis.
Advertising Costs: The Issuer will determine with the Agent
the amount of advertising that may be
appropriate in soliciting offers to
purchase the Book-Entry Notes.
Advertising expenses will be paid by the
Issuer.
Periodic Statements from the Periodically, upon written request, the
Trustee: Trustee will send to the Issuer a
statement setting forth the principal
amount of Book-Entry Notes outstanding as
of that date and setting forth a brief
description of any sales of Book-Entry
Notes of which the Issuer has advised the
Trustee but which have not yet been
settled.
Restrictions on Transfers: No Note may be resold or transferred in
any manner that does not comply with the
applicable restrictions on resale or
transfer or the procedures required for
resale or transfer set forth in the
Offering Memorandum, the Placement Agency
Agreement and on the Note certificate.
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<PAGE>
Business Day: As used herein, "Business Day" means any
day other than a Saturday or Sunday or a
day on which the Trustee or banks in New
York, New York are generally authorized
or obligated by law or executive order to
close.
PART II
Administrative Procedures for Certificated Notes
The Trustee will serve as registrar and transfer agent,
authenticating agent and paying agent in connection with the Certificated Notes,
unless a different paying agent is duly appointed by the Issuer to carry out
certain duties.
Issuance: Each Certificated Note will be dated and
issued as of the date of its
authentication by the Trustee. Each
Certificated Note will bear an Original
Issue Date, which will be (i) with
respect to an original Certificated Note
(or any portion thereof), its original
issuance date (which will be the
settlement date) and (ii) with respect to
any Certificated Note (or portion
thereof) issued subsequently upon
transfer or exchange of a Certificated
Note or in lieu of a destroyed, lost or
stolen Certificated Note, the Original
Issue Date of the predecessor
Certificated Note, regardless of the date
of authentication of such subsequently
issued Certificated Note.
Registration: Certificated Notes will be issued only in
fully registered form without coupons.
Transfers and Exchanges: A Certificated Note may be presented for
transfer or exchange at the office
designated by the Trustee located in
Dallas, Texas or at such other office as
the Issuer may designate. Certificated
Notes will be exchangeable for other
Certificated Notes having identical terms
but different authorized denominations
without service charge. Certificated
Notes will not be exchangeable for
Book-Entry Notes.
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<PAGE>
Maturities: Each Certificated Note will mature on a
date not less than one year nor more than
thirty-five years after the Original
Issue Date (the settlement date) for such
Note.
Denominations: The denomination of any Certificated Note
denominated in U.S. dollars will be a
minimum of $100,000 or any amount in
excess thereof that is an integral
multiple of $1,000.
Interest: General. Interest, if any, on each
Certificated Note will accrue from the
Original Issue Date for the first
interest period or the last date to which
interest has been paid, if any, for each
subsequent interest period, and will be
calculated and paid in the manner
described in such Note and in the
Offering Memorandum, as supplemented by
the applicable Pricing Supplement. Unless
otherwise specified therein, each payment
of interest on a Certificated Note will
include interest accrued up to but
excluding the Interest Payment Date or up
to but excluding the Maturity Date.
Record Dates. The Record Date with
respect to any Interest Payment Date
shall be the December 15 or June 15
immediately preceding such Interest
Payment Date, whether or not such date
shall be a Business Day.
Interest Payment. Unless otherwise
specified pursuant to Settlement
Procedure "A" below, interest payments
will be made semiannually on on January 1
and July 1 of each year and at Maturity,
or earlier redemption or Tender;
provided, however, that in the case of a
Certificated Note issued between a Record
Date and an Interest Payment Date, or on
an Interest Payment Date, the first
interest payment will be made on the
Interest Payment Date following the next
succeeding Record Date. If any Interest
Payment Date for, or the Maturity of, a
Certificated Note is not a Business Day,
the payment due on such day shall be made
on the next succeeding Business Day and
no interest shall accrue on such payment
for the period from and after such
Interest Payment Date or Maturity, as the
case may be.
20
<PAGE>
Calculation Interest on Certificated Notes (including
of Interest: interest for partial periods) will be
calculated on the basis of a 360 day year
of twelve 30-day months.
Payments of No later than 11:00 a.m. on the due date
Principal and Interest: for any payment of principal, premium (if
any) or interest on each Certificated
Note, the Issuer will pay to the Trustee,
as paying agent, the amount of principal,
premium (if any) and/or interest then
due. The Trustee will pay the principal
amount of each Certificated Note at
Maturity or earlier redemption or Tender
upon presentation of such Certificated
Note to the Trustee. Such payment,
together with payment of any premium and
interest due at Maturity or earlier
redemption or Tender of such Certificated
Note, will be paid to an account at a
bank in New York, New York (or other bank
consented to by the Issuer) as the
registered holder of the Notes shall
designate to the Trustee not less than
ten (10) days prior to the Record Date
for such payment, in funds available for
immediate use by the Trustee and in turn
by the Holder of such Certificated Note.
Certificated Notes presented and
surrendered to the Trustee at Maturity or
earlier redemption or Tender for payment
will be cancelled by the Trustee in
accordance with the Indenture of
Mortgage. All interest payments on a
Certificated Note (other than interest
due at Maturity or earlier redemption or
Tender) and any other payments for which
appropriate instructions for payment
shall not have been received by the
Trustee not less than ten (10) days prior
to the Record Date for such payment will
be made by check drawn on the Trustee or
another Person appointed by the Trustee
mailed by the Trustee to the Person
entitled thereto as provided in such
Note; provided, however, that the holder
21
<PAGE>
of $10,000,000 or more of Certificated
Notes with similar tenor and terms will
be entitled to receive payment by wire
transfer in U.S. dollars upon receipt of
written instructions by the Trustee not
less than ten (10) days prior to the
Record Date for such payment. Within five
Business Days after each Record Date, the
Trustee will furnish the Issuer with a
list of interest payments to be made on
the following Interest Payment Date for
each group of Certificated Notes bearing
interest at a particular rate and in
total for all Certificated Notes.
Interest at Maturity or earlier
redemption or Tender will be payable to
the Person to whom the payment of
principal is payable. The Trustee will
provide, on or about the last Business
Day of each month, to the Issuer lists of
principal and interest, to the extent
ascertainable, to be paid on Certificated
Notes maturing (on a Maturity or
Redemption Date or otherwise) in the next
succeeding month.
The Issuer will be responsible for
withholding taxes on interest paid on
Certificated Notes as required by
applicable law.
Procedure for Rate Setting and The Issuer and the Agent will discuss
Posting: from time to time the aggregate principle
amount of, the issuance price of, and the
interest rates to be borne by, Notes that
may be sold as a result of the
solicitation of orders by any Agent. If
the Issuer decides to set prices of, and
rates borne by, any Notes in respect of
which any Agent are to solicit orders
(the setting of such prices and rates to
be referred to herein as "posting") or if
the Issuer decides to change prices or
rates previously posted by it, it will
promptly advise each Agent of the prices
and rates to be posted.
Acceptance and Rejection of Orders: Unless otherwise instructed by the
Issuer, each Agent will advise the Issuer
promptly by telephone of all orders to
purchase Certificated Notes received by
such Agent, other than those rejected by
it in whole or in part in the reasonable
exercise of its discretion and, if such
Agent or any of its affiliates shall be
the offeror, shall advise the Issuer of
that fact. Unless otherwise agreed by the
Issuer and each Agent, the Issuer has the
sole right to accept orders to purchase
Certificated Notes and may reject any
such orders in whole or in part. The
Issuer will forthwith advise such
Presenting Agent of the acceptance or
rejection of any offer received through
such Agent who shall then so advise the
offeror.
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<PAGE>
Preparation of Pricing Supplement: If any order to purchase a Certificated
Note is accepted by or on behalf of the
Issuer, and if so required by Section
4(a)(i) of the Placement Agency
Agreement, the Issuer, with the approval
of the Presenting Agent, will prepare a
Pricing Supplement reflecting the terms
of such Certificated Note and will supply
at least ten copies thereof (and
additional copies if requested) to the
Presenting Agent at the address set forth
on Schedule I to the Placement Agency
Agreement, and one copy thereof to the
Trustee, to be delivered by overnight
courier or telecopy to arrive no late
than 11:00 a.m., New York City time, on
the Business Day following the sale date.
The Presenting Agent will cause an
Offering Memorandum and Pricing
Supplement to be delivered to the
purchaser of such Certificated Note.
Outdated Pricing Supplements (other than
those-retained for files), will be
destroyed.
Suspension of Solicitation: Subject to the Issuer's representations,
warranties and covenants contained in the
Placement Agency Agreement, the Issuer
may instruct the Agent to suspend at any
time for any period of time or
permanently, the solicitation of orders
to purchase Certificated Notes. Upon
receipt of such instructions, each Agent
will forthwith suspend solicitation until
such time as the Issuer has advised each
Agent that such solicitation may be
resumed.
In the event that at the time the Issuer
suspends solicitation of Purchases there
shall be any orders outstanding for
settlement, the Issuer will promptly
advise each Agent and the Trustee whether
such orders may be settled and whether
copies of the Offering Memorandum as in
effect at the time of the suspension,
together with the appropriate Pricing
Supplement, may be delivered in
connection with the settlement of such
orders. The Issuer will have the sole
responsibility for such decision and for
any arrangements that may be made in the
event that the Issuer determines that
such orders may not be settled or that
copies of such Offering Memorandum may
not be so delivered. No such suspension
shall excuse any failure by the Issuer to
fulfill a contractual obligation to
deliver any Certificated Notes.
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<PAGE>
Procedure for Rate Changes: When the Issuer has determined to change
the interest rates of Certificated Notes
being offered, it will promptly advise
the Agent and each Agent will forthwith
suspend solicitation of orders. Each
Agent will telephone the Issuer with
recommendations as to the changed
interest rates. At such time as the
Issuer has advised the Agent of the new
interest rates, the Agent may resume
solicitation of orders. Until such time
only "indications of interest" may be
recorded.
Delivery of Offering Memorandum: A copy of the Offering Memorandum and any
Pricing Supplement relating to a
Certificated Note must accompany or
precede the earliest of any written offer
of such Certificated Note, confirmation
of the purchase of such Certificated Note
and payment for such Certificated Note by
its purchaser. If notice of a change in
the terms of the Certificated Notes is
received by the Agent between the time an
order for a Certificated Note is placed
and the time written confirmation thereof
is sent by the Presenting Agent to a
customer or his agent, such confirmation
shall be accompanied by an Offering
Memorandum and Pricing Supplement setting
forth the terms in effect when the order
was placed. Subject to "Suspension of
Solicitation" above, the Presenting Agent
will deliver an Offering Memorandum and
Pricing Supplement as herein described
with respect to each Certificated Note
sold by it. The Issuer will make such
delivery if such Certificated Note is
sold directly by the Issuer to a
purchaser (other than any Agent).
Confirmation: For each order to purchase a Certificated
Note solicited by any Agent and accepted
by or on behalf of the Issuer, the
Presenting Agent will issue a
confirmation to the purchaser, with a
copy to the Issuer, setting forth the
information specified in paragraph A
under "Settlement Procedures" and
delivery and payment instructions.
24
<PAGE>
Settlement: The receipt by the Issuer of immediately
available funds in exchange for an
authenticated Certificated Note delivered
to the Presenting Agent and the
Presenting Agent's delivery of such
Certificated Note against receipt of
immediately available funds shall, with
respect to such Certificated Note,
constitute "settlement". All orders
accepted by the Issuer will be settled on
the tenth Business Day following the date
of sale pursuant to the timetable for
settlement set forth below, unless the
Issuer and the Purchaser agree to
settlement on another day which shall be
no earlier than one Business Day
following the date of sale.
Settlement Procedures: Settlement Procedures with regard to each
Certificated Note sold by the Issuer
through any Agent, as agent, shall be as
follows:
A. The Presenting Agent will advise
the Issuer by telephone of the
following settlement information:
1. Name in which such
Certificated Note is to be
registered ("Registered
Owner").
2. Address of the Registered
Owner and address for
payment of principal and
interest.
3. Taxpayer identification
number of the Registered
Owner (if available).
4. Rank (senior or
subordinated).
5 Principal amount.
6. Maturity Date.
25
<PAGE>
7. Interest Payment Dates and
the Interest Payment
Period.
8. Redemption or repayment
provisions, if any.
9. Optional Tender
Provisions, if any.
10. The settlement date.
11. Price (including
currency).
12. Presenting Agent's
commission, determined as
provided in Section 2 of
the Placement Agency
Agreement.
13. Whether such Certificated
Note is issued at an
original issue discount
("OID"), and, if so, the
total amount of OID, the
yield to maturity and the
initial accrual period
OID.
B. The Issuer will advise the Trustee
by telephone (confirmed in writing
at any time on the sale date) or
electronic transmission of the
information set forth in Settlement
Procedure "A" above and the name of
the Presenting Agent.
C. The Issuer will deliver to the
Trustee an original Certificated
Note with customer confirmation in
triplicate in forms that have been
approved by Issuer, the Agent and
the Trustee.
D. The Trustee will complete such
Certificated Note and will
authenticate such Certificated Note
and deliver it (with the
confirmation) and two copies
thereof (clearly marked as such) to
the Presenting Agent, and the
Presenting Agent will acknowledge
receipt of the Note by stamping or
otherwise marking the first copy
and returning it to the Trustee.
Such delivery will be made only
against such acknowledgment of
receipt. In the event that the
instructions given by the
Presenting Agent for payment to the
account of the Issuer are revoked,
the Issuer will as promptly as
possible wire transfer to the
account of the Presenting Agent an
amount of immediately available
funds equal to the amount of such
payment made.
26
<PAGE>
E. The Presenting Agent will deliver
such Certificated Note (with the
confirmation) to the customer
against payment in immediately
payable funds. The Presenting Agent
will obtain the acknowledgement of
receipt of such Certificated Note
by retaining the second copy
thereof.
F. Upon verification by the Presenting
Agent that a Note has been prepared
and properly authenticated by the
Trustee and registered in the name
of the purchaser in the proper
principal amount, payment will be
made to the Issuer by the
Presenting Agent the same day in
immediately available funds. Such
payment shall be made only upon
prior receipt by the Presenting
Agent of immediately available
funds from or on behalf of the
purchaser unless the Presenting
Agent decides, at its option,
exercised in its sole discretion,
to advance its own funds for such
payment against subsequent receipt
of funds from the purchaser. The
Presenting Agent shall immediately
notify the Issuer of its decision
to advance its own funds for
payment against subsequent receipt
of funds from a purchaser.
G. The Trustee will send a third copy
of the Certificated Note (clearly
marked as such) to the Issuer by
first-class mail.
Settlement Procedures Timetable: For orders of Certificated Notes
solicited by any Agent, as agent, and
accepted by the Issuer, Settlement
Procedures "A" through "G" set forth
above shall be -completed on or before
the respective times (New York City time)
set forth below:
27
<PAGE>
Settlement
Procedure Time
---------- ----
A 2:00 p.m. on the day
before settlement
B-C 3:00 p.m. on the day
before settlement
D 2:15 p.m. on settlement
date
E 3:00 p.m. on settlement
date
F-G 5:00 p.m. on settlement
date
Failure to Settle: If a purchaser fails to accept delivery
of and make payment for any Certificated
Note, the Presenting Agent will notify
the Issuer and the Trustee by telephone
and return such Certificated Note to the
Trustee. Upon receipt of such notice, the
Issuer will immediately wire transfer to
the account of the Presenting Agent an
amount equal to the amount previously
credited to the account of Issuer in
respect of such Certificated Note. Such
wire transfer will be made on the
settlement date, if possible, and in any
event not later than the Business Day
following the settlement date. If the
failure shall have occurred for any
reason other than a default by the
Presenting Agent in the performance of
its obligations hereunder and under the
Placement Agency Agreement, then the
Issuer will reimburse the Presenting
Agent on an equitable basis for its loss
of the use of the funds during the period
when they were credited to the account of
the Issuer. Immediately upon receipt of
the Certificated Note in respect of which
such failure occurred, the Trustee will
cancel such Certificated Note in
accordance with the Indenture of
Mortgage, as supplemented, and so advise
the Issuer and will make appropriate
entries in its records.
Trustee Not to Risk Funds: Nothing herein shall be deemed to require
the Trustee to risk or expend its own
funds in connection with any payment to
the Issuer, the Agent or the purchaser,
it being understood by all parties that
payments made by the Trustee to the
Issuer, the Agent or the purchaser shall
be made only to the extent that funds are
provided to the Trustee for such purpose.
28
<PAGE>
Authenticity of Signatures: The Issuer will cause the Trustee to
furnish the Agent from time to time with
the specimen signatures of each of the
Trustee's officers, employees or agents
who has been authorized by the Trustee to
authenticate Certificated Notes, but no
Agent will have any obligation or
liability to the Issuer or the Trustee in
respect of the authenticity of the
signature of any officer, employee or
agent of the Issuer or the Trustee on any
Certificated Note.
Payment of Expenses: Each Agent shall forward to the Issuer,
on a monthly basis, a statement of the
out-of-pocket expenses incurred by such
Agent during that month that are
reimbursable to it pursuant to the terms
of the Placement Agency Agreement. The
Issuer will remit payment to each Agent
currently on a monthly basis.
Advertising Costs: The Issuer will determine with the Agent
the amount of advertising that may be
appropriate in soliciting orders to
purchase the Certificated Notes.
Advertising expenses will be paid by the
Issuer.
Periodic Statements from the Periodically, upon written request, the
Trustee: Trustee will send to the Issuer a
statement setting forth the principal
amount of Certificated Notes outstanding
as of that date and setting forth a brief
description of any sales of Certificated
Notes of which the Issuer has advised the
Trustee but which have not yet been
settled.
Restrictions of Transfer: No Note may be resold or transferred in
any manner that does not comply with the
applicable restrictions on resale or
transfer or the procedures required for
resale or transfer set forth on the Note
certificate.
Business Day: As used herein, "Business Day" means
any day other than a Saturday or Sunday
or a day on which the Trustee or banks in
New York, New York are generally
authorized or obligated by law or
executive order to close.
29
<PAGE>
EXHIBIT B
TERMS AGREEMENT
[Date]
To: PHILADELPHIA SUBURBAN WATER COMPANY
Subject in all respects to the terms and conditions of the
Placement Agency Agreement (the "Agreement") dated December 3, 1999 between the
Placement Agents and you, the undersigned agrees to purchase the following Notes
of Philadelphia Suburban Water Company:
Principal Amount:
Interest Rate:
Maturity Date:
Discount to the Purchaser: ___% of Principal Amount
Purchase Price:
Commission:
Agent DTC No.:
CUSIP No.:
Closing Date and Time:
Initial Redemption Date:
Initial Redemption Percentage:
Annual Redemption Reduction Percentage:
Optional Tender Date
Requirements to deliver the
documents specified in
Section 6(a)(ii) of the Agreement:
Certificate contemplated by
clause (1): [Required/Not Required]
Opinion contemplated by
clause (2): [Required/Not Required]
Opinion contemplated by
clause (3): [Required/Not Required]
Certificate contemplated by
clause (4): [Required/Not Required]
Opinion contemplated by
clause (5): [Required/Not Required]
Letter contemplated by
clause (6): [Required/Not Required]
Period during which additional Notes may not be sold
if not period between trade date and Closing Date
as specified in Section 4(a)(v) of the Agreement:
<PAGE>
Other Provisions:
________________________________
By
________________________________
Name:
Title:
Accepted:
PHILADELPHIA SUBURBAN WATER COMPANY
by____________________________
Name:
Title:
2
<PAGE>
EXHIBIT C
(215) 575-7000
_______, 20__
To each of the Addressees on Schedule 1 of the Placement Agency Agreement Acting
Severally and Not Jointly in the Capacities of Agent or Purchaser or in Either
such Capacity
Re: Philadelphia Suburban Water Company
$300,000,000 First Mortgage Bonds,
1999 Medium Term Note Series, Subseries _
Ladies and Gentlemen:
We have acted as special counsel to Philadelphia Suburban Water
Company, a Pennsylvania corporation (the "Company"), in connection with the
transactions contemplated by (i) the Placement Agency Agreement dated December
3, 1999 (the "Placement Agency Agreement") between the Company and the Agents
identified therein (the "Agents"); (ii) the Paying Agency Agreement dated
December 3, 1999 (the "Paying Agency Agreement"), among the Company, Chase
Manhattan Trust Company, National Association, as paying agent and the Agents;
(iii) the Indenture of Mortgage dated as of January 1, 1941 (the "Original
Indenture"), between the Company, and Chase Manhattan Trust Company, National
Association (as successor in interest to The Philadelphia Company for Insurance
on Lives and Exacting Annuities), as trustee (the "Trustee"), as amended and
supplemented by thirty-three supplements thereto (the Original Indenture, as so
amended and supplemented, the "Indenture"); (iv) the Thirty-Third Supplemental
Indenture dated as of November 15, 1999 (the "Thirty-Third Supplemental
Indenture") between the Company and the Trustee; (v) the First Mortgage Bonds,
1999 Medium Term Note Series to be issued in one or more subseries pursuant to
the Thirty-Third Supplemental Indenture (the "Notes"); (vi) the Confidential
Offering Memorandum, dated December 3, 1999 relating to the offering of the
Notes, including the exhibits thereto (the "Offering Memorandum") and including
any quarterly or annual reports, if any, incorporated therein by reference (such
quarterly and annual reports referred to as "Incorporated Documents") and (vii)
the issuance of $___,000,000 aggregate principal amount of the Company's First
Mortgage Bonds, 1999 Medium Term Note Series, Subseries __ (the "Global Bond").
This opinion is being rendered to you pursuant to Section 4(a)(iv)(A) of the
Placement Agency Agreement. Unless otherwise specified, capitalized terms not
otherwise defined herein shall have the meanings specified in the Placement
Agency Agreement, the Original Indenture or the Thirty-Third Supplemental
Indenture.
2
<PAGE>
In connection with this opinion, we have examined the following
documents:
(a) the Placement Agency Agreement;
(b) the Paying Agency Agreement;
(c) the Indenture (including the Thirty-Third Supplemental Indenture);
(d) the Global Bond;
(e) the Offering Memorandum;
(f) a copy of the Articles of Incorporation of the Company, as amended
and restated and now in effect;
(g) a copy of the Bylaws of the Company as now in effect;
(h) the Securities Certificate relating to the issuance and sale of the
Notes, filed by the Company with the Pennsylvania Public Utility Commission (the
"PUC") pursuant to the provisions of Chapter 19 of the Pennsylvania Public
Utility Code and a copy of the Order of the PUC dated November 18, 1999
registering said Securities Certificate, and certified by the Secretary of the
PUC;
(i) evidence satisfactory to us of the due recordation of the Original
Indenture and the Thirty-Third Supplemental Indenture in the Counties of Berks,
Bucks, Chester, Delaware and Montgomery in the Commonwealth of Pennsylvania;
(j) the resolutions of the Executive Committee of the Board of
Directors of the Company dated October 15, 1999 authorizing the issuance of up
to $300,000,000 aggregate principal amount of Notes and the execution of the
Thirty-Third Supplemental Indenture, the Placement Agency Agreement and the
Paying Agency Agreement;
3
<PAGE>
(k) the certificates of the Company and other documents delivered at
the Closing and in connection with the issuance of the Global Bond; and
(l) public records and other publicly available documents.
In rendering the opinions set forth below, we have assumed the
genuineness of all signatures on documents and instruments examined by us
(except signatures of the Company on the Placement Agency Agreement, the
Thirty-Third Supplemental Indenture, the Paying Agency Agreement and the Global
Bond) and that all documents submitted to us as copies conform with the
originals thereof. We have also relied, to the extent we have deemed such
reliance to be necessary and proper, on the factual matters contained in
certificates of public officials and officers of the Company.
To the extent any opinion below is made to our knowledge, such
knowledge shall mean the actual knowledge of attorneys within our firm who have
provided substantive representation to the Company, based solely upon such
limited investigation and inquiry as is set forth herein, and does not include
matters of which such attorneys could be deemed to have constructive knowledge.
Based upon the foregoing and such other examination of fact and law as
we have deemed necessary for purposes of this opinion, and subject to the
assumptions and qualifications set forth herein, we are of the opinion that:
1. The Company is duly incorporated and subsisting under the laws of
the Commonwealth of Pennsylvania. The Company has full corporate power and
authority to conduct all the activities conducted by it, to own or lease all the
assets owned or leased by it and to conduct its business as described in the
Offering Memorandum.
2. The Company, on December 3, 1999, had full corporate power and
authority to enter into the Placement Agency Agreement and the Paying Agency
Agreement, to issue an aggregate principal amount of $300,000,000 of the Notes,
and to perform its obligations under the Placement Agency Agreement, the Paying
Agency Agreement and the Notes. The Placement Agency Agreement was duly
authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties thereto, did, on the
date of execution and delivery thereof, and does, on the date hereof, constitute
a legal, valid and binding agreement of the Company. The Paying Agency Agreement
was duly authorized, executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties thereto, did, on the
date of execution and delivery thereof, and does, on the date hereof, constitute
a legal, valid and binding agreement of the Company and is enforceable against
the Company in accordance with its terms (subject to applicable bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium or other similar
laws relating to creditors' rights generally from time to time in effect, and
subject, as to enforceability, to general principles of equity, regardless of
whether such enforceability is considered in a proceeding in equity or at law).
4
<PAGE>
3. An aggregate principal amount of $300,000,000 of the Notes was duly
authorized for issuance and sale pursuant to the Indenture (including the
Thirty-Third Supplemental Indenture) and the Placement Agency Agreement, and the
Global Bond when executed by the Company and authenticated by the Trustee and
delivered pursuant to the provisions of the Indenture (including the
Thirty-Third Supplemental Indenture) and the Placement Agency Agreement against
payment of the consideration therefor specified in the Placement Agency
Agreement, will constitute the legal, valid and binding obligations of the
Company, entitled to the benefits and security of the Indenture (including,
without limitation, the Thirty-Third Supplemental Indenture) in accordance with
its terms, secured thereby equally and ratably with all First Mortgage Bonds of
the Company outstanding under the Indenture, and enforceable against the Company
in accordance with its terms (subject to applicable bankruptcy, insolvency,
fraudulent transfer, reorganization, moratorium or other similar laws relating
to creditors' rights generally from time to time in effect, and subject, as to
enforceability, to general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4. The Company had full corporate power and authority to enter into the
Thirty-Third Supplemental Indenture on the date of execution and delivery
thereof. The Thirty-Third Supplemental Indenture was duly authorized, executed
and delivered by the Company and, assuming the due authorization, execution and
delivery by the other parties thereto, the Indenture, as supplemented by the
Thirty-Third Supplemental Indenture, did, on the date of execution and delivery
thereof and does, on the date hereof constitute a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms (subject to applicable bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium or other similar laws relating to creditors' rights
generally from time to time in effect, and subject, as to enforceability, to
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law). The Original Indenture and the
Thirty-Third Supplemental Indenture were properly recorded in the Counties of
Berks, Bucks, Chester, Delaware and Montgomery in the Commonwealth of
Pennsylvania and such recordations are the only recordations and filings
necessary in order to establish, preserve, protect and perfect the lien of the
Indenture on all real estate and fixed property of the Company (excluding
easements and other similar rights) described in the Indenture as subject to the
lien thereof. The Indenture creates the valid, binding and direct lien which it
purports to create upon the interest of the Company in the real estate and fixed
property of the Company specifically described therein as subject to the lien
thereof.
5
<PAGE>
5. The execution, delivery and performance of the Thirty-Third
Supplemental Indenture, the Placement Agency Agreement, the Paying Agency
Agreement and the Notes and the consummation of the transactions contemplated
thereby did not, on the date of execution and delivery thereof, does not, on the
date hereof, and will not (with or without the giving of notice or lapse of
time) conflict with or result in a breach of or default under the Articles of
Incorporation or Bylaws of the Company or the Indenture.
6. The Indenture (including, without limitation, the Thirty-Third
Supplemental Indenture) and the Global Bond conform in all material respects as
to legal matters to the descriptions thereof in the Offering Memorandum. The
descriptions in the Offering Memorandum (but not including Incorporated
Documents) of statutes, regulations or legal or governmental proceedings
accurately summarize the information purported to be summarized therein.
7. The authorization, execution and delivery of the Thirty-Third
Supplemental Indenture and the issuance and sale of the Global Bond is not,
under the circumstances described in the Placement Agency Agreement, subject to
the provisions of the Public Utility Holding Company Act of 1935 in any respect,
and, as to the Thirty-Third Supplemental Indenture did not and, as to the Global
Bonds, does not require that (a) a declaration with respect thereto shall have
become effective under Section 7 of the Public Utility Holding Company Act of
1935 or (b) other authorization or approval of the Securities and Exchange
Commission shall have become effective under the provisions of said Act.
8. To the best of our knowledge, there are no actions, suits or
proceedings, pending or threatened, relating to the Notes, their offering, or
the Offering Memorandum.
9. The PUC has entered an Order dated November 18, 1999 (the "PUC
Order"), registering the Securities Certificate filed by the Company with
respect to the issuance and sale of the Notes, which order, on the date hereof,
is in effect and is final and nonappealable. Except for the PUC Order and the
recording of the Thirty-Third Supplemental Indenture as described in paragraph 4
hereof, no other consent, approval, authorization or order of, or any filing
with, any government, governmental or other administrative agency or body is
required as of the date hereof in connection with the execution and delivery by
the Company of the Placement Agency Agreement, the Paying Agency Agreement and
the Thirty-Third Supplemental Indenture, the solicitation of offers for the
Global Bond, the issuance of the Global Bond or the performance by the Company
of any of its obligations thereunder, except such as may be required under the
blue sky laws of any jurisdiction in connection with the issuance and sale of
the Global Bond.
6
<PAGE>
10. The Global Bond may be offered, issued, sold and delivered to the
Agents and the first subsequent purchaser(s), in the manner contemplated by the
Placement Agency Agreement, the Thirty-Third Supplemental Indenture and the
Offering Memorandum without registration thereof under the Securities Act of
1933, as amended, and without qualification of an indenture in respect of the
Notes under the Trust Indenture Act of 1939, as amended, it being understood
that no opinion is expressed as to any subsequent resale of any Notes by any
Person or any other person. In rendering this opinion, we have assumed that the
first subsequent purchaser(s) is a Qualified Institutional Buyer or an offeree
that you reasonably believe is a Qualified Institutional Buyer, and we have
further assumed the accuracy of (i) your representations in the Placement
Agreement and (ii) those of the Company in the Placement Agreement regarding the
absence of any general solicitation in connection with the sale of the Notes.
11. Upon the issuance of the Global Bond and the payment of the
consideration therefor, the Trustee will have a valid and perfected security
interest, for the benefit of the Trustee and the holders of the Global Bond, to
secure the full and punctual performance of the Global Bond and all obligations
of the Company under the Indenture (including the Thirty-Third Supplemental
Indenture), in all real estate and fixed property (excluding easements and other
similar rights) specifically described in the Indenture (other than properties
released from the Indenture in accordance with the terms thereof).
12. We have not independently verified the accuracy, completeness or
fairness of the statements made or included in the Offering Memorandum and take
no responsibility therefor, except to the extent referred to in paragraph 6
hereof and in this paragraph. In the course of the preparation by the Company of
the Offering Memorandum, we participated in conferences with certain officers
and employees of the Company, examined the Offering Memorandum and made certain
inquiries in connection with the preparation of the Offering Memorandum. We took
no part in the preparation of any of the Incorporated Documents and we did not
conduct any independent investigation or make any inquiries with regard to the
Incorporated Documents and the information contained therein. Subject to the
foregoing, we have no reason to believe that the Offering Memorandum contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading (it being understood that we express
no opinion with respect to the financial statements and the notes thereto,
schedules and other financial, statistical data or operating information
included or incorporated by reference therein).
7
<PAGE>
The foregoing opinions are subject to the following qualifications:
a. We express no opinion as to the adequacy of any
notice with respect to the disposition of any collateral. We also express no
opinion as to the effectiveness or enforceability of provisions relating to
waivers of notice or waivers of other rights, severability, prepayment fees or
penalties, choice of law, or any provisions which release or limit the Company's
liability or relate to cumulative remedies or, to the extent they purport to or
would have the effect of compensating the Company in amounts in excess of any
actual loss suffered by the Company, provisions relating to the payment of a
default rate of interest.
b. We express no opinion as to the enforceability
with respect to any provisions in the Indenture executed by the Company
purporting to waive the effect of applicable laws and remedies and any
provisions releasing any party from, or requiring indemnification for, liability
for gross negligence, recklessness or wilful misconduct.
c. Any requirements in the Indenture specifying that
provisions of the Indenture may only be waived in writing may not be enforced to
the extent that an oral agreement or an implied agreement by trade practice or
course of conduct has been created modifying any provision of the Indenture.
d. This opinion is limited to the matters set forth
herein, no opinion may be inferred or implied beyond the matters expressly
stated herein, and our statements contained in the opinion portion of this
letter must be read in conjunction with the assumptions, limitations, exceptions
and qualifications set forth in this letter.
8
<PAGE>
e. The opinions herein are expressed as of the date
hereof only and not as of some future date. We undertake no responsibility to
advise you of any change in law or new laws, regulations or judicial decisions
in the future. Nor do we assume any obligation to update or supplement this
opinion to reflect any facts or circumstances which may hereafter come to our
attention. References to "laws," "regulations" and "judicial decisions" herein
shall include only officially published federal laws and regulations of the
United States of America and the officially published laws and regulations of
the Commonwealth of Pennsylvania.
Our opinions expressed above are limited to the laws of the
Commonwealth of Pennsylvania and the federal law of the United States of
America.
This opinion is furnished by us solely for your benefit and the
purchasers of the Global Bond and may not be relied upon by any other person
without the express written consent of our firm.
Very truly yours,
9
<PAGE>
EXHIBIT D
[Letterhead of PSWC]
_____________, 1999
To Each of the Addresses Named
on Schedule I of the Placement Agency
Agreement Acting Severally and Not
Jointly in the Capacities of Agent
and Purchaser or in Either Such Capacity
Dilworth Paxson LLP
1735 Market Street
3200 Mellon Bank Center
Philadelphia, PA 19103
RE: $300,000,000 First Mortgage Bonds,
1998 Medium Term Note Series ("Notes")
--------------------------------------
Ladies and Gentlemen:
I am Senior Vice President-Law and Administration for Philadelphia
Suburban Water Company (the "Company").
Pursuant to Section 5(a)(iii)(B) of the Placement Agency Agreement
between you and the Company of December 3, 1999 relating to the $300,000,000
First Mortgage Bonds, 1999 Medium Term Note Series, I have been asked to render
an opinion to you regarding certain matters involving the Company.
In my opinion:
(i) To the best of my knowledge, the Company has all governmental
licenses, permits, consents, orders, approvals and other authorizations
necessary to carry on its business as described in the Confidential Offering
Memorandum dated December 3, 1999 with respect to the Notes, except where the
failure to do so would not have a material adverse effect on the financial
condition of the Company.
(ii) Except as set forth in the Confidential Offering Memorandum, there
are no actions, suits or proceedings pending (and of which the Company has
received notice) or, to the best of my knowledge, threatened against or
affecting the Company or any of its officers in their capacity as such, before
or by any Federal or state court, commission, regulatory body, administrative
agency or other governmental body, domestic or foreign, wherein an unfavorable
ruling, decision or finding is likely that would materially and adversely affect
(i) the financial condition of the Company, or (ii) the ability of the Company
to perform its obligations under the Placement Agency Agreement, the Paying
Agency Agreement, the Original Indenture (as supplemented by the Thirty-Third
Supplemental Indenture) or the Notes.
<PAGE>
(iii) The Company (a) is not in violation of its Articles of
Incorporation, by-laws or other charter documents, (b) to the best of my
knowledge, is not in default in the performance of any obligation, agreement or
condition contained in any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, note, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument known to me to
which the Company is a party or by which it or its properties is bound or
affected where such default would likely have a material adverse effect on the
financial condition of the Company, and (c) to the best of my knowledge the
Company is not in violation of any judgment, ruling, decree, order, franchise,
license or permit known to me or any statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company, where such violation would likely have a material adverse effect on
the financial condition of the Company.
(iv) The execution, delivery and performance of the Placement Agency
Agreement, the Thirty-Third Supplemental Indenture, the Paying Agency Agreement
and the consummation of the transactions therein contemplated will not, of
themselves, or upon notice, lapse of time, or both, conflict with or result in a
breach of any of the terms, conditions, or provisions of, or constitute a
default under, or result in the creation or imposition of any lien, charge or
encumbrance upon any of the property or assets of the Company (except as
contemplated by the Indenture) pursuant to the terms of the charter or bylaws of
the Company, or, to the best of my knowledge, any indenture, mortgage, deed of
trust or other agreement or instrument known to me to which the Company is a
party or by which the Company may be bound and, to the best of my knowledge,
will not materially violate any judgment, ruling, decree, order, franchise,
license or permit known to me or any statute, rule or regulation of any court or
other governmental agency or body applicable to the business or properties of
the Company.
2
<PAGE>
(v) Each of the Indenture of Mortgage dated as of January 1, 1941 (the
"Original Indenture"), between the Company and The Philadelphia Company for
Insurance on Lives and Exacting Annuities (now Chase Manhattan Trust Company,
National Association, as successor in interest), as trustee (the "Trustee") and
the thirty-three indentures supplemental thereto, including the Thirty-Third
Supplemental Indenture dated as of November 15, 1999 between the Company and the
Trustee (the Original Indenture as so supplemented and amended, the "Indenture")
was duly authorized, executed and delivered by the Company and the Indenture
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (subject to applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium or other
similar laws relating to creditors' rights generally from time to time in
effect, and subject, as to enforceability, to general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law).
The information set forth herein is as of the date set forth above and
the Company and I disclaim any undertaking to provide any updates or changes
which thereafter may be brought to our attention.
This opinion is solely for your benefit and may not be relied upon by
any other person or for any other purpose.
Very truly yours,
Roy H. Stahl
/sw
3
<PAGE>
EXHIBIT E
TRUSTEE'S CERTIFICATE
The undersigned, Chase Manhattan Trust Company, National Association
(hereinafter referred to as the "Bank"), does hereby certify that:
1. It is Trustee under the Indenture of Mortgage dated as of January 1,
1941, of Philadelphia Suburban Water Company (the "Company"), as supplemented
and amended by thirty two supplemental indentures and by a Thirty-Third
Supplemental Indenture dated as of November 15, 1999 (the "Thirty-Third
Supplemental Indenture") between the Company and the Bank relating to the
authentication and delivery of a global bond representing the aggregate
principal amount of $__________ of the Company's First Mortgage Bonds, 1999
Medium Term Note Series (Subseries "_")(the "Global Bond")
2. The Thirty-Third Supplemental Indenture has been duly executed on
behalf of the Bank by__________, its Vice President; the corporate seal of the
Bank has been duly affixed thereto and attested by , its ___________________;
and the Thirty-Third Supplemental Indenture has been duly delivered on behalf of
the Bank.
3. The Bank, as Trustee, has:
a. pursuant to Section 5 of Article I of the ThirtyThird
Supplemental Indenture, authenticated the Global Bond, which consist of a fully
registered Bond as set forth in Exhibit "A" hereto, in the aggregate principal
amount of $________, bearing the interest rate and maturity date as set forth in
Section I of Article 1 of the Thirty-Third Supplemental Indenture, by the
execution of the Trustee's Certificate of Authentication thereon by , its
____________________; and
b. registered said Global Bond in the name of Cede & Co,
nominee of the Depository Trust Company ("DTC"), as the registered owner of the
Global Bond, which Global Bond is to be held by The Chase Manhattan Bank as so
authenticated and registered on behalf of DTC pursuant to the Medium Term Note
Certificate Agreement dated as of December 2, 1988.
4. Set forth below, opposite the names and titles of the above
mentioned officers of the Bank, are specimens of their respective signatures.
<PAGE>
Name Title Specimen Signatures
---- ----- -------------------
_________________ ___________________
_________________ ___________________
5. and were, at the time of the acts referred to in paragraph 2 above,
and are at the date hereof, duly elected or appointed, qualified and acting
officers of the Bank, holding the offices indicated above and were duly
authorized to perform such acts, and the signatures appearing on the
Thirty-Third Supplemental Indenture are their genuine signatures; and was at the
time of the acts referred to in paragraph 3(a) above, and is at the date hereof,
a duly elected or appointed, qualified and acting Corporate Trust Officer of the
Bank duly authorized to perform such acts, and the signature appearing on said
Bonds is her genuine signature.
6. Attached hereto as Exhibit "B" is a true and correct copy of
resolutions as adopted by the Board of Directors of the Bank which, at the date
hereof, are still in full force and effect, giving requisite authority to such
officers to execute and deliver the Thirty-Third Supplemental Indenture and to
authenticate the Bonds.
IN WITNESS WHEREOF, Chase Manhattan Trust Company, National Association
has caused this Trustee's Certificate to be executed by its duly authorized
officer, this _____ day of__________, ______.
Chase Manhattan Trust Company,
National Association
______________________________
Title:
2
<PAGE>
EXHIBIT "A"
<TABLE>
<CAPTION>
Maturity
Cert. Registered Principal Interest Date
No. Owner Amount Rate ( 1)
- --- ----- ------ ---- ----------
<S> <C> <C> <C> <C>
R-1 Cede & Co., as nominee of the
Depository Trust Company
</TABLE>
3
<PAGE>
EXHIBIT F
Form of KPMG LLP Letter
<PAGE>
EXHIBIT G
PHILADELPHIA SUBURBAN WATER COMPANY
U.S. $
First Mortgage Bonds
1999 Medium Term Note Series
Maturities From One Year to
Thirty-Five Years From Date of Issue
Amendment to Placement Agency Agreement
New York, New York
[Date]
To Each of the Addressees Named
on Schedule I of the Placement Agency
Agreement Acting Severally and Not
Jointly in the Capacities of Agent and
Purchaser or in Either Such Capacity
Ladies and Gentlemen:
The Placement Agency Agreement dated December 3, 1999 (the
"Agreement"), between you and Philadelphia Suburban Water Company, a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania (the
"Issuer"), is hereby amended to increase the aggregate principal amount of Notes
(as defined in the Agreement) at any time outstanding to up to U.S. $ .
[The documents referred to in the second sentence of Section 12 of the
Agreement shall be delivered simultaneously herewith.]
In all other respects the Agreement shall remain in full force and
effect.
This amendment to the Agreement may be executed in counterparts, and
the executed counterparts shall together constitute a single instrument.
3
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicate hereof, whereupon this
letter shall represent a binding agreement between the Issuer and each of you.
This letter shall not constitute a binding agreement unless and until it is
executed by the Issuer and each of you.
Very truly yours,
PHILADELPHIA SUBURBAN WATER
COMPANY,
by _________________________
Name:
Title:
The foregoing Agreement is
hereby confirmed and accepted
as of the date hereof.
by _________________________
Name:
Title:
4
<PAGE>
EXHIBIT H
PHILADELPHIA SUBURBAN WATER COMPANY
FIRST MORTGAGE BONDS
1999 MEDIUM TERM NOTE SERIES
REQUEST FOR BIDS
Pursuant to Paragraph 2(a)(i) of the Placement Agency Agreement between
PSWC ("PSWC") and the agents listed on Schedule I attached thereto dated
December 3, 1999 (the "Agreement"), PSWC is requesting bids for Subseries ______
of the above-referenced notes (the "Subseries") to be issued by PSWC on or about
________, ____, subject to the terms set forth in the Agreement including
Exhibit A thereto.
The Subseries is to be structured based on the following:
1. Principal Amount of Notes $___________________
2. Maturity _______________________
3. [Optional Tender Provision ___________________]
PHILADELPHIA SUBURBAN WATER COMPANY
DATE: ____________ BY:_____________________
TITLE:__________________
3
<PAGE>
EXHIBIT I
PHILADELPHIA SUBURBAN WATER COMPANY
FIRST MORTGAGE BONDS
1999 MEDIUM TERM NOTE SERIES
NOTICE OF APPOINTMENT
Pursuant to Paragraph 2 of the Placement Agency Agreement between PSWC
("PSWC") and the Agents listed on Schedule I attached thereto dated December 3,
1999 (the "Agreement"), ________________________ is hereby appointed as
Placement Agent for the issuance of $___________ of Subseries ______ of the
above-referenced notes to be issued by PSWC on or about _____________________,
____, subject to the terms set forth on the attached Exhibit A [to be furnished
by Issuer at issuance of Notice of Appointment] and further subject to the terms
and conditions of the Agreement.
PHILADELPHIA SUBURBAN WATER COMPANY
DATE:______________ BY:________________________________
TITLE:_____________________________
4
<PAGE>
Exhibit 13.7
Philadelphia Suburban Corporation and Subsidiaries
Selected Portions of Annual Report to Shareholers for the year ended
December 31, 1999
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In thousands of dollars, except per share amounts)
FORWARD-LOOKING STATEMENTS
This report by Philadelphia Suburban Corporation ("we" or "us")
contains, in addition to historical information, forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements address, among other things, our use of cash;
projected capital expenditures; liquidity; as well as information contained
elsewhere in this report where statements are preceded by, followed by or
include the words "believes," "expects," "anticipates," "plans" or similar
expressions. These statements are based on a number of assumptions concerning
future events, and are subject to a number of uncertainties and other factors,
many of which are outside our control. Actual results may differ materially from
such statements for a number of reasons, including the effects of regulation,
abnormal weather, changes in capital requirements and funding, and acquisitions.
We undertake no obligation to update or revise forward-looking statements,
whether as a result of new information, future events or otherwise.
GENERAL INFORMATION
Philadelphia Suburban Corporation is the holding company for regulated
utilities providing water or wastewater services to approximately 1.8 million
people in Pennsylvania, Ohio, Illinois, New Jersey and Maine. Our two primary
subsidiaries are Philadelphia Suburban Water Company ("PSW"), a regulated public
utility that provides water or wastewater services to about 1 million residents
in the suburban areas west and north of the City of Philadelphia, and Consumers
Water Company ("CWC"), a holding company for several regulated public utility
companies that provide water or wastewater service to about 800,000 residents in
various communities in Pennsylvania, Ohio, Illinois, New Jersey and Maine. We
are among the largest investor-owned water utilities in the United States based
on the number of customers. In addition, PSW and CWC provide water service to
approximately 25,000 people through operating and maintenance contracts with
municipal authorities and other parties in proximity to the operating company's
service territories.
On March 10, 1999, we completed a merger (the "Merger") with CWC. We
issued 13,014,015 shares of Common Stock in exchange for all of the outstanding
shares of CWC and CWC became our wholly-owned subsidiary. CWC owns 100% of the
voting stock of four water companies, and at least 96% of the voting stock of
three water companies, operating in Pennsylvania, Ohio, Illinois, New Jersey and
Maine. CWC's subsidiaries operate 27 divisions in these five states, providing
water service to approximately 800,000 people. The Merger was accounted for
under the pooling-of-interests method of accounting. Accordingly, this report
has been restated to include the accounts and results of CWC as if the Merger
had been completed as of the beginning of the earliest period presented.
Subsidiaries of PSW and CWC provide wastewater services (primarily
residential) to approximately 28,000 people in Pennsylvania, Illinois and New
Jersey. During 1999 and each of the previous four years, the operating revenues
associated with wastewater services have been less than 3% of our operating
revenues.
1
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Following are our selected five-year financial statistics:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues (c) $257,326 $250,771 $235,852 $215,971 $208,100
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations $ 36,384 $ 45,015 $ 35,210 $ 29,204 $ 29,887
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and
non-recurring items (a) $ 73,036 $ 68,453 $ 57,642 $ 48,554 $ 49,087
- -------------------------------------------------------------------------------------------------------------------
Operating Statistics
Operating revenues 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operations and maintenance 38.4% 39.9% 40.9% 43.0% 43.8%
Depreciation and amortization 12.4% 11.8% 11.9% 11.7% 10.5%
Taxes other than income taxes 8.5% 8.7% 9.1% 9.3% 8.8%
Interest expense (b) 13.1% 12.8% 14.1% 14.0% 13.9%
Allowance for funds used during
construction (0.8)% (0.5)% (0.4)% (0.5)% (0.6)%
- -------------------------------------------------------------------------------------------------------------------
Total costs and expenses 71.6% 72.7% 75.6% 77.5% 76.4%
- -------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and
non-recurring items (a) 28.4% 27.3% 24.4% 22.5% 23.6%
===================================================================================================================
Effective tax rates (c) 42.2% 40.1% 38.9% 39.9% 39.8%
===================================================================================================================
</TABLE>
(a) Non-recurring items include the 1999 charges of $8,596 ($10,121 pre-tax)
for transaction costs and restructuring costs related to the Merger with
Consumers Water Company, the 1998 gain of $3,903 ($6,680 pre-tax) on the
sale of Consumer Water Company's New Hampshire system and the 1995 gain of
$363 ($586 pre-tax) on the sale of a division of Consumers Maine Water
Company.
(b) Includes dividends on preferred stock of subsidiary and minority interest.
(c) Continuing operations only.
2
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Following are our selected five-year operating and sales statistics:
<TABLE>
<CAPTION>
Years ended December 31, 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Metered Residential 497,937 478,160 473,309 467,210 445,496
water Commercial 29,241 27,612 26,369 26,003 24,493
customers Industrial 1,430 1,327 1,386 1,387 1,237
Other 9,067 8,277 7,574 7,305 6,328
-------------------------------------------------------------------------------------
Total 537,675 515,376 508,638 501,905 477,554
=====================================================================================
Revenues from Residential $ 154,881 $ 156,523 $ 148,323 $ 135,848 $ 132,419
water sales Commercial 45,192 44,894 40,439 38,238 35,457
Industrial 13,944 13,970 12,818 12,396 11,618
Other 31,999 25,672 25,132 23,612 21,947
-------------------------------------------------------------------------------------
Total $ 246,016 $ 241,059 $ 226,712 $ 210,094 $ 201,441
=====================================================================================
</TABLE>
RESULTS OF OPERATIONS
Our income from continuing operations has grown at an annual compound
rate of approximately 7.5% during the five-year period ended December 31, 1999.
Exclusive of the 1999 CWC merger transaction costs and related restructuring
costs of $8,596 ($10,121 pre-tax), income from continuing operations grew at an
annual compound rate of 12.2% during the past five years.
During this same period, operating revenues grew at a compound rate of
6.4% and total expenses, exclusive of income taxes, merger transaction costs and
the related restructuring costs, grew at a compound rate of 4.6%.
Operating Revenues
The growth in revenues over the past five years is a result of increases
in the customer base and in water rates. The number of customers increased at an
annual compound rate of 3.1% in the past five years primarily as a result of
acquisitions of local water systems. Acquisitions made during the five-year
period ended December 31, 1999 have provided water revenues of approximately
$20,106 in 1999, $19,293 in 1998 and $12,047 in 1997. Excluding the effect of
acquisitions, our customer base increased at a five-year annual compound rate of
0.8%. Rate increases implemented during the past three years have provided
additional operating revenues of approximately $1,700 in 1999, $13,300 in 1998
and $4,700 in 1997. In April 1998, CWC's New Hampshire system was sold under a
condemnation statute. The operating revenues associated with the New Hampshire
system were $1,600 in 1998 and $6,500 in 1997. In addition to water and
wastewater revenues, operating revenues include the net gains on sales of
properties of $780 in 1999, $53 in 1998 and $690 in 1997, and other
non-regulated revenues associated with operating and management contracts,
rental income, data processing service fees and sales of timber of $5,295 in
1999, $4,904 in 1998 and $4,072 in 1997.
Economic Regulation - Our water and wastewater utility operations are subject to
regulation by their respective state regulatory commissions, which have broad
administrative power and authority to regulate rates and charges, determine
franchise areas and conditions of service, approve acquisitions and authorize
the issuance of securities. The profitability of our utility operations is
influenced to a great extent by the timeliness and adequacy of rate allowances
in the various states in which we operate. Accordingly, we maintain a rate case
management capability to ensure that the tariffs of the utility operations
reflect, to the extent practicable, current costs of operations, capital, taxes,
energy, materials and compliance with environmental regulations. In assessing
our rate case strategy, we consider the amount of utility plant additions and
replacements made since the previous rate decision, the
3
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
changes in the cost of capital and changes in the capital structure. Based on
these assessments, our utility operations periodically file rate increase
requests with their respective state regulatory commissions. The rates for some
divisions of CWC's Ohio subsidiary can be fixed by negotiated agreements with
the municipalities that are served by those divisions in lieu of regulatory
approval from the Public Utility Commission of Ohio. Currently, two of the four
regulated divisions in Ohio are operating under such rate ordinances.
In October 1999, PSW, in conjunction with CWC's Pennsylvania
subsidiaries, filed an application with the Pennsylvania Public Utility
Commission ("PAPUC") requesting a $28,000 or 15.5% increase in annual revenues.
The application is currently pending before the PAPUC and a final determination
is anticipated by July 2000. In October 1997, the PAPUC approved a rate
settlement reached between PSW and the parties actively litigating the rate
application PSW filed in April 1997. The settlement was designed to increase
PSW's annual revenues by $9,300 or 7.3% over the level in effect at the time of
the filing. The rates in effect at the time of the filing included a 1% or
$1,300 Distribution System Improvement Charge ("DSIC"). Consequently, the
settlement resulted in a total base rate increase of $10,600 or 8.3%.
The CWC operating subsidiaries were allowed annual rate increases of
$390 for 1999, $3,334 for 1998 and $2,769 for 1997, represented by two, five,
and four rate decisions. Revenues from these increases realized in the year of
grant were approximately $308 in 1999, $1,969 in 1998, and $489 in 1997.
Distribution System Improvement Charge - In 1996, the PAPUC approved the
Distribution System Improvement Charge ("DSIC"). The DSIC is a mechanism that
allows Pennsylvania water utilities to add a surcharge to their water bills.
This surcharge offsets the additional depreciation and capital costs associated
with certain non-revenue producing, non-expense reducing capital expenditures
related to replacing and rehabilitating distribution systems. Prior to the DSIC
mechanism, water utilities absorbed all of the depreciation and capital costs of
these projects between base rate increases without the benefit of additional
revenues. The gap between the time that a capital project is completed and the
recovery of its costs in base rates is known as regulatory lag. The DSIC
mechanism is intended to substantially reduce regulatory lag that often acted as
a disincentive to water utilities in rehabilitating their distribution systems.
The DSIC is adjusted quarterly based on additional qualified capital
expenditures made in the previous quarter. However, the DSIC may not exceed 5%
of the base rates in effect. The DSIC is reset to zero when new base rates that
reflect the costs of those additions become effective or when a utility's
earnings exceed a PUC benchmark. The DSIC in the first quarter of 2000 has been
set at 5% and is expected to continue at 5% until new base rates become
effective. The DSIC provided revenues of $4,140 in 1999, $229 in 1998 and $1,104
in 1997.
In May 1999, the Illinois legislature passed a bill to establish a DSIC
mechanism in Illinois. The Illinois Commerce Commission is analyzing the
mechanism currently and considering approval of the DSIC for use by Illinois
water utilities beginning in 2001.
Rate Surcharges - In addition to its base rates and DSIC, PSW and CWC's
Pennsylvania subsidiaries have utilized a surcharge or credit on their bills to
reflect certain changes in Pennsylvania State taxes until such time as the tax
changes are incorporated into base rates. Operating revenues were increased by
rate surcharges in 1999 by $1,306, and rate credits reduced operating revenues
in 1998 by $117.
Sendout - "Sendout" represents the quantity of treated water delivered to our
distribution systems. We use sendout as an indicator of customer demand. Weather
conditions tend to impact water consumption, particularly during the late spring
and summer months when nonessential and recreational use of water is at its
highest. Consequently, a higher proportion of annual operating revenues is
realized in the second and third quarters. However, it is difficult to correlate
weather and water consumption, since conservation and even day-to-day variations
in weather patterns can have a significant effect. Conservation efforts,
construction codes which require the use of low flow plumbing fixtures as well
as mandated water use restrictions in response to drought conditions also affect
water consumption.
4
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Our water customers are located in the following states: 66% in
Pennsylvania, 15% in Ohio, 10% in Illinois, 6% in New Jersey and 3% in Maine. In
June 1999, the Pennsylvania Department of Environmental Protection declared a
drought warning for most of the counties in Pennsylvania, including the counties
served by PSW and CWC's Pennsylvania subsidiaries. A drought warning calls for
voluntary restrictions on water use, particularly non-essential uses of water.
In July 1999, the Governor of Pennsylvania issued a drought emergency order for
the counties that were previously under the drought warning. The drought
emergency imposes a mandatory ban on all nonessential water usage. On September
30, 1999, the drought emergency order was lifted for nearly all Pennsylvania
counties, including those served by our water companies. While portions of
Pennsylvania, particularly those dependent on ground water, experienced water
shortages, our water supplies remained adequate. As a result of these actions,
water consumption and water revenues in these areas declined to levels below
those experienced in 1998. As a result of the drought emergency order being
lifted, water revenues began to return to normal levels during the fourth
quarter of 1999. In addition, CWC's New Jersey subsidiary experienced a similar
drought emergency during most of the third quarter of 1999.
There have been other water use restrictions during the past three
years, however, because these warnings were issued at times other than the
summer months, when nonessential and recreational use of water has traditionally
declined, the restrictions did not have a significant impact on operating
revenues. Throughout the restriction periods, we had sufficient quantities of
raw water and maintained adequate storage levels of treated water.
Operations and Maintenance
Operations and maintenance expenses totaled $98,758 in 1999, $100,139 in
1998 and $96,571 in 1997. Most elements of operating costs are subject to the
effects of inflation, as well as the effects of changes in the number of
customers served, in water consumption and the degree of water treatment
required due to variations in the quality of the raw water. The principal
elements of operating costs are labor, electricity, chemicals and maintenance
expenses. Electricity and chemical expenses vary in relationship to water
consumption, raw water quality, and to a lesser extent the deregulated electric
market in some of the states in which we operate. Maintenance expenses are
sensitive to extreme cold weather, which can cause water mains to rupture.
Operations and maintenance expenses decreased in 1999 as compared to
1998 by $1,381 or 1.4% due to a reduction in general corporate expenses due to
the closing of CWC's corporate office in March 1999, savings from reduced
electric costs as a result of electric deregulation in Pennsylvania, elimination
of $590 of operations and maintenance expenses associated with CWC's New
Hampshire operations which was sold in April 1998, offset in part by labor wage
increases and increased maintenance and production costs. Increased maintenance
expenses resulted from a higher number of main breaks experienced in 1999. The
increased wages reflect normal merit increases.
Operations and maintenance expenses increased in 1998 over 1997 by
$3,568 or 3.7% primarily as a result of higher production costs resulting from
the increased volume of water sold and increased wages and administrative
expenses, partially offset by the elimination of $1,788 of operations and
maintenance expenses associated with the CWC's New Hampshire operations which
was sold in April 1998. The increased wages reflect normal merit increases.
Depreciation and Amortization
Depreciation expense was $30,612 in 1999, $27,189 in 1998 and $25,581 in
1997, and has increased principally as a result of the significant capital
expenditures made to expand and improve the utility facilities, and as a result
of acquisitions of water systems. A portion of the 1998 increase also resulted
from accelerated depreciation rates granted in a rate case due to a major
treatment plant replacement.
5
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Amortization was $1,291 in 1999, $2,275 in 1998 and $2,396 in 1997. The
decrease in 1999 is due to the completion of the amortization in 1998 of the
costs associated with and the other costs being recovered in PSW's 1997 rate
filing. The decrease in 1998 is due to the reduced amortization associated with
CWC's New Hampshire operations which was sold in April 1998. Expenses associated
with filing rate cases are deferred and amortized over periods that generally
range from one to three years.
Taxes Other than Income Taxes
Taxes other than income taxes decreased by approximately 0.4% in 1999 as
compared to 1998, and increased 2.7% in 1998 over the previous year. The
decrease in 1999 is associated with a decrease in the Pennsylvania Public
Utility Realty Tax ("PURTA") and due to $285 of other taxes associated with
CWC's New Hampshire operations which was sold in April 1998. The decreased PURTA
is a result of a change in the method by which the tax is calculated in 1999.
The increase in 1998 over 1997 was due to an increase in the base on which the
PURTA, local real estate taxes and the Pennsylvania Capital Stock Tax are
calculated, partially offset by $665 of other taxes associated with CWC's New
Hampshire operations which was sold in April 1998. The increase in the taxable
base for the PURTA and local real estate taxes is due to the capital
expenditures and the acquisitions. In addition, the effective PURTA tax rate
increased in 1998 by 24%. The effective PURTA tax rate increased due to an
additional tax assessment to offset a statewide deficit in the collection of
this tax. The increase in the Capital Stock Tax is due to increases in common
equity.
Restructuring costs
During 1999, we recorded a charge of $3,787 for restructuring costs that
includes severance of $2,940 and exit costs associated with the closing of CWC's
corporate office.
Interest Expense, net
Net interest expense was $33,698 in 1999, $31,888 in 1998 and $32,664 in
1997. Interest expense increased in 1999 over 1998 primarily as a result of
higher levels of borrowing in order to finance capital expenditures and the
acquisition of other water systems, offset in part by a reduction in debt
associated with Consumers New Hampshire operations. Interest expense decreased
in 1998 as compared to 1997 due to a reduction in debt associated with Consumers
New Hampshire operations and lower interest rates on borrowings, offset in part
by a higher level of debt in order to finance acquisitions and other capital
expenditures.
Dividends on Preferred Stock of Subsidiary and Minority Interest
Dividends on preferred stock of subsidiary were $0 in 1999, $70 in 1998
and $515 in 1997. The change in dividends in 1999 and 1998 over the preceding
year is due to a reduction in the number of shares of preferred stock
outstanding during these periods.
Allowance for Funds Used During Construction
The allowance for funds used during construction ("AFUDC") was $1,995 in
1999, $1,245 in 1998 and $937 in 1997 and has varied over the years as a result
of increases in the average balance of utility plant construction work in
progress ("CWIP"), to which AFUDC is applied, and to changes in the AFUDC rate.
The average balance of CWIP, to which AFUDC is applied, increased due to the
increased level of capital expenditures in 1999, 1998 and 1997, particularly due
to the construction of a $35,000 water treatment plant at one of CWC's
Pennsylvania subsidiaries. Construction commenced on this facility in December
1997 and is expected to be completed in the second quarter of 2000.
6
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Merger transaction costs
During the first quarter of 1999, we recorded a charge of $6,334 for
transaction costs associated with the Merger of Consumers Water Company
consummated on March 10, 1999. The charge represents the fees for investment
bankers, attorneys, accountants and other administrative charges.
Gain on Sale of New Hampshire System
In April 1998, CWC's New Hampshire subsidiary sold its utility assets to
the Town of Hudson under the New Hampshire condemnation statute for $33,728, net
of certain closing costs. The sale generated a gain of $6,680 ($3,903 net of
taxes, or $0.10 per share), and was recorded in the second quarter of 1998. This
system had approximately 8,200 customers and operating revenues of $1,600 in
1998 prior to the sale and $6,500 in 1997. The interest savings associated with
paying off the outstanding borrowings under the revolving credit agreements with
the proceeds from this sale, principally offset the reduction of the New
Hampshire system's normal contribution to income.
Income Taxes
Our effective income tax rate was 42.2% in 1999 as compared to 40.1% in
1998 and 38.9% in 1997. The effective tax rate increased in 1999 due to the
estimated non-deductible portion of the $6,334 of merger transaction costs
recorded in 1999. Exclusive of the merger transaction costs and related tax
benefits of $200, the 1999 effective tax rate would have been 38.6%. The changes
in the effective tax rates in 1999 and 1998 are due to differences between tax
deductible expenses and book expenses.
Discontinued Operations
In 1997, the Board of Directors of CWC announced its intention to
dispose of its technical services company, Consumers Applied Technologies, Inc.
("CAT"). A reserve for estimated losses and certain future costs was established
in 1997 of $2,350, net of tax benefits of $1,211. CWC had been unable to sell
CAT as an on-going business and is proceeding with its liquidation. CAT's
operations were substantially shutdown during 1997. The operating results of CAT
prior to the date of discontinuance are shown under discontinued operations on
the accompanying consolidated statements of income and comprehensive income.
Operating revenues for CAT for 1998 and 1997 were $393 and $4,573.
Summary
Operating income was $101,045 in 1999, $99,238 in 1998 and $89,959 in
1997 and income from continuing operations was $36,384 in 1999, $45,015 in 1998
and $35,210 in 1997. Our operating results have been effected by the following
non-operating items in 1999 and 1998. Operating income and income from
continuing operations for 1999 includes the charge for restructuring costs
related to the CWC Merger of $3,787 ($2,462 after tax or $0.06 per share).
Income from continuing operations for 1999 includes the charge for $6,334
($6,134 after tax or $0.15 per share) of merger transaction costs associated
with the CWC Merger. Income from continuing operations for 1998 includes a net
gain of $6,680 ($3,903 after tax or $0.10 per share) on the sale of CWC's New
Hampshire operations. Diluted income per share from continuing operations was
$0.88 in 1999, $1.10 in 1998 and $0.90 in 1997. Diluted income per share from
operations, exclusive of the aforementioned non-recurring items, was $1.09 in
1999, $1.00 in 1998 and $0.90 in 1997. The changes in the per share income in
1999 and 1998 over the previous years were due to the aforementioned changes in
income and impacted by a 1.1% and 4.7% increase in the average number of common
shares outstanding during 1999 and 1998.
Although we have experienced increased income in the recent past,
continued adequate rate increases reflecting increased operating costs and new
capital investments are important to the future realization of improved
profitability.
7
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Fourth Quarter Results
Net income available to common stock for the fourth quarter of 1999
increased over the same period in 1998 by $990 to $9,594 primarily as a result
of a $930 increase in operating revenues, a $129 decrease in operations and
maintenance expenses and a decrease in income tax expense, offset partially by
increases in depreciation and interest expense. The increase in operating
revenues was a result of an increase in water rates, primarily from the DSIC,
and additional revenues from acquisitions, offset in part by a decrease in water
consumption. Operations and maintenance expenses decreased primarily due to a
reduction in general corporate expenses related to the closing of CWC's
corporate office and reduced production costs, offset partially by increased
wages and maintenance expenses. Income tax expense decreased due to expenses
deductible for taxes but not included as book expenses. Depreciation increased
due to utility plant additions and the water system acquisitions made since the
fourth quarter of 1998. Interest expense increased in the fourth quarter
primarily as a result of higher borrowing levels and increased interest rates.
Effects of Inflation
As a regulated enterprise, our rates are established to provide recovery
of costs and a return on its investment. Recovery of the effects of inflation
through higher water rates is dependent upon receiving adequate and timely rate
increases. However, rate increases are not retroactive and often lag increases
in costs caused by inflation. During periods of moderate to low inflation, as
has been experienced for the past several years, the effects of inflation on our
operating results are not significant.
FINANCIAL CONDITION
Cash Flow and Capital Expenditures
Net operating cash flow, dividends paid on common stock and capital
expenditures, including allowances for funds used during construction, for the
five years ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Net Operating Common Capital
Cash Flow Dividends Expenditures
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 53,217 23,452 73,369
1996 56,274 25,137 66,130
1997 71,252 26,752 67,378
1998 84,362 29,349 87,973
1999 74,103 29,217 96,383
- ---------------------------------------------------------------------------------------------------------------
$ 339,208 $ 133,907 $ 391,233
===============================================================================================================
</TABLE>
Included in capital expenditures for the five-year period are:
expenditures for the modernization and replacement of existing treatment plants;
new water mains and customer service lines; rehabilitation of existing water
mains, hydrants and customer service lines; water meters; and the construction
of a divisional operations center. During this five-year period, we received
$34,750 of customer advances and contributions in aid of construction to finance
new water mains. In addition, during this period, we have made sinking fund
contributions and retired debt in the amount of $92,518, and retired $11,460 of
preferred stock, and have refunded $19,383 of customer advances for
construction. Despite an annual increase in the common dividends declared and
paid on our common stock over the past five years, the total common dividends
paid in 1999 declined as compared to 1998 due to the exchange of the Consumers
Water Company common stock for our common stock.
8
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
During the past five years, we have also expended $140,751 related to
the acquisitions of utility systems, primarily water utilities and some
wastewater utilities. In addition in March 1999, we completed the Merger with
Consumers Water Company. On the date of the Merger, we issued 13,014,015 shares
of Common Stock in exchange for all of the outstanding shares of CWC. In 1998,
CWC's New Hampshire operations were sold under the New Hampshire condemnation
statute for $33,728, net of certain closing costs, which was used to pay down
long-term debt.
Since net operating cash flow plus advances and contributions in aid of
construction have not been sufficient to fully fund cash requirements, we issued
approximately $254,000 of First Mortgage Bonds and obtained
other short-term borrowings during the past five years. In February 1998, we
sold 1,250,000 shares of common stock in a public offering for net proceeds of
$25,840. The proceeds of this offering were used to make a $19,000 equity
contribution to PSW and to repay short-term debt.
We have a Dividend Reinvestment and Direct Stock Purchase Plan ("Plan")
that replaced the Customer Stock Purchase Plan and the Dividend Reinvestment and
Optional Stock Purchase Plan in December 1997. Under the direct stock purchase
portion of the Plan, shares are sold throughout the year and the shares are
obtained by our transfer agent in the open market instead of issuing original
issue shares of stock, as was done under the previous plan. The dividend
reinvestment portion of the Plan offers a 5% discount on the purchase of
original issue shares of common stock with reinvested dividends. As of the
December 1999 dividend payment, holders of 18.3% of the common shares
outstanding participated in the dividend reinvestment portion of the Plan.
During the past five years, we have sold 2,118,460 original issue shares of
common stock for net proceeds of $29,279 through the dividend reinvestment
program. During the past five years, and before its replacement in December
1997, we have sold 1,356,154 original issue shares of common stock for net
proceeds of $15,755 through the former Customer Stock Purchase Plan. Proceeds
from these plans were used to invest in PSW, to relieve PSW of the need to pay a
dividend to us, to repay short-term debt, and for general corporate purposes.
The Board of Directors has authorized us to purchase our common stock,
from time to time, in the open market or through privately negotiated
transactions. We purchased 81,400 shares in 1999, 151,406 shares in 1998 and
152,000 shares in 1997 at a net cost of $1,771 in 1999, $3,333 in 1998 and
$2,284 in 1997. As of December 31, 1999, 395,339 shares remain available for
purchase. Funding for future stock purchases, if any, is not expected to have a
material impact on our financial position.
Our planned 2000 capital program, exclusive of the costs of new mains
financed by advances and contributions in aid of construction, is estimated to
be $110,602 of which $34,265 is for DSIC qualified projects. PSW has increased
its capital spending for infrastructure rehabilitation in response to the DSIC.
Should the DSIC be discontinued for any reason, which is not anticipated, PSW
would likely reduce its capital program significantly. The 2000 capital program
of PSW and CWC, along with $12,194 of sinking fund obligations and debt
maturities is expected to be financed through internally-generated funds, the
revolving credit facilities, our equity investments and the issuance of new
long-term debt.
We continue to hold acquisition discussions with several water systems.
The cash needed for acquisitions is expected to be funded initially with
short-term debt with subsequent repayment from the proceeds of long-term debt or
our equity investments.
9
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Future utility construction in the period 2001 through 2004, including
recurring programs, such as the ongoing replacement of water meters, the
rehabilitation of water mains and additional transmission mains to meet customer
demands, exclusive of the costs of new mains financed by advances and
contributions in aid of construction, is estimated to require aggregate
expenditures of approximately $400,000. We anticipate that less than one-half of
these expenditures will require external financing including the additional
issuance of Common Stock through our dividend reinvestment plan and possible
future public equity offerings. We expect to refinance $91,375 of debt
maturities during this period as they become due with new issues of long-term
debt. The estimates discussed above do not include any amounts for possible
future acquisitions of water systems or the financing necessary to support them.
The ability to finance our future construction programs, as well as our
acquisition activities, depends on our ability to attract the necessary external
financing and maintain or increase internally-generated funds. Rate orders
permitting compensatory rates of return on invested capital and timely rate
adjustments will be required by PSW and the CWC operating subsidiaries to
achieve an adequate level of earnings to enable it to secure the capital it will
need and to maintain satisfactory debt coverage ratios.
10
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
Capitalization
The following table summarizes our capitalization during the past five
years:
<TABLE>
<CAPTION>
December 31, 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Long-term debt* 53.8% 51.9% 56.9% 57.9% 56.5%
Preferred stock* 0.2% 0.4% 1.0% 1.3% 1.1%
Common stockholders' equity ** 46.0% 47.7% 42.1% 40.8% 42.4%
- -----------------------------------------------------------------------------------------------------------------
100.0% 100.0% 100.0% 100.0% 100.0%
=================================================================================================================
</TABLE>
*Includes current portion.
** Excludes minority interest.
The changes in the capitalization ratios primarily result from the
issuance of common stock over the past five years and the issuance of debt to
finance our acquisitions and capital program. It is our goal to maintain an
equity ratio adequate to support PSW's current Standard and Poors debt rating of
"AA-" and to support CWC's current debt rating of an NAIC (National Association
of Insurance Commissioners) "2".
Dividends on Common Stock
We have paid common dividends consecutively for 55 years. In 1999, our
Board of Directors authorized an increase of 5.9% in the dividend rate over the
amount we previously paid. As a result of this authorization, beginning with the
dividend payment in September, the annual dividend rate increased to $0.72 per
share. We presently intend to pay quarterly cash dividends in the future, on
March 1, June 1, September 1 and December 1, subject to our earnings and
financial condition, regulatory requirements and such other factors as our Board
of Directors may deem relevant. During the past five years, after restatement
for the pooling, our common dividends paid have averaged 76.2% of income from
continuing operations.
YEAR 2000
We actively pursued a Year 2000 Program (the "Program"). The objective
of the Program was to provide reasonable assurance that our critical systems and
processes that impact our ability to deliver water to our customers would not
experience significant interruptions that would interfere with such water
service or result in a material business impairment that would have an adverse
impact on our operations, liquidity or financial condition as a result of the
Year 2000 issue. For purposes of the Program, the Year 2000 issue was defined as
whether information technology accurately processes date and time data from,
into and between the twentieth and twenty-first centuries, and the years 1999
and 2000 and leap year calculations. To date, our water treatment plants and
other mission critical systems have not been impacted by the Year 2000 issue,
and there have been no water service interruptions as a result of a Year 2000
issue. We continue to monitor the Year 2000 issue but do not anticipate that we
will experience a material business impairment or have a material adverse impact
on our operations, liquidity or financial condition as a result of the Year 2000
issue.
11
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
(In thousands of dollars, except per share amounts)
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1 ("SOP 98-1"), "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." We adopted this
statement on January 1, 1999 as required. The adoption of SOP 98-1 did not
affect results from operations, financial condition or long-term liquidity.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting on the Costs of
Start-Up Activities." We adopted this statement on January 1, 1999 as required.
The adoption of SOP 98-5 did not affect results from operations, financial
condition or long-term liquidity.
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," and in June 1999 amended this
standard by issuing SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133."
SFAS No. 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. SFAS No. 137
changed the timing of the implementation of SFAS No. 133. We plan to adopt these
statements in 2001 as required. As of December 31, 1999, we had no derivative
instruments or hedging activities.
12
<PAGE>
MANAGEMENT'S REPORT
The consolidated financial statements and related information for the
years ended December 31, 1999, 1998 and 1997 were prepared by management in
accordance with generally accepted accounting principles and include
management's best estimates and judgments, as required. Financial information
included in other sections of this annual report is consistent with that in the
consolidated financial statements.
The Company has an internal accounting control structure designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly authorized and recorded in accordance with established policies and
procedures. The internal control structure is supported by the selection and
training of qualified personnel, the delegation of management authority and
responsibility and dissemination of policies and procedures.
The Company's independent auditors, KPMG LLP, provide an independent
review of management's reporting of results of operations and financial
condition. KPMG has audited the financial statements by conducting tests as they
deemed appropriate and their report follows.
The Board of Directors through the Audit Committee selects the
Company's independent auditors and reviews the scope and results of their
audits. The Audit Committee also reviews the adequacy of the Company's internal
control structure and other significant matters. The Audit Committee is
comprised of three outside Directors who meet periodically with management and
the independent auditors. The Audit Committee held two meetings in 1999.
Nicholas DeBenedictis David P. Smeltzer
Nicholas DeBenedictis David P. Smeltzer
Chairman & Senior Vice President - Finance
President
13
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Philadelphia Suburban Corporation:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Philadelphia Suburban Corporation and
subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of income and comprehensive income, and cash flow for each of the
years in the three-year period ended December 31, 1999. 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Philadelphia
Suburban Corporation and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
KPMG LLP
Philadelphia, Pennsylvania
January 31, 2000
14
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands, except per share amounts)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Operating revenues $ 257,326 $ 250,771 $ 235,852
Costs and expenses:
Operations and maintenance 98,758 100,139 96,571
Depreciation 30,612 27,189 25,581
Amortization 1,291 2,275 2,396
Taxes other than income taxes 21,833 21,930 21,345
Restructuring costs 3,787 - -
-----------------------------------------------
156,281 151,533 145,893
Operating income 101,045 99,238 89,959
Other expense (income):
Interest expense, net 33,698 31,888 32,664
Dividends on preferred stock of subsidiary and
minority interest 93 142 590
Allowance for funds used during construction (1,995) (1,245) (937)
Merger transaction costs 6,334 - -
Gain on sale of New Hampshire system - (6,680) -
-----------------------------------------------
Income from continuing operations before income taxes 62,915 75,133 57,642
Provision for income taxes 26,531 30,118 22,432
-----------------------------------------------
Income from continuing operations 36,384 45,015 35,210
Discontinued operations:
Loss from operations, net of tax - - 387
Loss on disposal of discontinued operations, net of tax - - 2,350
-----------------------------------------------
Net income 36,384 45,015 32,473
Dividends on preferred stock 109 195 195
-----------------------------------------------
Net income available to common stock $ 36,275 $ 44,820 $ 32,278
===============================================
Net income $ 36,384 $ 45,015 $ 32,473
Other comprehensive income, net of tax 2,020 - -
-----------------------------------------------
Comprehensive income $ 38,404 $ 45,015 $ 32,473
===============================================
Basic net income (loss) per common share:
Continuing operations $ 0.89 $ 1.11 $ 0.91
Discontinued operations - - (0.07)
-----------------------------------------------
Total $ 0.89 $ 1.11 $ 0.84
===============================================
Diluted net income (loss) per common share:
Continuing operations $ 0.88 $ 1.10 $ 0.90
Discontinued operations - - (0.07)
-----------------------------------------------
Total $ 0.88 $ 1.10 $ 0.83
===============================================
Average common shares outstanding during the period:
Basic 40,864 40,362 38,650
===============================================
Diluted 41,305 40,854 39,018
===============================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of dollars, except per share amounts)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-----------------------------------
Assets
<S> <C> <C>
Property, plant and equipment, at cost $ 1,393,027 $ 1,248,621
Less accumulated depreciation 257,663 232,427
-----------------------------------
Net property, plant and equipment 1,135,364 1,016,194
-----------------------------------
Current assets:
Cash and cash equivalents 4,658 8,247
Accounts receivable and unbilled revenues, net 44,399 40,768
Inventory, materials and supplies 3,948 3,857
Prepayments and other current assets 6,520 7,026
-----------------------------------
Total current assets 59,525 59,898
-----------------------------------
Regulatory assets 58,287 57,697
Deferred charges and other assets, net 27,629 22,944
-----------------------------------
$ 1,280,805 $ 1,156,733
===================================
Liabilities and Stockholders' Equity
Stockholders' equity:
6.05% Series B cumulative preferred stock $ 1,760 $ 3,220
Common stock at $.50 par value, authorized 100,000,000 shares,
issued 41,627,644 and 41,235,603 in 1999 and 1998 20,814 20,617
Capital in excess of par value 251,440 244,457
Retained earnings 101,533 91,683
Minority interest 2,604 2,589
Treasury stock, 615,038 and 533,292 shares in 1999 and 1998 (11,270) (9,478)
Accumulated other comprehensive income 2,020 -
-----------------------------------
Total stockholders' equity 368,901 353,088
-----------------------------------
Long-term debt, excluding current portion 413,752 374,374
Commitments - -
Current liabilities:
Current portion of long-term debt 12,194 2,981
Loans payable 103,069 63,550
Accounts payable 24,286 25,248
Accrued interest 8,994 8,406
Accrued taxes 12,689 14,382
Other accrued liabilities 22,581 20,462
-----------------------------------
Total current liabilities 183,813 135,029
-----------------------------------
Deferred credits and other liabilities:
Deferred income taxes and investment tax credits 136,528 126,809
Customers' advances for construction 59,494 57,781
Other 8,434 8,735
-----------------------------------
Total deferred credits and other liabilities 204,456 193,325
-----------------------------------
Contributions in aid of construction 109,883 100,917
-----------------------------------
$ 1,280,805 $ 1,156,733
===================================
See accompanying notes to consolidated financial statements.
</TABLE>
16
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(In thousands of dollars, except per share amounts)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------------------------
<S> <C> <C>
Stockholders' equity:
6.05% Series B cumulative preferred stock $ 1,760 $ 3,220
Common stock, $.50 par value 20,814 20,617
Capital in excess of par value 251,440 244,457
Retained earnings 101,533 91,683
Minority interest 2,604 2,589
Treasury stock (11,270) (9,478)
Accumulated other comprehensive income 2,020 -
-------------------------------
Total stockholders' equity 368,901 353,088
-------------------------------
Long-term debt:
First Mortgage Bonds secured by utility plant:
Interest Rate Range
0.00% to 2.49% 858 949
2.50% to 4.99% 824 -
5.00% to 5.49% 2,200 -
5.50% to 5.99% 31,545 21,945
6.00% to 6.49% 127,210 87,210
6.50% to 6.99% 55,200 55,200
7.00% to 7.49% 38,000 40,001
7.50% to 7.99% 23,000 23,000
8.00% to 8.49% 16,500 16,500
8.50% to 8.99% 9,003 9,011
9.00% to 9.49% 53,695 53,776
9.50% to 9.99% 51,220 51,820
10.00% to 10.55% 6,000 6,000
-------------------------------
Total First Mortgage Bonds 415,255 365,412
Notes payable to banks under revolving credit agreements, due June 2000 9,200 10,400
Installment note payable, 9%, due in equal annual payments through 2013 1,491 1,543
-------------------------------
425,946 377,355
Current portion of long-term debt 12,194 2,981
-------------------------------
Long-term debt, excluding current portion 413,752 374,374
-------------------------------
Total capitalization $ 782,653 $ 727,462
===============================
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(In thousands of dollars)
Years ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
-----------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 36,384 $ 45,015 $ 32,473
Adjustments to reconcile net income to net cash
flows from operating activities:
Depreciation and amortization 31,903 29,464 27,977
Deferred income taxes 6,342 9,957 5,883
Gain on sale of New Hampshire system - (6,680) -
Net increase in receivables, inventory and prepayments (3,073) (3,623) (933)
Net increase in payables, accrued interest and
other accrued liabilities 444 11,216 4,801
Other 1,600 (2,476) (1,483)
Net cash flows from discontinued operations 503 1,489 184
Net loss from discontinued operations - - 2,350
-----------------------------------------------
Net cash flows from operating activities 74,103 84,362 71,252
-----------------------------------------------
Cash flows from investing activities:
Property, plant and equipment additions, including allowance for
funds used during construction of $1,995, $1,245 and $937 (96,383) (87,973) (67,378)
Acquisitions of water and wastewater systems (39,164) (24,498) (1,226)
Proceeds from sale of New Hampshire system - 33,728 -
Other (5,069) (899) 125
-----------------------------------------------
Net cash flows used in investing activities (140,616) (79,642) (68,479)
-----------------------------------------------
Cash flows from financing activities:
Customers' advances and contributions in aid of construction 5,345 3,902 8,069
Repayments of customers' advances (4,077) (3,062) (4,215)
Net proceeds (repayments) of short-term debt 39,519 (4,615) 6,316
Proceeds from long-term debt 54,412 33,395 29,631
Repayments of long-term debt (6,733) (24,918) (25,997)
Redemption of preferred stock (1,460) (4,214) (1,438)
Proceeds from issuing common stock 7,061 32,589 14,258
Repurchase of common stock (1,773) (3,334) (2,287)
Dividends paid on preferred stock (117) (195) (195)
Dividends paid on common stock (29,217) (29,349) (26,752)
Other (36) (46) (82)
-----------------------------------------------
Net cash flows from (used in) financing activities 62,924 153 (2,692)
-----------------------------------------------
Net increase (decrease) in cash and cash equivalents (3,589) 4,873 81
Cash and cash equivalents at beginning of year 8,247 3,374 3,293
-----------------------------------------------
Cash and cash equivalents at end of year $ 4,658 $ 8,247 $ 3,374
===============================================
</TABLE>
See Summary of Significant Accounting Policies-Customers' Advances for
Construction, Merger with Consumers Water Company, Acquisitions and Water
Sale Agreements, Income Taxes and Employee Stock and Incentive Plans
footnotes for description of non-cash activities.
See accompanying notes to consolidated financial statements.
18
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(In thousands of dollars, except per share amounts)
Summary of Significant Accounting Policies
Basis of Presentation - On March 10, 1999, Philadelphia Suburban Corporation
(the "Company") completed a merger (the "Merger") with Consumers Water Company
("CWC"). On the date of the Merger, the Company issued 13,014,015 shares of
Common Stock in exchange for all of the outstanding shares of CWC and CWC became
a wholly-owned subsidiary of the Company. The Merger has been accounted for as a
pooling-of-interests under Accounting Principles Board Opinion No. 16.
Accordingly, the Company's consolidated financial statements and footnotes
presented in this report have been restated to include the accounts and results
of CWC as if the Merger had been completed as of the beginning of the earliest
period presented.
Nature of Operations - The business of the Company is conducted primarily
through its wholly-owned subsidiary Philadelphia Suburban Water Company ("PSW")
and the seven operating companies of CWC. PSW is a regulated public utility
which supplies water to approximately 319,000 customers. The service territory
of PSW covers an area located west and north of the City of Philadelphia. CWC
owns 100% of the voting stock of four water companies and at least 96% of the
voting stock of three water companies. These water companies are regulated
utilities providing water and wastewater service in 27 operating divisions to
approximately 230,000 customers in Pennsylvania, Ohio, Illinois, New Jersey and
Maine. In addition, the Company provides water service to approximately 8,500
customers through operating and maintenance contracts in Pennsylvania, Illinois
and Maine.
The customers of PSW and CWC's operating subsidiaries are residential,
commercial and industrial in nature. The regulated public utilities are subject
to regulation by the public utility commissions of the states in which they
operate. The respective public utility commissions have jurisdiction with
respect to rates, service, accounting procedures, issuance of securities,
acquisitions and other matters.
Consolidation - The consolidated financial statements include the accounts of
the Company and its subsidiaries as of December 31, 1999. All material
intercompany accounts and transactions have been eliminated.
Recognition of Revenues - Revenues include amounts billed to customers on a
cycle basis and unbilled amounts based on estimated usage from the latest
billing to the end of the accounting period. Non-utility revenues are recognized
when services are performed.
Property, Plant and Equipment and Depreciation - Property, plant and equipment
consist primarily of utility plant. The cost of additions includes contracted
cost, direct labor and fringe benefits, materials, overheads and, for certain
utility plant, allowance for funds used during construction. Water systems
acquired are recorded at estimated original cost of utility plant when first
devoted to utility service and the applicable depreciation is recorded to
accumulated depreciation. The difference between the estimated original cost,
less applicable accumulated depreciation, and the purchase price is recorded as
an acquisition adjustment within utility plant. At December 31, 1999, utility
plant includes a net credit acquisition adjustment of $8,403, which is being
amortized over 20 to 40 years. Consistent with the Company's rate settlements,
$575 was amortized during 1999, $565 was amortized during 1998 and $534 was
amortized during 1997.
Utility expenditures for maintenance and repairs, including minor
renewals and betterments, are charged to operating expenses in accordance with
the system of accounts prescribed by the public utility commissions of the
states in which the company operates. The cost of new units of property and
betterments are capitalized. When units of utility property are replaced,
retired or abandoned, the recorded value thereof is credited to the asset
account and such value, together with the net cost of removal, is charged to
accumulated depreciation.
The straight-line remaining life method is used to compute depreciation
on utility plant. Generally, the straight-line method is used with respect to
transportation and mechanical equipment, office equipment and laboratory
equipment.
19
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
In accordance with the requirements of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-lived Assets and for Long-lived Assets to Be Disposed Of", the long-lived
assets of the Company, which consist primarily of Utility Plant in Service and
regulatory assets, have been reviewed for impairment. There has been no change
in circumstances or events that have occurred that require adjustments to the
carrying values of these assets.
Allowance for Funds Used During Construction - The allowance for funds used
during construction ("AFUDC") is a non-cash credit which represents the
estimated cost of funds used to finance the construction of utility plant. In
general, AFUDC is applied to construction projects requiring more than one month
to complete. No AFUDC is applied to projects funded by customer advances for
construction or contributions in aid of construction. AFUDC includes the net
cost of borrowed funds and a rate of return on other funds when used, and is
recovered through water rates as the utility plant is depreciated. The amount of
AFUDC related to equity funds was $57 in 1999. There was no AFUDC related to
equity funds in 1998 or 1997.
Cash Equivalents - The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
Deferred Charges and Other Assets - Deferred charges and other assets consist of
financing expenses, rate case expenses, other costs and marketable securities.
Deferred bond issuance expenses are amortized by the straight-line
method over the life of the related issues. Call premiums related to the early
redemption of long-term debt, along with the unamortized balance of the related
issuance expense, are deferred and amortized over the life of the long-term debt
used to fund the redemption.
Expenses associated with filing for rate increases are deferred and
amortized over periods that generally range from one to three years. Other
costs, for which the Company has received or expects to receive prospective rate
recovery, are deferred and amortized over the period of rate recovery.
Marketable securities are considered "available-for-sale" and
accordingly, are carried on the balance sheet at fair market value. Unrecognized
gains are included in other comprehensive income.
Income Taxes - The Company accounts for certain income and expense items in
different time periods for financial reporting than for tax reporting purposes.
Deferred income taxes are provided on the temporary differences between the tax
basis of the assets and liabilities and the amounts at which they are carried in
the consolidated financial statements. The income tax effect of temporary
differences not allowed currently in rates is recorded as deferred taxes with an
offsetting regulatory asset or liability. These deferred income taxes are based
on the enacted tax rates expected to be in effect when such temporary
differences are projected to reverse.
Customers' Advances for Construction - Water mains or, in some instances, cash
advances to reimburse the Company its costs to construct water mains, are
contributed to the Company by customers, real estate developers and builders in
order to extend water service to their properties. The value of these
contributions is recorded as Customers' Advances for Construction. The Company
makes refunds on these advances over a specific period of time based on
operating revenues related to the main or as new customers are connected to and
take service from the main. After all refunds are made, any remaining balance is
transferred to Contributions in Aid of Construction. Non-cash property, in the
form of water mains, has been received, generally from developers, as advances
or contributions of $10,069, $8,774 and $6,080 in 1999, 1998 and 1997.
Contributions in Aid of Construction - Contributions in aid of construction
include direct non-refundable contributions and the portion of customers'
advances for construction that become non-refundable.
Inventories, Materials and Supplies - Inventories are stated at cost, not in
excess of market value. Cost is determined using the first-in, first-out method
and the average cost method.
20
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Stock-Based Compensation - The Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation", electing the provision of the statement allowing it
to continue its practice of not recognizing compensation expense related to
granting of stock options to the extent that the option price of the underlying
stock was equal to, or greater than, the market price on the date of option
grant. Disclosure of the impact on the results of operations, had the Company
elected to recognize compensation expense, is provided in the Employee Stock and
Incentive Plans footnote as required by the Statement.
Use of Estimates in Preparation of Consolidated Financial Statements - The
preparation of consolidated financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications - Certain prior year amounts have been reclassified to conform
with current year's presentation.
Merger with Consumers Water Company
On March 10, 1999, the Company completed a merger ("the Merger") with
CWC. Pursuant to the merger agreement, the Company issued 13,014,015 shares of
Common Stock in exchange for all of the outstanding stock of CWC. CWC common
shareholders received 1.432 shares of the Company's Common Stock for each CWC
common share and CWC preferred shareholders received 5.649 shares of the
Company's Common Stock for each CWC preferred share. As a result of the Merger,
CWC became a wholly-owned subsidiary of the Company. CWC's seven water companies
serve approximately 230,000 customers in service territories covering parts of
Pennsylvania, Ohio, Illinois, New Jersey and Maine. The results of operations
previously reported by PSC and CWC are as follows (certain amounts previously
reported have been reclassified to conform to the current presentation):
Years Ended December 31,
--------------------------------
1998 1997
--------------------------------
Operating Revenues
PSC $ 150,977 $ 136,171
CWC 98,469 98,339
--------------------------------
Combined $ 249,446 $ 234,510
================================
Net income
PSC $ 28,819 $ 23,188
CWC 16,251 9,339
--------------------------------
Combined $ 45,070 $ 32,527
================================
During 1999, the Company recorded a charge of $6,334 ($6,134, after tax
benefits of $200) for merger transaction costs consisting primarily of fees for
investment bankers, attorneys, accountants and other administrative charges. In
addition, the Company recorded a restructuring reserve of $3,787 ($2,462, after
tax benefits of $1,325) in 1999 that includes severance of $2,940 and exit costs
associated with the closing of CWC's corporate office. Through December 31,
1999, the initial reserve has been reduced principally by cash payments of
$3,434 and the balance is anticipated to be paid during the second quarter of
2000. The merger transaction costs have been reported in Other expenses and the
restructuring costs have been reported as Costs and expenses in the Consolidated
Statements of Income and Comprehensive Income.
21
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Acquisitions and Water Sale Agreements
During 1999, exclusive of the Merger, 16 acquisitions or other growth
ventures were completed in the five states in which the Company operates. These
transactions have added 17,250 customers to the Company's customer base. The
largest of these transactions was the acquisition of the water utility assets of
Bensalem Township in December 1999, which has added 14,945 customers. The total
purchase price for the systems acquired in 1999 was $39,164 in cash. The
increase in annual revenues resulting from the acquired systems approximate
$4,900 (unaudited) and operating revenues included in the consolidated financial
statements during the period owned by the Company were $559.
During 1998, five water system acquisitions were completed and two
long-term water sale agreements were obtained in Pennsylvania and New Jersey.
These transactions have added 9,007 customers to the Company's customer base.
The total purchase price of $25,380 for the five water systems acquired in 1998
was $24,498 in cash and the issuance of 42,000 shares of the Company's common
stock. Operating revenues included in the consolidated financial statements
related to the systems acquired and new water sale agreements obtained in 1998
were $4,685 in 1999 and $4,627 in 1998.
During 1997, one wastewater and three water system acquisitions were
completed by PSW. The total purchase price for the systems acquired in 1997 was
$1,226. Operating revenues included in the consolidated financial statements
related to the systems acquired in 1997 were $363 in 1999, $367 in 1998 and $175
in 1997.
Disposition
In April 1998, CWC's New Hampshire subsidiary sold its utility assets
to the Town of Hudson under the New Hampshire condemnation statute for $33,728,
net of certain closing costs. The sale generated a gain of $6,680 ($3,903 net of
taxes, or $0.10 per share), and was recorded in the second quarter of 1998. This
system had approximately 8,200 customers and operating revenues of $1,600 in
1998 prior to the sale and $6,500 in 1997.
22
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Property, Plant and Equipment
December 31,
------------------------------
1999 1998
------------------------------
Utility plant and equipment $ 1,340,361 $ 1,213,330
Utility construction work in progress 49,271 31,327
Non-utility plant and equipment 3,395 3,964
-------------------------------
Total property, plant and equipment $ 1,393,027 $ 1,248,621
===============================
Depreciation is computed based on estimated useful lives of 2 to 110
years for utility plant and 3 to 10 years for both utility transportation and
mechanical equipment and all non-utility plant, office equipment and laboratory
equipment.
Accounts Receivable
December 31,
----------------------------
1999 1998
----------------------------
Billed water revenue $ 23,953 $ 21,666
Unbilled water revenue 20,747 19,398
Other 1,007 1,140
----------------------------
45,707 42,204
Less allowance for doubtful accounts 1,308 1,436
----------------------------
Net accounts receivable $ 44,399 $ 40,768
============================
The Company's customers are located in the following states: 66% in
Pennsylvania, 14% in Ohio, 11% in Illinois, 6% in New Jersey and 3% in Maine.
PSW's customers are located in southeastern Pennsylvania and accounted for 58%
of the customers served. No single customer accounted for more than one percent
of the Company's operating revenues.
Regulatory Asset
The regulatory asset represents costs that are excluded from the
Company's rate base but are expected to be fully recovered in future rates. The
two components of this asset are deferred income taxes and postretirement
benefits other than pensions. Items giving rise to deferred state income taxes,
as well as a portion of deferred Federal income taxes related to certain
differences between tax and book depreciation expense, are recognized in the
rate setting process on a cash or flow-through basis and will be recovered as
they reverse. The portion of the asset related to postretirement benefits other
than pensions represents costs that were deferred between the time that the
accrual method of accounting for these benefits was adopted in 1993 and the
recognition of the accrual method in the Company's rates as prescribed in
subsequent rate filings. Amortization of the amount deferred for postretirement
benefits other than pensions began in 1994 and is currently being recovered in
rates.
December 31,
----------------------------
1999 1998
----------------------------
Income taxes $ 56,467 $ 55,437
Postretirement benefits other than pensions 1,820 2,260
---------------------------
$ 58,287 $ 57,697
===========================
23
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Income Taxes
Total income tax expense is allocated as follows:
Years Ended December 31,
-----------------------------------
1999 1998 1997
-----------------------------------
Income from continuing operations $ 26,531 $ 30,118 $ 22,432
Common stockholders' equity related
to stock option activity which
reduces taxable income (205) (402) (401)
Discontinued operations -- -- (1,455)
-----------------------------------
$ 26,326 $ 29,716 $ 20,576
===================================
Income tax expense attributable to income from continuing operations
consists of:
Years Ended December 31,
------------------------------------
1999 1998 1997
------------------------------------
Current:
Federal $ 15,233 $ 14,837 $ 13,480
State 3,695 5,583 3,087
------------------------------------
18,928 20,420 16,567
------------------------------------
Deferred:
Federal 6,862 8,453 5,086
State 741 1,245 779
------------------------------------
7,603 9,698 5,865
------------------------------------
Total tax expense $ 26,531 $ 30,118 $ 22,432
====================================
The significant components of deferred income tax expense are as
follows:
Years Ended December 31,
--------------------------------
1999 1998 1997
--------------------------------
Excess of tax over financial statement
depreciation $ 5,377 $ 10,325 $ 6,488
Amortization of deferred investment tax
credits (216) (660) (290)
Current year investment tax credits
deferred 118 20 35
Differences in basis of fixed assets due
to variations in tax and book accounting
methods that reverse through depreciation 2,123 1,762 786
Pension, deferred compensation and other
postretirement benefits (58) (752) (184)
Customers' advances for construction, net 806 321 773
Other, net (547) (1,318) (1,743)
-------------------------------
Total deferred income tax expense $ 7,603 $ 9,698 $ 5,865
===============================
The statutory Federal tax rate is 35% and the state corporate net income
tax rates range from 7.18% to 11.50% for all years presented.
24
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The reasons for the differences between amounts computed by applying
the statutory Federal income tax rate to income from continuing operations
before Federal tax and the actual Federal tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1999 1998 1997
-------------------------------------------
<S> <C> <C> <C>
Computed Federal tax expense at statutory rate $ 20,390 $ 23,839 $ 18,753
Increase in tax expense for depreciation expense
to be recovered in future rates 387 1,091 162
Merger transaction costs 2,017 - -
Charitable contribution (479) - -
Gain on sale of land 83 - -
Amortization of deferred investment tax credits (279) (658) (292)
Prior year rate reductions (313) (655) (147)
Preferred stock dividend 32 147 272
Difference in statutory rate - (240) (186)
Other, net 257 (234) 4
-------------------------------------------
Actual Federal tax expense $ 22,095 $ 23,290 $ 18,566
===========================================
</TABLE>
The tax effects of temporary differences between book and tax
accounting that give rise to the deferred tax assets and deferred tax
liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
-----------------------------
<S> <C> <C>
Deferred tax assets:
Customers' advances for construction $ 19,896 $ 21,527
Costs expensed for book not deducted
for tax, principally accrued expenses
and bad debt reserves 4,952 3,244
Alternative minimum tax 1,464 1,464
Other 292 187
-----------------------------
Total gross deferred tax assets 26,604 26,422
-----------------------------
Deferred tax liabilities:
Utility plant, principally due to
depreciation and differences in the basis
of fixed assets due to variation in tax
and book accounting 129,083 122,922
Deferred taxes associated with the gross-up
of revenues necessary to recover, in rates,
the effect of temporary differences 24,793 22,236
Deferred investment tax credit 7,823 8,073
Unrealized gain on marketable securities 1,433 -
-----------------------------
Total gross deferred tax liabilities 163,132 153,231
-----------------------------
Net deferred tax liability $136,528 $ 126,809
=============================
</TABLE>
The Company made income tax payments of $20,313, $15,746 and $14,131 in
1999, 1998 and 1997, respectively. The Company's Federal income tax returns for
all years through 1995 have been closed.
25
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Commitments
PSW maintains agreements with the Chester Water Authority and the Bucks
County Water and Sewer Authority for the purchase of water to supplement its
water supply, particularly during periods of peak demand. The agreements
stipulate purchases of minimum quantities of water to the year 2017. As a result
of the December 1999 Bensalem acquisition, the estimated annual commitments
related to such purchases will increase to approximately $5,338 through 2004.
PSW purchased approximately $3,172, $3,012 and $2,978 of water under these
agreements during the years ended December 31, 1999, 1998 and 1997,
respectively.
The Company leases motor vehicles, buildings and other equipment under
operating leases that are noncancelable. During the next five years, $2,556 of
future minimum lease payments are due: $1,129 in 2000, $853 in 2001, $378 in
2002 and $186 in 2003 and $10 in 2004. PSW leases parcels of land on which its
Media treatment plant and other facilities are situated and adjacent parcels
that are used for watershed protection. The operating lease is noncancelable,
expires in 2045 and contains certain renewal provisions. The lease is subject to
an adjustment every five years based on changes in the Consumer Price Index.
During each of the next five years, $292 of lease payments for land, subject to
the aforesaid adjustment, are due.
Rent expense was $1,894, $2,270 and $2,166 for the years ended December
31, 1999, 1998 and 1997, respectively.
Long-term Debt and Loans Payable
The Consolidated Statements of Capitalization provides a summary of
long-term debt and loans outstanding as of December 31, 1999 and 1998. The
supplemental indentures with respect to certain issues of the First Mortgage
Bonds restrict the ability of PSW and CWC to declare dividends, in cash or
property, or repurchase or otherwise acquire PSW's and CWC's stock. As of
December 31, 1999, approximately $146,000 of PSW's and $59,000 of CWC's retained
earnings were free of these restrictions. Certain supplemental indentures also
prohibit PSW and CWC from making loans to or purchasing the stock of the
Company.
26
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Annual sinking fund payments are required for certain issues of First
Mortgage Bonds by the supplemental indentures. Excluding amounts due under the
revolving credit agreements, the Company's future sinking fund payments and debt
maturities are as follows:
<TABLE>
<CAPTION>
Interest Rate Range 2000 2001 2002 2003 2004 Thereafter
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
0.00% to 2.49% $ 84 $ 70 $ 83 $ 84 $ 75 $ 462
2.50% to 4.99% 10 10 10 10 10 774
5.00% to 5.49% - - - - - 2,200
5.50% to 5.99% 400 400 400 10,000 10,000 10,345
6.00% to 6.49% - - 10,000 - 15,000 102,210
6.50% to 6.99% - - - 10,400 400 44,400
7.00% to 7.49% 2,000 2,000 2,000 12,000 12,000 8,000
7.50% to 7.99% - - - - - 23,000
8.00% to 8.49% - - - - - 16,500
8.50% to 8.99% 3 - - - - 9,000
9.00% to 9.49% 137 142 548 554 561 53,244
9.50% to 9.99% 360 1,155 1,154 1,155 1,154 46,242
10.00% to 10.55% - - - - - 6,000
--------------------------------------------------------------------------------
Total $ 2,994 $ 3,777 $ 14,195 $ 34,203 $ 39,200 $ 322,377
================================================================================
</TABLE>
In December 1999, PSW established a five-year $300,000 medium-term note
program providing for the issuance of long-term debt with maturities ranging
between one and 35 years at fixed rates of interest, as determined at the time
of issuance. This program replaced a similar program that expired in June 1999.
The notes issued under this program are secured by the Thirty-Third Supplement
to the trust indenture relating to PSW's First Mortgage Bonds. During 1999,
First Mortgage Bond issuances through these programs were as follows: $10,000 in
January 1999, 5.85% Series due 2004; and $15,000 in April 1999, 6.00% Series due
2004. In January 1998, PSW issued First Mortgage Bonds through the program as
follows: $10,000 6.14% Series due 2008 and $10,000 5.8% Series due 2003. In
January 2000, PSW issued First Mortgage Bonds through the program of $15,000
7.40% Series due 2005. The proceeds from these issuances were used to fund
acquisitions, to reduce the balance of PSW's revolving credit facility and for
PSW's ongoing capital program.
In June 1999, CWC's Maine subsidiary issued a First Mortgage Bond of
$2,200 5.05% Series due 2024. In August 1999, CWC's Maine subsidiary issued a
First Mortgage Bond of $824 2.68% Series due 2019. Proceeds from these issues
were used to reduce the balance of its short-term debt. In October 1999, PSW
issued $25,000 in First Mortgage Bonds 6.00% Series due 2029 as security for an
equal amount of Bonds issued by the Delaware County Industrial Development
Authority. The proceeds from these bonds are restricted to funding the costs of
certain capital projects.
In April 1998, CWC's New Hampshire subsidiary sold its utility assets
and used the proceeds to retire $6,000 of First Mortgage Bonds 8.00% Series due
2004, $2,000 of First Mortgage Bonds 10.55% Series due 2007, $2,000 of First
Mortgage Bonds 10.54% Series due 2009 and $2,000 of First Mortgage Bonds 9.96%
Series due 2009. During 1998, CWC's Ohio subsidiary retired $1,215 of First
Mortgage Bonds 8.75% Series due 2003.
27
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
In December 1999, PSW replaced its expiring revolving credit facility
with a new $50,000 revolving credit agreement due December 2000 with three
banks. As of December 31, 1999 and 1998, funds borrowed under the PSW revolving
credit agreements of $50,000 and $38,935, respectively, have been classified as
loans payable. CWC has a $20,000 revolving credit facility, which expires in
June 2000, and has been classified as current portion of long-term debt. Prior
to their expiration in June 1999, CWC had other revolving credit facilities
available. Interest under these facilities is based, at the borrower's option,
on the prime rate, an adjusted federal funds rate, an adjusted London Interbank
Offered Rate corresponding to the interest period selected, an adjusted
Euro-Rate corresponding to the interest period selected or at rates offered by
the banks. These agreements restrict the total amount of short-term borrowings
of PSW and CWC. A commitment fee ranging from 1/4 to 1/10 of 1% is charged on
the unused portion of the revolving credit agreements. The average cost of
borrowing under these facilities was 5.6% and 6.0%, and the average borrowing
was $47,037 and $40,701, during 1999 and 1998, respectively. The maximum amount
outstanding at the end of any one month was $59,600 in 1999 and $52,875 in 1998.
At December 31, 1999 and 1998, the Company had combined short-term
lines of credit of $116,000 and $105,300, respectively. Funds borrowed under
these lines are classified as loans payable and are used to provide working
capital. The average borrowing under the lines was $36,809 and $21,684 during
1999 and 1998, respectively. The maximum amount outstanding at the end of any
one month was $53,069 in 1999 and $27,990 in 1998. Interest under the lines is
based at the Company's option, depending on the line, on the prime rate, an
adjusted Euro-Rate, an adjusted federal funds rate or at rates offered by the
banks. The average cost of borrowings under all lines during 1999 and 1998 was
6.0% and 6.5%, respectively.
The total amount of interest paid on all borrowings, net of amounts
capitalized, was $31,036, $30,711 and $31,970 in 1999, 1998 and 1997,
respectively. The pro forma weighted cost of long-term debt at both December 31,
1999 and 1998 was 7.4%.
Preferred Stock of Subsidiaries
The Company's subsidiaries have the following preferred stock ($100 par
value) as of December 31, 1999:
<TABLE>
<CAPTION>
Cumulative Current
Dividend Call Price Shares Shares
Rate Per Share Authorized Outstanding
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Consumers Pennsylvania -
Shenango Valley Division 5.00% $ 110 10,000 9,925
Consumers Illinois Water Company 5.50% 107 5,000 3,575
Consumers Maine Water Company 5.00% 105 4,000 2,739
PSW - None 1,000,000 -
</TABLE>
PSW is authorized to issue preferred stock with mandatory redemption
requirements, with stated par value, in one or more series. In 1991, PSW issued
100,000 shares of 8.66% Series 1 Cumulative Preferred Stock, at par value of
$100 per share in a private placement. The remaining shares of this issue were
called by PSW and retired in 1998.
28
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Fair Value of Financial Instruments
The carrying amount of current assets and liabilities that are
considered financial instruments approximates their fair value as of the dates
presented. The carrying amount and estimated fair value of the Company's
long-term debt as of December 31, 1999 is $425,946 and $415,653, respectively.
The fair value of long-term debt has been determined by discounting the future
cash flows using current market interest rates for similar financial instruments
of the same duration.
The Company's customers' advances for construction and related tax
deposits have a carrying value of $59,494 at December 31, 1999. 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. Portions of these non-interest bearing
instruments are payable annually through 2020 and amounts not paid by the
contract expiration dates become non-refundable. The fair value of these amounts
would, however, be less than their carrying value due to the non-interest
bearing feature.
Stockholders' Equity
At December 31, 1999, the Company had 1,770,819 shares of Series
Preferred Stock with a $1.00 par value authorized, of which 100,000 shares are
designated as Series A Preferred Stock. During 1996, the Company designated
32,200 shares as Series B Preferred Stock, $1.00 par value. The Series A
Preferred Stock, as well as the undesignated shares of Series Preferred Stock,
remains unissued. In 1996, the Company issued all of the 6.05% Series B
Preferred Stock in connection with an acquisition. The Series B Preferred Stock
is recorded on the balance sheet at its liquidation value of $100 per share.
Dividends on the Series B Preferred Stock are cumulative and payable quarterly.
PSC may not pay dividends on common stock unless provision has been made for
payment of the preferred dividends. Under the provisions of this issue, the
holders may redeem the shares, in whole or in part, at the liquidation value
beginning December 1, 1998 and the Company may redeem up to 20% of this issue
each year beginning December 1, 2001 and, at the holders' option, this
redemption may be made in cash or through the issuance of debt with a five year
maturity at an interest rate of 6.05%. As of December 31, 1999, all dividends
have been provided for. In January 1999, 14,600 shares were redeemed in cash at
the liquidation value of $100 per share.
At December 31, 1999, the Company had 100,000,000 shares of common
stock authorized; par value $0.50. Shares outstanding at December 31, 1999, 1998
and 1997 were 41,012,606, 40,702,311, and 39,111,642 respectively. Treasury
shares held at December 31, 1999, 1998 and 1997 were 615,038, 533,292, and
376,510 respectively.
29
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table summarizes the activity of common stockholders'
equity:
<TABLE>
<CAPTION>
Accumulated
Capital in Other
Common Treasury excess of Retained Comprehensive
stock stock par value earnings Income Total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 16,013 $ (3,647) $ 200,629 $ 70,869 $ - $ 283,864
Net income - - - 32,278 - 32,278
Dividends - - - (26,877) - (26,877)
Stock split 3,276 - (3,276) - - -
Sale of stock 346 506 11,029 - - 11,881
Repurchase of stock - (2,829) - - - (2,829)
Equity Compensation Plan 1 - 50 - - 51
Exercise of stock options 108 - 2,750 - - 2,858
------------------------------------------------------------------------------------
Balance at December 31, 1997 19,744 (5,970) 211,182 76,270 - 301,226
------------------------------------------------------------------------------------
Net income - - - 44,820 - 44,820
Dividends - - - (29,407) - (29,407)
Sale of stock 761 293 30,495 - - 31,549
Repurchase of stock - (3,801) - - - (3,801)
Equity Compensation Plan 12 - 491 - - 503
Exercise of stock options 100 - 2,289 - - 2,389
------------------------------------------------------------------------------------
Balance at December 31, 1998 20,617 (9,478) 244,457 91,683 - 347,279
------------------------------------------------------------------------------------
Net income - - - 36,275 - 36,275
Other comprehensive income - - - - 2,020 2,020
Dividends - - - (26,425) - (26,425)
Sale of stock 114 354 4,807 - - 5,275
Repurchase of stock - (2,146) - - - (2,146)
Equity Compensation Plan 2 - 98 - - 100
Exercise of stock options 81 - 2,078 - - 2,159
------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 20,814 $ (11,270) $ 251,440 $ 101,533 $ 2,020 $ 364,537
====================================================================================
</TABLE>
The Company reports comprehensive income in accordance with SFAS No.
130, "Reporting Comprehensive Income." Accordingly, the Company's accumulated
other comprehensive income for unrealized gains on securities is reported in the
Stockholders' Equity section of the Consolidated Balance Sheets and the related
other comprehensive income is reported in the Consoldiated Statements of Income
and Comprehensive Income.
In December 1999, the Company filed a shelf registration statement with
the Securities and Exchange Commission for the offering and sale of up to
approximately $42,000 of common stock and $50,000 of preferred stock, all of
which was unused. The Company expects to offer from time to time, these shares
for acquisitions. The precise amount and timing of the application of such
proceeds will depend upon our funding requirements and the availability and cost
of other funds.
In February 1998, the Company issued 1,250,000 shares of common stock
through a public offering, providing net proceeds of $25,840 which were used to
repay short term debt and to make a $19,000 equity contribution to PSW. PSW used
the contribution from the Company to reduce the balance of its revolving credit
loan.
In December 1997, the Company adopted a Dividend Reinvestment and
Direct Stock Purchase Plan ("Plan") that replaced the Customer Stock Purchase
Plan and the Dividend Reinvestment and Optional Stock Purchase Plan.
30
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Under the Plan, reinvested dividends continue to be used to purchase original
issue shares of common stock at a five percent discount from the current market
value. Under the direct stock purchase program, shares are purchased by
investors throughout the year, instead of during limited subscription periods,
at market price and the shares are purchased by the Company's transfer agent in
the open-market at least weekly. The plans that were replaced sold original
issue shares exclusively. During 1999 and 1998, under the dividend reinvestment
portion of the Plan, 229,476 and 204,316 original issue shares of common stock
were sold providing the Company with proceeds of $5,044 and $4,197,
respectively. During 1997, under the former plans, 792,717 original issue shares
of common stock were sold providing the Company with $11,242 of additional
capital, after expenses.
The Board of Directors has authorized the Company to purchase its common
stock, from time to time, in the open market or through privately negotiated
transactions. During 1999, 1998 and 1997, 81,400, 151,406, and 152,000 shares
have been purchased at a net cost of $1,771, $3,333, and $2,284, respectively.
As of December 31, 1999, 395,339 shares remain available for purchase by the
Company.
Net Income per Common Share and Equity per Common Share
Basic net income per share is based on the weighted average number of
common shares outstanding. Diluted net income per share is based on the weighted
average number of common shares outstanding and potentially dilutive shares. The
dilutive effect of employee stock options is included in the computation of
Diluted net income per share. The following table summarizes the shares, in
thousands, used in computing Basic and Diluted net income per share:
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Average common shares outstanding during
the period for Basic computation 40,864 40,362 38,650
Dilutive effect of employee stock options 441 492 368
-----------------------------------
Average common shares outstanding during
the period for Diluted computation 41,305 40,854 39,018
===================================
</TABLE>
Equity per common share was $8.89 and $8.53 at December 31, 1999 and
1998, respectively. These amounts were computed by dividing common
stockholders'equity by the number of shares of common stock outstanding at the
end of each year.
31
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Shareholder Rights Plan
The Company has a Shareholder Rights Plan designed to protect the
Company's shareholders in the event of an unsolicited unfair offer to acquire
the Company. Each outstanding common share is entitled to one Right which is
evidenced by the common share certificate. In the event that any person acquires
20% or more of the outstanding common shares or commences a tender or exchange
offer which, if consummated, would result in a person or corporation owning at
least 20% of the outstanding common shares of the Company, the Rights will begin
to trade independently from the common shares and, if certain circumstances
occur, including the acquisition by a person of 20% or more of the outstanding
common shares, each Right would then entitle its holder to purchase a number of
common shares of the Company at a substantial discount. If the Company is
involved in a merger or other business combination at any time after the Rights
become exercisable, the Rights will entitle the holder to acquire a certain
number of shares of common stock of the acquiring company at a substantial
discount. The Rights are redeemable by the Company at a redemption price of $.01
per Right at any time before the Rights become exercisable. The Rights will
expire on March 1, 2008, unless previously redeemed.
Employee Stock and Incentive Plans
Under the 1994 Equity Compensation Plan ("1994 Plan"), as amended and
restated effective March 3, 1998, the Company may grant qualified and
non-qualified stock options to officers, key employees and consultants. Officers
and key employees may also be granted dividend equivalents and restricted stock.
Restricted stock may also be granted to non-employee members of the Board of
Directors ("Board"). In November 1998, the Shareholders authorized an increase
to the number of shares from 1,900,000 shares to 2,900,000 shares of common
stock for issuance under the 1994 Plan. The maximum number of shares that may be
subject to grants under the 1994 Plan to any one individual in any one year is
100,000. Awards under this plan are made by the Board of Directors or a
committee of the Board.
Options under the 1994 plan, as well as the earlier 1988 Stock Option
Plan were issued at the market price of the stock on the day of the grant.
Options are exercisable in installments ranging from 20% to 50% annually,
starting one year from the date of the grant and expire either 5 or 10 years
from the date of the grant.
32
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The following table summarizes stock option transactions for the two
plans:
<TABLE>
<CAPTION>
As of or For the Years Ended December 31,
---------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- --------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
------------------------- ------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Options:
Outstanding, beginning of year 1,133,907 $ 13.75 1,107,614 $ 11.03 1,202,541 $ 9.53
Granted 302,500 21.43 263,500 22.13 263,333 15.14
Terminated (7,557) 20.50 (36,710) 12.54 (62,904) 11.43
Exercised (145,526) 11.17 (200,497) 9.94 (295,356) 8.48
------------------------- ------------------------- --------------------------
Outstanding, end of year 1,283,324 $ 15.81 1,133,907 $ 13.75 1,107,614 $11.03
========================= ========================= ==========================
Exercisable, end of year 724,832 $ 12.05 607,535 $ 10.04 547,858 $ 9.44
========================= ========================= ==========================
</TABLE>
Options exercised during 1999 ranged in price from $8.56 per share to $22.13 per
share. At December 31, 1999, 1,299,326 options under the 1994 Plan were still
available for grant. The following table summarizes the price ranges of the
options outstanding and options exercisable as of December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ---------------------------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Shares Life (years) Price Shares Price
------------------------------------------ ---------------------------
<S> <C> <C> <C> <C>
Range of prices:
$6.59 - 11.99 480,390 4.6 $ 9.33 480,390 $ 9.33
$12.00 -16.99 244,938 6.9 14.97 159,946 14.89
$17.00 -22.13 557,996 8.7 21.75 84,496 22.13
------------------------------------------ ---------------------------
1,283,324 6.8 $ 15.81 724,832 $ 12.05
========================================== ===========================
</TABLE>
33
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Under SFAS No. 123, "Accounting for Stock-Based Compensation", the
Company elects to continue to apply the provisions of APB Opinion No. 25 and to
provide the pro forma disclosure provisions of this statement. Accordingly, no
compensation cost has been recognized in the financial statements for stock
options that have been granted. Had the Company determined compensation cost
based on the fair value at the grant date for its stock options under SFAS No.
123, the Company's net income available to common stock and Basic and Diluted
net income per share would have been reduced to the pro forma amounts indicated
below:
Years Ended December 31,
-------------------------------------
1999 1998 1997
-------------------------------------
Net income available to common stock:
As reported $ 36,275 $ 44,820 $ 32,278
Proforma 35,398 44,277 31,989
Basic net income per share:
As reported $ 0.89 $ 1.11 $ 0.84
Proforma 0.87 1.10 0.83
Diluted net income per share:
As reported $ 0.88 $ 1.10 $ 0.83
Proforma 0.86 1.08 0.82
The per share weighted-average fair value at the date of grant for
stock options granted during 1999, 1998 and 1997 was $5.35, $5.32, and $2.90 per
option, respectively. The fair value of options at the date of grant was
estimated using the Black-Scholes option-pricing model with the following
weighted average assumptions:
1999 1998 1997
-------------------------------------
Expected life (years) 10 10 10
Interest rate 5.4% 5.6% 6.6%
Volatility 20.9% 16.9% 13.8%
Dividend yield 3.2% 2.9% 4.0%
Restricted stock awards provide the grantee with the rights of a
shareholder, including the right to receive dividends and to vote such shares,
but not the right to sell or otherwise transfer the shares during the
restriction period. During 1999, 1998 and 1997, 4,400, 23,600 and 3,600 shares
of restricted stock were granted with a restriction period ranging from six to
36 months. The value of restricted stock awards, which are "compensatory", is
equal to the fair market value of the stock on the date of the grant less
payments made by the grantee and is amortized ratably over the restriction
period.
Pension Plans and Other Postretirement Benefits
The Company has defined benefit pension plans that cover its full-time
employees. Retirement benefits under the plans are generally based on the
employee's total years of service and compensation during the last five years of
employment. The Company's policy is to fund these plans annually at a level
which is deductible for income tax purposes and which provides assets sufficient
to meet its pension obligations. To offset certain limitations imposed by the
Internal Revenue Code with respect to payments under qualified plans, the
Company has a non-qualified Excess Benefit Plan for Salaried Employees in order
to prevent certain employees from being penalized by these limitations. The
Company also has non-qualified Supplemental Executive Retirement Plans for
current and retired employees. The net pension costs and obligations of the
qualified and non-qualified plans are included in the tables which follow.
In addition to providing pension benefits, the Company offers certain
Postretirement Benefits other than Pensions ("PBOPs") to employees retiring with
a minimum level of service. These PBOPs include continuation of medical and
prescription drug benefits for all eligible retirees and a life insurance policy
for eligible union retirees. The Company funds its gross PBOP cost through
various trust accounts.
34
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The Company's pension expense includes the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1999 1998 1997
--------------------------------------------
<S> <C> <C> <C>
Benefits earned during the year $ 3,232 $ 2,949 $ 2,522
Interest cost on projected benefit obligation 7,214 6,771 6,327
Expected return on plan assets (10,304) (9,049) (7,859)
Net amortization and deferral (105) (38) (2)
Capitalized costs (47) (48) (113)
Rate-regulated adjustment 430 (134) (552)
Special termination benefits 716 56 -
--------------------------------------------
Net pension cost $ 1,136 $ 507 $ 323
============================================
</TABLE>
The rate-regulated adjustment set forth above is required in order to
reflect pension expense for the Company in accordance with the method used in
establishing water rates. During 1999 and 1998, the Company instituted early
retirement and restructuring programs. These actions resulted in additional
termination benefits of $716 in 1999 and $56 in 1998.
The Company's costs for postretirement benefits other than pensions
includes the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1999 1998 1997
-----------------------------------
<S> <C> <C> <C>
Benefits earned during the year $ 645 $ 575 $ 485
Interest cost 1,249 1,229 1,173
Expected return on plan assets (699) (475) (272)
Net amortization and deferral 628 643 638
Special termination benefits 209 - -
Amortization of regulatory asset 208 257 161
-----------------------------------
Gross PBOP cost 2,240 2,229 2,185
Capitalized costs (464) (454) (435)
-----------------------------------
Net PBOP cost $ 1,776 $ 1,775 $ 1,750
===================================
</TABLE>
35
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The changes in the benefit obligation and fair value of plan assets,
the funded status of the plans and the assumptions used in the measurement of
the company's benefit obligation are as follows:
<TABLE>
<CAPTION>
Other
Pension Benefits Postretirement Benefits
----------------------------- --------------------------------
1999 1998 1999 1998
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1, $ 106,047 $ 93,373 $ 19,015 $ 16,207
Service cost 3,123 2,949 649 575
Interest cost 7,202 6,771 1,252 1,229
Plan amendments - 804 - 928
Special termination benefits 689 56 28 -
Change in measurement date 2,024 - 181 -
Actuarial loss (gain) (15,747) 6,843 (3,258) 612
Benefits paid (5,110) (4,749) (575) (536)
-------------- -------------- -------------- --------------
Benefit obligation at December 31, 98,228 106,047 17,292 19,015
-------------- -------------- -------------- --------------
Change in plan assets:
Fair value of plan assets at January 1, 116,848 102,773 8,003 5,437
Actual return on plan assets 13,455 18,715 1,196 1,077
Employer contributions 39 109 2,162 2,025
Change in measurement date 3,135 - 311 -
Benefits paid (5,110) (4,749) (575) (536)
-------------- -------------- -------------- --------------
Fair value of plan assets at December 31, 128,367 116,848 11,097 8,003
-------------- -------------- -------------- --------------
Funded status of plan:
Funded status at December 31, (30,139) (10,801) 6,195 11,012
Contributions for fourth quarter - - - (357)
Unrecognized actuarial gain 37,755 18,306 8,508 5,025
Unrecognized prior service cost (3,443) (3,874) 819 876
Rate-regulated adjustment (1,366) (1,803) - -
Unrecognized net transition obligation 1,876 1,967 (11,750) (12,654)
-------------- -------------- -------------- --------------
Accrued benefit costs $ 4,683 $ 3,795 $ 3,772 $ 3,902
============== ============== ============== ==============
Weighted-average assumptions
as of December 31,
Discount rate 7.75% 6.75-7.00% 7.75% 6.75-7.00%
Expected return on plan assets 9.00% 9.00% 6.00-9.00% 6.00-9.00%
Rate of compensation increase 4.50-5.50% 4.50-5.50% 4.50% 4.50%
</TABLE>
The CWC plans were measured as of September 30, 1998 in the above
table. This change in accounting method establishes December 31 as the
measurement date for all PSC plans and does not result in a material impact to
the plan assets or benefit obligation.
36
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
The accumulated benefit obligation is in excess of plan assets for
certain non-qualified plans. The projected benefit obligation, accumulated
benefit obligation and fair value of plan assets for these plans were $2,886,
$1,898 and $0, and $3,685, $1,758 and $0, respectively as of December 31, 1999
and 1998.
The assumed medical inflation rates under the PSC plans are 6.0%,
reducing to 4.5% in 2002 for retirees under the age of 65 and 15.0%, reducing to
4.5% by 2006 for retirees 65 years of age and over. The assumed medical
inflation rates under the CWC plans are 5.5%, reducing by 0.5% annually until
2001 and remain at 5.0% thereafter. The effect of a 1% increase in the assumed
medical inflation rates would be to increase the accumulated postretirement
benefit obligation as of December 31, 1999 and the 1999 PBOP costs by $1,030 and
$114, respectively. The effect of a 1% decrease in the assumed medical inflation
rates would be to decrease the accumulated postretirement benefit obligation as
of December 31, 1999 and the 1999 PBOP costs by $1,640 and $236, respectively.
The benefits of retired officers and certain other retirees are paid by the
Company and not from plan assets due to limitations imposed by the Internal
Revenue Code.
Water Rates
In October 1999, PSW, in conjunction with CWC's Pennsylvania
subsidiaries, filed an application with the Pennsylvania Public Utility
Commission ("PAPUC") requesting a $28,000 or 15.5% increase in annual revenues.
The application is currently pending before the PAPUC and a final determination
is anticipated by July 2000. In October 1997, the PAPUC approved a rate
settlement reached between PSW and the parties actively litigating the rate
application PSW filed in April 1997. The settlement was designed to increase
PSW's annual revenue by $9,300 or 7.3% over the level in effect at the time of
the filing. The rates in effect at the time of the filing included a 1% or
$1,300 Distribution System Improvement Charge ("DSIC"). Consequently, the
settlement resulted in a total base rate increase of $10,600 or 8.3%.
The CWC operating subsidiaries were allowed annual rate increases of
$390 for 1999, $3,334 for 1998 and $2,769 for 1997, represented by two, five,
and four rate decisions, respectively. Revenues from these increases realized in
the year of grant were approximately $308, $1,969, and $489 in 1999, 1998 and
1997, respectively.
The DSIC enables water utilities in Pennsylvania to add a surcharge to
customer bills reflecting the capital costs and depreciation related to certain
distribution system improvement projects completed and placed into service
between base rate filings. PSW is permitted to request adjustments to the DSIC
quarterly to reflect subsequent capital expenditures and it is reset to zero
when new base rates that reflect the costs of those additions become effective
or when PSW's pro forma earnings exceed a PUC benchmark. The maximum DSIC that
can be in effect at any time is 5%. The DSIC in the first quarter of 2000 has
been set at 5% and is expected to continue at 5% until new base rates become
effective. The DSIC provided revenues in 1999, 1998 and 1997 of $4,140, $229 and
$1,104, respectively.
In addition to its base rates and DSIC, PSW and CWC's Pennsylvania
subsidiaries have utilized a surcharge or credit on their bills to reflect
certain changes in Pennsylvania State taxes until such time as the tax changes
are incorporated into base rates. Various surcharge rates provided operating
revenues of $1,306 in 1999, and rate credits reduced operating revenues in 1998
by $117. There were no surcharges or credits during 1997.
37
<PAGE>
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements (continued)
(In thousands of dollars, except per share amounts)
Discontinued Operations
The net reserve of discontinued operations is comprised of two separate
operations as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1999 1998
--------------------------
<S> <C> <C>
Net reserve (assets) of CWC's CAT operations $ 113 $ (418)
Net reserve of PSC's nonregulated businesses 1,008 1,008
--------------------------
Net reserve of discontinued operations $ 1,121 $ 590
==========================
</TABLE>
In April 1997, the Board of Directors of CWC announced its intention to
dispose of its technical services company, Consumers Applied Technologies, Inc.
("CAT"). A reserve for estimated losses and certain future costs was established
in 1997 of $2,350, net of tax benefits of $1,211. CWC had been unable to sell
CAT as an on-going business and is proceeding with its liquidation. CAT's
operations were substantially shutdown during 1997. The operating results of CAT
prior to the date of discontinuance are shown under discontinued operations on
the accompanying consolidated statements of income and comprehensive income.
Operating revenues for the discontinued operations for 1998 and 1997 were $393
and $4,573, respectively. The net reserve (or assets) of CWC's discontinued
operations consist pimarily of the reserve for estimated future costs associated
with CAT, less accounts receivable. The change in the net reserve during 1999
was due to the collections of accounts receivable from former customers.
The Board of Directors of PSC had authorized the sale of substantially
all of the Company's non-regulated businesses and the last of these businesses
was sold in 1993. At the time the Board of Directors of PSC authorized the sale
of these businesses, the Company established reserves for estimated losses and
certain future costs. These reserves were recorded on the balance sheet net of
related income tax benefits. Management continues to assess the asserted and
unasserted legal claims related to these discontinued operations, and the
reserves will be adjusted when certain contigencies are reduced or an assessment
indicates that a reserve is no longer necessary.
38
<PAGE>
<TABLE>
<CAPTION>
Total
First Second Third Fourth Year
------------------------------------------------------------------
1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 58,597 $ 66,165 $ 69,527 $ 63,037 $ 257,326
Operations and maintenance expense 22,725 24,203 24,645 27,185 98,758
Net income available to common
stock 316 12,033 14,332 9,594 36,275
Basic net income per common share 0.01 0.29 0.35 0.24 0.89
Diluted net income per common share 0.01 0.29 0.35 0.23 0.88
Dividends declared and paid
per common share 0.17 0.17 0.18 0.18 0.70
Price range of common stock
- high 29.75 25.75 25.31 24.19 29.75
- low 19.75 21.31 21.13 20.19 19.75
1998
- ---------------------------------------------------------------------------------------------------------------------
Operating revenues $ 57,933 $ 61,740 $ 68,991 $ 62,107 $ 250,771
Operations and maintenance expense 23,604 24,005 25,216 27,314 100,139
Net income available to common
stock 7,852 14,577 13,787 8,604 44,820
Basic net income per common share 0.20 0.36 0.34 0.21 1.11
Diluted net income per common share 0.19 0.36 0.34 0.21 1.10
Dividend paid per common share 0.1625 0.1625 0.1700 0.1700 0.6650
Dividend declared per common share - 0.1625 0.1700 0.1700 0.5025
Price range of common stock
- high 25.75 22.56 28.19 30.06 30.06
- low 19.56 18.88 20.50 23.00 18.88
</TABLE>
High and low prices of the Company's common stock are as reported on
the New York Stock Exchange Composite Tape.
Dividends paid and declared per common share represents PSC's
historical dividends. The cash dividend paid in March 1998 of $0.1625 was
declared in December 1997.
Net income available to common stock and net income per common share
for the first quarter of 1999 includes net charges of $6,134 ($6,334 pre-tax),
or $0.15 per share, for the Consumers Water Company merger transaction costs and
a charge for related restructuring costs of $2,462 ($3,787 pre-tax), or $0.06
per share.
Net income available to common stock and net income per common share
for the second quarter of 1998 includes a net gain of $3,903 ($6,680 pre-tax),
or $0.10 per share, on the sale of Consumers Water Company's New Hampshire
system pursuant to the State's condemnation statute.
39
<PAGE>
<TABLE>
<CAPTION>
Summary of Selected Financial Data Philadelphia Suburban Corporation and Subsidiaries
- ----------------------------------
(in thousands of dollars, except per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE:
Income from continuing operations (a)
Basic $ 0.89 $ 1.11 $ 0.91 $ 0.78 $ 0.83
Diluted 0.88 1.10 0.90 0.77 0.83
Net income (a)
Basic 0.89 1.11 0.84 0.72 0.83
Diluted 0.88 1.10 0.83 0.71 0.82
Cash dividends paid (b) 0.70 0.67 0.62 0.59 0.57
Cash dividends declared (b) (c) 0.70 0.50 0.79 0.59 0.57
Return on average stockholders' equity (a) (d) 10.1% 13.6% 11.8% 10.5% 11.6%
Book value at year end $ 8.89 $ 8.53 $ 7.70 $ 7.44 $ 7.21
Market value at year end 20.69 29.56 22.08 14.91 10.38
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT HIGHLIGHTS:
Operating revenues (d) $ 257,326 $ 250,771 $ 235,852 $ 215,971 $208,100
Depreciation and amortization (d) 31,903 29,464 27,977 25,277 21,825
Interest expense (d) (e) 31,796 30,785 32,317 29,112 27,492
Income before income taxes (d) 62,915 75,133 57,642 48,554 49,673
Provision for income taxes (d) 26,531 30,118 22,432 19,350 19,786
Income from continuing operations (a) 36,384 45,015 35,210 29,204 29,887
Net income available to common stock (a) 36,275 44,820 32,278 26,918 29,647
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET HIGHLIGHTS:
Total assets $1,280,805 $1,156,733 $1,083,162 $1,038,926 $948,039
Property, plant and equipment, net 1,135,364 1,016,194 952,626 907,739 817,374
Stockholders' equity 368,901 353,088 306,816 289,436 266,399
Preferred stock with mandatory redemption (f) - - 4,214 5,643 7,143
Long-term debt (f) 425,946 377,355 407,526 403,524 351,853
Total debt 529,015 440,905 436,756 426,438 368,939
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL INFORMATION:
Net cash flows from operating activities $74,103 $ 84,362 $ 71,252 $ 56,274 $ 53,217
Capital additions (d) (g) 96,383 87,973 67,378 66,130 73,369
Dividends on common stock 29,217 29,349 26,752 25,137 23,452
Number of metered customers 548,937 525,959 519,160 512,150 487,730
Number of shareholders of common stock 21,187 20,553 19,902 19,905 18,514
Common shares outstanding (000) 41,013 40,702 39,112 38,162 36,602
Employees (full-time) 945 973 979 1,016 1,027
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The 1999 amounts include a net charge of $8,596 ($10,121 pre-tax) or $0.21
per share for the Consumers Water Company merger transaction costs and
related restructuring costs. The 1998 amounts include a net gain of $3,903
($6,680 pre-tax) or $0.10 per share on the sale of Consumers Water
Company's New Hampshire system pursuant to the State's condemnation
statute.
(b) Amount represents PSC's historical dividends per common share.
(c) The cash dividend of $0.1625, paid in March 1998, was declared in December
1997.
(d) Continuing operations only.
(e) Includes dividends on preferred stock of subsidiary and minority interest;
net of allowance for funds used during construction.
(f) Includes current portion.
(g) Excludes payments for acquired water systems of $39,164 in 1999, $24,498 in
1998, $1,226 in 1997, $44,110 in 1996, and $27,651 in 1995.
40
<PAGE>
Exhibit 21
(unaudited)
The following table lists all of the subsidiaries of Philadelphia Suburban
Corporation at December 31, 1999:
Philadelphia Suburban Water Company (Pa.)
Utility & Municipal Services, Inc. (Pa.)
PSC Services, Inc. (Del.)
Suburban Wastewater Company (Pa.)
Suburban Environmental Services, Inc. (Pa.)
Little Washington Wastewater Company (Pa.)
Drexel Hill Corporation (Pa.)
Pennsylvania Suburban Water Company (Pa.)
Consumers Water Company (Pa.)
Consumers Ohio Water Company (Ohio)
Consumers Illinois Water Company (Illinois)
Consumers New Jersey Water Company (New Jersey)
Consumers Maine Water Company (Maine)
Consumers Pennsylvania Water Company - Shenango Valley Division (Pa.)
Consumers Pennsylvania Water Company - Roaring Creek Division (Pa.)
Consumers Pennsylvania Water Company - Susquehanna Division (Pa.)
Masury Water Company (Ohio)
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Philadelphia Suburban Corporation:
We consent to incorporation by reference in the Registration Statements on Form
S-8 (1994 Equity Compensation Plan No. 333-70859), (1994 Employee Stock Purchase
Plan No. 033-52557), (1988 Stock Option Plan No. 33-27032), (1982 Stock Option
Plan No. 2-81757); on Form S-3 (Dividend Reinvestment and Direct Stock Purchase
Plan No. 333-42275), (Customer Stock Purchase Plan No. 33-64301); and on Form
S-4 (No. 333-93243) of Philadelphia Suburban Corporation of our report dated
January 31, 2000, relating to the consolidated balance sheets and the statements
of capitalization of Philadelphia Suburban Corporation and subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of income and
comprehensive income, and cash flow for each of the years in the three-year
period ended December 31, 1999, which report is incorporated by reference in the
December 31, 1999 Annual Report on Form 10-K of Philadelphia Suburban
Corporation.
KPMG LLP
Philadelphia, Pennsylvania
March 28, 2000
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheets and the statements of capitalization at December 31,
1999, and the consolidated statements of income and comprehensive income and the
consolidated statements of cash flow for the year ended December 31, 1999, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<BOOK-VALUE> PRO-FORMA
<TOTAL-NET-UTILITY-PLANT> 1,134,658
<OTHER-PROPERTY-AND-INVEST> 706
<TOTAL-CURRENT-ASSETS> 59,525
<TOTAL-DEFERRED-CHARGES> 27,629
<OTHER-ASSETS> 58,287
<TOTAL-ASSETS> 1,280,805
<COMMON> 9,544
<CAPITAL-SURPLUS-PAID-IN> 253,460
<RETAINED-EARNINGS> 101,533
<TOTAL-COMMON-STOCKHOLDERS-EQ> 364,537
0
1,760
<LONG-TERM-DEBT-NET> 413,752
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 103,069
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 12,194
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 385,493
<TOT-CAPITALIZATION-AND-LIAB> 1,280,805
<GROSS-OPERATING-REVENUE> 257,326
<INCOME-TAX-EXPENSE> 26,531
<OTHER-OPERATING-EXPENSES> 156,281
<TOTAL-OPERATING-EXPENSES> 182,812
<OPERATING-INCOME-LOSS> 74,514
<OTHER-INCOME-NET> (6,427)
<INCOME-BEFORE-INTEREST-EXPEN> 68,087
<TOTAL-INTEREST-EXPENSE> 31,703
<NET-INCOME> 36,384
109
<EARNINGS-AVAILABLE-FOR-COMM> 36,275
<COMMON-STOCK-DIVIDENDS> 29,217
<TOTAL-INTEREST-ON-BONDS> 30,785
<CASH-FLOW-OPERATIONS> 74,103
<EPS-BASIC> 0.89
<EPS-DILUTED> 0.88
</TABLE>
