UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Fiscal Year ended December 31, 2003 No. 0-422
MIDDLESEX WATER COMPANY
(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Ronson Road, Iselin, New Jersey 08830-3020
(Address of principal executive offices) (Zip Code)
(732) 634-1500
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each Class on which registered
- ------------------- ---------------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, No par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES |X|. NO |_|.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes |X| No |_|
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at June 30, 2003 was $188,144,223 based on the closing market
price of $17.95 per share.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 9, 2004
----- ----------------------------
Common Stock, No par Value 10,588,947
Documents Incorporated by Reference
Proxy Statement to be filed in connection with the Registrant's Annual Meeting
of Shareholders to be held on May 19, 2004 as to Part III.
EXPLANATORY NOTE
This Annual Report on Form 10K/A-2 ("Form 10-K/A-2") is filed as
Amendment No. 2 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2003. This Form 10K/A is filed with the Securities and
Exchange Commission for the purpose of including an amended Part IV "Signature"
section. This change can be found at page 46 of this form 10-K/A-2.
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
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PAGE
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PART I
Item 1 Business:
Overview 1
Financial Information 3
Water Supplies and Contracts 4
Employees 6
Competition 6
Regulation 6
Management 7
Item 2 Properties 9
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11
PART II
Item 5 Market for the Registrant's Common
Equity, Related Stockholder Matters and Price
Range of Common Stock 11
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 7A Qualitative and Quantitative Disclosure About Market Risk 21
Item 8 Financial Statements and Supplementary Data 21
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 43
Item 9A Controls and Procedures 44
PART III
Item 10 Directors and Executive Officers of the Registrant 44
Item 11 Executive Compensation 44
Item 12 Security Ownership of Certain Beneficial Owners
and Management 45
Item 13 Certain Relationships and Related Transactions 45
Item 14 Principal Accountant Fees and Services 45
PART IV
Item 15 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 45
Signatures 46
Exhibit Index 47
FORWARD-LOOKING STATEMENTS
We discuss certain matters in this document which are not historical facts, but
which are "forward-looking statements." We intend these "forward-looking
statements" to qualify for safe harbors from liability established by the
Private Securities Litigation Reform Act of 1995. These "forward-looking
statements" may include, but are not limited to, statements regarding:
o our expected profitability and results of operations;
o strategic plans for growth;
o the amount and timing of rate increases and other regulatory
matters;
o expectations and events concerning capital expenditures; and
o the availability and quality of our water supply.
The "forward-looking statements" in this document reflect what we currently
anticipate will happen in each case. What actually happens could differ
materially from what we currently anticipate will happen. We are not promising
to make any public announcement when we think "forward-looking statements" in
this document are no longer accurate, whether as a result of new information,
what actually happens in the future or for any other reason.
Important matters that may affect what will actually happen include, but are not
limited to, general stock market risks, government regulation and fluctuating
economic conditions.
The terms "we," "our," and "us" refer to Middlesex Water Company and its
subsidiaries, including Tidewater Utilities, Inc. ("Tidewater") (and Tidewater's
wholly-owned subsidiaries, Southern Shores Water Company, LLC ("Southern
Shores") and White Marsh Environmental Systems, Inc. ("White Marsh"), Pinelands
Water Company ("Pinelands Water") and Pinelands Wastewater Company ("Pinelands
Wastewater") (collectively, "Pinelands"), Utility Service Affiliates, Inc.
("USA"), Utility Service Affiliates (Perth Amboy) Inc., ("USA-PA") and Bayview
Water Company ("Bayview").
PART I
Item 1. Business
Overview
Middlesex Water Company was incorporated as a water utility company in 1897 and
owns and operates regulated water utility systems in central and southern New
Jersey and in Delaware as well as a regulated wastewater utility in southern New
Jersey. We also operate water and wastewater systems on behalf of others in New
Jersey and Delaware.
Middlesex principal executive offices are located at 1500 Ronson Road, Iselin,
New Jersey 08830. Our telephone number is (732) 634-1500. Our internet website
address is http://www.middlesexwater.com. We make available, free of charge
through our internet website, reports and amendments filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, after such
material is electronically filed with or furnished to the Securities and
Exchange Commission (SEC).
1
Middlesex System
The Middlesex System provides water services to approximately 58,000 retail
customers, primarily in eastern Middlesex County, New Jersey and provides water
under contract to the Township of Edison, the Boroughs of Highland Park and
Sayreville, and both the Old Bridge and the Marlboro Township Municipal
Utilities Authorities. The Middlesex System treats, stores and distributes water
for residential, commercial, industrial and fire prevention purposes. Under a
special contract, the Middlesex System also provides water treatment and pumping
services to the Township of East Brunswick. The Middlesex System, through its
retail and contract service operations, produced approximately 70% of our 2003
revenue.
The Middlesex System's retail customers are located in an area of approximately
55 square miles in Woodbridge Township, the City of South Amboy, the Boroughs of
Metuchen and Carteret, portions of Edison Township and the Borough of South
Plainfield in Middlesex County and, to a minor extent, a portion of the Township
of Clark in Union County. The retail customers include a mix of residential
customers, large industrial concerns and commercial and light industrial
facilities. These retail customers are located in generally well-developed areas
of central New Jersey. The contract customers of the Middlesex System comprise
an area of approximately 141 square miles with a population of approximately
267,000. Contract sales to Edison, Sayreville, Old Bridge and Marlboro are
supplemental to the existing water systems of these customers. The State of New
Jersey in the mid-1980's approved plans to increase available surface water
supply to the South River Basin area of the state to permit a reduced use of
ground water in this area. The Middlesex System provides treated surface water
under long-term agreements to East Brunswick, Marlboro, Old Bridge and
Sayreville consistent with the state-approved plan.
Tidewater System
Tidewater, together with its wholly-owned subsidiary, Southern
Shores Water Company, LLC, provides water services to approximately 24,000
retail customers for domestic, commercial and fire protection purposes in over
240 separate community water systems in New Castle, Kent and Sussex Counties,
Delaware. The Tidewater System produced approximately 15% of our total revenue
in 2003. Tidewater has another wholly-owned subsidiary, White Marsh
Environmental Systems, Inc., which owns the office building that Tidewater uses
as its business office, and which operates water and wastewater systems under
contract. White Marsh's rates for water and wastewater operations are not
regulated by the Delaware Public Service Commission (PSC).
Utility Service Affiliates (Perth Amboy)
USA-PA operates the City of Perth Amboy's water and wastewater systems under a
20-year agreement, which expires in 2018. Perth Amboy has a population of 40,000
and has approximately 9,300 customers, most of whom are served by both systems.
The agreement was effected under New Jersey's Water Supply Public-Private
Contracting Act and the New Jersey Wastewater Public/Private Contracting Act and
requires USA-PA to lease from Perth Amboy all of its employees who currently
work on the Perth Amboy water and wastewater systems. Under the agreement,
USA-PA receives both fixed and variable fees based on increased system billing.
Fixed fee payments began at $6.4 million in the first year and are to increase
over the term of the 20-year contract to $9.7 million. Variable fees in 2003
were approximately $0.2 million. USA-PA produced approximately 12.5% of our
total revenue in 2003.
In connection with the agreement, we guaranteed a series of bonds in the
principal amount of approximately $26.3 million. In addition to the agreement
with Perth Amboy, USA-PA entered into a 20-year subcontract with a wastewater
operating company for the operation and maintenance of the Perth Amboy
wastewater system. The subcontract provides for the sharing of certain fixed and
variable fees and operating expenses.
2
Pinelands System
Pinelands Water services approximately 2,300 residential customers in Burlington
County, New Jersey. Pinelands produced less than 1% of our total revenue in
2003.
Pinelands Wastewater services approximately 2,300 primarily residential retail
customers. Under contract, it also services one municipal wastewater system in
Burlington County, New Jersey with about 200 residential customers. Pinelands
Wastewater produced approximately 1% of our total revenue in 2003.
Utility Service Affiliates, Inc.
In 1999, we implemented a franchise agreement with the City of South Amboy
("South Amboy") to provide water service and install water system facilities in
South Amboy. The South Amboy franchise was approved by the Board of Public
Utilities (BPU) and its implementation significantly impacted two existing
agreements entered into by the parties. The first agreement was for the sale of
water to South Amboy on a wholesale basis. The second agreement was for the
provision of management services for a fixed fee.
Middlesex and USA have jointly entered into a venture with an entity that offers
meter installation and related services. This venture seeks to obtain
competitively bid service contracts with municipalities in the Mid-Atlantic and
New England regions. The contract work may include any or all of the following:
meter purchases, replacement meter program, new meter program and meter testing.
USA also offers a service line maintenance program to residential customers in
the Middlesex system. These businesses contributed less than 1% of our total
revenue in 2003.
Bayview System
In April 2001, Bayview bought the assets of a 300-customer water utility in
Cumberland County, New Jersey. The Bayview System produced less than 1% of our
total revenue in 2003.
Financial Information
Consolidated operating revenues and operating income are as follows:
(Thousands of Dollars)
Years Ended December 31,
---------------------------------
2003 2002 2001
------- ------- -------
Operating Revenues $64,111 $61,933 $59,638
======= ======= =======
Operating Income $11,500 $12,467 $11,493
======= ======= =======
3
Operating revenues were earned from the following sources:
Years Ended December 31,
-------------------------
2003 2002 2001
----- ----- -----
Residential 39.4% 40.0% 38.4%
Commercial 9.8 9.7 10.2
Industrial 11.1 11.9 12.6
Fire Protection 10.7 10.5 10.4
Contract Sales 13.2 14.1 14.8
Contract Operations 12.6 12.1 12.2
Other 3.2 1.7 1.4
----- ----- -----
TOTAL 100.0% 100.0% 100.0%
----- ----- -----
Water Supplies and Contracts
Our New Jersey and Delaware water supply systems are physically separate and are
not interconnected. In New Jersey, the Pinelands System and Bayview System are
not interconnected with the Middlesex System or each other. We believe we have
adequate sources of water supply to meet the current and anticipated future
service requirements of our present customers in New Jersey and Delaware.
Middlesex System
Our Middlesex System, which produced 16,569 million gallons in 2003, obtains
water from surface sources and wells, which we call groundwater sources. In
2003, surface sources of water provided approximately 70% of the Middlesex
System's water supply, groundwater from wells provided approximately 23% and the
balance of 7% was purchased from a nonaffiliated water utility. Middlesex
System's distribution storage facilities are used to supply water to its
customers at times of peak demand, outages and emergencies.
The principal source of surface water supply for the Middlesex System is the
Delaware & Raritan Canal, which is owned by the State of New Jersey and operated
as a water resource by the New Jersey Water Supply Authority. Middlesex has
recently entered into a renewed and modified agreement with the New Jersey Water
Supply Authority, which is effective January 1, 2004 and expires November 30,
2023, and provides an average purchase of 27 million gallons per day of
untreated water from the Delaware & Raritan Canal, augmented by the Round
Valley/Spruce Run Reservoir System. We project that due to the renewed and
modified agreement, expenses resulting from this agreement will increase our
cost of raw water by at least 8.5% annually on a going forward basis. Surface
water is pumped to and treated at the Carl J. Olsen (CJO) Plant. Middlesex also
has an agreement with a nonaffiliated water utility for the purchase of treated
water. This agreement, which expires December 31, 2005, provides for the minimum
purchase of 3 million gallons per day of treated water with provisions for
additional purchases. Purchased water costs are shown below:
(Millions of Dollars)
Years Ended December 31,
-----------------------------
Purchased Water 2003 2002 2001
--------------- ------- ------- -------
Untreated $ 2.0 $ 1.9 $ 2.0
Treated 1.8 1.8 1.7
------- ------- -------
Total Costs $ 3.8 $ 3.7 $ 3.7
======= ======= =======
4
Our Middlesex System also derives water from groundwater sources equipped with
electric motor-driven, deepwell turbine-type pumps. The Middlesex System has 31
wells, which provide an aggregate pump capacity of approximately 27 million
gallons per day.
The Middlesex System's groundwater sources are:
2003
Maximum Use
No.of Per Day Pumpage Pump
Source Wells (millions of gallons) Capacity (mgd) Location
------ ----- --------------------- -------------- --------
Park Avenue 15 8.5 15.2 South Plainfield
Tingley Lane North 4 2.8 2.8 Edison
Tingley Lane South 5 2.6 2.6 Edison
Spring Lake 4 0.7 2.8 South Plainfield
Sprague Avenue #1 1 1.0 1.1 South Plainfield
Sprague Avenue #2 1 1.3 1.3 South Plainfield
Maple Avenue 1 0.8 0.9 South Plainfield
--
Total 31
Tidewater System
Our Tidewater System, which produced 1,295 million gallons in 2003, obtains 100%
of its water from 209 wells. In 2003, we placed eleven new wells in service and
also deactivated, sealed and abandoned fifteen wells. Tidewater continues to
submit applications to Delaware regulatory authorities for the approval of
additional wells as growth, demand and water quality warrants. The Tidewater
System does not have a central treatment facility but has several regional
filter plants. Several of its water systems in New Castle, Kent and Sussex
Counties, Delaware have interconnected transmission systems.
Pinelands System
Water supply to our Pinelands System is derived from four wells drilled into the
Mt. Laurel aquifer which provided overall system delivery of 163 million gallons
in 2003. The pump capacity for the four wells is 2.2 million gallons per day.
Bayview System
Water supply to Bayview customers is derived from two wells, which provided an
overall system delivery of 10 million gallons in 2003. Each well has treatment
facilities. Bayview has completed the replacement of its entire distribution
system with approximately 16,000 feet of mains, valves and hydrants.
Pinelands Wastewater System
The Pinelands Wastewater System discharges into the South Branch of the Rancocas
Creek through a tertiary treatment plant that provides clarification,
sedimentation, filtration and disinfection. The total capacity of the plant is
0.5 million gallons per day. Current average flow is 0.3 million gallons per
day. Pinelands has a current valid discharge permit issued by the New Jersey
Department of Environmental Protection ("DEP").
5
Employees
As of December 31, 2003, we had a total of 148 employees in New Jersey, and a
total of 61 employees in Delaware. In addition, we lease 24 employees under the
USA-PA contract with the City of Perth Amboy, New Jersey. No employees are
represented by a union except the leased employees. We believe our employee
relations are good. Wages and benefits, other than for leased employees, are
reviewed annually and are considered competitive within the industry.
Competition
Our business in our franchised service area is substantially free from direct
competition with other public utilities, municipalities and other entities.
However, our ability to provide some contract water supply and wastewater
services and operations and maintenance services is subject to competition from
other public utilities, municipalities and other entities. Although Tidewater
has been granted an exclusive franchise for each of its existing community water
systems, its ability to expand service areas can be affected by the PSC awarding
franchises to other regulated water utilities.
Regulation
We are regulated as to rates charged to customers for water and wastewater
services in New Jersey and for water services in Delaware, as to the quality of
water service we provide and as to certain other matters. Only our USA, USA-PA
and White Marsh subsidiaries are not regulated utilities. We are subject to
environmental and water quality regulation by the United States Environmental
Protection Agency ("EPA"), and the New Jersey Department of Enviromental
Protection ("DEP") with respect to operations in New Jersey and the Delaware
Department of Natural Resources and Environmental Control ("DNREC"), Delaware
Department of Health and Social Services-Division of Public Health ("DPH"), and
the Delaware River Basin Commission ("DRBC") with respect to operations in
Delaware. In addition, our issuances of securities are subject to the prior
approval of the BPU or the PSC.
Regulation of Rates and Services
New Jersey water and wastewater service operations (excluding the operations of
USA-PA) are subject to regulation by the BPU. Similarly, our Delaware water
service operations are subject to regulation by the PSC. These regulatory
authorities have jurisdiction with respect to rates, service, accounting
procedures, the issuance of securities and other matters of utility companies
operating within the States of New Jersey and Delaware, respectively. For
ratemaking purposes, we account separately for operations in New Jersey and
Delaware to facilitate independent ratemaking by the BPU for New Jersey
operations and the PSC for Delaware operations.
In determining our rates, the BPU and the PSC consider the income, expenses,
rate base of property used and useful in providing service to the public and a
fair rate of return on that property each within its separate jurisdiction. Rate
determinations by the BPU do not guarantee particular rates of return to us for
our New Jersey operations or do rate determinations by the PSC guarantee
particular rates of return for our Delaware operations. Thus, we may not achieve
the rates of return permitted by the BPU or the PSC.
Middlesex Water Company filed a 17.8% base rate increase petition with the BPU
on November 5, 2003. Increased operating expenses and utility plant investment
necessitated the rate increase request. Tidewater believes it will be necessary
to file for a base rate increase by early spring, 2004. In accordance with the
tariff established for Southern Shores, a rate increase based on the Consumer
Price Index was implemented on January 1, 2004. Other than rates for the
Southern Shores system, there can be no assurance that any rate increases will
be granted or, if granted, that they will be in the amounts we requested.
Further, we filed
6
a base rate increase petition with the BPU for Pinelands on December 30, 2003,
requesting an overall increase for those systems of 19.02%. Tidewater received
PSC approval to increase its Distribution System Improvement Charge to 4.89% of
base rates from 2.49%, effective January 1, 2004.
Water Quality and Environmental Regulations
Both the EPA and the DEP regulate our operations in New Jersey with respect to
water supply, treatment and distribution systems and the quality of the water,
as do the EPA, DNREC, DPH and DRBC with respect to operations in Delaware.
Federal, New Jersey and Delaware regulations adopted over the past five years
relating to water quality require us to perform expanded types of testing to
insure that our water meets state and federal water quality requirements. In
addition, environmental regulatory agencies are reviewing current regulations
governing the limits of certain organic compounds found in the water as
byproducts of treatment. We participate in industry-related research to identify
the various types of technology that might reduce the level of organic,
inorganic and synthetic compounds found in the water. The cost to water
companies of complying with the proposed water quality standards depends in part
on the limits set in the regulations and on the method selected to implement
such reduction. We believe the CJO Plant capabilities put us in a strong
position to meet any such future standards with regard to our Middlesex System.
We use regular testing of our water to determine compliance with existing
federal, New Jersey and Delaware primary water quality standards, and believe
that expansion will allow us to be in a stronger position to meet any such
future regulations regarding our Middlesex System.
Well treatment in our Tidewater System is by chlorination and, in some cases, pH
correction and filtration. Treatment in the Pinelands System (disinfection only)
is done at individual well sites.
The DEP and the DPH monitor our activities and review the results of water
quality tests that are performed for adherence to applicable regulations. Other
regulations applicable to us include the Lead and Copper Rule, the maximum
contaminant levels established for various volatile organic compounds, the
Federal Surface Water Treatment Rule and the Total Coliform Rule.
Management
This table lists information concerning our senior management team:
Name Age Position(s)
- --------------------- --- ------------------------------------------------------
Dennis G. Sullivan 62 President and Chief Executive Officer
A. Bruce O'Connor 45 Vice President, Controller and Chief Financial Officer
Ronald F. Williams 54 Vice President-Operations and Chief Operating Officer
Marion F. Reynolds(1) 64 Vice President, Secretary and Treasurer
Kenneth J. Quinn 56 General Counsel and Assistant Secretary
James P. Garrett 58 Assistant Vice President-Human Resources
Richard M. Risoldi 47 Assistant Vice President of Operations
Gerard L. Esposito 52 President, Tidewater Utilities, Inc.
- ----------
(1) Ms. Reynolds retired from the Company on March 1, 2004.
7
Dennis G. Sullivan - Mr. Sullivan has been a Director of Middlesex since October
1999. Mr. Sullivan was hired in 1984 as Corporate Attorney, responsible for
general corporate internal legal matters. He was elected Assistant
Secretary-Assistant Treasurer in 1988 and Vice President and General Counsel in
1990. He was elected President and General Counsel in May 2001 and became
President and Chief Executive Officer in January 2003. He is Chairman of the
Board and a Director of Tidewater Utilities, Inc., White Marsh Environmental
Systems, Inc., Pinelands Water Company, Pinelands Wastewater Company, Utility
Service Affiliates, Inc., Utility Service Affiliates (Perth Amboy) Inc. and
Bayview Water Company. He is also a Director of the New Jersey Utilities
Association and the National Association of Water Companies.
A. Bruce O'Connor - Mr. O'Connor, a Certified Public Accountant, joined the
Company in 1990 as Assistant Controller and was elected Controller in 1992 and
Vice President in 1995. He was elected Vice President and Controller and Chief
Financial Officer in May 1996. Upon the retirement of Ms. Reynolds, as noted
above, Mr. O'Connor will assume the additional title and responsibilities of the
Assistant Secretary for all subsidiaries except for Utility Service Affiliates,
Inc. He is responsible for financial reporting, customer service, rate cases,
cash management and financings. He was formerly employed by Deloitte & Touche
LLP, a certified public accounting firm from 1984 to 1990. He is Treasurer and a
Director of Tidewater Utilities, Inc., Bayview Water Company, Utility Service
Affiliates, Inc., and White Marsh Environmental Systems, Inc. He is Vice
President, Treasurer and a Director of Utility Service Affiliates (Perth Amboy)
Inc., Pinelands Water Company and Pinelands Wastewater Company.
Ronald F. Williams - Mr. Williams was hired in March 1995 as Assistant Vice
President-Operations, responsible for the Company's Engineering and Distribution
Departments. He was elected Vice President-Operations in October 1995. Upon the
retirement of Ms. Reynolds, as noted above, Mr. Williams will assume the
additional title and responsibilities of the Assistant Secretary and Assistant
Treasurer for Middlesex. He was formerly employed with the Garden State Water
Company as President and Chief Executive Officer since 1991. He is a Director
and President of Utility Service Affiliates (Perth Amboy) Inc., and Director of
Utility Service Affiliates, Inc., Pinelands Water Company and Pinelands
Wastewater Company.
Marion F. Reynolds - Ms. Reynolds, who had been Secretary-Treasurer since 1987
was elected Vice President, Secretary and Treasurer in 1993. Prior to her
employment at Middlesex she had been employed by Public Service Electric and Gas
Company, Newark, New Jersey since 1958, and was elected Assistant Corporate
Secretary in 1976. She is Secretary of Tidewater Utilities, Inc., White Marsh
Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater
Company and Bayview Water Company and Secretary and a Director of Utility
Service Affiliates (Perth Amboy) Inc., and Utility Service Affiliates, Inc.
Kenneth J. Quinn - Mr. Quinn joined the Company in 2002 as General Counsel and
was elected Assistant Secretary in 2003. Upon the retirement of Ms. Reynolds, as
noted above, Mr. Quinn will assume the additional titles and responsibilities of
the Secretary and Treasurer for Middlesex and Secretary for all subsidiaries of
Middlesex. He has been engaged in the practice of law for 29 years and prior to
joining the Company he had been employed by the law firm of Schenck, Price,
Smith and King in Morristown, New Jersey. Prior to that, Mr. Quinn spent 10
years as in-house counsel to two major banking institutions located in New
Jersey. In May 2003, he was elected Assistant Secretary of Tidewater Utilities,
Inc., Pinelands Water Company, Pinelands Wastewater Company, Utility Service
Affiliates (Perth Amboy) Inc., Bayview Water Company and White Marsh
Environmental Systems, Inc. He is a member of the New Jersey State Bar
Association and is also a member of the Public Utility Law Section of the Bar.
8
James P. Garrett - Mr. Garrett joined the Company in May, 2003 as Assistant Vice
President-Human Resources. Prior to his hire, Mr. Garrett was employed by Toys
"R" Us, Inc. from 1980-2003, most recently as Director of Organizational
Development. Mr. Garrett is responsible for all human resource programs and
activities at Middlesex Water Company, Pinelands Water Company; Pinelands
Wastewater Company; Bayview Water Company; Utility Service Affiliates, Inc;
Tidewater Utilities, Inc. and White Marsh Environmental Systems, Inc.
Richard M. Risoldi - Mr. Risoldi joined the Company in 1989 as Director of
Production, responsible for the operation and maintenance of the Company's
treatment and pumping facilities. He was appointed Assistant Vice President of
Operations in January 2003. He was formally employed by the Trenton Water
Utility and the North Jersey District Water Supply Commission. He is a Director
of Tidewater Utilities, Inc. and White Marsh Environmental Systems Inc. He also
serves as Director and President of Pinelands Water Company, Pinelands
Wastewater Company, Bayview Water Company and Utility Service Affiliates, Inc.
Gerard L. Esposito - Mr. Esposito joined Tidewater in 1998 as Executive Vice
President. Prior to joining the Company he worked for 22 years in various
executive positions for Delaware environmental protection and water quality
governmental agencies. In 1989, Mr. Esposito became the Director of the Delaware
Division of Water Resources, responsible for the administration of all of
Delaware's water pollution, water supply, water quality, wetlands and
environmental laboratory programs. He is a Director of Tidewater Utilities, Inc.
and also serves as a Director and President of White Marsh Environmental
Systems, Inc.
Item 2. Properties
Utility Plant
The water utility plant in our systems consist of source of supply, pumping,
water treatment, transmission and distribution, general facilities and all
appurtenances, including all connecting pipes.
Middlesex System
The Middlesex System's principal source of surface supply is the Delaware &
Raritan Canal owned by the State of New Jersey and operated as a water resource
by the New Jersey Water Supply Authority.
Water is withdrawn from the Delaware & Raritan Canal at New Brunswick, New
Jersey through our intake and pumping station located on state-owned land
bordering the canal. It is transported through our 54-inch supply main for
treatment and distribution at our CJO Plant in Edison, New Jersey. The design
capacity of our raw water supply main is 55 million gallons per day. Facilities
at the CJO Plant consist of source of supply, pumping, water treatment,
transmission, storage, laboratory and general facilities. In 2000, we
substantially completed the upgrade and expansion of the CJO Plant, which began
in 1997. We monitor water quality at the CJO Plant, at each well field and
throughout the distribution system to determine that federal and state water
quality standards are met.
The design capacity of the intake and pumping station in New Brunswick, New
Jersey, and the raw water supply main located there, is 80 million gallons per
day. The four electric motor-driven, vertical turbine pumps presently installed
have an aggregate design capacity of 82 million gallons per day. Associated
facilities are the 4,900 feet of 54-inch reinforced concrete water main
connecting the intake and pumping station with the CJO Plant, 23,200 feet of
48-inch reinforced concrete transmission main connecting the CJO Plant to our
distribution pipe network, and related storage, pumping, control, laboratory and
other facilities. We also have a 58,600 foot transmission main, a 38,800 foot
transmission main, and a long-term, non-exclusive agreement with the East
Brunswick system, all used to transport water to several of our contract
customers.
9
The CJO Plant includes chemical storage and chemical feed equipment, two dual
rapid mixing basins, four upflow clarifiers which are also called
superpulsators, four underground reinforced chlorine contact tanks, twelve rapid
filters containing gravel, sand and anthracite for water treatment and a steel
washwater tank. The CJO Plant also includes a computerized Supervisory
Control and Data Acquisitions system to monitor and control the CJO Plant and
the water supply and distribution system in the Middlesex System. The firm
design capacity of the CJO Plant is now 45 million gallons per day (60 million
gallons per day maximum capacity). The main pumping station at the CJO Plant has
a design capacity of 90 million gallons per day. The four electric motor-driven,
vertical turbine pumps presently installed have an aggregate capacity of 72
million gallons per day.
In addition to the main pumping station at the CJO Plant, there is a 15 mgd
auxiliary pumping station located in a separate building. It has a dedicated
substation and emergency power supply provided by a diesel-driven generator. It
pumps from the 10 million gallon distribution storage reservoir directly into
the distribution system.
Middlesex System's storage facilities consist of a 10 million gallon reservoir
at the CJO Plant, 5 million gallon and 2 million gallon reservoirs in Edison
(Grandview), a 5 million gallon reservoir in Carteret (Eborn) and a 2 million
gallon reservoir at the Park Avenue Well Field.
In New Jersey, we own the properties on which Middlesex System's 31 wells are
located, the properties on which our storage tanks are located as well as the
property where the CJO Plant is located. We also own our headquarters complex
located at 1500 Ronson Road, Iselin, New Jersey, consisting of a 27,000 square
foot, two story office building and an adjacent 16,500 square foot maintenance
facility.
Tidewater System
The Tidewater System's storage facilities include 36 storage tanks, with an
aggregate capacity of 3.9 million gallons. Our Delaware operations are managed
from Tidewater's leased offices in Dover, Delaware and Millsboro, Delaware.
Tidewater's Dover, Delaware office property, located on property owned by White
Marsh, consists of a 6,800 square foot office building situated on an
eleven-acre lot. White Marsh also owns another business site for which it is
exploring several options for future use.
Pinelands System
Pinelands Water Company owns well site and storage properties that are located
in Southampton Township, New Jersey. Pinelands Water storage facility is a 1.2
million gallon standpipe.
Pinelands Wastewater System
Pinelands Wastewater Company owns a 12 acre site on which its 0.5 million
gallons per day capacity tertiary treatment plant and connecting pipes are
located.
Bayview System
Bayview owns two wells, which are located in Downe Township, Cumberland County,
New Jersey.
10
USA-PA, USA and White Marsh
Our non-regulated subsidiaries, namely USA-PA, USA and White Marsh, do not own
utility plant property.
Item 3. Legal Proceedings
A lawsuit was filed against the Company for damages involving the break of both
a Company water line and an underground electric power cable containing both
electric lines and petroleum based insulating fluid. The electric utility also
asserted claims against the Company. The lawsuit was settled by agreement to
submit plaintiff's claim for approximately $1.1 million damages to binding
arbitration, in which the agreed maximum exposure of the Company is $0.3
million. While we are unable to predict the outcome of the arbitration, we
believe that we have substantial defenses. We have not recorded any liability
for the claim.
Another claim is pending involving a construction subcontractor, the Company's
general contractor and the Company concerning a major construction project. The
dispute relates to work required to be performed under a construction contract
and related subcontracts and includes payment issues and timing/delay issues.
The matter was instituted in 2001 and is pending in Superior Court, Middlesex
County, New Jersey. We have estimated our maximum exposure in this litigation to
be $4.3 million. We believe that we have substantial defenses to a number of the
asserted claims. It is reasonably possible that we may be responsible for some
portion of the amount claimed, but significantly less than the maximum. We are
unable, however, to determine this amount. Any amount in this matter which is
determined to be due from us, will be recorded as an addition to utility plant
in service, subject to recovery in rates charged to our customers. However, the
outcome could have a material adverse effect on the Company's financial
statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Price Range of Common Stock
The following table shows the range of closing prices for the Common Stock on
the Nasdaq Stock Market for the calendar quarter indicated and the dividend paid
to shareholders in such quarter.
2003 High Low Dividend
---- ---- --- --------
First Quarter $ 18.00 $ 15.77 $0.1613
Second Quarter 18.49 16.32 0.1613
Third Quarter 21.23 17.72 0.1613
Fourth Quarter 21.12 18.19 0.1650
2002 High Low Dividend
---- ---- --- --------
First Quarter $ 17.74 $ 16.70 $0.1575
Second Quarter 20.04 15.53 0.1575
Third Quarter 19.43 13.73 0.1575
Fourth Quarter 17.36 15.38 0.1613
11
Approximate Number of Equity Security Holders as of December 31, 2003
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No Par Value 2,106
Cumulative Preferred Stock, No Par Value:
$7.00 Series 14
$4.75 Series 1
Cumulative Convertible Preferred Stock, No Par Value:
$7.00 Series 4
$8.00 Series 3
Dividends
The Company has paid dividends on its Common Stock each year since 1912.
Although it is the present intention of the Board of Directors of the Company to
continue to pay regular quarterly cash dividends on its Common Stock, the
payment of future dividends is contingent upon the future earnings of the
Company, its financial condition and other factors deemed relevant by the Board
of Directors at its discretion.
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. In the event
dividends on the preferred stock are in arrears, no dividends may be declared or
paid on the common stock of the Company. Substantially all of the Utility Plant
of the Company is subject to the lien of its mortgage, which also includes
certain restrictions as to cash dividend payments and other distributions on
common stock.
The Common Stock of the Company is traded on the Nasdaq Stock Market under the
symbol MSEX.
Restricted Stock Plan
The Company maintains a shareholder approved Restricted Stock Plan, under which
69,400 shares of the Company's common stock are held in escrow by the Company
for key employees. Such stock is subject to an agreement requiring forfeiture by
the employee in the event of termination of employment within five years of the
grant other than as a result of retirement, death or disability. The maximum
number of shares authorized for grant under this plan is 240,000 shares.
12
Item 6. Selected Financial Data
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
2003 2002 2001 2000 1999
- -------------------------------------------------------------------------------------------------------------------------------
Operating Revenues $ 64,111 $ 61,933 $ 59,638 $ 54,477 $ 53,497
- -------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operations and Maintenance 36,195 32,767 31,740 30,269 28,887
Depreciation 5,363 4,963 5,051 4,701 3,885
Other Taxes 7,816 7,737 7,594 6,916 6,740
Income Taxes 3,237 3,999 3,760 2,653 3,320
- -------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 52,611 49,466 48,145 44,539 42,832
- -------------------------------------------------------------------------------------------------------------------------------
Operating Income 11,500 12,467 11,493 9,938 10,665
Other Income 358 442 502 364 1,911
Interest Charges 5,227 5,144 5,042 4,997 4,695
- -------------------------------------------------------------------------------------------------------------------------------
Net Income 6,631 7,765 6,953 5,305 7,881
Preferred Stock Dividend 255 255 255 255 301
- -------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 6,376 $ 7,510 $ 6,698 $ 5,050 $ 7,580
- -------------------------------------------------------------------------------------------------------------------------------
Earnings per Share:*
Basic $ 0.61 $ 0.73 $ 0.66 $ 0.50 $ 0.77
Diluted $ 0.61 $ 0.73 $ 0.66 $ 0.50 $ 0.76
Average Shares Outstanding:*
Basic 10,475 10,280 10,131 10,044 9,854
Diluted 10,818 10,623 10,474 10,387 10,296
Dividends Declared and Paid* $ 0.649 $ 0.634 $ 0.623 $ 0.613 $ 0.593
Total Assets $ 263,192 $ 248,962 $ 240,312 $ 222,815 $ 218,062
Convertible Preferred Stock $ 2,961 $ 2,961 $ 2,961 $ 2,961 $ 2,961
Long-term Debt $ 97,377 $ 87,483 $ 88,140 $ 82,109 $ 82,330
- -------------------------------------------------------------------------------------------------------------------------------
*All share and per share amounts reflect the three-for-two common stock split
effective January 2, 2002 and the four-for-three common stock split, effective
November 14, 2003.
13
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As discussed in Note 10 to the consolidated financial statements, in Restatement
of Consolidated Financial Statements, the financial statements as of December
31, 2002 and for the years ended December 31, 2002 and 2001 have been restated.
The restatement had no effect on reported total assets, net income, earnings
applicable to common stock, cash flows from operations or liquidity.
Overview
Middlesex Water Company has operated as a water utility in New Jersey since
1897, and in Delaware, through our wholly-owned subsidiary, Tidewater, since
1992. We are in the business of collecting, treating, distributing and selling
water for domestic, commercial, municipal, industrial and fire protection
purposes. We also operate a New Jersey municipal water and wastewater system
under contract and provide wastewater services in New Jersey and Delaware
through our subsidiaries. We are regulated as to rates charged to customers for
water and wastewater services in New Jersey and for water services in Delaware,
as to the quality of water service we provide and as to certain other matters.
Only our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.
Our New Jersey water utility system (the "Middlesex System") provides water
services to approximately 58,000 retail customers, primarily in central New
Jersey. The Middlesex System also provides water service under contract to
municipalities in central New Jersey with a total population of approximately
267,000. In partnership with our subsidiary, USA-PA, we operate the water supply
system and wastewater system for the City of Perth Amboy, New Jersey. Our other
New Jersey subsidiaries, Pinelands Water and Pinelands Wastewater, provide water
and wastewater services to residents in Southampton Township, New Jersey.
Our Delaware subsidiaries, Tidewater and Southern Shores, provide water services
to approximately 24,000 retail customers in New Castle, Kent and Sussex
Counties, Delaware. Our other Delaware subsidiary, White Marsh, services an
additional 1,900 customers in Kent and Sussex Counties.
The majority of our revenue is generated from retail and contract water services
to customers in our service areas. We record water service revenue as such
service is rendered and include estimates for amounts unbilled at the end of the
period for services provided after the last billing cycle. Fixed service charges
are billed in advance by our subsidiary, Tidewater, and are recognized in
revenue as the service is provided.
Our ability to increase operating income and net income is based significantly
on three factors: weather, adequate and timely rate increases, and customer
growth. These factors are evident in the discussions below which compare our
results of operations from prior years. Cool, wet weather led to lower revenues
and earnings in 2003. Rate increases for Middlesex and many of our subsidiaries
increased revenues and net income in 2002 and 2001. Customer growth in our
Delaware service territories has increased revenues greater than the cost to
serve these new customers.
Results of Operations in 2003 Compared to 2002
Operating revenues for the year rose $2.2 million or 3.5% over the same period
in 2002. Customer growth of 10.9% in Delaware provided additional facility
charges and connection fees of $1.4 million. Higher base rates in our Delaware
service territories provided $0.6 million of the increase. Though we anticipate
continued growth in the number of customers and increased water consumption
among our Delaware systems, such growth and increased consumption cannot be
guaranteed. Additionally, weather conditions may adversely impact future
consumption despite anticipated growth in the number of customers. For example,
for the year ended December 31, 2003, cool wet weather in the Mid-Atlantic
region pushed
14
Tidewater's consumption revenue down by $0.3 million and Middlesex consumption
revenue down by $0.5 million. Despite such adverse weather conditions, revenues
from our operations and maintenance contracts rose $0.5 million due to scheduled
increases in fixed fees under the City of Perth Amboy contract.
New wastewater operations in Delaware provided $0.1 million in additional
revenues. Our new meter services venture provided $0.3 million in additional
revenues. All other operations accounted for $0.1 million of the higher
revenues.
Operating expenses increased by $3.1 million or 6.4%. Costs related to main
breaks resulting from severe winter weather conditions in the first quarter of
2003 contributed to additional expenses of $0.4 million. There were also higher
sewer disposal fees and security costs for USA-PA that helped increase costs by
$0.6 million. An increase in our Delaware employee base, general wage increases
and higher costs associated with employee medical and retirement benefits pushed
up costs by $0.7 million. In New Jersey, payroll costs, employee benefits and
legal fees pushed up costs by $0.9 million. Non-regulated operations of meter
installations and wastewater, which began in 2003, contributed $0.3 million of
the overall expense increase.
Water treatment, source of supply and pumping costs increased by $0.5 million
combined. Going forward we anticipate an increase in New Jersey's electric
generation costs due to deregulation of electricity and an increase of at least
8.5% in the cost of untreated water purchased under a new contract with the New
Jersey Water Supply Authority. These increasing costs, in addition to higher
business insurance and security costs prompted us to file for a 17.8% base rate
increase with the BPU for Middlesex and a 19.02% base rate increase for
Pinelands. We cannot predict whether the BPU will approve, deny or reduce the
amount of our requests; however, despite the outcome, we will continue to seek
rate increases in the future where increased operating costs and capital
investment necessitate such action.
Depreciation expense for 2003 increased by $0.4 million, or 8.1%, due to a
higher level of utility plant in service. Allowance for funds used during
construction rose 17% for the year as Tidewater's capital program now includes
larger projects with longer construction schedules. As our investment in utility
plant increases, we continue to seek timely rate relief either through base rate
filings as discussed above or through other means such as the Distribution
System Improvement Charge (DSIC) in Delaware. The DSIC is a separate rate
mechanism that allows for cost recovery of certain capital improvement costs
incurred in between base rate filings. Delaware regulated water utilities are
allowed to apply for a DSIC every six months with the maximum increase limited
to 5.0% in any twelve month period and a 7.5% overall limitation. The PSC
approved an increase in Tidewater's DSIC to 4.89% of base rates from 2.49%,
effective January 1, 2004. In addition, because Tidewater continues to make
significant capital additions and improvements to its new and existing systems,
it believes it will be necessary to file for a base rate increase by early
spring 2004. That increase request, which is expected to be in excess of 20%, is
due to the $20.0 million of additional utility plant placed in service or to be
placed in service since the last rate case.
Other taxes increased by $0.1 million generally due to higher payroll related
taxes and real estate taxes in both New Jersey and Delaware. Lower federal
income taxes of $0.8 million over last year are attributable to the reduced
operating results for 2003 as compared to 2002.
Other income decreased by $0.1 million as interest rates fell on short-term cash
balance investments. Interest expense increased by $0.1 million due to a higher
level of overall debt outstanding as compared to last year.
Net income decreased to $6.6 million from $7.8 million and basic and diluted
earnings per share decreased by $0.12 to $0.61 due to lower earnings.
15
Results of Operations in 2002 Compared to 2001
Operating revenues increased $2.3 million or 3.9% over the prior year. Higher
base rates in New Jersey and Delaware provided $1.9 million of the increase. A
full year of ownership of the Bayview and Southern Shores systems generated
additional revenue of $0.4 million. Service fees from our operation and
maintenance contracts rose $0.2 million due to an increase in fixed fees for
sewer disposal under the City of Perth Amboy contract.
Consumption revenues decreased by $0.2 million. Drought restrictions in New
Jersey caused decreased usage in the amount of $1.3 million. The continued
double-digit growth of our Tidewater customer base offset $1.1 million of the
lower consumption revenues.
Operating expenses increased $1.3 million for the year. Operation and
maintenance expenses accounted for $1.0 million of the increase. There were
higher sewer costs of $0.2 million for USA-PA. General wage increases, higher
costs associated with employee medical and retirement benefits and an increase
in our Delaware employee base, pushed up operation and maintenance costs by $0.7
million. Approximately $0.2 million was due to the inclusion of expenses of
Southern Shores for the entire year. Increases in business insurances, audit
fees and stock exchange filing fees amounted to $0.2 million. A favorable
decrease in water production and treatment costs of $0.3 million was due to
drought related consumption decreases in our New Jersey operations.
Other taxes increased by $0.1 million due to higher revenue related taxes in New
Jersey, increased real estate taxes and payroll taxes in both New Jersey and
Delaware. Higher federal income taxes of $0.2 million over 2001 were
attributable to favorable operating results over that year.
Depreciation expense decreased by $0.1 million, or 1.7%, due to the full
recovery of our investment in transportation equipment, which we depreciate at a
higher rate than our mains and appurtenances.
Allowance for funds used during construction rose $0.1 million for the year as
the capital programs of Middlesex Water Company and Tidewater now include larger
projects with longer construction periods. Other income was lower by $0.3
million due mostly to the recognition of a one time gain reported in 2001 by a
small investor-owned water utility in southern Delaware, in which we own a 23%
interest.
Even though there was a higher level of long-term and short-term debt
outstanding compared to 2001, lower interest rates on short-term debt and the
$6.0 million refinancing of long-term debt at a lower rate helped to keep the
interest expense increase to 2.0% or $0.1 million.
Net income rose to $7.8 million from $7.0 million and basic and diluted earnings
per share rose $0.07 from $0.66 to $0.73 per share due to higher earnings.
Outlook
Our revenues should continue to increase in 2004 as we expect customer growth in
Delaware and our pursuit of non-regulated opportunities in Delaware and
elsewhere to continue. The level of revenues and earnings will be impacted by
the ultimate outcome of the New Jersey base rate cases currently under review by
the BPU and the anticipated base rate filing in Delaware for Tidewater. Revenues
and earnings will also be influenced by weather. Changes in these factors as
well as our projected capital program are the primary factors that will
determine the need for future rate increase filings.
We continue to explore viable plans to streamline operations and reduce costs,
particularly in Delaware, where customer growth continues to exceed industry
averages. Part of the challenge is that our Delaware operations are a
combination of over 70 stand-alone production and distribution systems serving
240 communities.
16
Our strategy is for continued growth through acquisitions, internal expansion,
public/private partnerships and rate relief. We will continue to pursue
opportunities in both the regulated and non-regulated sectors that are
financially sound, complement existing operations and increase shareholder
value.
Liquidity and Capital Resources
Cash flows from operations are largely based on three factors: weather, adequate
and timely rate increases, and customer growth. The effect of those factors on
net income is discussed in results of operations. For 2003, net cash flow from
operations of $14.2 million, which increased over 2002 due to lower working
capital requirements, and proceeds from prior year financings allowed us to fund
approximately 85% of our 2003 utility plant expenditures. Net proceeds from
issuing long-term debt were used to fund the balance of those expenditures.
As shown in the following table, we expect our capital expenditures in 2004 and
2005 to increase over 2003. These increases are attributable to a major pipeline
installation in the Middlesex system and continued customer growth and service
improvement requirements in our Tidewater systems in Delaware, where we spent
$11.9 million on utility plant in 2003.
(Millions of Dollars)
2004 2005 2006
---- ---- ----
Delaware Systems $ 14.1 $ 12.8 $ 7.6
Raw Water Line 6.0 4.0 0.0
RENEW Program 3.8 3.0 3.0
Scheduled Upgrades to Existing Systems 4.8 4.6 3.5
------- ------- -------
Total $ 28.7 $ 24.4 $ 14.1
======= ======= =======
Under our capital program for 2004, we plan to expend $14.1 million for water
system additions and improvements for our Delaware systems, which include the
construction of two elevated tanks, a sludge removal plant and the creation of
several new wells and interconnections. The two-year, $10.0 million project to
construct the second raw water line to Middlesex primary water treatment plant
is expected to begin in 2004. We expect to spend $3.8 million for the RENEW
program, which is our program to clean and cement line unlined mains in the
Middlesex System. There remains a total of approximately 138 miles of unlined
mains in the 730-mile Middlesex System. In 2003, 5.3 miles of unlined mains were
cleaned and cement lined. The capital program also includes $4.8 million for
scheduled upgrades to our existing systems in New Jersey. The scheduled upgrades
consist of $0.8 million for mains, $0.8 million for service lines, $0.4 million
for meters, $0.3 million for hydrants, $0.2 million for computer systems and
$2.3 million for various other items.
To pay for our capital program in 2004, we will utilize internally generated
funds and funds available under existing New Jersey Environmental Infrastructure
Trust loans (currently, $3.8 million) and Delaware State Revolving Fund loans
(currently, $3.0 million), which provide low cost financing for projects that
meet certain water quality and system improvement benchmarks. If necessary, we
will also utilize short-term borrowings through $25.0 million of available lines
of credit with three commercial banks. As of December 31, 2003, we had $12.5
million outstanding against the lines of credit. We have filed with the United
States Securities and Exchange Commission ("SEC") a registration statement on
Form S-3 covering the offering of 700,000 shares of our common stock. We
anticipate the registration statement will be declared effective in March 2004,
after the filing with the SEC of this Annual Report on Form 10-K for the year
ended December 31, 2003. There can be no assurance that the registration
statement will be declared effective in March 2004 or at any later time. If the
offering is completed, we expect to use the net proceeds to repay our
outstanding short-term borrowings.
17
Going forward into 2005 through 2006, we currently project that we will be
required to expend approximately $38.5 million for capital projects. Plans to
finance those projects are underway as we expect to receive approval to borrow
up to $17.0 million under the New Jersey Environmental Infrastructure Trust
program in November of 2004. We anticipate that some of the capital projects in
Delaware will be eligible for the Delaware State Revolving Fund program in that
state and we are pursuing those opportunities. We also expect to use internally
generated funds and proceeds from the sale of common stock through the Dividend
Reinvestment and Common Stock Purchase Plan.
Increases in certain operating costs will impact our liquidity and capital
resources. As described in our results of operations discussion, we have filed
for rate relief for Middlesex and the Pinelands Companies. There is no
certainty, however, that the BPU will approve any or all of the requested
increase. We also plan to file for a base rate increase for Tidewater by early
spring.
Contractual Obligations
The table below presents our known contractual obligations for the periods
specified. The purchased water amounts include the effect of the new agreement
with the New Jersey Water Supply Authority effective January 1, 2004.
Payment Due by Period
(Millions of Dollars)
Less than 1-3 4-5 More than
Total 1 Year Years Years 5 Years
----- ------ ----- ----- -------
Long-Term Debt $ 98.4 $ 1.1 $ 2.2 $ 2.3 $ 92.8
Purchased Water Contracts 25.6 3.9 6.2 4.5 11.0
Wastewater Operations 64.4 3.7 11.6 12.6 36.5
------ ------ ------ ------ ------
Total $188.4 $ 8.7 $ 20.0 $ 19.4 $140.3
====== ====== ====== ====== ======
Guarantees
USA-PA operates the City of Perth Amboy's (Perth Amboy) water and wastewater
systems under a service contract agreement through June 30, 2018. The agreement
was effected under New Jersey's Water Supply Public/Private Contracting Act and
the New Jersey Wastewater Public/Private Contracting Act. Under the agreement,
USA-PA receives a fixed fee and a variable fee based on increased system
billing. Scheduled fixed fee payments began at $6.4 million in the first year
and will increase over the term of the contract to $9.7 million.
In connection with the agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. Middlesex guaranteed one of those series of bonds, which are designated
the Series C Serial Bonds, in the principal amount of approximately $26.3
million. Perth Amboy guaranteed the two other series of bonds. The Series C
Serial Bonds have various maturity dates with the final maturity date on
September 1, 2015. As of December 31, 2003, approximately $24.4 million of the
Series C Serial Bonds remained outstanding.
We are obligated to perform under the guarantee in the event notice is received
from the Series C Serial Bonds trustee of an impending debt service deficiency.
If Middlesex funds any debt service obligations as guarantor, there is a
provision in the agreement that requires Perth Amboy to reimburse us. There are
other provisions in the agreement that we believe make it unlikely that we will
be required to perform under the guarantee, such as scheduled annual rate
increases for the water and wastewater services as well as rate increases due to
unforeseen circumstances. In the event revenues from customers could not satisfy
the reimbursement requirements, Perth Amboy has Ad Valorem taxing powers, which
could be used to raise the needed amount.
18
Critical Accounting Policies and Estimates
The application of accounting policies and standards often requires the use of
estimates, assumptions and judgments. Changes in these variables may lead to
significantly different financial statement results. Our critical accounting
policies are set forth below.
Regulatory Accounting
We maintain our books and records in accordance with accounting principles
generally accepted in the United States of America. Middlesex and certain of its
subsidiaries, which account for 87% of Operating Revenues and 99% of Total
Assets, are subject to regulation in the state in which they operate. Those
companies are required to maintain their accounts in accordance with regulatory
authorities' rules and guidelines, which may differ from other authoritative
accounting pronouncements. In those instances, the Company follows the guidance
provided in the Financial Accounting Standards Board (FASB), Statement of
Financial Accounting Standards (SFAS) No. 71, "Accounting For the Effects of
Certain Types of Regulation."
In accordance with SFAS No. 71, we defer costs and obligations if it is probable
that these items will be recognized for rate-making purposes in future rates.
Accordingly, we have recorded costs and obligations, which will be amortized
over various future periods. Any change in the assessment of the probability of
rate-making treatment will require us to change the accounting treatment of the
deferred item. We do not believe any of the deferred items we have recorded will
be treated differently by the regulators in the future.
Revenues
Revenues from metered customers include amounts billed on a cycle basis and
unbilled amounts estimated from the last meter reading date to the end of the
accounting period. The estimated unbilled amounts are determined by utilizing
factors which include historical consumption usage and current climate
conditions. Differences between estimated revenues and actual billings are
recorded in a subsequent period.
Revenues from unmetered customers are billed at a fixed tariff rate in advance
at the beginning of each service period and are recognized in revenue ratably
over the service period.
Revenues from the City of Perth Amboy management contract are comprised of fixed
and variable fees. Fixed fees, which have been set for the life of the contract,
are billed monthly and recorded as earned. Variable fees, which are based on
billings and other factors and are not significant, are recorded upon approval
of the amount by the City.
Pension Plan
We maintain a noncontributory defined benefit pension plan which covers
substantially all employees with more than 1,000 hours of service.
The discount rate utilized for determining future pension obligations has
decreased from 7.25% at December 31, 2001 to 6.75% at December 31, 2002 to 6.00%
at December 31, 2003. Lowering the discount rate by 0.5% would have increased
the net periodic pension cost by $0.1 million in 2003. Lowering the expected
long-term rate of return on the pension plans by 0.5% (from 8.0% to 7.5%) would
have increased the net periodic pension cost in 2003 by approximately $0.1
million.
Future actual pension income will depend on future investment performance,
changes in future discount rates and various other factors related to the
population participating in the pension plans.
19
Accounting Standards
FASB issued SFAS No. 149, Amendments of Statement 133 on Derivative Instruments
and Hedging Activities ("SFAS 149"), which amends and clarifies financial
accounting and reporting for derivative instruments and for hedging activities
under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. SFAS 149 is generally effective after June 30, 2003. The adoption of
SFAS 149 did not have any effect on our financial statements.
FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities And Equity ("SFAS 150"), which establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 did not have any effect
on our financial statements.
In January 2003, FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements ("FIN 46"). The adoption of FIN 46 (as
amended) is not expected to have any effect on our financial statements.
In December 2003, FASB issued SFAS No. 132 (Revised) Employees Disclosure about
Pension and Other Postretirement Benefits, which expands the disclosure
requirements of these employee benefits. The adoption of SFAS No. 132 (Revised)
had no effect on our financial position or results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations" became effective
January 1, 2003. Upon adoption of SFAS No. 143, the fair value of a liability
for an asset retirement obligation is required to be recorded. The Company
collects the estimated removal costs of utility plant in rates through
depreciation in accordance with regulatory treatment. At December 31, 2003, the
Company reclassified the estimated removal costs of $4.8 million from
accumulated depreciation to a regulatory liability. At December 31, 2002, $4.4
million was reclassified from accumulated depreciation to removal costs for
utility plant retirement obligations. This reclassification had no impact on the
Company's results of operations.
Qualitative and Quantitative Disclosures About Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have final maturity dates ranging from 2009 to 2038. Over the next twelve
months, approximately $1.1 million of the current portion of ten existing
long-term debt instruments will mature. Combining this amount with the $12.5
million in short-term debt outstanding at December 31, 2003, and applying a
hypothetical change in the rate of interest charged by 10% on those borrowings,
would not have a material effect on our earnings.
Report of Management
The consolidated financial statements and other financial information included
in this annual report have been prepared by and are the responsibility of
management. The statements have been prepared in conformity with accounting
principles generally accepted in the United States of America considered
appropriate under the circumstances and include amounts based on necessary
judgment and estimates deemed appropriate.
20
The Company maintains a system of internal accounting controls designed to
provide reasonable assurance that assets are protected from improper use and
loss and to provide reliable financial information.
The consolidated financial statements of the Company have been audited by its
independent auditors, Deloitte & Touche LLP, and their report is included
herein.
The Board of Directors, through its Audit Committee consisting solely of
independent outside Directors, is responsible for overseeing and reviewing the
Company's financial reporting and accounting practices. The Audit Committee
meets periodically with the independent auditors to review the scope of their
work and discuss any changes and developments that may impact the Company.
/s/ Dennis G. Sullivan /s/ A. Bruce O'Connor
----------------------- -----------------------
Dennis G. Sullivan A. Bruce O'Connor
President Vice President and
Controller
March 4, 2004
Item 7A. Qualitative and Quantitative Disclosure About Market Risk
This information is incorporated herein by reference to Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Middlesex Water Company
We have audited the accompanying consolidated balance sheets and statements of
capital stock and long-term debt of Middlesex Water Company and subsidiaries
(the "Company") as of December 31, 2003 and 2002, and the related consolidated
statements of income, common stockholders' equity and comprehensive income, and
of cash flows for each of the three years in the period ended December 31, 2003.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2003
and 2002, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2003, in conformity with accounting
principles generally accepted in the United States of America.
As discussed in Note 10, the accompanying 2002 and 2001 financial statements
have been restated.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
March 4, 2004
21
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
Restated
Note 10
December 31, 2003 2002
================================================================================================
UTILITY PLANT: Water Production $ 77,265,782 $ 72,212,878
Transmission and Distribution 174,455,437 158,412,075
General 19,776,293 18,618,211
Construction Work in Progress 2,798,070 6,619,767
----------------------------------------------------------------------------
TOTAL 274,295,582 255,862,931
Less Accumulated Depreciation 47,510,797 43,561,265
----------------------------------------------------------------------------
UTILITY PLANT - NET 226,784,785 212,301,666
----------------------------------------------------------------------------
NONUTILITY ASSETS - NET 4,147,685 3,424,492
================================================================================================
CURRENT ASSETS: Cash and Cash Equivalents 3,005,610 2,937,894
Accounts Receivable 5,682,608 6,028,302
Unbilled Revenues 3,234,788 3,181,091
Materials and Supplies (at average cost) 1,419,142 1,190,337
Prepayments 1,009,304 815,392
----------------------------------------------------------------------------
TOTAL CURRENT ASSETS 14,351,452 14,153,016
================================================================================================
DEFERRED CHARGES Unamortized Debt Expense 3,272,783 3,239,364
AND OTHER ASSETS: Preliminary Survey and Investigation Charges 1,380,771 1,098,468
Regulatory Assets 8,216,117 7,962,328
Operations Contracts Fees Receivable 699,806 --
Restricted Cash 3,825,420 6,146,699
Other 513,116 636,461
----------------------------------------------------------------------------
TOTAL DEFERRED CHARGES AND OTHER ASSETS 17,908,013 19,083,320
----------------------------------------------------------------------------
TOTAL ASSETS $263,191,935 $248,962,494
----------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
22
CAPITALIZATION AND LIABILITIES
December 31, 2003 2002
========================================================================================================
CAPITALIZATION: Common Stock, No Par Value $ 56,924,028 $ 53,314,169
Retained Earnings 22,668,348 23,187,076
Accumulated Other Comprehensive Income, net of tax 50,808 --
====================================================================================
TOTAL COMMON EQUITY 79,643,184 76,501,245
====================================================================================
Preferred Stock 4,063,062 4,063,062
Long-term Debt 97,376,847 87,483,382
------------------------------------------------------------------------------------
TOTAL CAPITALIZATION 181,083,093 168,047,689
========================================================================================================
CURRENT Current Portion of Long-term Debt 1,067,258 639,427
LIABILITIES: Notes Payable 12,500,000 17,650,000
Accounts Payable 4,777,400 2,516,969
Taxes Accrued 6,258,739 5,898,751
Interest Accrued 1,810,639 1,614,278
Unearned Revenues and Advanced Service Fees 602,854 416,589
Other 678,596 842,589
------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 27,695,486 29,578,603
========================================================================================================
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
========================================================================================================
DEFERRED CREDITS: Customer Advances for Construction 11,711,846 10,881,815
Accumulated Deferred Investment Tax Credits 1,775,183 1,853,799
Accumulated Deferred Income Taxes 14,125,970 13,241,901
Employee Benefit Plans 5,086,988 5,279,737
Regulatory Liability - Cost of Utility Plant Removal 4,830,308 --
Utility Plant Retirement Obligations -- 4,358,262
Other 909,498 814,897
------------------------------------------------------------------------------------
TOTAL DEFERRED CREDITS 38,439,793 36,430,411
========================================================================================================
CONTRIBUTIONS IN AID OF CONSTRUCTION 15,973,563 14,905,791
------------------------------------------------------------------------------------
TOTAL CAPITALIZATION AND LIABILITIES $263,191,935 $248,962,494
------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
23
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2003 2002 2001
====================================================================================================
OPERATING REVENUES $ 64,111,214 $ 61,932,786 $ 59,638,145
- ----------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Operations 32,666,099 29,918,921 29,020,790
Maintenance 3,529,113 2,847,209 2,718,589
Depreciation 5,362,727 4,963,268 5,051,399
Other Taxes 7,815,918 7,737,155 7,594,427
Income Taxes 3,237,218 3,999,295 3,759,624
- ----------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 52,611,075 49,465,848 48,144,829
- ----------------------------------------------------------------------------------------------------
OPERATING INCOME 11,500,139 12,466,938 11,493,316
====================================================================================================
OTHER INCOME (EXPENSE):
Allowance for Funds Used During Construction 315,919 269,668 139,609
Other Income 131,499 249,324 520,165
Other Expense (89,931) (77,114) (157,814)
- ----------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 357,487 441,878 501,960
- ----------------------------------------------------------------------------------------------------
INTEREST CHARGES:
Interest on Long-term Debt 4,816,764 4,627,819 4,521,084
Amortization of Debt Expense 161,065 156,869 140,604
Other Interest Expense 249,201 358,775 380,604
- ----------------------------------------------------------------------------------------------------
TOTAL INTEREST CHARGES 5,227,030 5,143,463 5,042,292
- ----------------------------------------------------------------------------------------------------
NET INCOME 6,630,596 7,765,353 6,952,984
- ----------------------------------------------------------------------------------------------------
PREFERRED STOCK DIVIDEND REQUIREMENTS 254,786 254,786 254,786
- ----------------------------------------------------------------------------------------------------
EARNINGS APPLICABLE TO COMMON STOCK $ 6,375,810 $ 7,510,567 $ 6,698,198
- ----------------------------------------------------------------------------------------------------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:*
Earnings per Share:
Basic $ 0.61 $ 0.73 $ 0.66
Diluted $ 0.61 $ 0.73 $ 0.66
Average Number of Shares Outstanding :
Basic 10,475,295 10,280,302 10,130,908
Diluted 10,818,435 10,623,442 10,474,048
Dividends Paid per Share $ 0.649 $ 0.634 $ 0.623
- ----------------------------------------------------------------------------------------------------
*All share and per share amounts reflect the three-for-two common stock split,
effective January 2, 2002 and the four-for-three common stock split effective
November 14, 2003.
See Notes to Consolidated Financials Statements.
24
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
Restated Restated
Note 10 Note 10
2003 2002 2001
==============================================
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 6,630,596 $ 7,765,353 $ 6,952,984
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 5,633,863 5,436,525 5,303,536
Provision for Deferred Income Taxes 306,919 197,714 318,972
Allowance for Funds Used During Construction (315,919) (269,668) (139,609)
Changes in Assets and Liabilities:
Accounts Receivable 345,694 637,418 (1,274,456)
Unbilled Revenues (53,697) (380,076) 168,028
Materials & Supplies (228,805) (162,417) (17,964)
Prepayments (193,912) 54,301 (175,582)
Other Assets 275,802 (256,683) 42,724
Operations Contracts Receivable (699,806) -- --
Accounts Payable 2,260,431 (476,148) 373,023
Accrued Taxes 333,815 (432,126) 280,555
Accrued Interest 196,361 (199,618) 16,376
Employee Benefit Plans (192,749) 17,061 604,312
Unearned Revenue & Advanced Service Fees 186,265 71,316 56,507
Other Liabilities (236,431) (803,949) (198,954)
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 14,248,427 11,199,003 12,310,452
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (19,574,205) (16,489,095) (12,747,032)
Cash Surrender Value & Other Investments (466,290) (4,438) (107,319)
Restricted Cash 2,321,158 2,843,996 (6,390,000)
Investment in Associated Companies -- (20,618) 704,997
Proceeds from Real Estate Dispositions 532,922 -- 111,843
Notes Receivable -- -- 97,500
Preliminary Survey & Investigation Charges (282,303) (154,846) (370,494)
Other Assets (47,264) (47,561) (183,488)
- -----------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (17,515,982) (13,872,562) (18,883,993)
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (884,427) (6,443,836) (215,859)
Proceeds from Issuance of Long-term Debt 11,205,723 6,067,350 6,390,000
Short-term Bank Borrowings (5,150,000) 4,425,000 7,175,000
Deferred Debt Issuance Expenses (194,484) (510,818) (11,440)
Common Stock Issuance Expense (103,284) (3,688) --
Restricted Cash 121 219,588 (622)
Proceeds from Issuance of Common Stock 3,609,859 3,214,548 1,261,135
Payment of Common Dividends (6,791,254) (6,510,494) (6,304,214)
Payment of Preferred Dividends (254,786) (254,786) (254,786)
Construction Advances and Contributions-Net 1,897,803 874,205 571,557
- -----------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,335,271 1,077,069 8,610,771
- -----------------------------------------------------------------------------------------------------------
NET CHANGES IN CASH AND CASH EQUIVALENTS 67,716 (1,596,490) 2,037,230
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,937,894 4,534,384 2,497,154
- -----------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,005,610 $ 2,937,894 $ 4,534,384
- -----------------------------------------------------------------------------------------------------------
*Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Cash Paid for Interest $ 5,061,878 $ 5,103,787 $ 4,919,818
Interest Capitalized $ (315,919) $ (269,668) $ (139,609)
Income Taxes $ 2,472,000 $ 4,237,000 $ 3,674,792
- -----------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
25
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
December 31, 2003 2002
============================================================================================
Common Stock, No Par Value
Shares Authorized - 20,000,000
Shares Outstanding* - 2003 - 10,566,937 $ 56,924,028
2002 - 10,356,489 $ 53,314,169
Retained Earnings 22,668,348 23,187,076
Accumulated Other Comprehensive Income, net of tax 50,808 --
- --------------------------------------------------------------------------------------------
TOTAL COMMON EQUITY 79,643,184 76,501,245
- --------------------------------------------------------------------------------------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value
Shares Authorized - 140,497
Convertible:
Shares Outstanding, $7.00 Series - 14,881 1,562,505 1,562,505
Shares Outstanding, $8.00 Series - 12,000 1,398,857 1,398,857
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
- --------------------------------------------------------------------------------------------
TOTAL PREFERRED STOCK 4,063,062 4,063,062
- --------------------------------------------------------------------------------------------
Long-term Debt
8.05%, Amortizing Secured Note, due December 20, 2021 3,136,531 3,203,401
6.25%, Amortizing Secured Note, due May 22, 2028 10,255,000 --
4.22%, State Revolving Trust Note, due December 31, 2022 192,281 67,350
3.60%, State Revolving Trust Note, due May 1, 2025 580,792 --
4.00%, State Revolving Trust Bond, due September 1, 2021 820,000 850,000
0.00%, State Revolving Fund Bond, due September 1, 2021 690,833 730,017
First Mortgage Bonds:
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due September 1, 2018 807,956 862,088
4.25%, Series Y, due September 1, 2018 965,000 1,010,000
0.00%, Series Z, due September 1, 2019 1,792,435 1,907,568
5.25%, Series AA, due September 1, 2019 2,175,000 2,265,000
0.00%, Series BB, due September 1, 2021 2,168,277 2,287,385
4.00%, Series CC, due September 1, 2021 2,360,000 2,440,000
5.10%, Series DD, due January 1, 2032 6,000,000 6,000,000
- --------------------------------------------------------------------------------------------
SUBTOTAL LONG-TERM DEBT 98,444,105 88,122,809
- --------------------------------------------------------------------------------------------
Less: Current Portion of Long-term Debt (1,067,258) (639,427)
- --------------------------------------------------------------------------------------------
TOTAL LONG-TERM DEBT $ 97,376,847 $ 87,483,382
- --------------------------------------------------------------------------------------------
*All share amounts reflect the three-for-two common stock split, effective
January 2, 2002 and the four-for-three common stock split, effective November
14, 2003.
See Notes to Consolidated Financial Statements.
26
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Common Common
Stock Stock Retained
Shares* Amount Earnings
----------- ----------- ------------
Balance at Januuary 1, 2001 10,097,067 $48,838,486 $ 21,796,707
Net Income 6,952,984
Dividend Reinvestment & Common Stock Purchase Plan 66,435 1,170,619
Restricted Stock Award - Net 4,500 90,516
Cash Dividends on Common Stock (6,304,214)
Cash Dividends on Preferred Stock (254,786)
----------- ----------- ------------
Balance at December 31, 2001 10,168,002 50,099,621 22,190,691
Net Income 7,765,353
Dividend Reinvestment & Common Stock Purchase Plan 176,320 2,990,712
Restricted Stock Award - Net 12,167 223,836
Cash Dividends on Common Stock (6,510,494)
Cash Dividends on Preferred Stock (254,786)
Common Stock Expenses (3,688)
----------- ----------- ------------
Balance at December 31, 2002 10,356,489 53,314,169 23,187,076
Net Income 6,630,596
Change in Value of Equity Investments, Net of $26,000 Income Tax
Comprehensive Income
Dividend Reinvestment & Common Stock Purchase Plan 192,515 3,263,569
Restricted Stock Award - Net 17,933 346,290
Cash Dividends on Common Stock (6,791,254)
Cash Dividends on Preferred Stock (254,786)
Common Stock Expenses (103,284)
----------- ----------- ------------
Balance at December 31, 2003 10,566,937 $56,924,028 $ 22,668,348
=========== =========== ============
Accumulated
Other
Comprehensive
Income Total
------------- ------------
Balance at January 1, 2001 $ -- $ 70,635,193
Net Income 6,952,984
Dividend Reinvestment & Common Stock Purchase Plan 1,170,619
Restricted Stock Award - Net 90,516
Cash Dividends on Common Stock (6,304,214)
Cash Dividends on Preferred Stock (254,786)
----------- ------------
Balance at December 31, 2001 -- 72,290,312
Net Income 7,765,353
Dividend Reinvestment & Common Stock Purchase Plan 2,990,712
Restricted Stock Award - Net 223,836
Cash Dividends on Common Stock (6,510,494)
Cash Dividends on Preferred Stock (254,786)
Common Stock Expenses (3,688)
----------- ------------
Balance at December 31, 2002 -- 76,501,245
Net Income 6,630,596
Change in Value of Equity Investments, Net of $26,000 Income Tax 50,808 50,808
-----------
Comprehensive Income 6,681,404
-----------
Dividend Reinvestment & Common Stock Purchase Plan 3,263,569
Restricted Stock Award - Net 346,290
Cash Dividends on Common Stock (6,791,254)
Cash Dividends on Preferred Stock (254,786)
Common Stock Expenses (103,284)
----------- ------------
Balance at December 31, 2003 $ 50,808 $ 79,643,184
=========== ============
* All share amounts reflect the three-for-two common stock split, effective
January 2, 2002 and the four-for-three common stock split, effective November
14, 2003.
27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
(a) Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company (Pinelands Water), Pinelands Wastewater Company (Pinelands Wastewater),
Utility Service Affiliates, Inc. (USA), Utility Service Affiliates (Perth Amboy)
Inc. (USA-PA) and Bayview Water Company (Bayview). Southern Shores Water
Company, LLC (Southern Shores) and White Marsh Environmental Systems, Inc.
(White Marsh), are wholly-owned subsidiaries of Tidewater. The financial
statements for Middlesex and its wholly-owned subsidiaries (the Company) are
reported on a consolidated basis. All significant intercompany accounts and
transactions have been eliminated.
Middlesex Water Company has operated as a water utility in New Jersey since
1897, and in Delaware, through our wholly-owned subsidiary, Tidewater, since
1992. We are in the business of collecting, treating, distributing and selling
water for domestic, commercial, municipal, industrial and fire protection
purposes. We also operate a New Jersey municipal water and wastewater system
under contract and provide wastewater services in New Jersey and Delaware
through our subsidiaries. We are regulated as to rates charged to customers for
water and wastewater services in New Jersey and for water services in Delaware,
as to the quality of water service we provide and as to certain other matters.
Only our USA, USA-PA and White Marsh subsidiaries are not regulated utilities.
(b) System of Accounts - Middlesex, Pinelands Water, Pinelands Wastewater and
Bayview maintain their accounts in accordance with the Uniform System of
Accounts prescribed by the Board of Public Utilities of the State of New Jersey
(BPU). Tidewater and Southern Shores maintain their accounts in accordance with
the Public Service Commission of Delaware (PSC) requirements.
(c) Utility Plant is stated at original cost as defined for regulatory purposes.
Property accounts are charged with the cost of betterments and major
replacements of property. Cost includes direct material, labor and indirect
charges for pension benefits and payroll taxes. The cost of labor, materials,
supervision and other expenses incurred in making repairs and minor replacements
and in maintaining the properties is charged to the appropriate expense
accounts. At December 31, 2003, there was no event or change in circumstance
that would indicate that the carrying amount of any long-lived asset was not
recoverable.
(d) Depreciation is computed by each regulated member of the Company utilizing a
rate approved by the applicable regulatory authority. The Accumulated Provision
for Depreciation is charged with the cost of property retired, less salvage. The
following table sets forth the range of depreciation rates for the major utility
plant categories used to calculate depreciation for the years ended December 31,
2003, 2002 and 2001. These rates have been approved by either the BPU or PSC:
Source of Supply 1.15% - 3.44% Transmission and Distribution (T&D):
Pumping 2.87% - 5.04% T&D - Mains 1.10% - 3.13%
Water Treatment 2.71% - 7.64% T&D - Services 2.12% - 2.81%
General Plant 2.08% - 17.84% T&D - Other 1.61% - 4.63%
(e) Customers' Advances for Construction - Water utility plant and/or cash
advances are contributed to the Company by customers, real estate developers and
builders in order to extend water service to their properties. These
contributions are recorded as Customers' Advances for Construction. Refunds on
these advances are made by the Company in accordance with agreements with the
contributing party and are based on either additional operating revenues related
to the utility plant or as new customers are connected
28
to and take service from the utility plant. After all refunds are made, any
remaining balance is transferred to Contributions in Aid of Construction.
Contributions in Aid of Construction - Contributions in Aid of Construction
include direct non-refundable contributions of water utility plant and/or cash
and the portion of Customers' Advances for Construction that become
non-refundable.
(f) Allowance for Funds Used During Construction (AFUDC) - Middlesex, Tidewater,
Pinelands Water, Pinelands Wastewater and Bayview capitalize AFUDC, which
represents the cost of financing projects during construction. AFUDC is added to
the construction costs of individual projects exceeding specific cost and
construction period thresholds established for each company and then depreciated
along with the rest of the utility plant's costs over its estimated useful life.
For the years ended December 31, 2003, 2002 and 2001 approximately $0.3 million,
$0.3 million and $0.1 million of AFUDC was added to the cost of construction
projects. AFUDC is calculated using each company's weighted cost of debt and
equity as approved in their most recent respective regulatory rate order. The
average AFUDC rate for Middlesex, Tidewater and Bayview for the years ended
December 31, 2003, 2002 and 2001 were 7.34%, 8.95% and 3.11%, respectively.
Pinelands Water and Pinelands Wastewater did not incur AFUDC during the periods
covered by this report.
(g) Accounts Receivable - The allowance for doubtful accounts at December 31,
2003, 2002 and 2001 was $0.2 million, $0.1 million and $0.1 million,
respectively. The corresponding expense for the year ended December 31, 2003,
2002 and 2001 was $0.1 million, $0.1 million and $0.2 million, respectively.
(h) Revenues - General metered customer's bills typically are broken down into
two components; a fixed service charge and a volumetric or consumption charge.
Revenues from general metered service customers, except Tidewater, include
amounts billed in arrears on a cycle basis and unbilled amounts estimated from
the last meter reading date to the end of the accounting period. The estimated
unbilled amounts are determined by utilizing factors which include historical
consumption usage and current climate conditions. Actual billings may differ
from our estimates. Revenues are adjusted in the period that the difference is
identified. Tidewater customers are billed in advance for their fixed service
charge and these revenues are recognized as the service is provided to the
customer.
Bayview and Southern Shores are unmetered systems. Customers are billed a fixed
service charge in accordance with the approved tariff. Southern Shore service
charges are billed in advance at the beginning of each month. Bayview service
charges are billed in advance at the beginning of each calendar quarter and are
recognized in revenue ratably over the quarter. Revenues from the City of Perth
Amboy management contract are comprised of fixed and variable fees. Fixed fees,
which have been set for the life of the contract, are billed monthly and
recorded as earned. Variable fees, which are not significant, are recorded upon
approval of the amount by the City of Perth Amboy.
(i) Deferred Charges and Other Assets - Unamortized Debt Expense is amortized
over the lives of the related issues. Restricted Cash represents proceeds from
loans entered into through state financing programs and is held in trusts. The
proceeds are restricted for specific capital expenditures and debt service
requirements.
(j) Income Taxes - Middlesex files a consolidated federal income tax return for
the Company and income taxes are allocated based on the separate return method.
Investment tax credits have been deferred and are amortized over the estimated
useful life of the related property.
(k) Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and
29
cash equivalents represent bank balances and money market funds with investments
maturing in less than 90 days.
(l) Use of Estimates - Conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts in the financial statements. Actual
results could differ from those estimates.
(m) The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standard ("SFAS") No. 149, Amendments of Statement 133 on
Derivative Instruments and Hedging Activities ("SFAS 149"), which amends and
clarifies financial accounting and reporting for derivative instruments and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. SFAS 149 is generally effective after June 30, 2003. The
adoption of SFAS 149 did not have any effect on our financial statements.
FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities And Equity ("SFAS 150"), which establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The adoption of SFAS 150 did not have any effect
on our financial statements.
In January 2003, the FASB issued FASB Interpretation No. 46, Consolidation of
Variable Interest Entities, an interpretation of Accounting Research Bulletin
No. 51, Consolidated Financial Statements ("FIN 46"). The adoption of FIN 46 (as
amended) did not have any effect on our financial statements.
In December 2003, the FASB issued SFAS No. 132 (Revised) Employees Disclosure
about Pension and Other Postretirement Benefits, which expands the disclosure
requirements of these employee benefits. The adoption of SFAS No. 132 (Revised)
had no effect on our financial position or results of operations.
SFAS No. 143, "Accounting for Asset Retirement Obligations" became effective
January 1, 2003. Upon adoption of SFAS No. 143, the fair value of a liability
for an asset retirement obligation is required to be recorded. The Company
collects the estimated removal costs of utility plant in rates through
depreciation in accordance with regulatory treatment. At December 31, 2003, the
Company reclassified the estimated removal costs of $4.8 million from
accumulated depreciation to a regulatory liability. At December 31, 2002, $4.4
million was reclassified from accumulated depreciation to removal costs for
utility plant retirement obligations. This reclassification had no impact on the
Company's results of operations.
(n) Other Comprehensive Income - Total comprehensive income includes changes in
equity that are excluded from the consolidated statements of income and are
recorded into a separate section of capitalization on the consolidated balance
sheets. The Company's accumulated other comprehensive income shown on the
consolidated balance sheets consists of unrealized gains on investment holdings.
(o) Regulatory Accounting - We maintain our books and records in accordance with
accounting principles generally accepted in the United States of America.
Middlesex and certain of its subsidiaries, which account for 87% of Operating
Revenues and 99% of Total Assets, are subject to regulation in the state in
which they operate. Those companies are required to maintain their accounts in
accordance with regulatory authorities' rules and guidelines, which may differ
from other authoritative accounting pronouncements. In those instances, the
Company follows the guidance provided SFAS No. 71, "Accounting For the Effects
of Certain Types of Regulation."
(p) Pension Plan - We maintain a noncontributory defined benefit pension plan
which covers substantially all employees with more than 1,000 hours of service.
The discount rate utilized for determining pension
30
costs decreased from 7.75% for the year ended December 31, 2001 to 7.25% for the
year ended December 31, 2002 to 6.75% for the year ended December 31, 2003.
Future actual pension income will depend on future investment performance,
changes in future discount rates and various other factors related to the
population participating in the pension plans.
(q) Certain prior year amounts have been reclassified to conform to the current
year reporting.
Note 2 - Rate and Regulatory Matters
Middlesex filed a 17.8% base rate increase petition with the BPU on November 5,
2003. Increased operating expenses and utility plant investment necessitated the
rate increase request. Further, we filed a base rate increase petition with the
BPU for both Pinelands companies on December 30, 2003, requesting an overall
increase for those systems of 19.02%.
In accordance with the tariff established for Southern Shores, an annual rate
increase of 2.8% was implemented on January 1, 2004. The increase cannot exceed
the lesser of the regional Consumer Price Index or 3%. Other than rates for the
Southern Shores system, there can be no assurance that any rate increases will
be granted or, if granted, that they will be in the amounts we requested.
Tidewater received approval for a 2.49% Distribution System Improvement Charge
(DSIC) from the PSC, effective for services rendered on or after July 1, 2003.
The DSIC is a separate rate mechanism that allows for cost recovery of certain
capital improvement costs incurred in between base rate filings. Delaware
regulated water utilities are allowed to apply for a DSIC every six months with
the maximum increase limited to 5.0% in any six month period and a 7.5% overall
limitation. The PSC approved an increase in Tidewater's DSIC to 4.89% of base
rates from 2.49%, effective January 1, 2004.
Tidewater filed for a 24% base rate increase with the PSC in January 2002. The
primary reasons driving the need for rate relief was the increase in the
calculated rate base since the last rate case of $11.3 million or 88.8%, and
higher operations and maintenance expenses, particularly for water treatment and
production. In accordance with PSC rules, an 8% interim rate increase was
implemented in April 2002. The PSC determined that Tidewater was entitled to an
additional 8.4% increase effective February 1, 2003 on top of the 8% interim
increase for a total of 16.4% or $1.1 million.
In the fall of 2002, the BPU approved a 76.7% base rate increase for the Bayview
Water Company. This translates into additional revenues of less than $0.1
million. Two-thirds of the increase was implemented on January 1, 2003 and the
balance became effective July 1, 2003. The new rates are designed to allow for
the recovery of operating costs and capital costs incurred to replace the entire
water distribution system on Fortescue Island in Southern New Jersey. Middlesex
had operated this 300-customer system as an interim custodial receiver from
September 1997, until it was purchased on April 9, 2001.
We have recorded certain costs as regulatory assets because we believe we will
be allowed full recovery of or are currently recovering these costs in the rates
that we charge customers. These deferred costs have been excluded from rate base
and, therefore, we are not earning a return on the unamortized balances.
31
Years Ended December 31,
(Thousands of Dollars)
Remaining
Recovery
Regulatory Assets 2003 2002 Periods
----------------- ---- ---- -------
Income Taxes $6,786 $6,288 Various
Postretirement Benefits 783 869 9 years
Tank Painting 198 249 4 years
Rate Cases and Other 449 556 Up to 3 years
------ ------
Total $8,216 $7,962
====== ======
The recovery period for income taxes is dependent upon when the temporary
differences between tax and book will reverse.
Bayview, Pinelands Water and Pinelands Wastewater are recovering the acquisition
premium of $0.9 million over the remaining life of their Utility Plants. These
deferred costs have been included in their rate bases as utility plant and are
earning a return on the unamortized costs during the recovery periods.
Note 3 - Income Taxes
Income tax expense differs from the amount computed by applying the statutory
rate on book income subject to tax for the following reasons:
Years Ended December 31,
(Thousands of Dollars)
2003 2002 2001
- --------------------------------------------------------------------------------
Income Tax at Statutory Rate of 34% $ 3,355 $ 4,000 $ 3,642
Tax Effect of:
Utility Plant Related (171) (123) 64
State Income Taxes - Net 106 80 30
Employee Benefits (67) 25 (25)
Other 14 17 49
- --------------------------------------------------------------------------------
Total Income Tax Expense $ 3,237 $ 3,999 $ 3,760
- --------------------------------------------------------------------------------
Income tax expense is comprised of the following:
Current:
Federal $ 2,835 $ 3,730 $ 3,499
State 95 82 20
Deferred:
Federal 321 227 294
State 65 39 26
Investment Tax Credits (79) (79) (79)
- --------------------------------------------------------------------------------
Total Income Tax Expense $ 3,237 $ 3,999 $ 3,760
- --------------------------------------------------------------------------------
The statutory review period for income tax returns for the years prior to 2000
has been closed.
Certain reclassifications of an immaterial nature were made between other taxes
and income taxes in the consolidated statements of income for the years ended
December 31, 2002 and 2001.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial purposes
and the amounts used for income tax purposes. The components of the net deferred
tax liability are as follows:
32
Years Ended December 31,
(Thousands of Dollars)
2003 2002
- --------------------------------------------------------------------------------
Utility Plant Related $ 20,522 $ 19,611
Customer Advances (4,218) (4,330)
Employee Benefits (2,209) (1,995)
Other 31 (44)
- --------------------------------------------------------------------------------
Total Deferred Tax Liability $ 14,126 $ 13,242
- --------------------------------------------------------------------------------
The Company is required to set up deferred income taxes for all temporary
differences regardless of the regulatory ratemaking treatment. Because
management believes that it is probable that these additional taxes will be
passed on to ratepayers, an offsetting regulatory asset of $6.8 million and $6.3
million has been recorded at December 31, 2003 and 2002 respectively.
Note 4 - Commitments and Contingent Liabilities
Guarantees - USA-PA operates the City of Perth Amboy's (Perth Amboy) water and
wastewater systems under a service contract agreement through June 30, 2018. The
agreement was effected under New Jersey's Water Supply Public/Private
Contracting Act and the New Jersey Wastewater Public/Private Contracting Act.
Under the agreement, USA-PA receives a fixed fee and a variable fee based on
increased system billing. Scheduled fixed fee payments for 2003, 2002 and 2001
were $7.2 million, $6.9 million and $6.7 million, respectively. The fixed fees
will increase over the term of the contract to $9.7 million.
In connection with the agreement, Perth Amboy, through the Middlesex County
Improvement Authority, issued approximately $68.0 million in three series of
bonds. Middlesex guaranteed one of those series of bonds, which are designated
the Series C Serial Bonds, in the principal amount of approximately $26.3
million. Perth Amboy guaranteed the two other series of bonds. The Series C
Serial Bonds have various maturity dates with the final maturity date on
September 1, 2015. As of December 31, 2003, approximately $24.4 million of the
Series C Serial Bonds remained outstanding.
We are obligated to perform under the guarantee in the event notice is received
from the Series C Serial Bonds trustee of an impending debt service deficiency.
If Middlesex funds any debt service obligations as guarantor, there is a
provision in the agreement that requires Perth Amboy to reimburse us. There are
other provisions in the agreement that we believe make it unlikely that we will
be required to perform under the guarantee, such as scheduled annual rate
increases for water and wastewater services as well as rate increases due to
unforeseen circumstances. In the event revenues from customers could not satisfy
the reimbursement requirements, Perth Amboy has Ad Valorem taxing powers, which
could be used to raise the needed amount.
Franchise Agreement/Service Agreement - In 1999, Middlesex implemented a
franchise agreement with the City of South Amboy (South Amboy) to provide water
service and install water system facilities in South Amboy. The agreement
between Middlesex and South Amboy was approved by the BPU. The implementation of
the franchise agreement had significantly impacted two existing agreements
entered into by the parties.
The first agreement was for the sale of water to South Amboy on a wholesale
basis. The second agreement, which included Middlesex's wholly-owned subsidiary
USA, was a contract to provide management services for a fixed fee. In
conjunction with the franchise agreement, the water sales contract was
eliminated. In addition, the management services contract was extended through
May 2045 and significantly modified to correspond with the terms and conditions
of the franchise agreement.
33
Fixed fee revenues recognized under the original contract have been
eliminated in lieu of revenues earned from providing water to South Amboy's
2,600 customers.
Water Supply - Middlesex has revised and extended its agreement with the New
Jersey Water Supply Authority (NJWSA) for the purchase of untreated water,
effective January 1, 2004. The agreement now expires November 30, 2023 and
provides an average purchase of 27 million gallons a day (mgd) up from 20 mgd.
Pricing has been modified to include a two tier pricing schedule for the
original 20 mgd and the additional 7 mgd. In addition, the agreement has
provisions for additional pricing in the event the Company overdrafts or exceeds
certain monthly and annual thresholds.
Middlesex also has an agreement with a nonaffiliated water utility for the
purchase of treated water. This agreement, which expires December 31, 2005,
provides for the minimum purchase of 3 mgd of treated water with provisions for
additional purchases.
Purchased water costs are shown below:
(Millions of Dollars)
Years Ended December 31,
Purchased Water 2003 2002 2001
--------------- ---- ---- ----
Untreated $2.0 $1.9 $2.0
Treated 1.8 1.8 1.7
---- ---- ----
Total Costs $3.8 $3.7 $3.7
==== ==== ====
Construction - Based on its capital budget, the Company plans to spend
approximately $28.7 million in 2004, $24.4 million in 2005 and $14.1 million in
2006 on its construction program.
Litigation - A lawsuit was filed against the Company for damages involving the
break of both a Company water line and an underground electric power cable
containing both electric lines and petroleum based insulating fluid. The
electric utility also asserted claims against the Company. The lawsuit was
settled by agreement to submit plaintiff's claim for approximately $1.1 million
damages to binding arbitration, in which the agreed maximum exposure of the
Company is $0.3 million. While we are unable to predict the outcome of the
arbitration, we believe that we have substantial defenses. We have not recorded
any liability for the claim.
Another claim is pending involving a construction subcontractor, the Company's
general contractor and the Company concerning a major construction project. The
dispute relates to work required to be performed under a construction contract
and related subcontracts and includes payment issues and timing/delay issues.
The matter was instituted in 2001 and is pending in Superior Court, Middlesex
County, New Jersey. We have estimated our maximum exposure in this litigation to
be $4.3 million. We believe that we have substantial defenses to a number of the
asserted claims. It is reasonably possible that we may be responsible for some
portion of the amount claimed, but significantly less than the maximum. We are
unable, however, to determine this amount. Any amount in this matter which is
determined to be due from us, will be recorded as an addition to utility plant
in service, subject to recovery in rates charged to our customers. However, the
outcome could have a material adverse effect on the Company's financial
statements.
Change in Control Agreements - The Company has Change in Control Agreements with
certain of its Officers that provide compensation and benefits in the event of
termination of employment in connection with a change in control of the Company.
34
Note 5 - Short-term Borrowings
(Millions of Dollars)
2003 2002
- -------------------------------------------------------------------
Established Lines at Year-End $25.0 $30.0
Maximum Amount Outstanding 18.5 17.7
Average Outstanding 15.3 14.4
Notes Payable at Year-End 12.5 17.7
Weighted Average Interest Rate 1.89% 2.59%
Weighted Average Interest Rate at Year End 1.64% 2.22%
Year end interest rates on short-term borrowings outstanding ranged from 1.56%
to 1.67% and 1.90% to 3.24% as of December 31, 2003 and 2002, respectively. The
maturity dates for borrowings outstanding as of December 31, 2003 are: January
5, 2004; $3.5 million and January 16, 2004: $9.0 million.
The Board of Directors has authorized lines of credit for up to $30.0 million.
Short-term borrowings are below the prime rate with some requirements for
compensating balances not exceeding 1% of the line.
Restricted cash includes proceeds from the Series Z, AA, BB, and CC First
Mortgage Bonds and State Revolving Trust and Fund Bonds issuances. These funds
are held in trusts and restricted for specific capital expenditures and debt
service requirements. Series BB and CC proceeds can only be used for the 2004
main cleaning and cement lining programs.
Note 6 - Capitalization
All the transactions discussed below related to the issuance of securities were
approved by the BPU, except where noted.
Common Stock
In August 2003, the Board of Directors approved a four-for-three stock split of
its common stock, effective November 14, 2003 for shareholders of record on
November 1, 2003. In October 2001, the Board of Directors approved a
three-for-two common stock split effective January 2, 2002, for shareholders of
record on December 14, 2001. All share, average number of shares and per share
amounts of no par common stock on the financial statements have been restated to
reflect the effect of both stock splits.
The number of shares authorized under the Dividend Reinvestment and Common Stock
Purchase Plan (DRP) is 1,700,000 shares. The cumulative number of shares issued
under the DRP at December 31, 2003, is 1,239,790. In each of 2003 and 2002 for
specific six month periods, DRP participants had the opportunity to purchase the
Company's common stock at a 5% discount with reinvested dividends and optional
cash payments. The Company also has a restricted stock plan, which is described
in Note 7 - Employee Benefit Plans.
In the event dividends on the preferred stock are in arrears, no dividends may
be declared or paid on the common stock of the Company. At December 31, 2003, no
preferred stock dividends were in arrears.
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. At December 31,
2003 and 2002, 37,898 shares of preferred stock presently authorized were
outstanding. There were no dividends in arrears.
The conversion feature of the no par $7.00 Series Cumulative and Convertible
Preferred Stock allows the security holders to exchange one convertible
preferred share for twelve shares of the Company's common stock. In addition,
the Company may redeem up to 10% of the outstanding convertible stock in any
35
calendar year at a price equal to the fair market value of twelve shares of the
Company's common stock for each share of convertible stock redeemed.
The conversion feature of the no par $8.00 Series Cumulative and Convertible
Preferred Stock allows the security holders to exchange one convertible
preferred share for 13.714 shares of the Company's common stock. The preferred
shares are convertible at the election of the security holder until 2004. After
that date Middlesex also has the right to elect the conversion feature.
Long-term Debt
Tidewater received approval from the PSC to borrow $13.8 million to fund a
portion of its multi-year capital program and refinance some of its short-term
debt. Subsequent to the PSC approval, Tidewater closed on a Delaware State
Revolving Fund (SRF) loan of $3.3 million in April 2003. The SRF program evolved
from the Federal Environmental Protection Agency's (EPA) regulations issued
under the Safe Drinking Water Act. Under this program, investor-owned public
water utilities can apply for construction loans, which are funded by the
participating state and the EPA through a state agency. The Delaware SRF program
will allow, but does not obligate, Tidewater to draw down against a General
Obligation Note for six specific projects. Tidewater will be charged an annual
fee, which is a combination of interest charges and administrative fees, of
3.60% on the outstanding principal amount. All unpaid principal and fees must be
paid on or before May 1, 2025.
In May 2003, Tidewater completed a loan transaction of $10.5 million with
CoBank, a financial institution specializing in loans to rural utilities. Terms
of the loan include an interest rate of 6.25% and a maximum loan life of
twenty-five years with monthly principal payments. The proceeds were used to
retire short-term debt.
First Mortgage Bonds Series S through W and Series DD are term bonds with single
maturity dates. The aggregate annual principal repayment obligations for all
other long-term debt are shown below:
(Millions of Dollars)
Annual Annual
Year Maturities Year Maturities
---- ---------- ---- ----------
2004 $ 1.1 2007 $ 1.1
2005 $ 1.1 2008 $ 1.1
2006 $ 1.1
The weighted average interest rate on all long-term debt at December 31, 2003
and 2002 was 6.03% and 5.77%, respectively. Except for the Amortizing Secured
Note and Series U First Mortgage Bonds, all of the Company's outstanding debt
has been issued through the New Jersey Economic Development Authority ($57.5
million), the New Jersey Enviromental Infrastructure Trust program ($11.8
million) and the SRF program ($0.7 million).
Substantially all of the Utility Plant of the Company is subject to the lien of
its mortgage, which also includes debt service and capital ratio covenants,
certain restrictions as to cash dividend payments and other distributions on
common stock. The Company is in compliance with all of its mortgage covenants
and restrictions.
Earnings Per Share
The following table presents the calculation of basic and diluted earnings per
share (EPS) for the three years ended December 31, 2003. Basic EPS are computed
on the basis of the weighted average number of shares outstanding. Diluted EPS
assumes the conversion of both the Convertible Preferred Stock $7.00 Series and
$8.00 Series. All share and per share amounts reflect the three-for-two common
stock split, effective January 2, 2002 and the four-for-three common stock
split, effective November 14, 2003.
36
(In Thousands of Dollars Except per Share Amounts)
2003 2002 2001
Basic: Income Shares Income Shares Income Shares
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income $ 6,631 10,475 $ 7,765 10,280 $ 6,953 10,131
Preferred Dividend (255) (255) (255)
-------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 6,376 10,475 $ 7,510 10,280 $ 6,698 10,131
Basic EPS $ 0.61 $ 0.73 $ 0.66
Diluted:
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 6,376 10,475 $ 7,510 10,280 $ 6,698 10,131
$7.00 Series Dividend 104 178 104 178 104 178
$8.00 Series Dividend 96 165 96 165 96 165
-------------------------------------------------------------------------------------
Adjusted Earnings Applicable to Common Stock
$ 6,576 10,818 $ 7,710 10,623 $ 6,898 10,474
Diluted EPS $ 0.61 $ 0.73 $ 0.66
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments for which it is practicable to
estimate that value. The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, marketable securities, and trade
receivables and payables approximate their respective fair values due to the
short-term maturities of these instruments. The fair value of the Company's
long-term debt relating to first mortgage bonds is based on quoted market prices
for similar issues. The carrying amount and fair market value of the Company's
bonds were as follows:
(Thousands of Dollars)
At December 31,
2003 2002
Carrying Fair Carrying Fair
Amount Value Amount Value
- -----------------------------------------------------------------------------------------------------
First Mortgage Bonds $84,280 $87,273 $84,852 $87,308
For other long-term debt for which there was no quoted market price, it was not
practicable to estimate their fair value. The carrying amount of these
instruments at December 31, 2003 and 2002 was $14.2 million and $3.3 million,
respectively. Customer advances for construction have a carrying amount of $11.7
million and $10.9 million at December 31, 2003 and 2002, respectively. Their
relative fair values cannot be accurately estimated since future refund payments
depend on several variables, including new customer connections, customer
consumption levels and future rate increases.
Note 7 - Employee Benefit Plans
Pension
The Company has a noncontributory defined benefit pension plan, which covers
substantially all employees with more than 1,000 hours of service. In addition,
the Company maintains an unfunded supplemental pension plan for its executives.
The Accumulated Benefit Obligation for all pension plans at December 31, 2003
was $19.8 million.
37
Postretirement Benefits Other Than Pensions
The Company has a postretirement benefit plan other than pensions for
substantially all of its retired employees. Coverage includes healthcare and
life insurance. Retiree contributions are dependent on credited years of
service. Accrued retirement benefit costs are recorded each year.
The Company has recognized a deferred regulatory asset relating to the
difference between the accrued retirement benefit costs and actual cash paid for
plan premiums in years prior to 1998. Included in the regulatory asset is a
transition obligation from adopting SFAS No.106 on January 1, 1993. In addition
to the recognition of annual accrued retirement benefit costs in rates,
Middlesex is also recovering the transition obligation over 15 years. The
regulatory assets at December 31, 2003 and 2002, respectively were $0.8 million
and $0.9 million.
The Company uses a December 31 measurement date for all of its employee benefit
plans. The following table sets forth information relating to the Company's
pension plans and other postretirement benefits:
(Thousands of Dollars)
Years Ended December 31,
Pension Benefits Other Benefits
2003 2002 2003 2002
- -----------------------------------------------------------------------------------------------------------------
Reconciliation of Projected Benefit Obligation
Beginning Balance $ 19,677 $ 18,471 $ 7,437 $ 6,415
Service Cost 684 724 263 222
Interest Cost 1,356 1,300 485 463
Actuarial (Gain)/Loss 3,039 23 1,645 657
Benefits Paid (1,085) (841) (332) (320)
- -----------------------------------------------------------------------------------------------------------------
Ending Balance $ 23,671 $ 19,677 $ 9,498 $ 7,437
- -----------------------------------------------------------------------------------------------------------------
Reconciliation of Plan Assets at Fair Value
Beginning Balance $ 15,846 $ 17,796 $ 2,065 $ 1,442
Actual Return on Plan Assets 2,768 (1,671) 15 25
Employer Contributions 1,058 562 834 918
Benefits Paid (1,085) (841) (332) (320)
- -----------------------------------------------------------------------------------------------------------------
Ending Balance $ 18,587 $ 15,846 $ 2,582 $ 2,065
- -----------------------------------------------------------------------------------------------------------------
Funded Status $ (5,084) $ (3,831) $ (6,916) $ (5,372)
Unrecognized Net Transition Obligation -- -- 1,217 1,353
Unrecognized Net Actuarial (Gain)/Loss 1,144 521 4,076 2,415
Unrecognized Prior Service Cost 264 356 (3) (4)
- -----------------------------------------------------------------------------------------------------------------
Accrued Benefit Cost $ (3,676) $ (2,954) $ (1,626) $ (1,608)
- -----------------------------------------------------------------------------------------------------------------
38
(Thousands of Dollars)
Years Ended December 31,
Pension Benefits Other Benefits
2003 2002 2001 2003 2002 2001
- ------------------------------------------------------------------------------------------------------------------
Components of Net Periodic Benefit Cost
Service Cost $ 684 $ 724 $ 720 $ 263 $ 222 $ 173
Interest Cost 1,356 1,300 1,324 485 463 426
Expected Return on Plan Assets (1,272) (1,281) (1,448) (175) (125) (90)
Amortization of Net Transition Obligation -- 2 14 135 135 135
Amortization of Net Actuarial (Gain)/Loss -- -- (148) 143 111 76
Amortization of Prior Service Cost 92 92 111 -- -- --
- ------------------------------------------------------------------------------------------------------------------
Net Periodic Benefit Cost $ 860 $ 837 $ 573 $ 851 $ 806 $ 720
- ------------------------------------------------------------------------------------------------------------------
2003 2002 2001 2003 2002 2001
---- ---- ---- ---- ---- ----
Actual Return on Plan Assets 17.48% (9.47%) 0.54% 0.77% 1.38% 3.73%
Weighted Average Assumptions:
Expected Return on Plan Assets 8.00% 8.00% 8.00% 7.50% 7.50% 7.50%
Discount Rate for:
Benefit Obligation 6.00% 6.75% 7.25% 6.00% 6.75% 7.25%
Benefit Cost 6.75% 7.25% 7.75% 6.75% 7.25% 7.75%
Compensation Increase for:
Benefit Obligation 3.50% 3.50% 4.25% 3.50% 3.50% 4.25%
Benefit Cost 3.50% 4.25% 5.00% 3.50% 4.25% 5.00%
For measurement purposes, a 7.50% annual rate of increase in the per capita cost
of covered healthcare benefits was assumed for 2003 and declining by 0.5% per
year to 5% by year 2008. Assumed healthcare cost trend rates have a significant
effect on the amounts reported for the healthcare plan. A one-percentage point
change in assumed healthcare cost trend rates would have the following effects:
(Thousands of Dollars)
1 Percentage Point
Increase Decrease
- --------------------------------------------------------------------------------
Effect on Current Year's Benefit Expense $ 150 $ (115)
Effect on Benefit Obligation 1,130 (899)
Benefit Plans Assets
The pension plan asset allocations at December 31, 2003, and 2002, by asset
category are as follows:
As of December 31,
Asset Category 2003 2002
---- ----
Equity Securities 63.1% 55.7%
Debt Securities 33.4 40.6
Cash 3.5 3.7
----- -----
Total 100.0% 100.0%
===== =====
Asset Category Target Range
------ -----
Equity Securities 60% 30-65%
Debt Securities 38 25-70%
Cash 2 0-10%
39
Middlesex utilizes two investment firms to manage its pension plan asset
portfolio. Quarterly meetings are held between the Company's Pension Committee
and the investment managers to review their performance and asset allocation. If
the current asset allocation is outside the targeted range, the Pension
Committee reviews current market conditions and advice provided by the
investment managers to determine the appropriateness of rebalancing the
portfolio.
The investment objective of the Company is to maximize its long-term return on
pension plan assets, relative to a reasonable level of risk, maintain a
diversified investment portfolio and invest in compliance with the Employee
Retirement Income Security Act of 1974. The expected long-term rate of return is
based on the various asset categories in which it invests and the current
expectations and historical performance for these categories.
Middlesex expects to make cash contributions of approximately $1.0 million in
2004.
Equity securities include Middlesex common stock in the amounts of $0.8 million
(4.2 percent of total plan assets) and $0.7 million (4.1 percent of total plan
assets) at December 31, 2003, and 2002, respectively.
The other postretirement benefits assets are invested primarily in short-term
fixed government mutual funds. The Company is currently reviewing the funding
and investment objectives for these benefits and anticipates changes will be
implemented during the first quarter of 2004. The Company expects to make cash
contributions of approximately $1.0 million in 2004.
On December 8, 2003, the President of the United States signed into law the
Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the
"Act"). The Act introduces a prescription drug benefit under Medicare as well as
a federal subsidy to sponsors of retirees health care benefit plans that provide
a benefit that is at least actuarially equivalent to Medicare Part D. Under a
Financial Accounting Standards Board Staff Position FSP FAS 106-1, issued on
January 12, 2004, the Company has elected to defer accounting for the effects of
the Act. Therefore, the measures of the postretirement benefit obligation and
the net periodic postretirement benefit cost herein do not reflect the effects
of the Act on the plan. Specific authoritative guidance on the accounting for
the federal subsidy is pending, and that guidance, when issued, could require
the Company to change previously reported information.
401(k) Plan
The Company has a 401(k) defined contribution plan, which covers substantially
all employees with more than 1,000 hours of service. Under the terms of the
Plan, the Company matches 100% of a participant's contributions, which do not
exceed 1% of a participant's compensation, plus 50% of a participant's
contributions exceeding 1% but not more than 6%. The Company's matching
contributions in 2003, 2002 and 2001 amounted to $0.2 million for each year.
Stock Based Compensation
The Company maintains a Restricted Stock Plan, under which 69,400 shares of the
Company's common stock are held in escrow by the Company for key employees. Such
stock is subject to an agreement requiring forfeiture by the employee in the
event of termination of employment within five years of the grant other than as
a result of retirement, death or disability.
The maximum number of shares authorized for grant under this plan is 240,000
shares. Compensation expense is determined by the market value of the stock on
the date of the award and is being amortized over a five-year period.
Compensation expense for each of the years ended December 31, 2003, 2002 and
2001 was $0.3 million, $0.2 million and $0.2 million, respectively.
40
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS
No. 123) the Company elected to account for its stock-based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Had compensation costs for the Company's restricted stock plan been
determined based on the methodology prescribed in SFAS No. 123, there would have
been no effect on its results of operations or cash flows.
Note 8 - Business Segment Data
The Company has identified two reportable segments. One is the regulated
business of collecting, treating and distributing water on a retail and
wholesale basis to residential, commercial, industrial and fire protection
customers in parts of New Jersey and Delaware. It also operates a regulated
wastewater system in New Jersey. The Company is subject to regulations as to its
rates, services and other matters by the states of New Jersey and Delaware with
respect to utility service within these states. The other segment is
nonregulated contract services for the operation and maintenance of municipal
and private water and wastewater systems in New Jersey and Delaware.
Inter-segment transactions relating to operational costs are treated as
pass-through expenses. Finance charges on inter-segment loan activities are
based on interest rates that are below what would normally be charged by a third
party lender.
(Thousands of Dollars)
Twelve Months Ended December 31,
Operations by Segments: 2003 2002 2001
- --------------------------------------------------------------------------------
Revenues:
Regulated $ 55,707 $ 54,398 $ 52,295
Non - Regulated 8,500 7,576 7,379
Inter-segment Elimination (96) (41) (36)
- --------------------------------------------------------------------------------
Consolidated Revenues $ 64,111 $ 61,933 $ 59,638
- --------------------------------------------------------------------------------
Operating Income:
Regulated $ 11,013 $ 12,032 $ 11,090
Non - Regulated 487 435 403
- --------------------------------------------------------------------------------
Consolidated Operating Income $ 11,500 $ 12,467 $ 11,493
- --------------------------------------------------------------------------------
Depreciation:
Regulated $ 5,308 $ 4,925 $ 4,995
Non - Regulated 55 38 56
- --------------------------------------------------------------------------------
Consolidated Depreciation $ 5,363 $ 4,963 $ 5,051
- --------------------------------------------------------------------------------
Other Income:
Regulated $ 506 $ 474 $ 496
Non - Regulated (33) 22 62
Inter-segment Elimination (116) (54) (56)
- --------------------------------------------------------------------------------
Consolidated Other Income $ 357 $ 442 $ 502
- --------------------------------------------------------------------------------
Interest Expense:
Regulated $ 5,227 $ 5,143 $ 5,042
Non - Regulated 116 54 56
Inter-segment Elimination (116) (54) (56)
- --------------------------------------------------------------------------------
Consolidated Interest Charges $ 5,227 $ 5,143 $ 5,042
- --------------------------------------------------------------------------------
Net Income:
Regulated $ 6,292 $ 7,361 $ 6,544
Non - Regulated 339 404 409
- --------------------------------------------------------------------------------
Consolidated Net Income $ 6,631 $ 7,765 $ 6,953
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Capital Expenditures:
Regulated $ 19,002 $ 16,060 $ 12,649
Non - Regulated 572 429 98
- --------------------------------------------------------------------------------
Total Capital Expenditures $ 19,574 $ 16,489 $ 12,747
- --------------------------------------------------------------------------------
41
As of As of
December 31, December 31,
2003 2002
- --------------------------------------------------------------------------------
Assets:
Regulated $ 259,689 $ 246,612
Non - Regulated 5,223 4,093
Inter-segment Elimination (1,720) (1,743)
- --------------------------------------------------------------------------------
Consolidated Assets $ 263,192 $ 248,962
- --------------------------------------------------------------------------------
Note 9 - Quarterly Operating Results - Unaudited
Quarterly operating results for 2003 and 2002 are as follows:
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th Total
2003
- --------------------------------------------------------------------------------
Operating Revenues $14,981 $15,998 $17,586 $15,546 $64,111
Operating Income 2,376 3,108 3,500 2,516 11,500
Net Income 1,225 1,804 2,393 1,209 6,631
Basic Earnings per Share* $ 0.11 $ 0.17 $ 0.22 $ 0.11 $ 0.61
Diluted Earnings per Share* $ 0.11 $ 0.17 $ 0.22 $ 0.11 $ 0.61
2002
- --------------------------------------------------------------------------------
Operating Revenues $14,299 $15,525 $16,983 $15,126 $61,933
Operating Income 2,511 3,051 3,752 3,153 12,467
Net Income 1,277 1,889 2,572 2,027 7,765
Basic Earnings per Share* $ 0.12 $ 0.18 $ 0.24 $ 0.19 $ 0.73
Diluted Earnings per Share* $ 0.12 $ 0.18 $ 0.24 $ 0.19 $ 0.73
*All per share amounts reflect the three-for-two common stock split, effective
January 2, 2002 and the four-for-three common stock split effective November 14,
2003.
The information above, in the opinion of the Company, includes all adjustments
consisting only of normal recurring accruals necessary for a fair presentation
of such amounts. The business of the Company is subject to seasonal fluctuation
with the peak period usually occurring during the summer months.
Note 10 - Restatement of Consolidated Financial Statements
The consolidated financial statements as of December 31, 2002 and for the years
ended December 31, 2002 and 2001 have been restated to correct the
classification of certain amounts. The reclassifications were made to present
the amount of Restricted Cash as a non current asset rather than a current asset
in the consolidated balance sheet at December 31, 2002, and to present changes
in Restricted Cash related to capital expenditures as an investing activity
rather than a financing activity in the consolidated statement of cash flows for
the years ended December 31, 2002 and 2001. Previously, such amounts and changes
in amounts therein were presented as Temporary Cash Investments - Restricted.
Those amounts and changes in those amounts are currently described as Restricted
Cash. The restatement had no effect on reported total assets, net income,
earnings applicable to common stock, cash flows from operations or liquidity.
42
A summary of the effects of the restatement is as follows:
December 31, December 31,
CONSOLIDATED BALANCE SHEET 2002 2002
- --------------------------------------------------------------------------------
Current Assets As
Previously As
Reported Restated
- --------------------------------------------------------------------------------
Temporary Cash Investments - Restricted $ 6,146,699 $ --
- --------------------------------------------------------------------------------
Total Current Assets $20,299,715 $14,153,016
- --------------------------------------------------------------------------------
Deferred Charges and Other Assets
- --------------------------------------------------------------------------------
Restricted Cash $ -- $ 6,146,699
- --------------------------------------------------------------------------------
Total Deferred Charges and Other Assets $12,936,621 $19,083,320
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS, December 31, 2002 2002 2001 2001
- ---------------------------------------------------------------------------------------------------------------------------------
As As
Previously As Previously As
Cash Flows From Investing Activities: Reported Restated Reported Restated
- ---------------------------------------------------------------------------------------------------------------------------------
Restricted Cash $ -- $ 2,843,996 $ -- $ (6,390,000)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities: $(16,614,999) $(13,872,562) $(12,517,023) $(18,883,993)
- ---------------------------------------------------------------------------------------------------------------------------------
2002 2002 2001 2001
As As
Previously As Previously As
Cash Flows From Financing Activities: Reported Restated Reported Restated
- ---------------------------------------------------------------------------------------------------------------------------------
Temporary Cash Investments - Restricted $ 3,063,584 $ -- $ (6,390,622) $ --
Restricted Cash $ -- $ 219,588 $ -- $ (622)
- ---------------------------------------------------------------------------------------------------------------------------------
Net Cash Provided by Financing Activities: $ 3,921,065 $ 1,077,069 $ 2,220,771 $ 8,610,771
- ---------------------------------------------------------------------------------------------------------------------------------
Certain other reclassifications of an immaterial nature for the years ended
December 31, 2002 and 2001 were made between cash flows used in investing
activities and cash flows provided by operating activities. As compared to
amounts previously reported for the years ended December 31, 2002 and 2001, the
aggregate amount of such reclassifications resulted in a net increase in net
cash used in investing activities of $101,559 (2002) and a net decrease in net
cash used in investing activities of $23,030 (2001).
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
None.
43
Item 9A. Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures was conducted by the Company's Chief Executive Officer along with
the Company's Chief Financial Officer. Based upon that evaluation, the Company's
Chief Executive Officer and the Company's Chief Financial Officer concluded that
the Company's disclosure controls and procedures are effective as of the end of
the period covered by this Report. There have been no significant changes in the
Company's internal controls or in other factors, which could significantly
affect internal controls during the quarter ended December 31, 2003, except for
the following change in internal controls over financial reporting.
Management has identified a significant deficiency in the operation of internal
controls over financial reporting relating to the classification of cash
restricted for construction projects on the Consolidated Balance Sheet and the
change in cash restricted for construction projects on the Consolidated
Statements of Cash Flows. As a result thereof, management has expanded its
periodic review process of asset classification and the appropriate presentation
of changes in such assets to enhance the reliability and effectiveness of the
financial reporting process.
Based upon the foregoing, the Company's Chief Executive Officer and Chief
Financial Officer have concluded that the Company's internal controls over
financial reporting are effective in meeting the objectives as described below
based on the aforementioned changes in internal controls.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in Company reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in Company reports filed under the Exchange Act is
accumulated and communicated to management, including the Company's Chief
Executive Officer and Chief Financial Officer as appropriate, to allow timely
decisions regarding disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information with respect to Directors of Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 2004 Annual Meeting of
Stockholders and is incorporated herein by reference.
Information regarding the Executive Officers of Middlesex Water Company is
included under Item 1 in Part I of this annual report.
Item 11. Executive Compensation
This Information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2004 Annual Meeting of Stockholders and is
incorporated herein by reference.
44
Item 12. Security Ownership of Certain Beneficial Owners and Management
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2004 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2004 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2004 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. The following Financial Statements and Supplementary Data are
included in Part II, Item 8 of this annual report:
Consolidated Balance Sheets at December 31, 2003 and 2002
(Restated).
Consolidated Statements of Income for each of the three years in the
period ended December 31, 2003, 2002 and 2001.
Consolidated Statements of Cash Flows for each of the three years in
the period ended December 31, 2003, 2002(Restated) and
2001(Restated).
Consolidated Statements of Capital Stock and Long-term Debt at
December 31, 2003, and 2002.
Consolidated Statements of Common Stockholders Equity and
Comprehensive Income for each of the three years in the period ended
December 31, 2003, 2002 and 2001.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules
All Schedules are omitted because of the absence of the conditions
under which they are required or because the required information is
shown in the financial statements or notes thereto.
(a) 3. Exhibits
See Exhibit listing immediately following the signature page.
(b) Reports on Form 8-K
Filed: February 2, 2004 - Earnings Release
February 10, 2004 - Postponement of Common Stock Offering
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MIDDLESEX WATER COMPANY
By: /s/ Dennis G. Sullivan/
-----------------------
Dennis G. Sullivan
President and Chief Executive Officer
Date: April 30, 2004
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 on April 30, 2004.
By: /s/ A. Bruce O'Connor/
----------------------
A. Bruce O'Connor
Vice-President, Controller
and Chief Financial Officer
By: /s/ J. Richard Tompkins/
------------------------
J. Richard Tompkins
Chairman of the Board and Director
By: /s/ Dennis G. Sullivan/
-----------------------
Dennis G. Sullivan
President, Chief Executive Officer and Director
By: /s/ Annette Catino/
-------------------
Annette Catino
Director
By: /s/ John C. Cutting/
--------------------
John C. Cutting
Director
By: /s/ John R. Middleton/
----------------------
John R. Middleton
Director
By: /s/ John P. Mulkerin/
---------------------
John P. Mulkerin
Director
By: /s/ Stephen H. Mundy/
---------------------
Stephen H. Mundy
Director
By: /s/ Walter G. Reinhard/
-----------------------
Walter G. Reinhard
Director
By: /s/ Jeffries Shein/
-------------------
Jeffries Shein
Director
46
EXHIBIT INDEX
Exhibits designated with an asterisk (*) are filed herewith. The exhibits not so
designated have heretofore been filed with the Commission and are incorporated
herein by reference to the documents indicated in the previous filing columns
following the description of such exhibits. Exhibits designed with a dagger (t)
are management contracts or compensatory plans.
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- -------------------- --------- ---------
3.1 Certificate of Incorporation of the Company, as amended, filed as
Exhibit 3.1 of 1998 Form 10-K.
3.2 Bylaws of the Company, as amended. 33-54922 3.2
*3.3 Certificate of Correction of Middlesex Water Company filed with the
State of New Jersey on April 30, 1999.
*3.4 Certificate of Amendment to the Restated Certificate of
Incorporation Middlesex Water Company, filed with the State of New
Jersey on February 17, 2000.
*3.5 Certificate of Amendment to the Restated Certificate of
Incorporation Middlesex Water Company, filed with the State of New
Jersey on June 5, 2002.
4.1 Form of Common Stock Certificate. 2-55058 2(a)
4.2 Registration Statement, Form S-3, under Securities Act of 1933 filed
February 3, 1987, relating to the Dividend Reinvestment and Common
Stock Purchase Plan. 33-11717
4.3 Revised Prospectus relating to the Dividend Reinvestment and Common
Stock Purchase Plan, Submitted to the Securities and Exchange
Commission, January 20, 2000. 33-11717
4.4 Post Effective Amendments No. 7, Form S-3, under Securities Act of
1933 filed February 1, 2002, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
10.1 Copy of Purchased Water Agreement between the Company and
Elizabethtown Water Company, filed as Exhibit 10.1 of 1996 Form
10-K.
t10.2 Copy of Mortgage, dated April 1, 1927, between the Company and Union
County Trust Company, as Trustee, as supplemented by Supplemental
Indentures, dated as of
47
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- -------------------- --------- ---------
October 1, 1939 and April 1, 1949. 2-15795 4(a)-4(f)
10.3 Copy of Supplemental Indentures, dated as of July 1, 1964 and June
15, 1991, between the Company and Union County Trust Company, as
Trustee. 33-54922 10.4-10.9
10.4 Copy of Supply Agreement, dated as of November 17, 1986, between the
Company and the Old Bridge Municipal Utilities Authority. 33-31476 10.12
10.5 Copy of Supply Agreement, dated as of July 14, 1987, between the
Company and the Marlboro Township Municipal Utilities Authority, as
amended. 33-31476 10.13
10.6 Copy of Supply Agreement, dated as of February 11, 1988, with
modifications dated February 25, 1992, and April 20, 1994, between
the Company and the Borough of Sayreville filed as Exhibit No. 10.11
of 1994 First Quarter Form 10-Q.
*10.7 Copy of Water Purchase Contract, dated as of September 25, 2003,
between the Company and the New Jersey Water Supply Authority.
10.8 Copy of Treating and Pumping Agreement, dated April 9, 1984, between
the Company and the Township of East Brunswick. 33-31476 10.17
10.9 Copy of Supply Agreement, dated June 4, 1990, between the Company
and Edison Township. 33-54922 10.24
10.10 Copy of Supply Agreement, between the Company and the Borough of
Highland Park, filed as Exhibit No. 10.15 of 1996 Form 10-K.
10.11 Copy of Supplemental Executive Retirement Plan, filed as Exhibit
10.13 of 1999 Third Quarter Form 10-Q.
10.12 Copy of 1989 Restricted Stock Plan, filed as Appendix B to the
Company's Definitive Proxy Statement, dated and filed April 25,
1997. 33-31476 10.22
48
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- -------------------- --------- ---------
t10.13(a) Change In Control Termination Agreement between Middlesex Water
Company and Dennis G. Sullivan, filed as Exhibit 10.15(f) of 1999
Third Quarter Form 10-Q.
t10.13(b) Change In Control Termination Agreement between Middlesex Water
Company and A. Bruce O'Connor, filed as Exhibit 10.15(c) of 1999
Third Quarter Form 10-Q.
t10.13(c) Change In Control Termination Agreement between Middlesex Water
Company and Ronald F. Williams, filed as Exhibit 10.15(g) of 1999
Third Quarter Form 10-Q.
t*10.13(d) Change In Control Termination Agreement between Middlesex Water
Company and Richard M. Risoldi.
t*10.13(e) Change In Control Termination Agreement between Middlesex Water
Company and Kenneth J.Quinn.
t*10.13(f) Change In Control Termination Agreement between Middlesex Water
Company and James P. Garrett.
t*10.13(g) Change In Control Terminationt Agreement between Tidewater
Utilities, Inc. and Gerard L. Esposito.
t*10.13(h) Consulting Agreement between Middlesex Water Company and J. Richard
Tompkins
10.14 Copy of Transmission Agreement, dated October 16, 1992, between the
Company and the Township of East Brunswick. 33-54922 10.23
10.15 Copy of Supplemental Indentures, dated September 1, 1993, (Series S
& T) and January 1, 1994, (Series U & V), between the Company and
United Counties Trust Company, as Trustee, filed as Exhibit No.
10.22 of 1993 Form 10-K.
10.16 Copy of Trust Indentures, dated September 1, 1993, (Series S & T)
and January 1, 1994, (Series V), between the New Jersey Economic
Development Authority and First Fidelity Bank (Series S & T), as
Trustee, and Midlantic National Bank (Series V), as Trustee, filed
as Exhibit No. 10.23 of 1993 Form 10-K.
10.17 Copy of Supplemental Indenture dated October 15, 1998 between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Loan Agreement Dated November 1, 1998 between the New Jersey
49
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- -------------------- --------- ---------
and Middlesex Water Company (Series X), filed as Exhibit No. 10.22
of the 1998 Third Quarter Form 10-Q.
10.18 Copy of Supplemental Indenture dated October 15, 1998 between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Loan Agreement dated November 1, 1998 between the State of
New Jersey Environmental Infrastructure Trust and Middlesex Water
Company (Series Y), filed as Exhibit No. 10.23 of the 1998 Third
Quarter Form 10-Q.
10.19 Copy of Operation, Maintenance and Management Services Agreement
dated January 1, 1999 between the Company, City Of Perth Amboy,
Middlesex County Improvement Authority and Utility Service
Affiliates, Inc. 333-66727 10.24
10.20 Copy of Supplemental Indenture dated October 15, 1999 Between
Middlesex Water Company and First Union National Bank, as Trustee
and copy of Loan Agreement Dated November 1, 1999 between the State
of New Jersey and Middlesex Water Company (Series Z), filed as
Exhibit No. 10.25 of the 1999 Form 10-K.
10.21 Copy of Supplemental Indenture dated October 15, 1999 between
Middlesex Water Company and First Union National Bank, as Trustee
and copy of Loan Agreement dated November 1, 1999 between the New
Jersey Environmental Infrastructure Trust and Middlesex Water
Company (Series AA), Filed as Exhibit No. 10.26 of the 1999 Form
10-K.
10.22 Copy of Supplemental Indenture dated October 15, 2001 between
Middlesex Water Company and First Union National Bank, as Trustee
and copy of Loan Agreement Dated November 1, 2001 between the State
of New Jersey and Middlesex Water Company (Series BB) filed as
Exhibit 10.22 of the 2001 Form 10-K
10.23 Copy of Supplemental Indenture dated October 15, 2001 between
Middlesex Water Company and First Union National Bank, as Trustee
and copy of Loan Agreement dated November 1, 2001 between the New
Jersey Environmental Infrastructure Trust and Middlesex Water
Company (Series CC) filed as Exhibit 10.23 of the 2001 Form 10-K
10.24 Copy of Supplemental Indenture dated January 15, 2002 between
Middlesex Water Company and First Union National Bank, as Trustee
and copy of Loan Agreement dated January 1, 2002 between the New
Jersey Economic Development Authority and Middlesex Water Company
(Series DD) filed as Exhibit 10.24 of the 2001 Form 10-K
50
EXHIBIT INDEX
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
- ------- -------------------- --------- ---------
10.25 Copy of Supplemental Indenture dated March 1, 1998 Between Middlesex
Water Company and First Union National Bank, as Trustee.Copy of
Trust Indenture dated March 1, 1998 between the New Jersey Economic
Development Authority and PNC Bank, National Association, as Trustee
(Series W), filed as Exhibit No. 10.21 of the 1998 Third Quarter
Form 10-Q.
*21 Middlesex Water Company Subsidiaries.
*23 Independent Auditors' Consent.
*31 Section 302 Certification by Dennis G. Sullivan
Pursuant to Rule 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.
*31.1 Section 302 Certification by A. Bruce O'Connor
Pursuant to Rule 13a-14 and 15d-14 of the
Securities Exchange Act of 1934.
*32 Section 906 Certification by Dennis G. Sullivan Pursuant to 18
U.S.C.ss.1350
*32.1 Section 906 Certification by A. Bruce O'Connor Pursuant to 18
U.S.C.ss.1350
51
Exhibit 3.3
CERTIFICATE OF CORRECTION
OF
MIDDLESEX WATER COMPANY
To: Secretary of State
State of New Jersey
The Undersigned, hereby submits for filing, a Certificate of Correction,
executed on behalf of the above-named Corporation, pursuant to the provisions of
Section 14A:1-6(5) Corporations, General, of the New Jersey Statutes.
1. The Certificate to be corrected is:
Document Filing Date
Certificate of Amendment to the June 10, 1998
Restated Certificate of Incorporation
of Middlesex Water Company
2. The inaccuracies in the Certificate are:
a. Section 2 includes materials not intended for inclusion in the
Certificate of Incorporation.
b. Part of Section 2 erroneously recites the proposed amendment
as:
"The total authorized capital stock of the Company is 10,169,418,
divided into 10,000,000 shares of common stock without nominal or
par value, 69,418 shares of preferred stock without nominal or par
value (out of 100,000 shares of preferred stock originally
authorized) and 100,000 shares of preference stock without nominal
or par value."
3. This Certificate of Correction provides (consistent with the
amendment voted on by the Corporation's shareholders) that the first
sentence of Article 7A of the Restated Certificate of Incorporation
hereby reads as follows:
"ARTICLE 7A. The total authorized capital stock of the Company
is 10,249,980 shares, divided into 10,000,000 shares of common
stock without nominal or par value, 149,980 shares of
preferred stock without nominal or par value and 100,000
shares of preference stock without nominal or par value."
Dated this 28th day of April, 1999.
MIDDLESEX WATER COMPANY
By: /s/ Marion F. Reynolds
--------------------------
Marion F. Reynolds
Vice President, Secretary and Treasurer
Exhibit 3.4
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
MIDDLESEX WATER COMPANY
To: The Secretary of State of the State of New Jersey.
Pursuant to the provisions of N.J.S.A. 14A:7-18 the undersigned
Corporation executes the following Certificate of Amendment to its Restated
Certificate of Incorporation:
1. The name of the Corporation is MIDDLESEX WATER COMPANY. The
principal office of the Corporation is 1500 Ronson Road,
Iselin, New Jersey 08830-3020.
2. 8,000 shares of the $8.00 Series Cumulative and Convertible
Preferred Stock of the Corporation have been converted into
Common Stock and cancelled.
3. 1,483 shares of the $7.00 Series Cumulative Preferred Stock of
the Corporation have been redeemed and cancelled.
4. The date of adoption of the resolutions of the Board of
Directors canceling such shares is January 27, 2000.
5. The aggregate number of authorized shares, including shares
outstanding, itemized by classes and series, after giving
effect to such cancellation, is a follows:
Class Authorized Shares
----- -----------------
Common Stock, No Par Value: 10,000,000
Cumulative Preferred Stock, No Par Value:
$7 Series 1,017 (Note A)
$4.75 Series 10,000
Cumulative and Convertible Preferred Stock,
$7 Series 14,881 (Note B)
$8 Series 12,000 (Note C)
All Series 140,497 (Note D)
Preference Stock, No Par Value: 100,000
6. The Restated Certificate of Incorporation provides that the
shares cancelled shall not be reissued; and the Restated
Certificate of Incorporation is amended by decreasing the
aggregate number of shares which the corporation is authorized
to issue by the number of shares cancelled.
Note A: Reflects an authorization of 2,500 shares reduced by
the number of cancelled shares which are not to be
reissued.
Note B: Reflects an authorization of 17,000 shares reduced
by the number of cancelled shares which are not to
be reissued.
Note C: Reflects an authorization of 20,000 shares reduced
by the number of cancelled shares which are not to
be reissued.
Note D: Reflects an authorization of 150,000 shares reduced
by the number of cancelled shares which are not to
be reissued.
MIDDLESEX WATER COMPANY
By: /s/ Marion F. Reynolds
--------------------------
Marion F. Reynolds
Vice President, Secretary &
Treasurer
Dated: January 27, 2000
(SEAL)
Exhibit 3.5
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
MIDDLESEX WATER COMPANY
TO: THE SECRETARY OF STATE OF THE STATE OF NEW JERSEY
Pursuant to the provisions of the N.J.S.A. 14A9-2(4) and N.J.S.A.
14A9-4(3), the undersigned Corporate executes the following Certificate of
Amendment to the Restated Certificate of Incorporation:
1. The name of the Corporation is MIDDLESEX WATER COMPANY.
2. The following amendment to the Restated Certificate of
Incorporation was approved by the Directors of the Corporation on February 26,
1998, and thereafter was duly adopted by the shareholders of the Corporation on
May 22, 2002:
NOW, THEREFORE, BE IT RESOLVED that: the first sentence of ARTICLE
7A of the Restated Certificate of Incorporation be amended to read
as follows:
"The total authorized capital stock of the Company is 20,240,497,
divided into 20,000,000 shares of common stock without nominal or
par value, 140,497 shares of preferred stock without nominal or par
value (out of 100,000 shares of preferred stock originally
authorized) and 100,000 shares of preference stock without nominal
or par value."
FURTHER RESOLVED, that the said amendment of the Restated
Certificate of Incorporation be submitted to a vote of the
stockholders of this Corporation entitled to vote thereon, to wit,
the holders of common stock of record at the close of business on
March 29, 2002, at the Annual Meeting of Stockholders of this
Corporation to be held on May 22, 2002.
3. The total number of shares entitled to vote thereon was
7,658,582.
4. The number of shares voting for, against and abstaining from
such amendment is as follows:
For Against Abstain Total
--- ------- ------- -----
6,102,598 202,877 50,652 6,356,127
IN WITNESS WHEREOF, the Company has made this Certificate of
Amendment under its seal and the hands of its Chairman of the Board and its
Secretary this 22nd day of May, 2002.
MIDDLESEX WATER COMPANY
By: /s/ J. Richard Tompkins
-------------------------------
J. Richard Tompkins
Chairman of the Board
ATTEST:
/s/ Marion F. Reynolds
- ------------------------------
Marion F. Reynolds
Vice President, Secretary and Treasurer
Exhibit 10.7
WATER PURCHASE CONTRACT RBS-2A
THIS WATER PURCHASE CONTRACT is made this 25th day of September, 2003 by
and between the New Jersey Water Supply Authority (the "Authority"), an
instrumentality of the State of New Jersey created pursuant to the provisions of
the New Jersey Water Supply Authority Act, P.L. 1981, C. 293, as amended,
N.J.S.A. 1B ss.58:1B-1 et seq. and Middlesex Water Company ("Middlesex"), a
corporation existing under the laws of the State of New Jersey (also referred to
herein as "the Purchaser").
BACKGROUND
Pursuant to the Authority Act, the Authority was established for the
express purpose of operating water supply facilities, including those water
supply facilities theretofore operated by the State. In accordance with the
Authority Act, the Authority operates, inter alia, the System.
In connection with the operation of the System, the Authority, both in its
own right and as the successor to the water supply facilities of the State, is a
party with various System Water Purchasers, including the Purchaser, to Existing
Contracts pursuant to which the Authority makes water available for purchase by
such System Water Purchasers.
1
The Authority contemplates from time to time, undertaking various
improvements to the System and in connection therewith, expects to adopt a
Resolution which will authorize, inter alia, the issuance of Bonds for the
purpose of making funds available to finance various projects for the System.
Pursuant to a Bond Resolution, certain of the revenues received by the Authority
from System Water Purchasers will be pledged by the Authority to pay the
principal of and interest on Bonds.
The parties hereto are entering into this Contract, which is one of
several Water Purchase Contracts to be entered into by the Authority with System
Water Purchasers, in order (i) to supercede the Existing Contracts between the
Authority and the Purchaser and (ii) to provide for the sale to and purchase of
water by the Purchaser consistent with the Purchaser's projected needs.
NOW THEREFORE, in consideration of the mutual covenants and premises
herein contained, the parties hereto, intending to be legally bound hereby,
agree as follows:
SECTION 1. Definitions.
Unless the context clearly establishes otherwise, the following terms,
when used in this Contract or in the Background hereto, shall have the following
meanings:
2
"Annual Budget" means the annual budget of the Authority relating to the
System (which shall include all costs, obligations and expenses properly
allocable to the System in accordance with generally accepted accounting
principles and cost allocation principles), as amended or supplemented, adopted
or in effect for a particular Fiscal Year.
"Annual Payment" means the aggregate amount projected by the Authority to
be payable to the Authority by the Purchaser for Uninterruptible Service during
each Annual Payment Period, which Annual Payment shall be determined by (a)
multiplying the applicable rates and charges for Uninterruptible Service set
forth in the Rate Schedule in effect during the relevant Annual Payment Period
by the number of MG of water contracted for by the Purchaser for Uninterruptible
Service on an annual basis as set forth in this Contract, subject to adjustment
to reflect any special allocations, charges, credits or adjustments provided for
pursuant to the provisions of this Contract or any Rate Schedule, which may
include but not be limited to: (i) adjustments based upon the water being
derived from the System within the Delaware River Basin; (ii) debt service
allocated specifically to those customers of the Authority who benefit from the
debt to which such debt service relates; and (iii) for withdrawals within the
Raritan Basin, an evaluation of
3
the equivalent sustained supply and the application of an appropriate production
factor, all as contemplated by and/or set forth in the Rate Schedule and (b)
adding thereto any charges for access to the System and any other charges
imposed on the Purchaser by this Contract.
"Annual Payment Period" means the calendar year, commencing January 1,
2004 during which Uninterruptible Service is to be provided to the Purchaser
hereunder.
"Annual Requirements" means the aggregate amount required during each
Annual Payment Period to pay, or make provision for, all (i) Operation and
Maintenance Expenses; (ii) Debt Service; and (iii) other requirements of the
System required to be paid as is set forth in the Resolution, or in any Rate
Schedule, or in any documents relating to Other Indebtedness, including but not
limited to amounts required to meet the rate covenant set forth in Section 713
of the Resolution; provided, however, that the amount to be included for Debt
Service in each Annual Payment Period shall be that amount accruing in the Bond
Year or Bond Years, or corresponding portion thereof, commencing during the
Fiscal Year within which such Annual Payment Period or portion thereof falls.
"Authority" means the New Jersey Water Supply Authority established
pursuant to the Authority Act.
4
"Authority Act" means the "New Jersey Water Supply Authority Act", P.L.
1981, c.293, as amended (N.J.S.A. 58:1B-1 et -- seq.).
"Authorized Officer" means the Chairman, Vice Chairman, Treasurer,
Secretary or Executive Director of the Authority or any person or persons
designated by the Authority to act on behalf of the Authority.
"Bonds" means all bonds, notes or other evidences of indebtedness issued
by the Authority and outstanding under the Resolution and each Supplemental
Resolution to finance or refinance any cost, expense or liability paid or
incurred or to be paid or incurred by the Authority in connection with the
financing, planning, designing, constructing, acquiring, operating or
maintaining of any part of the System.
"Bond Year" means, with respect to any Bonds, the twelve-month period (and
such shorter initial period, if any) established with respect to the issuance of
such Bonds in a Supplemental Resolution, and with respect to Other Indebtedness,
the twelve-month period (and such shorter initial period, if any) established
with respect to the issuance of such Other Indebtedness in the documents
relating to the issuance of such Other Indebtedness.
"Credit Facility" means a policy of municipal bond insurance, a letter of
credit, a surety bond, a loan agreement, a standby bond
5
purchase agreement or other type of credit agreement, facility, insurance or
guaranty arrangement pursuant to which funds can be obtained to pay the
principal or redemption price of Bonds or Other Indebtedness and interest
thereon.
"Debt Service" for any period means, as of any date of calculation, with
respect to (A) Outstanding Bonds, an amount equal to the sum of (i) the interest
accruing during such period on such Bonds, and (ii) that portion of the
principal of such Bonds accruing during such period, all as is set forth in the
Resolution and (B) Other Indebtedness, an amount equal to (i) the interest
accruing during such period on such Other Indebtedness and (ii) that portion of
the principal accruing on such Other Indebtedness during such period, all as is
set forth in the documents relating to the issuance of such Other Indebtedness.
"Department" means the New Jersey Department of Environmental Protection.
"Division" means the Water Supply Administration in the Department.
"Event of Default" means a default by the Purchaser of the provisions of
this Contract as a result of the occurrence of any of the events set forth in
Section 10 hereof.
"Existing Contracts" means the existing water use contracts
6
for the System between the Authority and System Water Purchasers covering the
provisions of water from the System.
"Fiscal Year" means the twelve-month period commencing on July 1 of each
year and continuing through the following June 30.
"Force Majeure" means acts of God, strikes, lockouts or other industrial
disturbances; orders of the Government of the United States or the State or any
agency or instrumentality thereof or of any civil or military authority; acts of
terrorism, insurrections, riots, epidemics, landslides, lightning, earthquakes,
fires, hurricanes, storms, floods, washouts, droughts and explosions; breakage
or accidents to machinery, pipelines, dams or canals, other than as a result of
the negligence of the party claiming inability to comply with its obligations;
partial or entire failure of water supply, other than as a result of the
negligence of the party claiming inability to comply with its obligations;
arrests, civil disturbances; acts of any public enemy; and any other events not
reasonably within the control of and not as a result of the negligence of the
party claiming inability to comply with its obligations.
"GPM" means gallons of water per minute.
"General Fund" means the fund denominated as such and created pursuant to
the Resolution.
7
"Liquidity Facility" means an irrevocable letter of credit or other
irrevocable Credit Facility issued by a financial institution or insurance
company, which letter of credit or Credit Facility is payable on demand in the
event the terms under which such letter of credit or Credit Facility was issued
require payment thereunder.
"Major Rehabilitation Fund" means the fund denominated as such and created
pursuant to the Resolution.
"MG" means million gallons of water.
"MGD" means million gallons of water per day.
"Minimum Dependable or Safe Yield" means that amount of water, from time
to time determined by the Authority in accordance with applicable laws or
regulations and presently estimated to be 225 MGD, which the System is capable
of supplying continuously throughout a repetition of the most severe drought of
record.
"Monthly Water Payments" means either (i) the amount obtained by dividing
the amount of the Annual Payment for any Fiscal Year by twelve or (ii) such
other or different required monthly payments for which the Authority gives
notice to the Purchaser pursuant to Sections 4B, or 4E hereof.
"Operation and Maintenance Expenses" for any period means the amount (as
set forth in the Annual Budget of the Authority, as from time to time amended)
of all current costs, obligations and
8
expenses of, or arising in connection with, the (i) operation, maintenance and
administration of the System, and minor additions or improvements thereof or
thereto, or (ii) performance of any Water Purchase Contract, including, but not
limited to, the items set forth herein below and items set forth in the
Resolution as Operation and Maintenance Expenses, in each case, to the extent
properly allocable to the System and, as applicable, determined on the cash
basis of accounting and/or in accordance with generally accepted accounting and
cost allocation principles:
(i) all repairs and ordinary replacements and reconstruction of the
System; all wages, salaries and other personnel costs, including costs of
pension, retirement, health and other employee benefit programs; all fuel,
utilities, supplies and equipment; and all supervisory, engineering,
accounting, auditing, legal and financial advisory services;
(ii) all taxes and payments in lieu of taxes;
(iii) all costs of insurance for the System, including any forms of
self insurance (or self insurance reserves) maintained by the Authority,
and payment of all claims not covered by the Authority's insurance;
(iv) all fees and expenses incurred in connection
9
with any Credit Facility, Liquidity Facility, Reserve Account Credit
Facility, the issuance of any Bonds or the issuance of any Other
Indebtedness, and all fees and expenses of counsel, fiduciaries and others
in connection with any such Credit Facility, Liquidity Facility, Reserve
Account Credit Facility, Bonds or Other Indebtedness; provided, however,
that none of the foregoing shall be considered as Operation and
Maintenance Expenses to the extent required to be capitalized under the
Supplemental Resolution authorizing such Bonds or the documents
authorizing such Other Indebtedness or paid out of the proceeds of such
Bonds or Other Indebtedness;
(v) all amounts required, pursuant to applicable law, to be
deposited into the Rebate Fund;
(vi) all amounts required to be deposited, in accordance with the
Resolution, into any reserve fund established for Operation and
Maintenance Expenses; and
(vii) allowance for depreciation with respect to equipment and
property having a depreciable life of greater than three (3) years but
less than ten (10) years; and
(viii) any other costs, expenses or obligations required to be paid
by the Authority under the provisions of any Water Purchase Contract,
contract relating to the System,
10
any agreement or instrument relating to the Bonds or Other Indebtedness or
by law;
"Other Indebtedness" means all bonds, other than the Bonds or other
obligations issued pursuant to the Resolution, notes or other evidences of
indebtedness issued by the Authority, and Outstanding, including financing
agreements and arrangements with the State, to finance or refinance any cost,
expense or liability paid or incurred or to be paid or incurred by the Authority
in connection with the financing, planning, designing, constructing, acquiring,
operating or maintaining of any part of the System; provided, however, that
Other Indebtedness shall not include obligations for supplies and services which
are to be paid by the Authority out of current revenues, or obligations under
leases which are not required to be capitalized under generally accepted
accounting principles.
"Outstanding" means (A) with reference to Bonds, as of any date, Bonds
theretofore or thereupon being authenticated and delivered under the Resolution
or any Supplemental Resolution except to the extent that any particular Bonds
are not deemed to be outstanding pursuant to the provisions of the Resolution
and (B) with respect to Other Indebtedness, such Other Indebtedness theretofore
or thereupon being authenticated and delivered pursuant
11
to any documents relating to the issuance thereof except to the extent that any
particular Other Indebtedness is not deemed to be outstanding as specifically
provided therein.
"Overdraft Service" means (i) the supply of water from the System, to the
extent and from time to time available, in excess of aggregate Uninterruptible
Service, for certain, interim, interruptible, non-guaranteed uses which a System
Water Purchaser is authorized to withdraw pursuant to a Contract or (ii) such
other definition as is set forth in the Rate Schedule.
"Peaking Factor" means (i) the percentage equivalent of that volume of
Overdraft Service available from the System for a given period in excess of
Uninterruptible Service, which a customer may divert without charge or (ii) such
other definition as is set forth in the Rate Schedule.
"Point of Delivery" or "Point of Diversion" means the location where the
System, including surface and ground water supplies, interconnects with the
Purchaser's Interconnection System.
"Production Factor" means the inverse ratio between any upstream
allocation for a consumptive or depletive water diversion and its equivalent in
sustained supply at the confluence at the Millstone and Raritan Rivers as
follows: Production factor = Safe yield at the confluence / yield at the point
of diversion (see
12
N.J.A.C. 7:11-2.8).
"Projected Annual Requirements" means the aggregate amount projected by
the Authority in its Annual Budget, as from time to time amended, to be required
during each Annual Payment Period to pay all Annual Requirements.
"Prudent Water Supply Practices" means, as of any particular time, any
practices, methods and acts engaged in or approved by a significant portion of
the water supply industry operating in areas having comparable characteristics
to those of the System, or any of the practices, methods and acts which, in the
exercise of reasonable judgment in the light of the facts known at the time the
decision was made, could have been expected to accomplish the desired result at
a reasonable cost consistent with good practices, reliability, safety and
expedition. Prudent Water Supply Practices are not intended to be limited to the
optimum practice, method or act, to the exclusion of all others, but rather are
intended to be a spectrum of possible practices, methods or acts expected to
accomplish the desired results.
"Purchaser" means the party to this Contract, which is purchasing water
from the Authority.
"Purchaser's Interconnection System" means the buildings, structures,
piping, valves, meters and other control apparatus and
13
equipment, installed or to be installed by or on behalf of, and owned and/or
used by, the Purchaser (i) to connect Purchaser's system with the System at the
Point of Delivery and to withdraw, measure, control and monitor the flow and
quality of the water that the Purchaser withdraws from the System, and (ii) to
transport such water to the Purchaser's system.
"Rates" means the charges from time to time determined and established by
the Authority in accordance with the Rate Schedule.
"Rate Schedule" means the "Schedule of Rates, Charges and Debt Service
Assessments for the Sale of Water from the Delaware and Raritan Canal - Spruce
Run/Round Valley Reservoirs System" promulgated from time to time by the
Authority and set forth in the New Jersey Administrative Code, all in accordance
with applicable laws and regulations, as the same may from time to time be
amended, and in accordance with the provisions of the System Rules and
Regulations, which Rate Schedule establishes the rates, charges and debt service
assessments by the Authority for water derived from the System in accordance
with the following:
(a) Uninterruptible Service. The Rates per MG set forth in such Rate
Schedule for Uninterruptible Service shall be established for each Annual
Payment Period on the basis of:
(i) the Projected Annual Requirements for such Fiscal Year;
14
(ii) multiplied by the production factor for the diversion;
(iii) divided by the lesser of: (a) the annualized amount of MGD of water
from the System during such Fiscal Year which the Authority determines is
available for Uninterruptible Service and for Standby Service or (b) the
annualized amount of MGD of water from the System which is required to be
provided by the Authority by the terms of all Water Supply Contracts for
Uninterruptible Service and for Standby Service in effect during such Fiscal
Year, in each case, times 365 (366 during a leap year); provided, however, that
the Authority may exclude for any period, for purposes of computation hereunder,
the Uninterruptible Service and Standby Service under any Water Purchase
Contract where an Event of Default has occurred and is continuing.
(b) Overdraft Service. The Rate(s) per MG for average daily diversions in
excess of the Peaking Factor during a calendar month and year shall be the
amounts set forth in the Rate Schedule.
(c) Short-term Service. The Rates for Short-term Service established for
each Annual Payment Period shall be the amounts set forth in the Rate Schedule.
(d) Standby Service. The Rates set forth in such Rate Schedule for Standby
Service shall be established for each Annual Payment Period on the basis of (i)
a standby charge for each month
15
during which Standby Service is available, equal to the capacity, in MGD, of the
Purchaser's withdrawal facilities to be served by such Standby Service plus (ii)
a charge (against which the standby charge for such month shall be credited),
for water actually consumed in any month, at the rate per MG established by the
Rate Schedule for Uninterruptible Service.
(e) Special User Service. The Rates for Special User Service established
for each Annual Payment Period shall be the amounts set forth in the Rate
Schedule.
"Rebate Fund" means the fund denominated as such and created
pursuant to the Resolution.
"Reserve Account Credit Facility" means a surety bond, insurance
policy, letter of credit, line of credit or other Credit Facility satisfying the
requirements set forth in Section 518 of the Resolution.
"Resolution" means the resolution adopted by the Authority
authorizing the issuance of Bonds, and all Supplemental Resolutions.
"Revenue Fund" means the fund denominated as such and created
pursuant to the Resolution.
"Short-term Service" means (i) the supply of water from the System,
to the extent from time to time available, in excess of
16
aggregate Uninterruptible Service, for certain interim, interruptible,
non-guaranteed or short-term uses, such as growing agricultural or horticultural
products, meeting extraordinary requirements in consumer demand for potable or
industrial water as a result of transfers arising from a declaration of drought
by the Department, meeting non-seasonal extraordinary requirements in consumer
demand for potable or industrial water, or emergent maintenance or temporary
failure of a critical component of a System Water Purchaser's infrastructure
which a System Water Purchaser is authorized to withdraw pursuant to a Contract
or (ii) such other definition as is set forth in the Rate Schedule.
"Special User Service" means the supply of water from the Raritan
River Basin, which a System Water Purchaser is authorized to continuously
withdraw, without interruption, to be returned by the Purchaser to the stream
channel of the System at a point reasonably considered by the Authority to be at
or in the near vicinity of the point of withdrawal, substantially undiminished
in quantity and not substantially degraded in quality, all as is determined by
the Authority.
"Standby Service" means the supply of water from the System for
certain occasional uses, such as fire protection or other emergencies, natural
or otherwise, which a System Water
17
Purchaser is authorized to withdraw pursuant to a Contract.
"State" means the State of New Jersey.
"Supplemental Resolution" means any resolution enacted by the
Authority supplemental to the Resolution in connection with the issuance of any
particular Bonds, which Supplemental Resolution shall, inter alia, establish the
specific terms applicable to such particular Bonds.
"System" means the water supply system operated by the Authority
known as the Delaware and Raritan Canal - Spruce Run/Round Valley Reservoirs
System, and any expansion thereof, the major components of which presently
consist of the Delaware and Raritan Canal water supply transmission facility,
the Spruce Run and Round Valley Reservoirs and an interconnecting pumping
station located where the Raritan and Millstone Rivers meet adjacent to the
Delaware and Raritan Canal, together with all component plants, structures and
other real or personal property, and additions and improvements thereto,
necessary or useful and convenient for the accumulation, supply or transmission
of water including but not limited to: reservoir facilities, settling and
sediment storage basins, dams, dikes, intake and reservoir pipelines, force
mains, pump stations and intake structures.
"System Rules and Regulations" means the Rules for the
18
Use of Water from the Delaware and Raritan Canal and Spruce Run/Round Valley
Reservoirs System, adopted on April 24, 1987 and effective on May 18, 1987 and
presently set forth in Section 7:11-3.1 et. seq. of the New Jersey
Administrative Code, and any amendments from time to time hereafter made
thereto.
"System Water Purchaser" means any party to a Water Purchase
Contract with the Authority.
"Uninterruptible Service" means the supply of water from the System
which a System Water Purchaser is authorized continuously to withdraw, without
interruption, for potable or industrial water supply purposes, pursuant to a
Contract.
"Water Act" means the "Water Supply Management Act", P.L. 1981, c.
262, as amended (N.J.S.A. 58:1A-1 et. seq.) and the rules promulgated
thereunder.
"Water Purchase Contracts" or "Contracts" means the contracts, and
all supplements thereto, providing for Uninterruptible, Short-term, Standby
Service or Special User Service with respect to water from the System to one or
more System Water Purchasers.
"Water Supply Plan Approval" means any approval by the Department of
the purchase of water from the System, whether in the form of a water supply
allocation permit, an interim approval of a
19
water supply plan submitted as may be required by the Department for a water
supply allocation permit, or otherwise.
Except where the context otherwise requires, words importing the
singular number shall include the plural number and vice versa, and words
importing persons shall include firms, associations, corporations, districts,
agencies and bodies. Any capitalized term used herein and not otherwise defined
shall have the meaning set forth in the Resolution.
SECTION 2. Water Service To Be Provided
A. The Authority shall supply and make available for delivery to the
Purchaser, on and after the date hereof, and the Purchaser shall be entitled to
utilize the following water service, subject to the other terms and conditions
of this Contract and the System Rules and Regulations:
(i)(a) Uninterruptible Service in the amount of 27 MGD, which
is the average amount of Uninterruptible Service permitted to be withdrawn
by the Purchaser subject to the provisions of Section 2(B) hereof;
(b) Overdraft Service of that number of MGD necessary to
meet Purchaser's diversionary needs in excess of Uninterruptible Service.
20
(ii) Short Term Service of that number of MGD which shall be
established by one or more separate agreements, which shall be
supplemental hereto and incorporated herein, between the Authority and the
Purchaser, entered into for such term as the Purchaser and the Authority
shall agree, with the number of MGD so established to be the maximum
amount of Short-term Service permitted to be withdrawn by the Purchaser in
any twenty-four (24) hour period during the period covered by such
separate and supplemental agreements except as otherwise limited by
Section 2B hereof;
B. Purchaser shall not withdraw water, in the aggregate for all
Uninterruptible Service provided hereunder, at rates greater than an average of
27 million gallons in any twenty-four (24) hour period; 822 million gallons per
month, which per minute, daily and monthly amounts shall be appropriately
adjusted to reflect fluctuations in water use; and an average of nine thousand,
eight hundred, and fifty-five (9,855) million gallons in any year from January
1, 2004 through November 30, 2023. The Purchaser shall immediately notify the
Authority of any such withdrawals in excess of said amount.
C. If the Authority determines that rationing the water derived from
the System is necessary by reason of drought
21
conditions or an emergency, it shall allocate all available water first to
providing Uninterruptible Service under all Water Purchase Contracts, without
any preference or priority, except that the Authority, in its sole discretion,
may exclude Water Purchase Contracts where an Event of Default has occurred and
is continuing, at the Authority's election, unless the Authority, in accordance
with applicable law or regulation, is otherwise directed or required to allocate
water in a specific manner, (i) pro rata, in accordance with the volume of water
available, to each System Water Purchaser of Uninterruptible Service provided in
all Water Purchase Contracts then in effect; or (ii) pro rata in accordance with
the volume of water actually provided each System Water Purchaser of
Uninterruptible Service pursuant to Water Purchase Contracts during the last
preceding Annual Payment Period in which rationing of water was not necessary;
or (iii) upon such other basis as shall be, in the judgment of the Authority,
appropriate to distribute fairly among all System Water Purchasers of
Uninterruptible Service pursuant to Water Purchase Contracts, the burden of such
rationing. In the event that rationing is to be imposed by reason of an
emergency for more than a seven-day period, the Authority shall consult with and
give appropriate effect to the recommendations, if any, of the Department.
22
D. If rationing is instituted, or if, other than as a result of an
Event of Default, the Authority does not provide to the Purchaser the amount of
water constituting Uninterruptible Service hereunder, or advises the Purchaser
that it will be unable to do so other than as a result of an Event of Default,
the Purchaser shall nevertheless at all times be required to pay for all water
from the System constituting Uninterruptible Service available for delivery to
the Purchaser.
E. If in the event of an emergency, the Purchaser is legally
restricted from purchasing all of the water constituting Uninterruptible Service
hereunder, the Purchaser shall only be required to pay for such water
constituting Uninterruptible Service as it is legally permitted to purchase (and
the Authority is able to supply) during the period of such emergency.
23
SECTION 3. System Water Quality.
A. The water to be supplied by the Authority hereunder shall be raw,
untreated water which the Authority shall supply to all System Water Purchasers
without distinction as to source or quality variations of the water supplied and
subject to the hazards inherent in natural streams. THE AUTHORITY MAKES NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, AS TO THE QUALITY OF ANY
WATER SUPPLIED OR THE CONDITION OF THE SYSTEM, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE. However, the Authority,
based upon water quality data supplied to it by any System Water Purchaser or
other water quality data which may be obtained by the Authority, will take all
reasonable measures to determine the source of water degradation and will
exercise all appropriate administrative and legal rights under applicable law to
compel the Department to assure that the stream water quality is in compliance
with applicable stream standards.
B. (1) In the event of contaminant discharges, spills or runoff to
the Authority's water supplies which constitute an emergency and require
immediate action to maintain the supply of water from the System, the Authority
will take immediate corrective
24
action either: (i) through requesting the appropriate agency to take such action
or, (ii) directly, by its own personnel and/or outside contractors, to contain
and, if necessary to remove such contaminants from the water supply, in the
Authority's sole discretion. In addition, to the extent it is legally able to do
so and it determines that such action is in the best interests of the Authority,
the Authority will seek to recover all costs and damages resulting from any such
incidents from the parties responsible.
(2) If the Authority and the Purchaser, at the request of the
Purchaser, agree that the quality of the water derived from the System is not of
sufficient quality to be treated by the Purchaser for the purposes for which
such water is to be used or there is any trend towards degradation of such water
as a result of contamination in the quality of water derived from the System,
the Authority and such Purchaser shall jointly (i) request the Department to
take appropriate action to implement corrective measures or (ii) take other
administrative or operational measures.
SECTION 4. Payment for Water Services
A. General. Purchaser agrees to make all payments for water services
available hereunder in the amounts, at the times and places and in the manner
provided herein subject to the Rate
25
Schedule and as modified from time to time, by the System Rules and Regulations.
B. Purchaser agrees to pay Seller a rate equal to one-hundred
percent of the total rate set forth in such Rate Schedule for Uninterruptible
Service (see Section 2(A)(i)(a)) as illustrated in the following formula:
Uninterruptible Service * # of days in the month * rate;
C. Purchaser agrees to pay Seller a Monthly Overdraft Rate equal to
one-hundred and twenty percent of the total rate set forth in said Rate Schedule
for Uninterruptible Service (see Section 2(A)(i)(a)) for average daily
diversions for any calendar month in excess of a Peaking Factor of ten-percent
of Uninterruptible Service as illustrated in the following formula: actual
monthly diversion in excess of 10% of Uninterruptible Service * 1.20 * rate *
days in the month;
D. Purchaser agrees to pay Seller an Annual Overdraft Rate equal to
one-hundred and fifteen percent of the total rate set forth in said Rate
Schedule for Uninterruptible Service (see Section 2(A)(i)(a)) for average daily
diversion for any calendar year in excess of Purchaser's Uninterruptible Service
as illustrated in the following formula: average daily diversion in excess of
Uninterruptible Service * 1.15 * rate * days in the year.
26
The annual overdraft period shall coincide with the calendar year;
E. Uninterruptible Service. Purchaser agrees to make Monthly Water
Payments for Uninterruptible Water Services no later than thirty (30) days from
the date of each billing by the Authority to the Purchaser. Except as
hereinafter provided, payments for Uninterruptible Service shall be based on the
number of days in each month, whether or not the Purchaser actually withdraws
the full amount of water available to it as Uninterruptible Service; provided,
however, that the Purchaser shall not be required to make payment for water that
the Authority does not make available to the Purchaser except where such
non-provision of water is as a result of an Event of Default. The Authority
shall notify the purchaser not later than thirty days prior to the beginning of
each Annual Payment Period of the amount of the Purchaser's Annual Payment for
Uninterruptible Service and the amounts of the Monthly Water Payments.
F. Short-term Service. Purchaser agrees to pay not later than thirty
(30) days from the date of each billing by the Authority to the Purchaser, the
charges for water actually consumed as Short-term Service in the immediate
preceding month.
G. Overdraft Payments. The Purchaser agrees to pay annually, the
charges for those diversions referenced in Sections
27
4(C) and 4(D) above. The monthly overdraft payment will be remitted in November
of the year in which the overdraft occurs. The annual overdraft payment will be
remitted in February of the year following the year in which the overdraft
occurred.
H. Retroactive Debt Service Payment. The Purchaser agrees to pay to
the Authority the following additional amounts:
i. An amount equal to two million, two hundred and forty-five
thousand, six hundred and seventeen dollars and twenty-four cents
($2,245,617.24), which sum represents the retroactive payment of a full
proportionate share of the total annual payments of Debt Service for the 1958,
1969, and 1981 bonds made to the Authority by other purchasers of water from the
System during the periods from July 1, 1983 through June 30, 1988 (1958 bonds),
from July 1, 1988 through June 30, 2002 (1969 bonds) and from October 1, 1985
through December 31, 2003 (1981 bonds), for that certain 7 MGD of water
initially contracted for purchase by the Purchaser commencing on January 1,
2004. Purchaser shall receive a credit of three hundred two thousand, nine
hundred fifteen dollars and eighty-four cents ($302,915.84), representing the
total retroactive debt paid by Purchaser associated with 7 mgd of unsold water
as a prior system customer since 1983. Purchaser's adjusted retroactive debt
payment for the 1958, 1969, and 1981 bonds shall be one
28
million, nine hundred and forty-two thousand, seven hundred and one dollars, and
forty cents ($1,942,701.40). Said payment is to be made on the first day of each
month in 238 equal monthly installments of eight thousand, one hundred and
twenty-eight dollars, and forty-six cents ($8,128.46) commencing March 1, 2004
and continuing through December 1, 2023 and one final payment of eight thousand,
one hundred and twenty-seven dollars, and ninety-two cents ($8,127.92) payable
on January 1, 2024; and
ii. An amount equal to one million, two hundred and eighty-seven
thousand, nine hundred and thirty-eight dollars and thirty-eight cents
($1,287,900.38), which sum represents the retroactive payment of a full
proportionate share of the total annual Debt Service payments for the 1988 Water
System Revenue Bonds made to the Authority by other purchasers of water from the
System during the period from July 1, 1989 through June 30, 1998 for that
certain 7 MGD of water initially contracted for purchase by the Purchaser
commencing on January 1, 2004. Purchaser shall receive a credit of one hundred
seventy-one thousand, nine hundred and forty-three dollars, and fifty-eight
cents ($171,943.58), representing the total retroactive debt paid by Purchaser
associated with 7 MGD of unsold water as a prior system customer since 1983.
Purchaser's adjusted retroactive debt payment for the
29
1988 bond issue shall be one million, one hundred fifteen thousand, nine hundred
and fifty-six dollars and eighty cents. ($1,115,956.80). Said payments are to be
made on the first day of each month in 238 equal monthly installments of four
thousand, six hundred and sixty-nine dollars and twenty-eight cents ($4,669.28)
commencing March 1, 2004 and continuing through December 1, 2023, and one final
payment of four thousand, six hundred and sixty-eight dollars and sixteen cents
($4,668.16) payable on January 1, 2024; and
iii. An amount equal to five hundred and forty-four thousand,
eighty-four dollars and twenty-five cents ($544,084.25), which sum represents
the retroactive payment of a full proportionate share of the total annual
payments of Debt Service for the 1998 Water Surplus Revenue Refunding Bonds made
to the Authority by other purchasers of water from the System during the period
from July 1, 1999 through December 31, 2003 for that certain 7 MGD of water
initially contracted for purchase by the Purchaser commencing on January 1,
2004. Purchaser shall receive a credit of seventy-two thousand, six hundred and
thirty-nine dollars $72,639.00), representing the total retroactive debt paid by
Purchaser associated with 7 MGD of unsold water as a prior system customer since
1983. Purchaser's adjusted retroactive debt payment
30
for the 1998 bond issue shall be four hundred and seventy-one thousand, four
hundred and forty-five dollars and twenty-five cents ($471,445.25). Said
payments are to be made on the first day of each month in 238 equal monthly
installments of one thousand, nine hundred and seventy-two dollars and
fifty-seven cents ($1,972.57) commencing March 1, 2004 and continuing through
December 1, 2023, and one final payment of one thousand, nine hundred and
seventy-two dollars and fifty-seven cents ($1,972.57) payable on January 1,
2024.
I. Production Factor Payments. The Rate Schedule and System Rules
provide that for a depletive diversion at any location above the confluence of
the Millstone and Raritan Rivers, the Total Daily Allotment Charge shall be
multiplied by the Production Factor, which is equal to System Safe Yield at the
point of delivery. The Purchaser agrees to a Production Factor of 1.000 for its
diversion and to pay the dollar equivalent to the Authority in Purchaser's
Monthly Water Payments for Uninterruptible Water Services.
J. Absolute Obligation. Purchaser's obligations hereunder to pay for
water in the manner set forth in this Contract shall be absolute and
unconditional, and shall not be affected by any failure by the Authority to
perform its obligations hereunder,
31
other than a failure by the Authority to supply water constituting
Uninterruptible Service (in which event, as herein provided, Purchaser shall be
unconditionally obligated to pay for the water available for taking), except as
a result of an Event of Default, or be subject to any other defense or to any
reduction, whether by offset, counterclaim or otherwise, except for any
reductions or credits provided for herein, in the Rate Schedule or in the System
Rules and Regulations.
K. Overdue Payments. All payments for service which are not made by
the due date therefore and any other sums required to be paid by the Purchaser
to the Authority pursuant to this Contract shall bear interest at a per annum
rate equal to the prime rate, as from time to time established by Chase
Manhattan Bank as its prime rate (with any changes in such prime rate to be
effective on any date that such rate is changed) plus 2%, such interest to be
calculated from the due date of any required payment until actual payment
thereof.
L. Rate Adjustments and Procedures. The Authority reserves the right
from time to time to adopt adjustments to the Rate Schedule and to the System
Rules and Regulations in accordance with applicable laws and regulations. If as
a result of any such adjustments the payments for service hereunder are adjusted
by the
32
Authority, the Authority shall notify the Purchaser of the adjustments and of
any revised schedule of Monthly Water Payments required to reflect such
adjustments and the same shall, without any further act of the Authority or the
Purchaser, constitute an amendment to this Contract.
SECTION 5. Delivery and Withdrawal of Water.
A. All water shall be withdrawn from the System at the Purchaser's
sole cost and expense. Title to all water supplied from the System shall be in
the Authority to the Point of Delivery, at which point title shall vest in the
Purchaser upon its withdrawal of such water.
B. The Authority hereby grants to the Purchaser for the term of this
Contract a right which shall permit access to Purchaser and its designated
representatives upon and over the System as may be necessary, at Purchaser's
sole cost and expense, to install and construct at the Point of Delivery, and to
replace, repair, operate and maintain, Purchaser's Interconnection System.
C. The Purchaser shall not install or construct nor make any
material alterations in Purchaser's Interconnection System without the prior
written approval of the Authority. Purchaser shall submit engineering plans
therefore to the Authority for its
33
review and approval.
D. The Authority or its designated representatives shall have the
right at any time to examine Purchaser's Interconnection System from the Point
of Diversion to and including the flow meter or measuring devices (hereafter
"flow meters"). The Authority shall comply with all reasonable security
protocols developed by Purchaser in conducting its inspections. The Purchaser
shall, at its sole cost and expense, within ten (10) days (or such longer period
as may be required by law) after receipt of written demand from the Authority,
make such modifications or repairs to Purchaser's Interconnection System from
the Point of Diversion to and including the flow meters as, in the opinion of
the Authority, may be required to eliminate leakage of water from, or potential
damage to the System. If Purchaser should fail to make such modifications or
repairs, the Authority may do so and the Purchaser agrees to reimburse the
Authority on demand for the Authority's cost therefore.
E. The Purchaser shall purchase or construct, install, operate,
maintain and repair, as a part of Purchaser's Interconnection System, at its
sole cost and expense and in a manner which the Authority determines to be in
accordance with Prudent Water Supply Practices, automated flow meters at the
34
point(s) of diversion that electronically transmit daily diversionary flow
information to the Seller, of the type and at location(s) approved by the
Authority. The Purchaser shall have such flow meters tested for accuracy at its
own sole cost and expense by a testing firm approved by the Authority (i) at
least once during each Fiscal Year; (ii) following meter repairs; and (iii) at
such other times as the Authority may reasonably request. Each test shall be
evidenced by a certified report, which Purchaser will cause such testing firm to
furnish to the Authority.
F. Monthly meter readings of water shall be taken by the Purchaser
on the last day of each month, or if such last day falls on Sunday or legal
holiday, on the first working day thereafter. The Purchaser shall keep a daily
record of flow rates and cumulative daily water withdrawal totals and shall
submit to the Authority, not later than the tenth (10th) business day of each
month, copies of such records for the preceding month. The Authority or its
designated representatives shall have the right at any time to examine the flow
meters or other measuring device, and any repairs or replacements made to such
flow meter or other measuring device. Purchaser shall submit written
certifications with its monthly meter readings.
G. The Purchaser agrees to indemnify, defend and hold
35
harmless the Authority from and against all claims, damages or losses suffered,
sustained or required to be paid by the Authority, arising from any act or
omission of the Purchaser, its officers, agents, representatives or employees,
in connection with Purchaser's Interconnection System, the operation thereof, or
any activities carried out by the Purchaser, its officers, employees, agents or
representatives, on the premises of, or with respect to, the System, or with
respect to any of the services which are the subject of this Contract.
H. The Authority, subject to the provisions of the New Jersey Tort
Claims Act, shall be responsible and shall at its own expense, defend itself
against any and all suits, claims, losses, demands or damages of whatsoever kind
or nature, arising out of or in connection with any act or omission of the
Authority, its employees, agents or contractors, in performance of the
obligations assumed by the Authority pursuant to this Agreement. The Authority
hereby releases the Purchaser from any and all liabilities, claims, losses,
costs, expenses and demands of any kind or nature whatsoever, arising under the
state or federal law, solely out of or in connection with the Authority's
performance of the obligations assumed by the Authority pursuant to this
Agreement.
I. In the event that any of the flow meters
36
required to be maintained by the Purchaser shall fail to properly operate, the
Authority may make necessary estimates of or adjustments in accordance with the
System Rules and Regulations, to the amounts of water withdrawn by the Purchaser
and to be charged by the Authority to the Purchaser for any period during which
such failure exists and continues. The Purchaser agrees that at the request of
the Authority it will repair or replace such meters, at its sole cost and
expense. If the Purchaser fails to repair or replace the meters within 60 days
following notice from the Authority, the Authority, may suspend the withdrawal
of water by the Purchaser until such time as the meter is repaired or replaced;
provided, however, that the Purchaser shall be required to continue to honor its
payment obligations for water pursuant to this Contract during the period of
such suspension, as if such suspension had not occurred.
SECTION 6. Force Majeure.
If by reason of Force Majeure either the Authority or Purchaser
shall be rendered unable to satisfy its obligations under this Contract, in
whole or in part, and shall give notice and all of the particulars of such Force
Majeure in writing to the other such party hereto within a reasonable time after
the occurrence of the event or cause relied on, then the obligation of the party
37
giving such notice, to the extent affected by such Force Majeure, shall be
suspended during the continuance of such inability; provided, however, that the
existence of Force Majeure shall in no event affect the obligation of the
Purchaser to make the Monthly Water Payments and other payments required under
this Contract, but if less than the amount of water required to be supplied
hereunder is supplied or available for supply, nothing in this Section 6 shall
require the Purchaser to make payment for water other than in an amount equal to
the greater of (i) the water actually supplied or (ii) the water available for
supply by the Authority. Either party so affected shall use its best efforts to
remove or overcome such Force Majeure as quickly as is practicable.
SECTION 7. Term of Contract.
A. This Contract shall commence on January 1, 2004 and shall
continue until November 30, 2023 unless previously terminated as provided herein
as a result of an Event of Default, or extended as provided in Section 7B
hereof.
B. If the Purchaser desires to continue the withdrawal of water from
the System, contracted for pursuant to this Contract, beyond the date set forth
in Section 7A hereof, the Purchaser shall submit to the Authority notification
of intent to renew not less
38
than 90 days prior to such date.
C. If the Purchaser has not submitted a notification of intent to
renew as provided in Section 7B hereof, the Authority shall notify the Purchaser
of the expiration date of the Contract. If, after such notification by the
Authority, the Purchaser continues withdrawal of water, the charge for such
withdrawal shall be twice the rate per million gallons as is specified in the
Rate Schedule then in effect.
D. Within ninety (90) days after termination of this Contract, the
Purchaser shall remove from the System Purchaser's Interconnection System and
any other facilities installed by Purchaser on the System, shall restore the
System to its former condition as nearly as may be practicable and in a manner
satisfactory to the Authority and shall release and re-convey the rights granted
pursuant to Section 5B hereof. If Purchaser shall fail to remove and restore as
aforesaid, the Authority may make such removal and restoration at the sole cost
and expense of the Purchaser, which cost and expense shall be paid by the
Purchaser to the Authority on demand. The Authority further reserves the right
to remove and sell Purchaser's Interconnection System and other facilities to
the extent it deems appropriate.
39
SECTION 8. Insurance
A. Authority Insurance. The Authority shall use reasonable
commercial efforts to purchase and carry fire, casualty, public liability and
other insurance on the System, or to otherwise establish and fund its own
self-insurance program or participate in any State-administered pooled risk or
self-insurance program, for purposes and in amounts which ordinarily would be
carried or funded by a person or entity owing and maintaining facilities similar
to the System.
B. Purchaser Insurance. The Purchaser shall use reasonable
commercial efforts to purchase and carry fire, casualty, public liability, and
business interruption insurance covering Purchaser's business operations, unless
Purchaser is not legally able to maintain business interruption insurance, and
shall purchase and carry insurance covering Purchaser's obligations pursuant to
Section 5G hereof. All policies of insurance shall be written by insurance
companies authorized to do business in the State and shall provide that no
change of coverage shall be effected unless at least thirty (30) days' prior
notice is given to the Authority. Certified copies of all replacement policies
shall be delivered to the Authority not less than thirty (30) days prior to the
expiration of any coverage. The "Authority" shall be named
40
as an "Additional Insured" on all public liability insurance policies maintained
by the Purchaser for Purchaser's Interconnection System and any other facilities
of the Purchaser located on the System, on all business interruption insurance
and all insurance covering Purchaser's obligations pursuant to Section 5G
hereof. The proceeds of business interruption insurance shall be payable
directly to the Authority to the extent of the Purchaser's obligations to
purchase water hereunder.
SECTION 9. Covenants, Representations, and Warrants
A. The Authority shall continuously operate and maintain the System
in an efficient manner in accordance with Prudent Water Supply Practices. The
Authority shall have no liability in the event that the water, which is actually
available to the System is insufficient to permit the Authority to comply with
its obligations hereunder.
B. The Authority shall not enter into any Water Purchase Contract
which would result in (i) Uninterruptible Service called for under all Water
Purchase Contracts to exceed the Maximum Dependable or Safe Yield or (ii) the
water supply called for under all contracts or commitments for water of the
System to exceed the maximum output capacity of the System.
C. The Authority represents and warrants that it has all
41
licenses and permits presently obtainable from any federal, state or local
governmental authority required in order to enter into this Contract and to
provide water to Purchaser as herein set forth.
D. The Authority shall exercise reasonable efforts to execute
Contracts, similar in form and content to this Contract, with all other users of
the System; provided, however, that notwithstanding the foregoing, the Authority
may (i) enter into Contracts for durations other than the term of this Contract
and (ii) enter into Contracts, containing terms which may be inconsistent with
the terms of this Contract, if the Authority determines it to be necessary in
connection with the operation of the System so long as such Contracts do not
increase the Purchaser's obligations hereunder for Debt Service unless the
Purchaser is benefited as a result of the provisions of such Contract. All
Contracts entered into by the Authority shall contain rates and charges for
water as are set forth in the Rate Schedule then in effect.
E. The Purchaser represents and warrants that it has all licenses
and permits from any federal, state or local governmental authority required in
order to enter into this Contract, to divert water from the System in accordance
therewith and to operate the
42
Purchaser's Interconnection System.
F. The Purchaser covenants to (i) maintain in good operating order
and repair the Purchaser's Interconnection System; (ii) charge and collect
taxes, fees and other charges to its residents and customers which, from time to
time together with other funds available to the Purchaser, are reasonably
estimated to be required by the Purchaser to make the payments to the Authority
which are required pursuant to this Contract.
SECTION 10. Events of Default.
Any of the following shall constitute an Event of Default:
If the Purchaser shall (i) fail to make any payment due under this
Contract for a period of more than 15 days after any such payment is due or (ii)
shall fail or be unable to perform, or shall default in the performance of, any
of its obligations under this Contract, and such failure, inability or default
in performance is (A) willful or (B) remains uncured for more than 30 days after
notice thereof is given by the Authority to Purchaser; provided however, that if
such failure, inability or default in performance is incapable of being cured
within such 30 day period, the same shall not constitute an Event of Default so
long as
43
Purchaser commences to cure such failure, inability or default in performance
within such 30 day period and diligently and continuously proceeds to cure the
same.
If an Event of Default has occurred, then the Authority may, without
further notice, take any one or more of the following actions:
(a) Discontinue the supply and delivery of water under this
Contract, including disconnecting Purchaser's Interconnection System from
the System during the period of such default, without altering the
obligation of the Purchaser to make Monthly Water Payments or any other
payment required by the terms of this Contract;
(b) Bring any suit, action or proceeding at law or in equity
necessary or appropriate to enforce any covenant, agreement or obligation
against the Purchaser.
(c) Take any other action permitted by law or equity to enforce its
rights under this Contract and to recover damages for breach thereof, or
(d) Terminate this contract.
SECTION 11. Payments and Notice.
Unless otherwise provided herein, any payment, notice,
44
communication, request, reply or advice herein provided or permitted to be
given, made or accepted by the Authority or the Purchaser to each other shall be
given or be served either by depositing the same in the United States mail
postpaid and registered or certified and addressed to the party to be notified,
with return receipt requested, or by delivering the same to an officer of such
party, or by prepaid telegram when appropriate, addressed to the party to be
notified. Notice deposited in the mail in the manner hereinabove described shall
be conclusively deemed to be effective, unless otherwise stated herein, from and
after the expiration of three days after it is so deposited. Notice given in any
other manner shall be effective only if and when received by the party to be so
notified. For the purposes of notice, the addresses of the Authority and
Purchaser shall, until changed as hereinafter provided, be as follows:
If to the Authority:
New Jersey Water Supply Authority
1851 State Highway 31
Post Office Box 5196
Clinton, New Jersey 08809
Attention: Executive Director
If to the Purchaser:
Middlesex Water Company
1500 Ronson Road
45
P.O. Box 1500
Iselin, NJ 08830-0452
The Authority and Purchaser shall have the right from time to time and at any
time to change their respective addresses by at least fifteen (15) days' written
notice to the other party hereto given in the manner hereinabove set forth.
SECTION 12. Severability.
In the event that any one or more of the provisions of this Contract
shall for any reason be held to be illegal or invalid by a court of competent
jurisdiction, it is the intention of each of the parties hereto that such
illegality or invalidity shall not affect any other provision hereof, but this
Contract shall be construed and enforced as if such illegal or invalid provision
had never been contained herein.
SECTION 13. Incorporation of Rate Schedule and System Rules and
Regulations.
The Rate Schedule and the System Rules and Regulations are hereby
incorporated herein by reference as fully as if herein set forth and all of the
terms and provisions of such Rate Schedule and System Rules and Regulations
shall be part of this Contract and shall be binding upon the Purchaser.
46
SECTION 14. Calculations of the Authority.
All meter readings to the extent made by the Authority and all
calculations made by the Authority of amounts due by a Purchaser pursuant to
this Contract, whether based upon meter readings or estimates by the Authority
or meter readings by the Purchaser, shall be valid and binding upon the
Purchaser absent manifest error by the Authority.
SECTION 15. Termination of Existing Contract.
Except (i) for amounts which may presently be due pursuant to the
terms thereof and (ii) as is specifically set forth in this Section 15, this
Contract supercedes the Existing Contract being specifically RBS-2 which is
deemed by the parties hereto to be terminated.
SECTION 16. Binding Effect.
This Contract, when executed and delivered by the parties hereto,
shall be a valid and binding agreement, which shall be governed by and construed
in accordance with the laws of the State. Neither party hereto may assign its
rights or obligations hereunder without the consent of the other party.
47
IN WITNESS WHEREOF, the Authority and the Purchaser have caused this
Contract to be duly executed the date and year above first written.
(Authority Seal)
ATTEST: NEW JERSEY WATER SUPPLY AUTHORITY
By:
- ------------------------ ------------------------------
Thomas G. Baxter, P.E.
Henry S. Patterson III
Executive Director
(Purchaser Seal)
ATTEST: MIDDLESEX WATER COMPANY
s/ MF Reynolds By: s/ Dennis G. Sullivan
- ----------------------- ---------------------
Secretary President
Reviewed and Approved As to Form Only:
Peter C. Harvey
Attorney General for New Jersey
By:
------------------------
Helene P. Chudzik
48
Deputy Attorney General
49
Exhibit 10.13(D)
CHANGE IN CONTROL TERMINATION AGREEMENT
This Change in Control Termination Agreement (the "Agreement") is entered
into as of July 15, 2003, between Middlesex Water Company, a New Jersey
corporation, with its principal place of business located at 1500 Ronson Road,
P.O. Box 1500, Iselin, New Jersey 08830-0452, (the "Company"), and Richard M.
Risoldi, residing at 11 Lohli Drive, Hamilton Square, New Jersey 08690,
(referred to as "You" in this Agreement).
Recitals
A. The Company considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel. In this
connection, the Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held Companies, the possibility of a Change In
Control may exist. This possibility, and the uncertainty and questions that it
may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.
B. The Board has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of the Company's
management, including yourself, to the assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change In Control of the Company.
C. To induce you to remain in the employ of the Company, and in consideration of
your agreement set forth below, the Company agrees that you shall receive the
severance benefits set forth in this Agreement in the event your employment with
the Company is terminated or "constructively terminated" as defined herein in
connection with a "Change In Control of the Company" (as defined in Section 2
below) under the circumstances described below. This Agreement is meant to
supersede any other specific written agreements that may have been entered into
between yourself and the Company concerning termination of employment.
Therefore, in consideration of your continued employment and the parties'
agreement to be bound by the terms contained in this Agreement, the parties
agree as follows:
1. Term of Agreement. This Agreement shall commence as of July 15, 2003
and shall continue in effect through December 31, 2004. However, commencing on
December 31, 2004, and each December 31 afterwards, the term of this Agreement
shall automatically be extended for 1 additional year unless, no later than the
preceding November 1, the Company shall have given notice that it
-1-
does not wish to extend this Agreement. Notwithstanding the foregoing, if a
Change In Control of the Company shall be proposed to occur or have occurred
during the original or any extended term of this Agreement, this Agreement shall
continue in effect until your termination of employment with the Company or its
successor or when all amounts due under this Agreement following a termination
have been paid, whichever is later.
2. Change In Control. No benefits shall be payable under this Agreement
unless there shall have been a Change In Control of the Company, as set forth
below. For purposes of this Agreement, a "Change In Control" of the Company
shall be deemed to occur if any party or group acquires beneficial ownership of
25 percent or more of the voting shares of the Company; or if shareholder
approval is required for a transaction involving the acquisition of the Company
through the purchase or exchange of the stock or assets of the Company by merger
or otherwise; or if one-third or more of the Board elected in a 12-month period
or less are so elected without the approval of a majority of the Board as
constituted at the beginning of such period; or a liquidation or dissolution of
Company.
3. Termination Following Change In Control. If any of the events described
in Section 2 above constituting a Change In Control of the Company shall have
occurred, unless the termination is (A) because of your death, Disability or
Retirement, (B) by the Company for Cause, or (C) by you other than for Good
Reason, on the subsequent termination or "Constructive Termination" of your
employment during the term of this Agreement: (i) you shall be entitled to the
benefits provided in subsection 4.3 below if such termination occurs on or
before the third anniversary of the Change in Control or (ii) you shall be
entitled to the benefits provided in subsection 4.4 below if such termination
occurs after the third anniversary of the Change in Control.
3.1 Disability; Retirement. If, as a result of your incapacity due
to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for 6 consecutive months, and within
30 days after written notice of termination is given you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability." Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
3.2 Cause. Termination by the Company of your employment for "Cause"
shall mean termination on:
3.2.1 The willful and continued failure by you to substantially
perform your duties with the Company as such employment was
-2-
performed by you prior to the Change of Control (other than any such
failure resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance
by you of a Notice of Termination for Good Reason as defined in
Subsections 3.4 and 3.3, respectively) after a written demand for
substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties; or
3.2.2 The willful act by you in conduct that is demonstrably and
materially injurious to the Company, and which the Board deems to
cause or will cause substantial economic damage to the Company or
injury to the business reputation of the Company, monetarily or
otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without a reasonable belief
that your action or omission was in the best interest of the
Company. Notwithstanding the foregoing, you shall not be deemed to
have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an opportunity
for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses 3.2.1 or 3.2.2 of the first
sentence of this Subsection and specifying the particulars in
detail.
3.3 Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence in connection with a Change
In Control of the Company of any of the following circumstances unless, in the
case of paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or 3.3.8, the circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as defined in Subsections 3.5 and 3.4, respectively, given in
respect of them. If you have Good Reason for your termination you shall be
considered to have been "Constructively Terminated" by the Company under the
following circumstances:
3.3.1 The assignment to you of any duties inconsistent with your
status and position (i) prior to the Change In Control where such
change is a direct result of any pending Change in Control; or (ii)
as such status exists immediately prior to the Change In Control of
the Company, or (iii) a substantial adverse alteration in the nature
or
-3-
status of your responsibilities from those in effect immediately
prior to the Change In Control of the Company whichever is
applicable;
3.3.2 A reduction by the Company in your annual base salary as in
effect on this date or as the same may be increased from time to
time irrespective of future Company policies including any
across-the-board salary reductions similarly affecting all key
employees of the Company;
3.3.3 Your relocation, without your consent, to a location not
within twenty-five (25) miles of your present office or job
location, except for required travel on the Company's business to an
extent substantially consistent with your present business travel
obligations;
3.3.4 The failure by the Company, without your consent, to pay to
you any part of your current compensation, or to pay to you any part
of an installment of deferred compensation under any deferred
compensation program of the Company, within fourteen (14) days of
the date the compensation is due;
3.3.5 The failure by the Company to continue in effect any bonus to
which you were entitled, or any compensation plan in which you
participate (i) prior to the Change in Control where such change is
a direct result of any pending Change In Control, or (ii)
immediately prior to the Change In Control of the Company that is
material to your total compensation, including but not limited to
the Company's Restricted Stock Plan, 401(k) Plan, and Benefit Plans,
or any substitute plans adopted prior to the Change In Control of
the Company, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to the
plan, or the failure by the Company to continue your participation
in it (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change In Control;
3.3.6 The failure by the Company to continue to provide you with (i)
benefits substantially similar to those enjoyed by you under any of
the Company's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change In Control of the Company was in effect for the employees of
the Company generally at the time of the Change In Control, (ii) the
failure to continue to provide you with a Company automobile or
allowance in lieu of it at the time of the Change In Control of the
Company, (iii) the taking of any action by the Company that would
-4-
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the
time of the Change In Control of the Company, or (iv) the failure by
the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change In Control of the Company;
3.3.7 The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 of this Agreement; or
3.3.8 Any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection 3.4 below (and, if applicable, the
requirements of Subsection 3.2 above); for purposes of this
Agreement, no such purported termination shall be effective.
3.4 Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party to this Agreement in accordance with Section 6 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied on, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated. Your rights to terminate your employment
pursuant to this Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason under this Agreement. In the event you deliver Notice of Termination
based on circumstances set forth in Paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or
3.3.8 above, which are fully corrected prior to the Date of Termination set
forth in your Notice of Termination, the Notice of Termination shall be deemed
withdrawn and of no further force or effect.
3.5 Date of Termination, Etc. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsection 3.2 or 3.3 above or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3.2
above shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3.3 above shall not be less than 15 nor more than 60 days,
respectively, from the date the Notice of Termination is given). However, if
within 15 days after any Notice
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of Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this provision), the party receiving the Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order, or decree of a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal has expired and no appeal has been perfected). The Date of
Termination shall be extended by a notice of dispute only if the notice is given
in good faith and the party giving the notice pursues the resolution of the
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, benefit,
and insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. Compensation on Termination or During Disability. Following a Change In
Control of the Company, as defined by Section 2, on termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
4.1 During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all amounts payable to you under
any compensation plan of the Company during the period, until this Agreement is
terminated pursuant to section 3.1 above. Thereafter, or in the event your
employment shall be terminated by the Company or by you for Retirement, or by
reason of your death, your benefits shall be determined under the Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of those programs.
4.2 If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, Disability, death, or Retirement, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which you are entitled under any compensation plan of
the Company at the time the payments are due. The Company shall have no
obligations to you under this Agreement.
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4.3 On or before the third anniversary of the Change In Control, if
your employment by the Company shall be terminated (a) by the Company other than
for Cause, Retirement or Disability, or (b) by you for Good Reason (as defined
in Section 3.3 herein), then you shall be entitled to the benefits provided
below:
4.3.1 The Company shall pay you your full salary through the Date of
Termination at the rate in effect at the time notice of Termination
is given, plus all other amounts and benefits to which you are
entitled under any compensation plan of the Company, at the time the
payments are due, except as otherwise provided below.
4.3.2 In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you,
as severance pay the following: (i) a lump sum severance payment
equal to three (3) times the average of your Compensation for the
five (5) years prior to the occurrence of the circumstance giving
rise to the notice of Termination, plus (ii) the amounts in the
forms set forth in paragraphs 4.3.3, 4.3.4 and 4.3.5 (the "Severance
Payments"). In addition to the Severance Payments, the Company shall
pay to you an additional amount equal to the amount of the Excise
Tax, if any, that is due or determined to be due under Section 4999
of the Internal Revenue Code of 1986, as amended, resulting from the
Severance Payments or any other payments under this Agreement or any
other agreement between you and the Company and an amount sufficient
to pay the taxes on any such Excise Taxes (the "Gross-up").
4.3.3 The Company shall continue coverage for you and your
dependents under any health or welfare benefit plan under which you
and your dependents were participating prior to the Change in
Control for a period ending on the earlier to occur of (i) the date
you become covered by a new employer's health and welfare benefit
plan, (ii) the date you become covered by Medicare, or (iii) the
date which is thirty-six (36) months from the date of Termination.
The coverage for your dependents shall end earlier than (i), (ii) or
(iii) if required by the health or welfare benefit plan due to age
eligibility.
4.3.4 The Company shall pay to you any deferred compensation,
including, but not limited to deferred bonuses, allocated or
credited to you or your account as of the Date of Termination.
4.3.5 Outstanding stock options or Restricted Stock grants, if any,
granted to you under the Company's Stock Plans which are not vested
on Termination shall immediately vest.
-7-
4.3.6 Where you shall prevail in any such action, the Company shall
also pay to you all legal and accounting fees and expenses incurred
by you as a result of the termination (including all such fees and
expenses incurred by you as a result of the termination (including
all such fees and expenses, if any, incurred in contesting or
disputing any termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Code Section 4999 to any payment or benefit provided
under this Agreement) or any other agreement with the Company.
4.3.7 The amount of Severance Payments and any Gross-up due to you
under this or any other relevant agreement with the Company shall be
determined by a third party agreed to by you and the Company. If you
cannot agree on a third party, then both third parties shall
determine the amounts due under this Agreement. If the third parties
do not agree on the amount to be paid to you, then either party may
submit the calculation of the amounts which are in dispute to
Arbitration in accordance with this Agreement. The payments provided
for in Paragraphs 4.3.2, 4.3.4 and 4.3.5 above, shall be made no
later than the thirtieth (30th) day following the Date of
Termination. However, if the amounts of the payments cannot be
finally determined on or before that day, the Company shall pay to
you on that day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of those payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
can be determined but in no event later than the 30th day after the
Date of Termination. In the event that the amount of the estimate
payments exceeds the amount subsequently determined to have been
due, the excess shall constitute a loan by the Company to you
payable on the 30th day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
4.4 After the third anniversary of the Change In Control, if your
employment by the Company shall be terminated (a) by the Company other than for
Cause, Retirement or Disability, or (b) by you for Good Reason (as defined in
Section 3.3 herein), then you shall be entitled to the benefits provided in
Section 4.3 above and as otherwise provided under this Agreement except that sub
paragraph 4.3.2(i) shall read: (i) a lump sum severance payment equal to one and
one half (1.5) times the average of your Compensation for the five (5) years
prior to the occurrence of the circumstance giving rise to the notice of
Termination (the "Termination Payment").
-8-
4.5 For purposes of this Agreement, "Compensation" shall mean the
aggregate remuneration paid by the Company to you during a calendar year,
including bonuses, awards under the Company's Restricted Stock Plan, benefits
under employee benefit plans, automobile allowances or any fees paid to you as
remuneration for serving as a Director of the Company.
4.6 You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise except as specifically provided in this
Section 4.
4.7 In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all qualified benefits payable to
you under the Company's 401(k) Plan, Defined Benefit Plan and any other plan or
agreement relating to retirement benefits in accordance with the terms of those
plans.
5. Successors; Binding Agreement.
5.1 The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain the assumption and agreement
prior to the effectiveness of any succession shall be a breach of this agreement
and shall entitle you to compensation from the Company in the same amount and on
the same terms as you would have been entitled to under this Agreement if you
had terminated your employment for Good Reason following a Change In Control of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
5.2 This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators, heirs,
distributees, and legatees. If you should die while any amount would still be
payable to you if you had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in accordance with the terms of this
Agreement to your legatee or other designee or, if there is no such designee, to
your estate.
-9-
6. Notice. For the purpose of this Agreement, all notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance this Agreement, except that notice of a change of address shall be
effective only on receipt.
7. Miscellaneous
7.1 No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board.
7.2 No waiver by either party to this Agreement at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
7.3 No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Agreement have been made by
either party that are not expressly set forth in this Agreement.
7.4 Nothing in this Agreement is intended to reduce any benefits
payable to you under any other agreement you may have with the Company or in any
Company plan in which you may participate.
7.5 The validity, interpretation, construction, and performance of
this Agreement shall be governed by the law of New Jersey without reference to
its conflict of laws principals.
7.6 All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for shall be paid net of any applicable withholding or
deduction required under federal, state or local law.
7.7 The obligations of the Company under Section 4 shall survive the
expiration of the term of this Agreement.
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8. Validity. The validity or enforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in New Jersey in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek specific performance of
your right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection this Agreement.
11. Entire Agreement. This Agreement sets forth the entire understanding
of the parties with respect to its subject matter and supersedes all prior
written or oral agreements or understandings with respect to the subject matter.
In witness whereof, the parties have executed this agreement as of the day
and year first above written.
MIDDLESEX WATER COMPANY
By: /s/ Dennis G. Sullivan
-------------------------------
Dennis G. Sullivan
President
ATTEST:
/s/ MF Reynolds
- -----------------------------
Marion F. Reynolds
Vice President
Secretary and Treasurer
/s/ Richard M. Risoldi
-------------------------------
Richard M. Risoldi
(KJQ\Change in Control-Risoldi)
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Exhibit 10.13(E)
CHANGE IN CONTROL TERMINATION AGREEMENT
This Change in Control Termination Agreement (the "Agreement") is entered
into as of July 15, 2003, between Middlesex Water Company, a New Jersey
corporation, with its principal place of business located at 1500 Ronson Road,
P.O. Box 1500, Iselin, New Jersey 08830-0452, (the "Company"), and Kenneth J.
Quinn, residing at 224 Stonehurst Boulevard, Freehold, New Jersey 07728,
(referred to as "You" in this Agreement).
Recitals
A. The Company considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel. In this
connection, the Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held Companies, the possibility of a Change In
Control may exist. This possibility, and the uncertainty and questions that it
may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.
B. The Board has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of the Company's
management, including yourself, to the assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change In Control of the Company.
C. To induce you to remain in the employ of the Company, and in consideration of
your agreement set forth below, the Company agrees that you shall receive the
severance benefits set forth in this Agreement in the event your employment with
the Company is terminated or "constructively terminated" as defined herein in
connection with a "Change In Control of the Company" (as defined in Section 2
below) under the circumstances described below. This Agreement is meant to
supersede any other specific written agreements that may have been entered into
between yourself and the Company concerning termination of employment.
Therefore, in consideration of your continued employment and the parties'
agreement to be bound by the terms contained in this Agreement, the parties
agree as follows:
1. Term of Agreement. This Agreement shall commence as of July 15, 2003
and shall continue in effect through December 31, 2004. However, commencing on
December 31, 2004, and each December 31 afterwards, the term of this Agreement
shall automatically be extended for 1 additional year unless, no later than the
preceding November 1, the Company shall have given notice that it
-1-
does not wish to extend this Agreement. Notwithstanding the foregoing, if a
Change In Control of the Company shall be proposed to occur or have occurred
during the original or any extended term of this Agreement, this Agreement shall
continue in effect until your termination of employment with the Company or its
successor or when all amounts due under this Agreement following a termination
have been paid, whichever is later.
2. Change In Control. No benefits shall be payable under this Agreement
unless there shall have been a Change In Control of the Company, as set forth
below. For purposes of this Agreement, a "Change In Control" of the Company
shall be deemed to occur if any party or group acquires beneficial ownership of
25 percent or more of the voting shares of the Company; or if shareholder
approval is required for a transaction involving the acquisition of the Company
through the purchase or exchange of the stock or assets of the Company by merger
or otherwise; or if one-third or more of the Board elected in a 12-month period
or less are so elected without the approval of a majority of the Board as
constituted at the beginning of such period; or a liquidation or dissolution of
Company.
3. Termination Following Change In Control. If any of the events described
in Section 2 above constituting a Change In Control of the Company shall have
occurred, unless the termination is (A) because of your death, Disability or
Retirement, (B) by the Company for Cause, or (C) by you other than for Good
Reason, on the subsequent termination or "Constructive Termination" of your
employment during the term of this Agreement: (i) you shall be entitled to the
benefits provided in subsection 4.3 below if such termination occurs on or
before the eighteen (18) month anniversary of the Change in Control or (ii) you
shall be entitled to the benefits provided in subsection 4.4 below if such
termination occurs after the eighteen (18) month anniversary of the Change in
Control.
3.1 Disability; Retirement. If, as a result of your incapacity due
to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for 6 consecutive months, and within
30 days after written notice of termination is given you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability." Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
3.2 Cause. Termination by the Company of your employment for "Cause"
shall mean termination on:
3.2.1 The willful and continued failure by you to substantially
perform your duties with the Company as such employment was
-2-
performed by you prior to the Change of Control (other than any such
failure resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance
by you of a Notice of Termination for Good Reason as defined in
Subsections 3.4 and 3.3, respectively) after a written demand for
substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties; or
3.2.2 The willful act by you in conduct that is demonstrably and
materially injurious to the Company, and which the Board deems to
cause or will cause substantial economic damage to the Company or
injury to the business reputation of the Company, monetarily or
otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without a reasonable belief
that your action or omission was in the best interest of the
Company. Notwithstanding the foregoing, you shall not be deemed to
have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an opportunity
for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses 3.2.1 or 3.2.2 of the first
sentence of this Subsection and specifying the particulars in
detail.
3.3 Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence in connection with a Change
In Control of the Company of any of the following circumstances unless, in the
case of paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or 3.3.8, the circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as defined in Subsections 3.5 and 3.4, respectively, given in
respect of them. If you have Good Reason for your termination you shall be
considered to have been "Constructively Terminated" by the Company under the
following circumstances:
3.3.1 The assignment to you of any duties inconsistent with your
status and position (i) prior to the Change In Control where such
change is a direct result of any pending Change in Control; or (ii)
as such status exists immediately prior to the Change In Control of
the Company, or (iii) a substantial adverse alteration in the nature
or
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status of your responsibilities from those in effect immediately
prior to the Change In Control of the Company whichever is
applicable;
3.3.2 A reduction by the Company in your annual base salary as in
effect on this date or as the same may be increased from time to
time irrespective of future Company policies including any
across-the-board salary reductions similarly affecting all key
employees of the Company;
3.3.3 Your relocation, without your consent, to a location not
within twenty-five (25) miles of your present office or job
location, except for required travel on the Company's business to an
extent substantially consistent with your present business travel
obligations;
3.3.4 The failure by the Company, without your consent, to pay to
you any part of your current compensation, or to pay to you any part
of an installment of deferred compensation under any deferred
compensation program of the Company, within fourteen (14) days of
the date the compensation is due;
3.3.5 The failure by the Company to continue in effect any bonus to
which you were entitled, or any compensation plan in which you
participate (i) prior to the Change in Control where such change is
a direct result of any pending Change In Control, or (ii)
immediately prior to the Change In Control of the Company that is
material to your total compensation, including but not limited to
the Company's Restricted Stock Plan, 401(k) Plan, and Benefit Plans,
or any substitute plans adopted prior to the Change In Control of
the Company, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to the
plan, or the failure by the Company to continue your participation
in it (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change In Control;
3.3.6 The failure by the Company to continue to provide you with (i)
benefits substantially similar to those enjoyed by you under any of
the Company's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change In Control of the Company was in effect for the employees of
the Company generally at the time of the Change In Control, (ii) the
failure to continue to provide you with a Company automobile or
allowance in lieu of it at the time of the Change In Control of the
Company, (iii) the taking of any action by the Company that would
-4-
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the
time of the Change In Control of the Company, or (iv) the failure by
the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change In Control of the Company;
3.3.7 The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 of this Agreement; or
3.3.8 Any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection 3.4 below (and, if applicable, the
requirements of Subsection 3.2 above); for purposes of this
Agreement, no such purported termination shall be effective.
3.4 Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party to this Agreement in accordance with Section 6 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied on, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated. Your rights to terminate your employment
pursuant to this Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason under this Agreement. In the event you deliver Notice of Termination
based on circumstances set forth in Paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or
3.3.8 above, which are fully corrected prior to the Date of Termination set
forth in your Notice of Termination, the Notice of Termination shall be deemed
withdrawn and of no further force or effect.
3.5 Date of Termination, Etc. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsection 3.2 or 3.3 above or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3.2
above shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3.3 above shall not be less than 15 nor more than 60 days,
respectively, from the date the Notice of Termination is given). However, if
within 15 days after any Notice
-5-
of Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this provision), the party receiving the Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order, or decree of a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal has expired and no appeal has been perfected). The Date of
Termination shall be extended by a notice of dispute only if the notice is given
in good faith and the party giving the notice pursues the resolution of the
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, benefit,
and insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. Compensation on Termination or During Disability. Following a Change In
Control of the Company, as defined by Section 2, on termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
4.1 During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all amounts payable to you under
any compensation plan of the Company during the period, until this Agreement is
terminated pursuant to section 3.1 above. Thereafter, or in the event your
employment shall be terminated by the Company or by you for Retirement, or by
reason of your death, your benefits shall be determined under the Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of those programs.
4.2 If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, Disability, death, or Retirement, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which you are entitled under any compensation plan of
the Company at the time the payments are due. The Company shall have no
obligations to you under this Agreement.
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4.3 On or before the eighteen (18) month anniversary of the Change
In Control, if your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability, or (b) by you for Good
Reason (as defined in Section 3.3 herein), then you shall be entitled to the
benefits provided below:
4.3.1 The Company shall pay you your full salary through the Date of
Termination at the rate in effect at the time notice of Termination
is given, plus all other amounts and benefits to which you are
entitled under any compensation plan of the Company, at the time the
payments are due, except as otherwise provided below.
4.3.2 In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you,
as severance pay the following: (i) a lump sum severance payment
equal to three (3) times the average of your Compensation for the
five (5) years prior to the occurrence of the circumstance giving
rise to the notice of Termination (or if employed less than 5 years,
the average annualized compensation of the period worked to date),
plus (ii) the amounts in the forms set forth in paragraphs 4.3.3,
4.3.4 and 4.3.5 (the "Severance Payments"). In addition to the
Severance Payments, the Company shall pay to you an additional
amount equal to the amount of the Excise Tax, if any, that is due or
determined to be due under Section 4999 of the Internal Revenue Code
of 1986, as amended, resulting from the Severance Payments or any
other payments under this Agreement or any other agreement between
you and the Company and an amount sufficient to pay the taxes on any
such Excise Taxes (the "Gross-up").
4.3.3 The Company shall continue coverage for you and your
dependents under any health or welfare benefit plan under which you
and your dependents were participating prior to the Change in
Control for a period ending on the earlier to occur of (i) the date
you become covered by a new employer's health and welfare benefit
plan, (ii) the date you become covered by Medicare, or (iii) the
date which is thirty-six (36) months from the date of Termination.
The coverage for your dependents shall end earlier than (i), (ii) or
(iii) if required by the health or welfare benefit plan due to age
eligibility.
4.3.4 The Company shall pay to you any deferred compensation,
including, but not limited to deferred bonuses, allocated or
credited to you or your account as of the Date of Termination.
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4.3.5 Outstanding stock options or Restricted Stock grants, if any,
granted to you under the Company's Stock Plans which are not vested
on Termination shall immediately vest.
4.3.6 Where you shall prevail in any such action, the Company shall
also pay to you all legal and accounting fees and expenses incurred
by you as a result of the termination (including all such fees and
expenses incurred by you as a result of the termination (including
all such fees and expenses, if any, incurred in contesting or
disputing any termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Code Section 4999 to any payment or benefit provided
under this Agreement) or any other agreement with the Company.
4.3.7 The amount of Severance Payments and any Gross-up due to you
under this or any other relevant agreement with the Company shall be
determined by a third party agreed to by you and the Company. If you
cannot agree on a third party, then both third parties shall
determine the amounts due under this Agreement. If the third parties
do not agree on the amount to be paid to you, then either party may
submit the calculation of the amounts which are in dispute to
Arbitration in accordance with this Agreement. The payments provided
for in Paragraphs 4.3.2, 4.3.4 and 4.3.5 above, shall be made no
later than the thirtieth (30th) day following the Date of
Termination. However, if the amounts of the payments cannot be
finally determined on or before that day, the Company shall pay to
you on that day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of those payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
can be determined but in no event later than the 30th day after the
Date of Termination. In the event that the amount of the estimate
payments exceeds the amount subsequently determined to have been
due, the excess shall constitute a loan by the Company to you
payable on the 30th day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
4.4 After the eighteen (18) month anniversary of the Change In
Control, if your employment by the Company shall be terminated (a) by the
Company other than for Cause, Retirement or Disability, or (b) by you for Good
Reason (as defined in Section 3.3 herein), then you shall be entitled to the
benefits provided in Section 4.3 above and as otherwise provided under this
Agreement except that sub paragraph 4.3.2(i) shall read: (i) a lump sum
severance payment
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equal to one and one half (1.5) times the average of your Compensation for the
five (5) years prior to the occurrence of the circumstance giving rise to the
notice of Termination (the "Termination Payment").
4.5 For purposes of this Agreement, "Compensation" shall mean the
aggregate remuneration paid by the Company to you during a calendar year,
including bonuses, awards under the Company's Restricted Stock Plan, benefits
under employee benefit plans, automobile allowances or any fees paid to you as
remuneration for serving as a Director of the Company.
4.6 You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise except as specifically provided in this
Section 4.
4.7 In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all qualified benefits payable to
you under the Company's 401(k) Plan, Defined Benefit Plan and any other plan or
agreement relating to retirement benefits in accordance with the terms of those
plans.
5. Successors; Binding Agreement.
5.1 The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain the assumption and agreement
prior to the effectiveness of any succession shall be a breach of this agreement
and shall entitle you to compensation from the Company in the same amount and on
the same terms as you would have been entitled to under this Agreement if you
had terminated your employment for Good Reason following a Change In Control of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
5.2 This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators, heirs,
distributees, and legatees. If you should die while any amount would still be
payable to you if you had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in accordance with the terms of this
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Agreement to your legatee or other designee or, if there is no such designee, to
your estate.
6. Notice. For the purpose of this Agreement, all notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance this Agreement, except that notice of a change of address shall be
effective only on receipt.
7. Miscellaneous
7.1 No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board.
7.2 No waiver by either party to this Agreement at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
7.3 No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Agreement have been made by
either party that are not expressly set forth in this Agreement.
7.4 Nothing in this Agreement is intended to reduce any benefits
payable to you under any other agreement you may have with the Company or in any
Company plan in which you may participate.
7.5 The validity, interpretation, construction, and performance of
this Agreement shall be governed by the law of New Jersey without reference to
its conflict of laws principals.
7.6 All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for shall be paid net of any applicable withholding or
deduction required under federal, state or local law.
7.7 The obligations of the Company under Section 4 shall survive the
expiration of the term of this Agreement.
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8. Validity. The validity or enforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in New Jersey in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek specific performance of
your right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection this Agreement.
11. Entire Agreement. This Agreement sets forth the entire understanding
of the parties with respect to its subject matter and supersedes all prior
written or oral agreements or understandings with respect to the subject matter.
In witness whereof, the parties have executed this agreement as of the day
and year first above written.
MIDDLESEX WATER COMPANY
By: /s/ Dennis G. Sullivan
-------------------------------
Dennis G. Sullivan
President
ATTEST:
/s/ MF Reynolds
- -----------------------------
Marion F. Reynolds
Vice President
Secretary and Treasurer
/s/ Kenneth J. Quinn
-------------------------------
Kenneth J. Quinn
(KJQ\Change in Control-Quinn)
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Exhibit 10.13(F)
CHANGE IN CONTROL TERMINATION AGREEMENT
This Change in Control Termination Agreement (the "Agreement") is entered
into as of July 15, 2003, between Middlesex Water Company, a New Jersey
corporation, with its principal place of business located at 1500 Ronson Road,
P.O. Box 1500, Iselin, New Jersey 08830-0452, (the "Company"), and James P.
Garrett, residing at 550 Kiowa Drive, Franklin Lakes, New Jersey 07417,
(referred to as "You" in this Agreement).
Recitals
A. The Company considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel. In this
connection, the Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held Companies, the possibility of a Change In
Control may exist. This possibility, and the uncertainty and questions that it
may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.
B. The Board has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of the Company's
management, including yourself, to the assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change In Control of the Company.
C. To induce you to remain in the employ of the Company, and in consideration of
your agreement set forth below, the Company agrees that you shall receive the
severance benefits set forth in this Agreement in the event your employment with
the Company is terminated or "constructively terminated" as defined herein in
connection with a "Change In Control of the Company" (as defined in Section 2
below) under the circumstances described below. This Agreement is meant to
supersede any other specific written agreements that may have been entered into
between yourself and the Company concerning termination of employment.
Therefore, in consideration of your continued employment and the parties'
agreement to be bound by the terms contained in this Agreement, the parties
agree as follows:
1. Term of Agreement. This Agreement shall commence as of July 15, 2003
and shall continue in effect through December 31, 2004. However, commencing on
December 31, 2004, and each December 31 afterwards, the term of this Agreement
shall automatically be extended for 1 additional year unless, no later than the
preceding November 1, the Company shall have given notice that it
-1-
does not wish to extend this Agreement. Notwithstanding the foregoing, if a
Change In Control of the Company shall be proposed to occur or have occurred
during the original or any extended term of this Agreement, this Agreement shall
continue in effect until your termination of employment with the Company or its
successor or when all amounts due under this Agreement following a termination
have been paid, whichever is later.
2. Change In Control. No benefits shall be payable under this Agreement
unless there shall have been a Change In Control of the Company, as set forth
below. For purposes of this Agreement, a "Change In Control" of the Company
shall be deemed to occur if any party or group acquires beneficial ownership of
25 percent or more of the voting shares of the Company; or if shareholder
approval is required for a transaction involving the acquisition of the Company
through the purchase or exchange of the stock or assets of the Company by merger
or otherwise; or if one-third or more of the Board elected in a 12-month period
or less are so elected without the approval of a majority of the Board as
constituted at the beginning of such period; or a liquidation or dissolution of
Company.
3. Termination Following Change In Control. If any of the events described
in Section 2 above constituting a Change In Control of the Company shall have
occurred, unless the termination is (A) because of your death, Disability or
Retirement, (B) by the Company for Cause, or (C) by you other than for Good
Reason, on the subsequent termination or "Constructive Termination" of your
employment during the term of this Agreement: (i) you shall be entitled to the
benefits provided in subsection 4.3 below if such termination occurs on or
before the first anniversary of the Change in Control or (ii) you shall be
entitled to the benefits provided in subsection 4.4 below if such termination
occurs after the first anniversary of the Change in Control.
3.1 Disability; Retirement. If, as a result of your incapacity due
to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for 6 consecutive months, and within
30 days after written notice of termination is given you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability." Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
3.2 Cause. Termination by the Company of your employment for "Cause"
shall mean termination on:
3.2.1 The willful and continued failure by you to substantially
perform your duties with the Company as such employment was
-2-
performed by you prior to the Change of Control (other than any such
failure resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance
by you of a Notice of Termination for Good Reason as defined in
Subsections 3.4 and 3.3, respectively) after a written demand for
substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties; or
3.2.2 The willful act by you in conduct that is demonstrably and
materially injurious to the Company, and which the Board deems to
cause or will cause substantial economic damage to the Company or
injury to the business reputation of the Company, monetarily or
otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without a reasonable belief
that your action or omission was in the best interest of the
Company. Notwithstanding the foregoing, you shall not be deemed to
have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an opportunity
for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses 3.2.1 or 3.2.2 of the first
sentence of this Subsection and specifying the particulars in
detail.
3.3 Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence in connection with a Change
In Control of the Company of any of the following circumstances unless, in the
case of paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or 3.3.8, the circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as defined in Subsections 3.5 and 3.4, respectively, given in
respect of them. If you have Good Reason for your termination you shall be
considered to have been "Constructively Terminated" by the Company under the
following circumstances:
3.3.1 The assignment to you of any duties inconsistent with your
status and position (i) prior to the Change In Control where such
change is a direct result of any pending Change in Control; or (ii)
as such status exists immediately prior to the Change In Control of
the Company, or (iii) a substantial adverse alteration in the nature
or
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status of your responsibilities from those in effect immediately
prior to the Change In Control of the Company whichever is
applicable;
3.3.2 A reduction by the Company in your annual base salary as in
effect on this date or as the same may be increased from time to
time irrespective of future Company policies including any
across-the-board salary reductions similarly affecting all key
employees of the Company;
3.3.3 Your relocation, without your consent, to a location not
within twenty-five (25) miles of your present office or job
location, except for required travel on the Company's business to an
extent substantially consistent with your present business travel
obligations;
3.3.4 The failure by the Company, without your consent, to pay to
you any part of your current compensation, or to pay to you any part
of an installment of deferred compensation under any deferred
compensation program of the Company, within fourteen (14) days of
the date the compensation is due;
3.3.5 The failure by the Company to continue in effect any bonus to
which you were entitled, or any compensation plan in which you
participate (i) prior to the Change in Control where such change is
a direct result of any pending Change In Control, or (ii)
immediately prior to the Change In Control of the Company that is
material to your total compensation, including but not limited to
the Company's Restricted Stock Plan, 401(k) Plan, and Benefit Plans,
or any substitute plans adopted prior to the Change In Control of
the Company, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to the
plan, or the failure by the Company to continue your participation
in it (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change In Control;
3.3.6 The failure by the Company to continue to provide you with (i)
benefits substantially similar to those enjoyed by you under any of
the Company's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change In Control of the Company was in effect for the employees of
the Company generally at the time of the Change In Control, (ii) the
failure to continue to provide you with a Company automobile or
allowance in lieu of it at the time of the Change In Control of the
Company, (iii) the taking of any action by the Company that would
-4-
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the
time of the Change In Control of the Company, or (iv) the failure by
the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change In Control of the Company;
3.3.7 The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 of this Agreement; or
3.3.8 Any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection 3.4 below (and, if applicable, the
requirements of Subsection 3.2 above); for purposes of this
Agreement, no such purported termination shall be effective.
3.4 Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party to this Agreement in accordance with Section 6 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied on, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated. Your rights to terminate your employment
pursuant to this Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason under this Agreement. In the event you deliver Notice of Termination
based on circumstances set forth in Paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or
3.3.8 above, which are fully corrected prior to the Date of Termination set
forth in your Notice of Termination, the Notice of Termination shall be deemed
withdrawn and of no further force or effect.
3.5 Date of Termination, Etc. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsection 3.2 or 3.3 above or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3.2
above shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3.3 above shall not be less than 15 nor more than 60 days,
respectively, from the date the Notice of Termination is given). However, if
within 15 days after any Notice
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of Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this provision), the party receiving the Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order, or decree of a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal has expired and no appeal has been perfected). The Date of
Termination shall be extended by a notice of dispute only if the notice is given
in good faith and the party giving the notice pursues the resolution of the
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, benefit,
and insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. Compensation on Termination or During Disability. Following a Change In
Control of the Company, as defined by Section 2, on termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
4.1 During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all amounts payable to you under
any compensation plan of the Company during the period, until this Agreement is
terminated pursuant to section 3.1 above. Thereafter, or in the event your
employment shall be terminated by the Company or by you for Retirement, or by
reason of your death, your benefits shall be determined under the Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of those programs.
4.2 If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, Disability, death, or Retirement, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which you are entitled under any compensation plan of
the Company at the time the payments are due. The Company shall have no
obligations to you under this Agreement.
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4.3 On or before the first anniversary of the Change In Control, if
your employment by the Company shall be terminated (a) by the Company other than
for Cause, Retirement or Disability, or (b) by you for Good Reason (as defined
in Section 3.3 herein), then you shall be entitled to the benefits provided
below:
4.3.1 The Company shall pay you your full salary through the Date of
Termination at the rate in effect at the time notice of Termination
is given, plus all other amounts and benefits to which you are
entitled under any compensation plan of the Company, at the time the
payments are due, except as otherwise provided below.
4.3.2 In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you,
as severance pay the following: (i) a lump sum severance payment
equal to three (3) times the average of your Compensation for the
five (5) years prior to the occurrence of the circumstance giving
rise to the notice of Termination (or if employed less than 5 years,
the average annualized compensation of the period worked to date),
plus (ii) the amounts in the forms set forth in paragraphs 4.3.3,
4.3.4 and 4.3.5 (the "Severance Payments"). In addition to the
Severance Payments, the Company shall pay to you an additional
amount equal to the amount of the Excise Tax, if any, that is due or
determined to be due under Section 4999 of the Internal Revenue Code
of 1986, as amended, resulting from the Severance Payments or any
other payments under this Agreement or any other agreement between
you and the Company and an amount sufficient to pay the taxes on any
such Excise Taxes (the "Gross-up").
4.3.3 The Company shall continue coverage for you and your
dependents under any health or welfare benefit plan under which you
and your dependents were participating prior to the Change in
Control for a period ending on the earlier to occur of (i) the date
you become covered by a new employer's health and welfare benefit
plan, (ii) the date you become covered by Medicare, or (iii) the
date which is thirty-six (36) months from the date of Termination.
The coverage for your dependents shall end earlier than (i), (ii) or
(iii) if required by the health or welfare benefit plan due to age
eligibility.
4.3.4 The Company shall pay to you any deferred compensation,
including, but not limited to deferred bonuses, allocated or
credited to you or your account as of the Date of Termination.
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4.3.5 Outstanding stock options or Restricted Stock grants, if any,
granted to you under the Company's Stock Plans which are not vested
on Termination shall immediately vest.
4.3.6 Where you shall prevail in any such action, the Company shall
also pay to you all legal and accounting fees and expenses incurred
by you as a result of the termination (including all such fees and
expenses incurred by you as a result of the termination (including
all such fees and expenses, if any, incurred in contesting or
disputing any termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Code Section 4999 to any payment or benefit provided
under this Agreement) or any other agreement with the Company.
4.3.7 The amount of Severance Payments and any Gross-up due to you
under this or any other relevant agreement with the Company shall be
determined by a third party agreed to by you and the Company. If you
cannot agree on a third party, then both third parties shall
determine the amounts due under this Agreement. If the third parties
do not agree on the amount to be paid to you, then either party may
submit the calculation of the amounts which are in dispute to
Arbitration in accordance with this Agreement. The payments provided
for in Paragraphs 4.3.2, 4.3.4 and 4.3.5 above, shall be made no
later than the thirtieth (30th) day following the Date of
Termination. However, if the amounts of the payments cannot be
finally determined on or before that day, the Company shall pay to
you on that day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of those payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
can be determined but in no event later than the 30th day after the
Date of Termination. In the event that the amount of the estimate
payments exceeds the amount subsequently determined to have been
due, the excess shall constitute a loan by the Company to you
payable on the 30th day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
4.4 After the first anniversary of the Change In Control, if your
employment by the Company shall be terminated (a) by the Company other than for
Cause, Retirement or Disability, or (b) by you for Good Reason (as defined in
Section 3.3 herein), then you shall be entitled to the benefits provided in
Section 4.3 above and as otherwise provided under this Agreement except that sub
paragraph 4.3.2(i) shall read: (i) a lump sum severance payment equal to one and
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one half (1.5) times the average of your Compensation for the five (5) years
prior to the occurrence of the circumstance giving rise to the notice of
Termination (the "Termination Payment").
4.5 For purposes of this Agreement, "Compensation" shall mean the
aggregate remuneration paid by the Company to you during a calendar year,
including bonuses, awards under the Company's Restricted Stock Plan, benefits
under employee benefit plans, automobile allowances or any fees paid to you as
remuneration for serving as a Director of the Company.
4.6 You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise except as specifically provided in this
Section 4.
4.7 In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all qualified benefits payable to
you under the Company's 401(k) Plan, Defined Benefit Plan and any other plan or
agreement relating to retirement benefits in accordance with the terms of those
plans.
5. Successors; Binding Agreement.
5.1 The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain the assumption and agreement
prior to the effectiveness of any succession shall be a breach of this agreement
and shall entitle you to compensation from the Company in the same amount and on
the same terms as you would have been entitled to under this Agreement if you
had terminated your employment for Good Reason following a Change In Control of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
5.2 This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators, heirs,
distributees, and legatees. If you should die while any amount would still be
payable to you if you had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in accordance with the terms of this
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Agreement to your legatee or other designee or, if there is no such designee, to
your estate.
6. Notice. For the purpose of this Agreement, all notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance this Agreement, except that notice of a change of address shall be
effective only on receipt.
7. Miscellaneous
7.1 No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board.
7.2 No waiver by either party to this Agreement at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
7.3 No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Agreement have been made by
either party that are not expressly set forth in this Agreement.
7.4 Nothing in this Agreement is intended to reduce any benefits
payable to you under any other agreement you may have with the Company or in any
Company plan in which you may participate.
7.5 The validity, interpretation, construction, and performance of
this Agreement shall be governed by the law of New Jersey without reference to
its conflict of laws principals.
7.6 All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for shall be paid net of any applicable withholding or
deduction required under federal, state or local law.
7.7 The obligations of the Company under Section 4 shall survive the
expiration of the term of this Agreement.
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8. Validity. The validity or enforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in New Jersey in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek specific performance of
your right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection this Agreement.
11. Entire Agreement. This Agreement sets forth the entire understanding
of the parties with respect to its subject matter and supersedes all prior
written or oral agreements or understandings with respect to the subject matter.
In witness whereof, the parties have executed this agreement as of the day
and year first above written.
MIDDLESEX WATER COMPANY
By: /s/ Dennis G. Sullivan
-------------------------------
Dennis G. Sullivan
President
ATTEST:
/s/ MF Reynolds
- -----------------------------
Marion F. Reynolds
Vice President
Secretary and Treasurer
/s/ James P. Garrett
-------------------------------
James P. Garrett
(KJQ\Change in Control-Garrett)
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Exhibit 10.13(G)
CHANGE IN CONTROL TERMINATION AGREEMENT
This Change in Control Termination Agreement (the "Agreement") is entered
into as of July 15, 2003, between Tidewater Utilities, Inc., a Delaware
corporation, with its principal place of business located at 1100 South Little
Creek Road, Dover, Delaware 19901, (the "Company"), and Gerard L. Esposito,
residing at 18 Victoria Drive, Milford, Delaware 19963, (referred to as "You" in
this Agreement).
Recitals
A. The Company considers it essential to the best interests of its stockholders
to foster the continuous employment of key management personnel. In this
connection, the Board of Directors of the Company (the "Board") recognizes that,
as is the case with many publicly held Companies, the possibility of a Change In
Control may exist. This possibility, and the uncertainty and questions that it
may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its stockholders.
B. The Board has determined that appropriate steps should be taken to reinforce
and encourage the continued attention and dedication of members of the Company's
management, including yourself, to the assigned duties without distraction in
the face of potentially disturbing circumstances arising from the possibility of
a Change In Control of the Company.
C. To induce you to remain in the employ of the Company, and in consideration of
your agreement set forth below, the Company agrees that you shall receive the
severance benefits set forth in this Agreement in the event your employment with
the Company is terminated or "constructively terminated" as defined herein in
connection with a "Change In Control of the Company" (as defined in Section 2
below) under the circumstances described below. This Agreement is meant to
supersede any other specific written agreements that may have been entered into
between yourself and the Company concerning termination of employment.
Therefore, in consideration of your continued employment and the parties'
agreement to be bound by the terms contained in this Agreement, the parties
agree as follows:
1. Term of Agreement. This Agreement shall commence as of July 15, 2003
and shall continue in effect through December 31, 2004. However, commencing on
December 31, 2004, and each December 31 afterwards, the term of this Agreement
shall automatically be extended for 1 additional year unless, no later than the
preceding November 1, the Company shall have given notice that it
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does not wish to extend this Agreement. Notwithstanding the foregoing, if a
Change In Control of the Company shall be proposed to occur or have occurred
during the original or any extended term of this Agreement, this Agreement shall
continue in effect until your termination of employment with the Company or its
successor or when all amounts due under this Agreement following a termination
have been paid, whichever is later.
2. Change In Control. No benefits shall be payable under this Agreement
unless there shall have been a Change In Control of the Company, as set forth
below. For purposes of this Agreement, a "Change In Control" of the Company
shall be deemed to occur if Middlesex Water Company ("Middlesex") or any of its
affiliates ceases to hold beneficial ownership of 50 percent or more of the
voting shares of the Company, or if any party or group acquires beneficial
ownership of 25 percent or more of the voting shares of Middlesex; or if
shareholder approval is required for a transaction involving the acquisition of
the Company through the purchase or exchange of the stock or assets of the
Company by merger or otherwise; or if one-third or more of the Board elected in
a 12-month period or less are so elected without the approval of a majority of
the Board as constituted at the beginning of such period; or a liquidation or
dissolution of Company.
3. Termination Following Change In Control. If any of the events described
in Section 2 above constituting a Change In Control of the Company shall have
occurred, unless the termination is (A) because of your death, Disability or
Retirement, (B) by the Company for Cause, or (C) by you other than for Good
Reason, on the subsequent termination or "Constructive Termination" of your
employment during the term of this Agreement: (i) you shall be entitled to the
benefits provided in subsection 4.3 below if such termination occurs on or
before the third anniversary of the Change in Control or (ii) you shall be
entitled to the benefits provided in subsection 4.4 below if such termination
occurs after the third anniversary of the Change in Control.
3.1 Disability; Retirement. If, as a result of your incapacity due
to physical or mental illness, you shall have been absent from the full-time
performance of your duties with the Company for 6 consecutive months, and within
30 days after written notice of termination is given you shall not have returned
to the full-time performance of your duties, your employment may be terminated
for "Disability." Termination by the Company or you of your employment based on
"Retirement" shall mean termination in accordance with the Company's retirement
policy, including early retirement, generally applicable to its salaried
employees or in accordance with any retirement arrangement established with your
consent with respect to you.
3.2 Cause. Termination by the Company of your employment for "Cause"
shall mean termination on:
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3.2.1 The willful and continued failure by you to substantially
perform your duties with the Company as such employment was
performed by you prior to the Change of Control (other than any such
failure resulting from your incapacity due to physical or mental
illness or any such actual or anticipated failure after the issuance
by you of a Notice of Termination for Good Reason as defined in
Subsections 3.4 and 3.3, respectively) after a written demand for
substantial performance is delivered to you by the Board, which
demand specifically identifies the manner in which the Board
believes that you have not substantially performed your duties; or
3.2.2 The willful act by you in conduct that is demonstrably and
materially injurious to the Company, and which the Board deems to
cause or will cause substantial economic damage to the Company or
injury to the business reputation of the Company, monetarily or
otherwise. For purposes of this Subsection, no act, or failure to
act, on your part shall be deemed "willful" unless done, or omitted
to be done, by you not in good faith and without a reasonable belief
that your action or omission was in the best interest of the
Company. Notwithstanding the foregoing, you shall not be deemed to
have been terminated for Cause unless and until there shall have
been delivered to you a copy of a resolution duly adopted by the
affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held
for such purpose (after reasonable notice to you and an opportunity
for you, together with your counsel, to be heard before the Board),
finding that in the good faith opinion of the Board you were guilty
of conduct set forth above in clauses 3.2.1 or 3.2.2 of the first
sentence of this Subsection and specifying the particulars in
detail.
3.3 Good Reason. You shall be entitled to terminate your employment
for Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, the occurrence in connection with a Change
In Control of the Company of any of the following circumstances unless, in the
case of paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or 3.3.8, the circumstances are
fully corrected prior to the Date of Termination specified in the Notice of
Termination, as defined in Subsections 3.5 and 3.4, respectively, given in
respect of them. If you have Good Reason for your termination you shall be
considered to have been "Constructively Terminated" by the Company under the
following circumstances:
3.3.1 The assignment to you of any duties inconsistent with your
status and position (i) prior to the Change In Control where such
change is a direct result of any pending Change in Control; or (ii)
as such status exists immediately prior to the Change In Control of
the
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Company, or (iii) a substantial adverse alteration in the nature or
status of your responsibilities from those in effect immediately
prior to the Change In Control of the Company whichever is
applicable;
3.3.2 A reduction by the Company in your annual base salary as in
effect on this date or as the same may be increased from time to
time irrespective of future Company policies including any
across-the-board salary reductions similarly affecting all key
employees of the Company;
3.3.3 Your relocation, without your consent, to a location not
within twenty-five (25) miles of your present office or job
location, except for required travel on the Company's business to an
extent substantially consistent with your present business travel
obligations;
3.3.4 The failure by the Company, without your consent, to pay to
you any part of your current compensation, or to pay to you any part
of an installment of deferred compensation under any deferred
compensation program of the Company, within fourteen (14) days of
the date the compensation is due;
3.3.5 The failure by the Company to continue in effect any bonus to
which you were entitled, or any compensation plan in which you
participate (i) prior to the Change in Control where such change is
a direct result of any pending Change In Control, or (ii)
immediately prior to the Change In Control of the Company that is
material to your total compensation, including but not limited to
the Company's Restricted Stock Plan, 401(k) Plan, and Benefit Plans,
or any substitute plans adopted prior to the Change In Control of
the Company, unless an equitable arrangement (embodied in an ongoing
substitute or alternative plan) has been made with respect to the
plan, or the failure by the Company to continue your participation
in it (or in such substitute or alternative plan) on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the Change In Control;
3.3.6 The failure by the Company to continue to provide you with (i)
benefits substantially similar to those enjoyed by you under any of
the Company's life insurance, medical, health and accident, or
disability plans in which you were participating at the time of the
Change In Control of the Company was in effect for the employees of
the Company generally at the time of the Change In Control, (ii) the
failure to continue to provide you with a Company automobile or
allowance in lieu of it at the time of the Change In Control of the
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Company, (iii) the taking of any action by the Company that would
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the
time of the Change In Control of the Company, or (iv) the failure by
the Company to provide you with the number of paid vacation days to
which you are entitled on the basis of years of service with the
Company in accordance with the Company's normal vacation policy in
effect at the time of the Change In Control of the Company;
3.3.7 The failure of the Company to obtain a satisfactory agreement
from any successor to assume and agree to perform this Agreement, as
contemplated in Section 5 of this Agreement; or
3.3.8 Any purported termination of your employment that is not
effected pursuant to a Notice of Termination satisfying the
requirements of Subsection 3.4 below (and, if applicable, the
requirements of Subsection 3.2 above); for purposes of this
Agreement, no such purported termination shall be effective.
3.4 Notice of Termination. Any purported termination of your
employment by the Company or by you shall be communicated by written Notice of
Termination to the other party to this Agreement in accordance with Section 6 of
this Agreement. For purposes of this Agreement, a "Notice of Termination" shall
mean a notice that shall indicate the specific termination provision in this
Agreement relied on, and shall set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of your employment
under the provision so indicated. Your rights to terminate your employment
pursuant to this Subsection shall not be affected by your incapacity due to
physical or mental illness. Your continued employment shall not constitute
consent to, or a waiver of rights with respect to, any circumstance constituting
Good Reason under this Agreement. In the event you deliver Notice of Termination
based on circumstances set forth in Paragraphs 3.3.1, 3.3.5, 3.3.6, 3.3.7, or
3.3.8 above, which are fully corrected prior to the Date of Termination set
forth in your Notice of Termination, the Notice of Termination shall be deemed
withdrawn and of no further force or effect.
3.5 Date of Termination, Etc. "Date of Termination" shall mean (A)
if your employment is terminated for Disability, 30 days after Notice of
Termination is given (provided that you shall not have returned to the full-time
performance of your duties during such 30-day period), and (B) if your
employment is terminated pursuant to Subsection 3.2 or 3.3 above or for any
other reason (other than Disability), the date specified in the Notice of
Termination (which, in the case of a termination pursuant to Subsection 3.2
above shall not be less than 30 days, and in the case of a termination pursuant
to Subsection 3.3 above shall not be less than 15 nor more than 60 days,
respectively, from the date
-5-
the Notice of Termination is given). However, if within 15 days after any Notice
of Termination is given, or, if later, prior to the Date of Termination (as
determined without regard to this provision), the party receiving the Notice of
Termination notifies the other party that a dispute exists concerning the
termination, then the Date of Termination shall be the date on which the dispute
is finally determined, either by mutual written agreement of the parties, by a
binding arbitration award, or by a final judgment, order, or decree of a court
of competent jurisdiction (which is not appealable or with respect to which the
time for appeal has expired and no appeal has been perfected). The Date of
Termination shall be extended by a notice of dispute only if the notice is given
in good faith and the party giving the notice pursues the resolution of the
dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay you your full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, base salary) and continue you as a participant in all compensation, benefit,
and insurance plans in which you were participating when the notice giving rise
to the dispute was given, until the dispute is finally resolved in accordance
with this Subsection. Amounts paid under this Subsection are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
4. Compensation on Termination or During Disability. Following a Change In
Control of the Company, as defined by Section 2, on termination of your
employment or during a period of disability you shall be entitled to the
following benefits:
4.1 During any period that you fail to perform your full-time duties
with the Company as a result of incapacity due to physical or mental illness,
you shall continue to receive your base salary at the rate in effect at the
commencement of any such period, together with all amounts payable to you under
any compensation plan of the Company during the period, until this Agreement is
terminated pursuant to section 3.1 above. Thereafter, or in the event your
employment shall be terminated by the Company or by you for Retirement, or by
reason of your death, your benefits shall be determined under the Company's
retirement, insurance, and other compensation programs then in effect in
accordance with the terms of those programs.
4.2 If your employment shall be terminated by the Company for Cause
or by you other than for Good Reason, Disability, death, or Retirement, the
Company shall pay you your full base salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, plus all other
amounts and benefits to which you are entitled under any compensation plan of
the Company at the time the payments are due. The Company shall have no
obligations to you under this Agreement.
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4.3 On or before the third anniversary of the Change In Control, if
your employment by the Company shall be terminated (a) by the Company other than
for Cause, Retirement or Disability, or (b) by you for Good Reason (as defined
in Section 3.3 herein), then you shall be entitled to the benefits provided
below:
4.3.1 The Company shall pay you your full salary through the Date of
Termination at the rate in effect at the time notice of Termination
is given, plus all other amounts and benefits to which you are
entitled under any compensation plan of the Company, at the time the
payments are due, except as otherwise provided below.
4.3.2 In lieu of any further salary payments to you for periods
subsequent to the Date of Termination, the Company shall pay to you,
as severance pay the following: (i) a lump sum severance payment
equal to three (3) times the average of your Compensation for the
five (5) years prior to the occurrence of the circumstance giving
rise to the notice of Termination, plus (ii) the amounts in the
forms set forth in paragraphs 4.3.3, 4.3.4 and 4.3.5 (the "Severance
Payments"). In addition to the Severance Payments, the Company shall
pay to you an additional amount equal to the amount of the Excise
Tax, if any, that is due or determined to be due under Section 4999
of the Internal Revenue Code of 1986, as amended, resulting from the
Severance Payments or any other payments under this Agreement or any
other agreement between you and the Company and an amount sufficient
to pay the taxes on any such Excise Taxes (the "Gross-up").
4.3.3 The Company shall continue coverage for you and your
dependents under any health or welfare benefit plan under which you
and your dependents were participating prior to the Change in
Control for a period ending on the earlier to occur of (i) the date
you become covered by a new employer's health and welfare benefit
plan, (ii) the date you become covered by Medicare, or (iii) the
date which is thirty-six (36) months from the date of Termination.
The coverage for your dependents shall end earlier than (i), (ii) or
(iii) if required by the health or welfare benefit plan due to age
eligibility.
4.3.4 The Company shall pay to you any deferred compensation,
including, but not limited to deferred bonuses, allocated or
credited to you or your account as of the Date of Termination.
4.3.5 Outstanding stock options or Restricted Stock grants, if any,
granted to you under the Company's Stock Plans which are not vested
on Termination shall immediately vest.
-7-
4.3.6 Where you shall prevail in any such action, the Company shall
also pay to you all legal and accounting fees and expenses incurred
by you as a result of the termination (including all such fees and
expenses incurred by you as a result of the termination (including
all such fees and expenses, if any, incurred in contesting or
disputing any termination or in seeking to obtain or enforce any
right or benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to the
application of Code Section 4999 to any payment or benefit provided
under this Agreement) or any other agreement with the Company.
4.3.7 The amount of Severance Payments and any Gross-up due to you
under this or any other relevant agreement with the Company shall be
determined by a third party agreed to by you and the Company. If you
cannot agree on a third party, then both third parties shall
determine the amounts due under this Agreement. If the third parties
do not agree on the amount to be paid to you, then either party may
submit the calculation of the amounts which are in dispute to
Arbitration in accordance with this Agreement. The payments provided
for in Paragraphs 4.3.2, 4.3.4 and 4.3.5 above, shall be made no
later than the thirtieth (30th) day following the Date of
Termination. However, if the amounts of the payments cannot be
finally determined on or before that day, the Company shall pay to
you on that day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of those payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
can be determined but in no event later than the 30th day after the
Date of Termination. In the event that the amount of the estimate
payments exceeds the amount subsequently determined to have been
due, the excess shall constitute a loan by the Company to you
payable on the 30th day after demand by the Company (together with
interest at the rate provided in Section 1274(b)(2)(B) of the Code).
4.4 After the third anniversary of the Change In Control, if your
employment by the Company shall be terminated (a) by the Company other than for
Cause, Retirement or Disability, or (b) by you for Good Reason (as defined in
Section 3.3 herein), then you shall be entitled to the benefits provided in
Section 4.3 above and as otherwise provided under this Agreement except that sub
paragraph 4.3.2(i) shall read: (i) a lump sum severance payment equal to one and
one half (1.5) times the average of your Compensation for the five (5) years
prior to the occurrence of the circumstance giving rise to the notice of
Termination (the "Termination Payment").
-8-
4.5 For purposes of this Agreement, "Compensation" shall mean the
aggregate remuneration paid by the Company to you during a calendar year,
including bonuses, awards under the Company's Restricted Stock Plan, benefits
under employee benefit plans, automobile allowances or any fees paid to you as
remuneration for serving as a Director of the Company.
4.6 You shall not be required to mitigate the amount of any payment
provided for in this Section 4 by seeking other employment or otherwise, nor
shall the amount of any payment or benefit provided for in this Section 4 be
reduced by any compensation earned by you as the result of employment by another
employer, by retirement benefits, by offset against any amount claimed to be
owed by you to the Company, or otherwise except as specifically provided in this
Section 4.
4.7 In addition to all other amounts payable to you under this
Section 4, you shall be entitled to receive all qualified benefits payable to
you under the Company's 401(k) Plan, Defined Benefit Plan and any other plan or
agreement relating to retirement benefits in accordance with the terms of those
plans.
5. Successors; Binding Agreement.
5.1 The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure of the Company to obtain the assumption and agreement
prior to the effectiveness of any succession shall be a breach of this agreement
and shall entitle you to compensation from the Company in the same amount and on
the same terms as you would have been entitled to under this Agreement if you
had terminated your employment for Good Reason following a Change In Control of
the Company, except that for purposes of implementing the foregoing, the date on
which any such succession becomes effective shall be deemed the Date of
Termination.
5.2 This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators, heirs,
distributees, and legatees. If you should die while any amount would still be
payable to you if you had continued to live, all such amounts, unless otherwise
provided in this Agreement, shall be paid in accordance with the terms of this
Agreement to your legatee or other designee or, if there is no such designee, to
your estate.
-9-
6. Notice. For the purpose of this Agreement, all notices and other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered or certified mail, return receipt requested, postage prepaid,
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Board with a copy to the Secretary of the Company, or to such
other address as either party may have furnished to the other in writing in
accordance this Agreement, except that notice of a change of address shall be
effective only on receipt.
7. Miscellaneous
7.1 No provision of this Agreement may be modified, waived, or
discharged unless the waiver, modification, or discharge is agreed to in writing
and signed by you and such officer as may be specifically designated by the
Board.
7.2 No waiver by either party to this Agreement at any time of any
breach by the other party of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
7.3 No agreements or representations, oral or otherwise, express or
implied, with respect to the subject matter of this Agreement have been made by
either party that are not expressly set forth in this Agreement.
7.4 Nothing in this Agreement is intended to reduce any benefits
payable to you under any other agreement you may have with the Company or in any
Company plan in which you may participate.
7.5 The validity, interpretation, construction, and performance of
this Agreement shall be governed by the law of New Jersey without reference to
its conflict of laws principals.
7.6 All references to sections of the Exchange Act or the Code shall
be deemed also to refer to any successor provisions to such sections. Any
payments provided for shall be paid net of any applicable withholding or
deduction required under federal, state or local law.
7.7 The obligations of the Company under Section 4 shall survive the
expiration of the term of this Agreement.
-10-
8. Validity. The validity or enforceability of any provision of this
Agreement shall not affect the validity or unenforceability of any other
provision of this Agreement, which shall remain in full force and effect.
9. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
10. Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in New Jersey in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction. However, you shall be entitled to seek specific performance of
your right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection this Agreement.
11. Entire Agreement. This Agreement sets forth the entire understanding
of the parties with respect to its subject matter and supersedes all prior
written or oral agreements or understandings with respect to the subject matter.
In witness whereof, the parties have executed this agreement as of the day
and year first above written.
TIDEWATER UTILITIES, INC.
By: /s/ Dennis G. Sullivan
-------------------------------
Dennis G. Sullivan
Chairman of the Board
ATTEST:
/s/ MF Reynolds
- -----------------------------
Marion F. Reynolds
Secretary
/s/ Gerard L. Esposito
-------------------------------
Gerard L. Esposito
(KJQ\Change in Control-Esposito)
-11-
CONSULTING AGREEMENT
--------------------
This Consulting Agreement (the "Agreement") is entered into as of
the 23rd day of January, 2003, by and between J. Richard Tompkins (the
"Consultant") and Middlesex Water Company (the "Company").
WHEREAS, the Consultant has served as CEO of the Company up to his
retirement as of January 31, 2003; and
WHEREAS, the Company desires to enter into a consulting agreement
with the Consultant following his retirement upon the terns and conditions set
forth herein; and
WHEREAS, at the time of his retirement, the Consultant was the
beneficial owner of 10,950 shares of Restricted Stock of the Company which is
held by the Company in escrow (the "Restricted Stock"); and
WHEREAS, the Company has the right to reacquire those shares of
Restricted Stock which were not held by the Consultant for five years prior to
his retirement from the Company; and
WHEREAS, the Consultant has requested the Company to waive its right
to reacquire the Restricted Stock, and the Company has agreed to consider such
request subject to the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and
covenants contained herein; and for other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties agree as follows:
1. The Consultant hereby acknowledges that the Company has
the right to reacquire the Restricted Stock upon the
Consultant's retirement at no cost to the Company. In
consideration of the terms and conditions set forth
herein, the Company is willing to waive its right to
reacquire such Restricted Stock and is willing to
distribute the Restricted Stock to the Consultant at
such times and upon such terms as hereinafter set forth.
2. Commencing February 1, 2003 and continuing up to and
including January 31, 2004, the Consultant shall act as
a consultant to the Company for which he will receive a
fee of $50,000 per year. Although the parties have not
specified a fixed time for such consulting services, it
is contemplated that the Consultant will be available
for such consulting services approximately three days
per month based on a value of approximately $1,200 to
$1,500 per day.
3. During the consulting period, the Consultant will be
available to review correspondence, render advice on
projects as requested by the Company, attend various
meetings as requested by the Company, and in general, to
perform any and all such other services as the Company
may reasonably require of the Consultant as a consultant
to the Company.
4. During the period of the consulting agreement referred
to above, and continuing for a two-year period
thereafter, the Consultant agrees that he will not
directly, or indirectly, in any individual or
representative capacity, carry on, engage or participate
in any business in the State of New Jersey and Delaware
that is in direct competition in any manner whatsoever
with the business of the Company, except as may be
expressly agreed to in writing by the Company.
5. Unless the Consultant fails to perform his obligations
and duties as set forth in this Agreement, the Company
agrees to release from escrow and to distribute shares
of Restricted Stock to the Consultant in accordance with
the following schedule:
|X| On October 1, 2003 - 2,750 Shares
|X| On October 1, 2004 - 2,750 Shares
|X| On October 1, 2005 - 2,750 Shares
|X| On February 1, 2006 - 2,700 Shares
6. In the event of the disability (as defined under the
Company's 1989 Restricted Stock Plan, as the same may be
amended from time to time, herein the "Plan") of the
Consultant during the term of this Agreement, or in the
event of a Change in Control Event as defined in the
Plan, the right of the Company to reacquire the
Restricted Stock shall lapse and cease to be effective.
Upon the occurrence of either such event, the balance of
the Restricted Stock shall be released from escrow and
delivered to the Consultant. Additionally, in the event
that the Consultant should die during the term of this
Agreement, the right of the Company to reacquire the
Restricted Stock shall lapse and cease to be effective,
and the balance of the Restricted Stock then held in
escrow shall be paid to the Consultant's beneficiary as
provided for under the Plan.
7. This Agreement constitutes the entire agreement of the
parties relating to the subject matter hereof, and this
Agreement supercedes all prior communications,
representations or agreements, verbal or written between
the parties relating to the subject matter hereof.
8. This Agreement is for the benefit of the Consultant and
the Company and will be governed by and construed in
accordance with the laws of the State of New Jersey.
Neither party may assign or otherwise transfer its
rights or delegate its duties under this Agreement
without prior written consent, and any attempt to do so
without consent is void.
9. Each party acknowledges that he or it has had the
opportunity to review the provisions of this Agreement
with independent advisors (financial, legal or
otherwise) prior to the execution of this Agreement by
each such party.
IN WITNESS WHEREOF, the undersigned parties have executed this
Agreement as of the date first written above.
MIDDLESEX WATER COMPANY
By: /s/ Dennis G. Sullivan
----------------------
Dennis G. Sullivan
President
By: /s/ J. Richard Tompkins
-----------------------
J. Richard Tompkins
Exhibit 21
Middlesex Water Company
Subsidiaries
Jurisdiction of
Organization
---------------
Tidewater Utilities, Inc. Delaware
Pinelands Water Company New Jersey
Pinelands Wastewater Company New Jersey
Bayview Water Company New Jersey
Utility Service Affiliates (Perth Amboy) Inc. New Jersey
Utility Service Affiliates, Inc. New Jersey
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
33-11717 of Middlesex Water Company on Form S-3 of our report dated March 4,
2004 (which report expresses an unqualified opinion and includes an explanatory
paragraph relating to the restatement described in the Notes to the Consolidated
Financial Statements), appearing in this Annual Report on Form 10-K/A-2 of
Middlesex Water Company for the year ended December 31, 2003.
/s/DELOITTE & TOUCHE LLP/
Parsippany, New Jersey
April 30, 2004
Exhibit 31
SECTION 302 CERTIFICATION PURSUANT TO RULES 13a-14
AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934
I, Dennis G. Sullivan, certify that:
1. I have reviewed this annual report on Form 10-K/A-2 of Middlesex Water
Company;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have;
a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b) (Omitted pursuant to SEC Release No. 33-8238)
c) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d) Disclosed in this report any changes in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
/s/ Dennis G. Sullivan
----------------------
Dennis G. Sullivan
Chief Executive Officer
Date: April 30, 2004
Exhibit 31.1
SECTION 302 CERTIFICATION PURSUANT TO RULES 13a-14
AND 15d-14 OF THE SECURITIES EXCHANGE ACT OF 1934
I, A. Bruce O'Connor, certify that:
1. I have reviewed this annual report on Form 10-K/A-2 of Middlesex Water
Company;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have;
a. Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b. (Omitted pursuant to SEC Release No. 33-8238)
c. Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and
d. Disclosed in this report any changes in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth quarter in the case of an annual report) that has
materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of registrant's board
of directors (or persons performing the equivalent function):
a. All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and
b. Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.
/s/ A. Bruce O'Connor
----------------------------
A. Bruce O'Connor
Chief Financial Officer
Date: April 30, 2004
Exhibit 32
SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350
I, Dennis G. Sullivan, hereby certify that, to the best of my knowledge,
the periodic report being filed herewith containing financial statements fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that information contained
in said periodic report fairly presents, in all material respects, the financial
condition and results of operations of Middlesex Water Company for the period
covered by said periodic report.
/s/ Dennis G. Sullivan
-----------------------------
Dennis G. Sullivan
Chief Executive Officer
Date: April 30, 2004
A signed original of this written statement required by Section 906 has been
provided to Middlesex Water Company and will be retained by Middlesex Water
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
Exhibit 32.1
SECTION 906 CERTIFICATION PURSUANT TO 18 U.S.C.ss.1350
I, A. Bruce O'Connor, hereby certify that, to the best of my knowledge, the
periodic report being filed herewith containing financial statements fully
complies with the requirements of section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (15 U.S.C. 78m(a) or 78o(d)) and that information contained
in said periodic report fairly presents, in all material respects, the financial
condition and results of operations of Middlesex Water Company for the period
covered by said periodic report.
/s/ A. Bruce O'Connor
-------------------------------
A. Bruce O'Connor
Chief Financial Officer
Date: April 30, 2004
A signed original of this written statement required by Section 906 has been
provided to Middlesex Water Company and will be retained by Middlesex Water
Company and furnished to the Securities and Exchange Commission or its staff
upon request.
