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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File
For the Fiscal Year ended December 31, 1999 No. 0-422
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MIDDLESEX WATER COMPANY
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(Exact name of registrant as specified in its charter)
New Jersey 22-1114430
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1500 Ronson Road, Iselin, New Jersey 08830-3020
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(Address of principal executive offices) (Zip Code)
(732) 634-1500
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(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 ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant at March 17, 2000 was $144,706,167 based on the closing market price
of $28.875 per share.
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 17, 2000
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Common Stock, No par Value 5,011,469
Documents Incorporated by Reference
Proxy Statement to be filed in connection with the Registrant's Annual Meeting
of Shareholders to be held on May 24, 2000 as to Part III.
MIDDLESEX WATER COMPANY
FORM 10-K
INDEX
PAGE
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PART I
Item 1. Business:
General
Retail Sales
Contract Sales
Contract Services
Financial Information
Water Supplies and Contracts
Competition
Regulation
Regulation of Rates and Services
Water Quality and Environmental Regulations
Employees
Executive Officers of Middlesex Water Company
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote
of Security Holders
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters:
Price Range of Common Stock
Approximate Number of Equity Security
Holders as of December 31, 1999
Dividends
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures
PART III
Item 10. Directors and Executive Officers of the Registrant
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Signatures
Exhibit Index
PART I
Item 1. Business
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Overview
Middlesex Water Company was incorporated as a water utility company in 1897 and
operates water utility systems in central and southern New Jersey and in
Delaware as well as a wastewater utility in southern New Jersey. The water
utility system in central New Jersey, which we call the "Middlesex System,"
produced 75.9% of the Company's 1999 revenues. The Middlesex System treats,
stores and distributes water for residential, commercial, industrial and fire
prevention purposes.
Our Middlesex System provides water services to approximately 57,000 retail
customers, primarily in eastern Middlesex County, New Jersey and provides water
on a wholesale basis 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. Under a special contract, the Middlesex System
also provides water treatment and pumping services to the Township of East
Brunswick.
The Middlesex System's retail customers are located in an area of approximately
55 square miles in Woodbridge Township, the Boroughs of Metuchen and Carteret,
portions of Edison Township and the Borough of South Plainfield in Middlesex
County and a portion of the Township of Clark in Union County. The retail
customers include a mix of residential customers, large industrial concerns and
commercial and light industrial facilities. These retail customers are located
in generally well developed areas of central New Jersey. The contract customers
of the Middlesex System comprise an area of approximately 141 square miles with
a population of approximately 267,000. Contract sales to Edison, Sayreville, Old
Bridge and Marlboro are supplemental to the existing water systems of these
customers. The State of New Jersey in the mid-1980's approved plans to increase
available surface water supply to these and other municipalities in the South
River Basin area of the State through contracts with water suppliers outside the
South River Basin. The State saw this as a way to reduce the use of ground water
and depletion of acquifers. Our long-term contracts to pump treated surface
water to East Brunswick, Marlboro, Old Bridge and Sayreville are consistent with
the State approved plan.
We have four wholly-owned subsidiaries:
o Tidewater Utilities, Inc. ("Tidewater"), provides water service to
approximately 12,700 retail customers for residential, commercial and
fire protection purposes in over 150 separate community water systems
in Kent, Sussex and New Castle Counties, Delaware. Public Water Supply
Company, Inc. (Public), formerly a wholly-owned subsidiary of
Tidewater, was merged into Tidewater effective February 1, 2000. The
combined entity will continue under the Tidewater name. We refer to our
Delaware operations as the "Tidewater Systems". The Tidewater Systems
produced approximately 8.1% of our total revenues in 1999. White Marsh
Environmental Systems, Inc., a wholly-owned subsidiary of Tidewater,
owns the office building that Tidewater uses as its business office and
also provides operations and maintenance contract services to area
wastewater systems.
o Pinelands Water Company services 2,300 residential customers in
Burlington County, New Jersey. We refer to this water utility as the
"Pinelands System." The Pinelands System produced approximately 0.7% of
our total revenues in 1999.
o Pinelands Wastewater Company services approximately 2,300 primarily
residential retail customers and, under contract, one municipal
wastewater system in Burlington County, New Jersey with about 200
residential customers. We refer to this wastewater utility as the
"Pinelands Wastewater System." The Pinelands Wastewater System produced
approximately 1.3% of our total revenues in 1999.
o Utility Service Affiliates, Inc. (USA) - On December 2, 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,
originally signed in December 1998, received approval from the BPU on
November 18, 1999. The implementation of the franchise agreement has
significantly impacted two existing agreements entered into by the
parties in 1994.
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. Certain advances made by USA to South Amboy at the
commencement of the management services contract have been forgiven in
consideration for the franchise agreement. Fixed fee revenues
recognized under the original contract have been eliminated in lieu of
revenues derived from providing water to South Amboy's 2,600 customers.
Under the original contract, USA produced approximately 0.8% of our
total 1999 revenues.
o Utility Service Affiliates (Perth Amboy) Inc., which we refer to as
("USA-PA"), along with Middlesex Water Company, operates and maintains
the City of Perth Amboy's water system and the wastewater system under
a 20 year contract. USA-PA is paid a fixed fee and a variable fee based
on increased system billings. Fixed fee payments to USA-PA in the
agreement rise from $6.4 million in the first year to $9.7 million by
year 20. The agreement also requires USA-PA to lease from the City all
of the City's employees who currently work on the City's water system
or wastewater system. In connection with the agreement, the City of
Perth Amboy, through the Middlesex County Improvement Authority, issued
$68.0 million in three series of bonds. One of those series of bonds,
in principal amount of $26.3 million, was guaranteed by the Company.
The City guaranteed the two other series of bonds. The Company also
guaranteed the performance of our subsidiary, USA-PA. USA-PA entered
into a subcontract with a sewer contracting firm for the operation and
maintenance of the City's wastewater system. City employees who now
work on the City's wastewater system are subleased by the subcontractor
from USA-PA. Of the $6.4 million fixed fee paid to USA-PA in the first
year of the agreement, $3.0 million was paid to the subcontractor.
USA-PA began to operate and maintain the City's systems on January 1,
1999. USA-PA produced approximately 13.2% of our total revenues in
1999.
Financial Information
- ---------------------
Consolidated operating revenues and operating income relating primarily to
operating water utilities are as follows:
(000's)
Years Ended December 31,
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1999 1998 1997
---- ---- ----
Operating Revenues $53,497 $43,058 $40,294
====== ====== ======
Operating Income $10,665 $ 9,149 $ 8,768
====== ====== ======
Operating revenues were derived from the following sources:
Years Ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Residential 36.9% 41.4% 40.3%
Commercial 10.2 11.4 11.4
Industrial 12.1 15.8 16.5
Fire Protection 10.2 11.5 11.6
Contract Sales 15.6 17.5 18.3
Contract Operations 14.0 1.1 1.1
Other 1.0 1.3 0.8
----- ----- -----
TOTAL 100.0% 100.0% 100.0%
===== ===== =====
Water Supplies and Contracts
- ----------------------------
Our water utility plant consists of sources of supply, pumping, water treatment,
transmission, distribution and general facilities located in New Jersey and
Delaware. Our New Jersey and Delaware water supply systems are physically
separate and are not interconnected. In addition, in New Jersey, the Pinelands
System is not interconnected with the Middlesex System. In the opinion of
management, we have adequate sources of water supply to meet the current and
anticipated future service requirements of our present customers in New Jersey
and Delaware.
Middlesex System:
- -----------------
Our Middlesex System obtains water from both surface sources and from wells
which we call groundwater sources. In 1999 surface sources of water provided
approximately 68.2% of the Middlesex System's water supply, groundwater from
wells provided approximately 24.6% and the balance of 7.2% was purchased from
Elizabethtown Water Company ("Elizabethtown"), a nonaffiliated water utility.
Middlesex System's distribution storage facilities are used to supply water to
its customers at times of peak demand, outages and emergencies.
The principal source of surface supply for the Middlesex System is the Delaware
and Raritan Canal (D&R Canal), owned by the State of New Jersey and operated as
a water resource by the New Jersey Water Supply Authority ("NJWSA"). Under a
multistate compact, the NJWSA is entitled to divert water from the Delaware
River into the D&R Canal.
This supply, together with water in the Round Valley and Spruce Run Reservoir
System, provide a safe yield of 225 million gallons per day (mgd), which
supplies our Middlesex System and other large water purveyors contractually
regulated by the NJWSA. We have contracts with the NJWSA to divert a maximum of
20 mgd of untreated water from the D&R Canal. In addition, we have a one-year
agreement for an additional 5 mgd, renewed through April 30, 2000. We also have
an agreement with Elizabethtown, effective through December 31, 2005, which
provides for the minimum purchase of 3 mgd of treated water with provisions for
additional purchases. This Contract also allows us to purchase additional water
from Elizabethtown on an emergent basis.
Our Middlesex System also derives water from groundwater sources equipped with
electric motor driven deep well turbine type pumps. The Middlesex System has 31
wells, which provide an aggregate pump capacity of approximately 27 mgd.
The Middlesex System's groundwater sources are:
1999 Maximum Daily
Pumpage Pump
No. of (millions of Capacity
Middlesex System Wells gallons) (mgd) Location
---------------- ----- -------- ----- --------
Park Avenue 15 11.4 15.2 South Plainfield
Tingley Lane North 4 3.2 2.8 Edison
Tingley Lane South 5 1.3 2.6 Edison
Spring Lake 4 1.3 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 Systems:
- ------------------
Water supply to Delaware customers is derived from the Tidewater Systems' 157
wells, which provided overall system delivery of 790 million gallons during
1999. The Tidewater Systems do not have a central treatment facility. Several of
its water systems in Sussex County and New Castle County, Delaware have
interconnected transmission systems. Treatment is by chlorination and, in some
cases, pH correction and filtration.
Pinelands System:
- -----------------
The Pinelands System obtains its water supply from four wells drilled into the
Mt. Laurel aquifer. The wells are equipped with three electric motor driven deep
well turbine pumps and one is equipped with an electric motor driven submersible
pump. Disinfection is done at individual well sites, which are located in
Southampton Township, New Jersey. The wells have an aggregate pump capacity of
2.2 mgd. In 1999, the maximum daily pumpage was 1.9 million gallons.
Pinelands Wastewater System:
The Pinelands Wastewater System discharges into the South Branch of the Rancocas
Creek through a tertiary treatment plant that provides clarification,
sedimentation, filtration and disinfection. The total capacity of the plant is
0.5 mgd. Current average flow is 0.3 mgd. Pinelands has a current valid
discharge permit issued by the New Jersey Department of Environmental Protection
("DEP") .
Competition
- -----------
Our business in our franchised service areas is substantially free from direct
competition with other public utilities, municipalities and other entities.
However, our ability to provide some contract water supply and wastewater
services and operations and maintenance services is subject to competition from
other public utilities, municipalities and other entities. Although the
Tidewater System has been granted an exclusive franchise for each of its
existing community water systems, its ability to expand service areas has been
affected by the Delaware Department of Natural Resources and Environmental
Control (DNREC) awarding franchises to other regulated water purveyors,
including franchises granted to service community water systems around and in
between the Tidewater Systems service areas.
Regulation
- ----------
We are subject to regulation as to our rates, services and other matters by the
states of New Jersey and Delaware with respect to utility service within those
states and with respect to environmental and water quality matters. We are also
subject to environmental and water quality regulation by the United States
Environmental Protection Agency ("EPA").
Regulation of Rates and Services
- --------------------------------
New Jersey operations are subject to regulation by the BPU. Similarly, our
Delaware operations are subject to regulation by the Public Service Commission
(PSC). These regulatory authorities have jurisdiction with respect to rates,
service, accounting procedures, the issuance of securities and other matters. In
determining our rates, the BPU and the PSC consider the income, expenses, rate
base of property used and useful in providing service to the public and a fair
rate of return on that property. Rate determinations by the BPU do not guarantee
particular rates of return to the Company for our New Jersey operations nor do
rate determinations by the PSC guarantee particular rates of return for our
Delaware operations. Thus, we may not achieve the rates of return allowed by the
BPU or the PSC.
In September 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999. Concurrently with the rate increase
request, an application was filed and approved by the PSC for a corporate merger
of Tidewater and Public. Public merged into Tidewater effective February 1,
2000. A rate decision by the PSC is expected in the second quarter of 2000.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
in the upgrade and expansion of the Carl J. Olsen Water Treatment Plant (CJO
Plant).
This project was necessary to meet the new and anticipated regulatory standards
concerning water quality and to increase the plant's production capacity.
Water Quality and Environmental Regulations
- -------------------------------------------
Both the EPA and the DEP regulate our operations in New Jersey with respect to
water supply, treatment and distribution systems and the quality of the water,
as do the EPA, the DNREC, and the Delaware Department of Health with respect to
operations in Delaware.
Federal, Delaware and New Jersey regulations adopted over the past five years
relating to water quality require expanded types of testing by the Company to
insure that its water meets State and Federal water quality requirements.
In addition, environmental regulatory agencies are reviewing current regulations
governing the limits of certain organic compounds found in the water as
byproducts of treatment. The Company believes the CJO Plant upgrade and
expansion will allow the Company to be in a stronger position to meet any such
future regulations with regard to its Middlesex System. Regular testing of our
water demonstrates that we are in compliance with existing Federal, New Jersey
and Delaware primary water quality standards.
The DEP and the Delaware Department of Health monitor the activities of the
Company and review the results of water quality tests performed by the Company
for adherence to applicable regulations. Other regulations applicable to the
Company include the Lead and Copper Rule, the maximum contaminant levels
established for various volatile organic compounds, the Federal Surface Water
Treatment Rule, and the Total Coliform Rule.
Employees
- ---------
As of December 31, 1999, we had a total of 143 employees in New Jersey, and a
total of 37 employees in Delaware. No employees are represented by a union.
Management considers its relations with its employees to be satisfactory. Wages
and benefits are reviewed annually and are considered competitive within the
industry.
Executive Officers of Middlesex Water Company
- ---------------------------------------------
Walter J. Brady - age 58; Senior Vice President-Administration; term expires May
2000. Mr. Brady, who joined the Company in 1962, was elected Assistant
Secretary-Assistant Treasurer in 1979, Assistant Vice President in 1982, Vice
President-Human Resources in 1987, Vice President-Administration in 1989 and
Senior Vice President of Administration in 1998. He serves as Plan Administrator
of the Pension Plan. He is a Director of Tidewater Utilities, Inc., White Marsh
Environmental Systems, Inc., Pinelands Water Company, Pinelands Wastewater
Company and Utility Service Affiliates, Inc., and a Vice President and Director
of Utility Service Affiliates (Perth Amboy) Inc.
A. Bruce O'Connor - age 41; Vice President and Controller; term expires May
2000. Mr. O'Connor, a Certified Public Accountant, joined the Company in 1990 as
Assistant Controller and was elected Controller in 1992 and Vice President in
1995. He assumed the designated title of Vice President and Controller and Chief
Financial Officer in May 1996. He is responsible for financial reporting,
customer service, rate cases, cash management and financings. He was formerly
employed by Deloitte & Touche LLP, a certified public accounting firm from 1984
to 1990. He is Director and Treasurer of Tidewater Utilities, Inc., Treasurer of
White Marsh Environmental Systems, Inc., Public Water Supply Company, Inc. and
Utility Service Affiliates, Inc., Vice President and Director of Pinelands Water
Company and Pinelands Wastewater Company and Vice President and Treasurer of
Utility Service Affiliates (Perth Amboy) Inc.
Marion F. Reynolds - age 60; Vice President, Secretary and Treasurer; term
expires May 2000. Ms. Reynolds, who had been Secretary-Treasurer since 1987 was
elected Vice President, Secretary and Treasurer in 1993. Prior to her election
she had been employed by Public Service Electric and Gas Company, Newark, New
Jersey since 1958, and was elected Assistant Corporate Secretary in 1976. She is
Secretary of Tidewater Utilities, Inc. White Marsh Environmental Systems, Inc.,
and Utility Service Affiliates (Perth Amboy) Inc. and Secretary/Treasurer of
Pinelands Water Company and Pinelands Wastewater Company and a Director and
Secretary of Utility Service Affiliates, Inc.
Richard A. Russo - age 54; Executive Vice President; term expires May 2000. Mr.
Russo, who had been Vice President-Operations since 1989 was elected Executive
Vice President in 1995 and is responsible for engineering, water production,
water treatment and distribution maintenance. He has been a director of
Middlesex since 1994. He was formerly employed by Trenton Water Works as General
Superintendent and Chief Engineer since 1979. He is President and Director of
Tidewater Utilities, Inc., White Marsh Environmental Systems, Inc., Public Water
Supply Company, Inc., Pinelands Water Company and Pinelands Wastewater Company.
He is Executive Vice President and Director of Utility Service Affiliates, Inc.
and Utility Service Affiliates (Perth Amboy) Inc. Mr. Russo also serves as Vice
President and a Director of Sussex Shores Water Company.
Dennis G. Sullivan - age 58; Vice President and General Counsel, Assistant
Secretary-Assistant Treasurer; term expires May 2000. 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 is Assistant Secretary and Assistant Treasurer
and a Director of Tidewater Utilities, Inc., Vice President, Assistant Secretary
and Director of White Marsh Environmental Systems, Inc. and Public Water Supply
Company Inc., a Director and Assistant Secretary of Pinelands Water Company and
Pinelands Wastewater Company, a Director and Assistant Secretary of Utility
Service Affiliates, Inc., and a Director and Assistant Secretary of Utility
Service Affiliates (Perth Amboy) Inc.
J. Richard Tompkins - age 61; Chairman of the Board and President; term expires
May 2000. Mr. Tompkins was elected President of the Company in 1981 and was
elected Chairman of the Board in 1990. In 1979 he was employed by Associated
Utility Services, an independent utility consulting firm in New Jersey, as Vice
President. From 1962 to 1979 he was employed by Buck, Seifert & Jost,
Incorporated, consulting engineers in New Jersey and was appointed Vice
President in 1973. He is Chairman and Director of Tidewater Utilities, Inc.,
White Marsh Environmental Systems, Inc., Pinelands Water Company and Pinelands
Wastewater Company; Director of Public Water Supply Company, Inc. and Director
and President of Utility Service Affiliates, Inc. and Utility Service Affiliates
(Perth Amboy) Inc. He is also a Director of New Jersey Utilities Association and
Raritan Bay Healthcare Foundation.
Ronald F. Williams - age 51; Vice President-Operations; term expires May 2000.
Mr. Williams was hired in March 1995 as Assistant Vice President-Operations,
responsible for the Company's Engineering and Distribution Departments. He was
elected Vice President-Operations in October 1995. He was formerly employed with
the Garden State Water Company as President and Chief Executive Officer since
1991. He is Director and Vice President of Utility Service Affiliates, Inc., and
Utility Service Affiliates (Perth Amboy) Inc.
Item 2. Properties
----------
The water utility properties of our systems consist of source of supply,
pumping, water treatment, transmission and distribution and general facilities.
Middlesex System:
The Middlesex System's principal source of surface supply is the D&R Canal owned
by the State of New Jersey and operated as a water resource by the NJWSA.
Water is withdrawn from the D&R Canal at New Brunswick, New Jersey through our
intake and pumping station located on State owned land bordering the Canal. It
is transported through our 54-inch supply main for treatment and distribution at
the CJO Plant. Facilities at the CJO Plant consist of source of supply, pumping,
water treatment, transmission, storage, laboratory and general facilities. We
monitor water quality at the CJO Plant, at each well field and throughout the
distribution system to determine that federal and state water quality standards
are met.
The design capacity of the intake and pumping station in New Brunswick, New
Jersey, is 80 mgd. The four electric motor driven vertical turbine pumps
presently installed have an aggregate design capacity of 82 mgd. The design
capacity of our raw water supply main is 55 mgd. We also have a 58,600 foot
transmission main, a long term lease agreement with the City of Perth Amboy for
the use of a 38,800 foot transmission main, and a long term, nonexclusive
"wheeling agreement" with the East Brunswick system, all used to transport water
to several of our contract customers.
The 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 concrete chlorine contact tanks,
twelve rapid filters containing gravel, sand and anthracite for water treatment
and a steel washwater tank. The Plant also includes a computerized Supervisory
Control and Data Acquisition (SCADA) 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 mgd (60 mgd maximum capacity). The
main pumping station at the CJO Plant has a design capacity of 90 mgd. The four
electric motor driven vertical turbine pumps presently installed have an
aggregate capacity of 72 mgd.
In addition to the main pumping station at the CJO Plant, there is a 15 mgd
auxiliary pumping station located in a separate building. It has a dedicated
substation and emergency power supply provided by a diesel-driven generator. It
pumps from the 10 million gallon distribution storage reservoir directly into
the distribution system.
We have a RENEW Program in the Middlesex System to clean and line with cement
previously unlined mains. There are approximately 160 miles of unlined mains in
the 670 mile Middlesex System. In 2000, we will clean and line approximately
nine miles of unlined mains.
Middlesex System's storage facilities consist of a 10 mg reservoir at the CJO
Plant, 5 mg and 2 mg reservoirs in Edison, a 5 mg reservoir in Carteret and a 2
mg reservoir at the Park Avenue Well Field.
We own the properties in New Jersey on which Middlesex System's 31 wells are
located. We also own our headquarters complex at 1500 Ronson Road, Iselin, New
Jersey, consisting of a 27,000 square foot, two story office building and an
adjacent 16,500 square foot maintenance facility.
Tidewater Systems:
The Tidewater Systems' storage facilities include 31 ground level storage tanks
with the following capacities: twenty-one 30,000 gallon tanks, two 25,000 gallon
tanks, three 125,000 gallon tanks, one 132,000 gallon tank, one 80,000 gallon
tank, one 35,000 gallon tank, one 85,000 gallon tank and one elevated storage
tank with a capacity of 300,000 gallons.
Our Delaware operations are managed from Tidewater's leased offices in Odessa,
Delaware and Millsboro, Delaware. Tidewater's office property, which is owned by
its wholly-owned subsidiary, White Marsh Environmental Systems, Inc., (White
Marsh) consists of a 2,400 square foot building situated on a one (1) acre lot.
In January 2000, White Marsh purchased two future office sites. A ten acre site
located in Dover will be the future location of Tidewater's primary business
office. A three acre site located in Millsboro will be used to operate the
southern portion of our territory and will replace the existing leased office.
Tidewater will maintain an office in Odessa, but on a smaller scale. We are
exploring several options for the existing Odessa property.
Pinelands System:
Pinelands Water Company owns well site properties, which are located in
Southampton Township, New Jersey. Pinelands Water storage facility is a 1.2 mg
standpipe.
Pinelands Wastewater System:
Pinelands Wastewater Company owns a 12-acre site on which its 0.5 mgd capacity
tertiary treatment plant is located.
Item 3. Legal Proceedings
-----------------
A motel in our Middlesex service area in 1994, and again in 1997, suffered
outbreaks of Legionella. Claims resulting from the death of a motel guest from
Legionella in 1997 and claims by two other patrons alleging illness as a result
of their stay at the motel in 1997 have been brought against the motel and
against us. We have substantial insurance coverage, which we believe will be
sufficient for all claims in this matter other than for punitive damages. While
the outcome of this case remains uncertain, we believe that the final resolution
will not have a significant effect on financial conditions or results of
operations.
The 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. The Bankruptcy Court has stayed all claims against the tenant except, to
the extent the tenant is insured, claims brought by us arising from claims made
against us by other tenants and the landlord. Under New Jersey case law, we do
not have financial responsibility to parties to the extent they receive payments
under their own insurance policies. We do not know either the total amount of
claims against us or how much of that amount will be covered by the parties' own
insurance policies. Our counsel in the litigation advises us that the case is
unlikely to be resolved rapidly. We believe we have substantial defenses to the
claims against us although we do not have insurance coverage for them.
The Company has been notified of a potential claim of $5.6 million involving the
break of both a Company water line and an underground electric power cable in
close proximity to it. The power cable contained both electric lines and
petroleum based insulating fluid. The Company is insured for damages except for
damages resulting from pollution discharge, which the Company is advised is
approximately $0.2 million. Causation and liability have not been established.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
-----------------------------------------------------------------
Matters Price Range of Common Stock
-----------------------------------
The following table shows the range of closing prices for the Common Stock on
the NASDAQ Stock Market for the calendar quarter indicated.
1999 High Low Dividend
---- ---- --- --------
First Quarter $25 7/16 $21 $29 1/2
Second Quarter 25 3/4 21 5/8 29 1/2
Third Quarter 39 1/2 25 29 1/2
Fourth Quarter 35 7/8 29 1/2 30 1/2
1998 High Low Dividend
---- ---- --- --------
First Quarter $22 1/2 $19 7/8 $0.28 1/2
Second Quarter 21 1/4 19 1/4 0.28 1/2
Third Quarter 22 20 1/8 0.28 1/2
Fourth Quarter 25 3/4 21 1/4 0.29 1/2
Approximate Number of Equity Security Holders as of December 31, 1999
- ---------------------------------------------------------------------
Number of
Title of Class Record Holders
-------------- --------------
Common Stock, No Par Value 2,211
Cumulative Preferred Stock, No Par Value:
$7 Series 14
$4.75 Series 1
Cumulative Convertible Preferred Stock, No Par Value:
$7 Series 4
$8 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.
The Common Stock of the Company is traded on the NASDAQ Stock Market under the
symbol MSEX.
Item 6. Selected Financial Data
-----------------------
Consolidated Selected Financial Data, page 20.
Item 7. Management's Discussion and Analysis of Financial
-------------------------------------------------
Condition and Results of Operations
-----------------------------------
The companies referred to herein are defined in Note 1(a), Notes to Consolidated
Financial Statements, included in Item 8 in Part II of this Form 10-K.
Liquidity and Capital Resources
The Company's actual capital expenditures for 1998 and 1999 and projected
requirements through 2002 are detailed as follows:
(in millions)
1998 1999 2000 2001 2002
------- ------- ------- ------- -------
CJO Plant $ 18.6 $ 12.0 $ 2.0 $ -- $ --
Delaware Systems 3.2 3.1 7.1 6.7 3.6
RENEW Program 2.1 2.1 2.2 2.2 2.2
Scheduled upgrades to
existing systems 3.4 7.3 6.8 7.2 10.3
------- ------- ------- ------- -------
Total $ 27.3 $ 24.5 $ 18.1 $ 16.1 $ 16.1
------- ------- ------- ------- -------
Our plan to finance these projects is underway. Middlesex issued $4.5 million of
First Mortgage Bonds through the New Jersey State Revolving Fund to cover the
cost of the 2000 and 2001 RENEW Program, which is our program to clean and
cement line approximately 17 miles of unlined mains in the Middlesex System.
There is a total of approximately 160 miles of unlined mains in the 670 mile
Middlesex System. The financing of our Delaware Systems capital program may be a
combination of internal funds from Middlesex and long-term debt financing from
either a financial institution or the Company. The debt financing decision will
be based upon the terms of financing available to our Delaware Systems. We
expect to be able to cover the costs of scheduled upgrades to the existing
systems with the cash flow generated from our utility operations through the
year 2002.
The Company currently has ten series of First Mortgage Bonds outstanding in the
aggregate principal amount of $79.2 million. The First Mortgage Bonds have been
issued under and secured by a mortgage indenture and supplements thereto, which
constitute a direct first mortgage lien upon substantially all of the property
of Middlesex. Tidewater borrowed funds under a $3.5 million, 8.05% Amortizing
Secured Note due December 20, 2021. Approximately $3.4 million was outstanding
under that note as of December 31, 1999.
From time to time, it may be necessary to utilize all or part of the $18.0
million in total lines of credit we have available with two commercial banks for
working capital purposes or to provide interim funds until long-term financing
is arranged. At December 31, 1999, we had $2.0 million of loans outstanding
against those lines of credit.
Results of Operations
1999 Compared to 1998
Operating revenues were up $10.4 million or 24.1% over 1998. This significant
increase was attributable to several factors. USA-PA began providing services
under its 20-year management contract with the City of Perth Amboy, which
accounted for $7.0 million of the increased revenues. Rate increases for all our
regulated companies amounted to $3.8 million in additional revenues. Customer
growth in our Delaware service territory contributed $0.4 million. Drought
related consumption decreases in New Jersey and a one-time refund to a large
industrial user offset some of the current year increases in the amount of $0.8
million. Record water usage in New Jersey during July and early August was
completely offset by the statewide drought restrictions imposed by the Governor
of New Jersey on August 6, 1999. Generally, these restrictions were subsequently
lifted on September 27, 1999. At all times, Middlesex had adequate sources of
water to supply its customers.
This fact, along with the Company's objection to such a broad water restriction,
was communicated to State authorities. The Company is continuing its effort to
change the State procedures for drought emergency declarations.
Total operating expenses also rose significantly over last year. The increase
over 1998 was $8.9 million or 26.3%. Operations and maintenance costs associated
with the services provided to the City of Perth Amboy accounted for $5.7
million. Purchased water costs were up $0.3 million, while purchased power
increased $0.1 million. Water treatment costs rose $0.3 million. Increased
staffing levels pushed labor and benefits up by $0.4 million. An unusual number
of emergency repairs, both in terms of quantity and severity, increased
maintenance by $0.5 million.
Depreciation expense jumped 18.2% or $0.6 million. The activation of the
improvements to the Carl J. Olsen Treatment Plant (CJO Plant) increased
depreciable property by over $35.0 million.
Other taxes rose $0.8 million due mostly to revenue related taxes. The increase
in federal income taxes was $0.2 million or 6.3%. Deferred taxes on construction
related activities tempered the effect of the current tax expense.
Other income's slight increase of $0.1 million represents the net financing
activities associated with the CJO Plant construction program. Allowance for
Funds Used During Construction (AFUDC) increased by $0.3 million while interest
income on excess cash fell by $0.2 million.
The increase in total interest charges of $0.3 million represents a full year
impact of the three series of First Mortgage Bonds issued during 1998.
Net income reached another record high by increasing $1.4 million or 21.5%. Even
with an increase of more than ten percent shares outstanding, due to the 0.5
million shares issued in December 1998, earnings per share also reached record
territory again. Basic earnings per share rose 8.5% to $1.54.
Results of Operations
1998 Compared to 1997
Operating Revenues were up $2.8 million or 6.9% over 1997. The increase was
attributable to several factors. Rate increases accounted for $1.7 million of
additional revenues. In January 1998, Middlesex implemented a BPU approved rate
increase of 4.4%, and Pinelands Water and Wastewater Companies implemented the
second part of a three-phase rate increase. The final phase was put in place in
January 1999. In addition, $0.5 million was added to revenues by the inclusion
of Public for the entire year of 1998 compared to five months in 1997. Public
was acquired on July 31, 1997. The continued double-digit growth of 11.5% in
Tidewater's customer base also contributed $0.5 million in revenues.
Higher revenues were partially offset by increased operating expenses of $2.4
million or 7.6%. The increases were related primarily to the following factors.
Purchased water and water treatment expenses reflected a combined increase of
$0.2 million as a result of Middlesex changing the composition of the water
sources it uses to supply its customers. Purchased power increased $0.2 million
due in part to a large credit Middlesex received in 1997 from its power
provider. Mandated recognition of postretirement benefit costs other than
pensions and amortization of BPU approved regulatory deferrals added $0.5
million and $0.2 million, respectively, to expenses. Labor costs were higher by
$0.5 million, and the inclusion of Public's expenses for a full year accounted
for $0.3 million of the increase.
Depreciation expense increased $0.2 million or 7.0% based on newly constructed
utility plant placed in service in 1998 and utility plant acquired through the
acquisition of Public.
Other Taxes increased $0.3 million and related mostly to revenue-related taxes
and employers' payroll taxes. The decrease in federal income taxes is due to a
lower amount of deferred taxes, which offset an increased amount of current
taxable income.
Other income increased $1.4 million compared to 1997. An increase of $0.9
million in AFUDC was related to the capital expenditures incurred in connection
with the upgrade of the CJO Plant. Interest income rose $0.5 million as a result
of the unexpended proceeds available for investment from the Series W Mortgage
Bonds issued in March 1998.
Total interest charges rose $1.1 million. This increase reflects $0.9 million of
interest expense related to the Series W Mortgage Bonds and increased interest
of $0.2 million on a higher level of short-term borrowings under existing lines
of credit incurred to finance the capital program on an interim basis.
The $0.1 million increase in preferred stock dividend requirements reflects the
issuance on July 31, 1997, of the $8.00 preferred stock series to complete the
acquisition of Public. Basic and diluted earnings per share increased $0.09 and
$0.08, respectively, over 1997. The $0.01 per share dilution in 1998 is the
result of the two series of convertible preferred stock currently outstanding.
Regulatory Matters
On January 1, 1999, USA-PA began operating the City of Perth Amboy's water and
wastewater systems under a 20-year agreement.
Perth Amboy has a population of 40,000 and has approximately 8,600 customers,
most of whom are served by both systems. The agreement is being effected under
New Jersey's Water Supply Public-Private Contracting Act and the New Jersey
Wastewater Public/Private Contracting Act.
Under the agreement, USA-PA receives a fixed fee and a variable fee based on
increased system billing. Fixed fee payments began at $6.4 million in the first
year and will increase to $9.7 million in year 20. The agreement also requires
USA-PA to lease from Perth Amboy all of its employees who currently work on the
Perth Amboy water and wastewater systems. In connection with the agreement,
Perth Amboy, through the Middlesex County Improvement Authority, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in the principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
In addition to the agreement with Perth Amboy, USA-PA simultaneously entered
into a 20-year subcontract with a sewer contracting firm for the operation and
maintenance of the Perth Amboy wastewater system. The subcontract requires the
sharing of certain fixed and variable fees and operating expenses.
In December 1999, Middlesex closed on 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,
originally signed in December 1998, received approval from the New Jersey Board
of Public Utilities on November 18, 1999. See Note 4 to the Consolidated
Financial Statements.
In September 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999.
Concurrently with the rate increase request, an application was filed and
approved by the PSC for a corporate merger of Tidewater and Public. Public
merged into Tidewater effective February 1, 2000. The last increase in base
rates for Tidewater and Public were in 1991 and 1992, respectively. A rate
decision by the PSC is expected in the second quarter of 2000.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
in the upgrade and expansion of the CJO Plant. This project was necessary to
meet the new and anticipated regulatory standards concerning water quality and
to increase the plant's production capacity. The Company's original rate
request, which was filed in September 1998, was for $8.0 million.
On January 29, 1998, the BPU approved an increase in the rates of Middlesex by
4.4% or $1.5 million. Under the approval, the allowed return on equity is 11.0%
with an overall rate of return of 8.56%. The increase includes the recovery of
postretirement costs other than pension expenses, which are mandated by the
Company's compliance with Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions."
In January 1997, the BPU approved a stipulation agreed to by the parties to the
Pinelands Water and Wastewater Companies' rate cases. The stipulations allow for
a combined rate increase, which will result in $0.4 million additional revenues.
The new rates were phased in over a three-year period to minimize the impact on
customers. The final phase was implemented in January 1999.
Accounting Standards
In 1998, The Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended by
SFAS No. 137, "Deferral of the Effective Date of FASB Statement No. 133." This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts. The Company is currently evaluating the requirements of the
accounting standard, which is required to be adopted in the first quarter of
2001.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," revises and standardizes disclosure requirements for pension and
other post-retirement benefit plans but does not change the measurement or
recognition of those plans. Effective January 1, 1998, the Company adopted SFAS
No. 132. See Note 8 to the Consolidated Financial Statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," establishes standards for reporting certain financial and
descriptive information about operating segments in complete sets of financial
statements and requires selected information about operating segments in interim
financial reports issued to shareholders. The Company began reporting the
information required under this statement in the first quarter of 1999. See Note
9 the Consolidated Financial Statements.
Year 2000 Readiness
The Company, through its year 2000 Committee, implemented computer system
enhancements and contingency plans to protect against service interruption.
Contingency plans included installation of back-up generators, increased supply
of critical materials for water production, additional human resources on-duty
and on-call and special communication protocol with state emergency personnel
and Company management. Additional costs associated with these plans amounted to
less than $0.1 million.
Also, part of the planning process involved monthly assessment submissions to
utility regulatory authorities as to the Company's readiness. We are pleased to
report that no service interruption occurred as a result of the calendar year
changing to 2000.
Qualitative and Quantitative Disclosures About Market Risk
The Company is subject to the risk of fluctuating interest rates in the normal
course of business. Our policy is to manage interest rates through the use of
fixed rate long-term debt and, to a lesser extent, short-term debt. The
Company's interest rate risk related to existing fixed rate, long-term debt is
not material due to the term of the majority of our First Mortgage Bonds, which
have maturity dates ranging from 2009 to 2038. Over the next twelve months,
approximately $0.2 million of the current portion of three existing long-term
debt instruments will mature. Combining this amount with the $2.0 million in
short-term debt outstanding at December 31, 1999, and applying a hypothetical
change in the rate of interest charged by 10% on those borrowings, would not
have a material effect on earnings.
Outlook
Revenues are expected to continue to grow in 2000. The annualized effect of rate
increases implemented in Delaware and New Jersey, along with anticipated
customer growth in Delaware, should also enhance earnings. The level of earnings
may be impacted by the ultimate outcome of the Tidewater base rate case
currently under review by the PSC and the Company's ability to maintain costs at
reasonable levels. Revenues and, therefore, earnings may also be affected by
weather conditions.
Our strategy is for continued growth through acquisitions, internal expansion,
public/private partnerships and rate relief. Opportunities in both the regulated
and non-regulated sectors that are financially sound, complement existing
operations and increase shareholder value will be pursued. We are currently
pursuing several opportunities in Delaware, which could significantly increase
our customer base.
Certain matters discussed in this annual report are "forward-looking statements"
intended to qualify for safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. Such statements address future plans,
objectives, expectations and events concerning various matters such as capital
expenditures, earnings, litigation, growth potential, rate, regulatory matters,
liquidity, capital resources and accounting matters. Actual results in each case
could differ materially from those currently anticipated in such statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.
Item 7a. Qualitative and Quantitive Disclosure About Market Risk
-------------------------------------------------------
This information is incorporated herein by reference to Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, Page 16.
Item 8. Financial Statements and Supplementary Data
-------------------------------------------
Index to Consolidated Financial Statements and Supplementary Financial Data:
Consolidated Balance Sheet at December 31, 1999 and 1998, Pages 21-22
Consolidated Statements of Income for the years ended December 31, 1999, 1998
and 1997, Page 23.
Consolidated Statements of Capital Stock and Long-term Debt at December 31, 1999
and 1998, Page 24.
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997, Page 25.
Consolidated Statements of Retained Earnings for the years ended December 31,
1999 and 1998, Page 26.
Notes to Consolidated Financial Statements, Pages 27-39.
Independent Auditors' Report, Page 40.
Item 9. Changes in and Disagreements with Accountants on Accounting
-----------------------------------------------------------
and Financial Disclosures
-------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
--------------------------------------------------
Information with respect to Directors of Middlesex Water Company is included in
Middlesex Water Company's Proxy Statement for the 2000 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 1 of this Form 10-K.
Item 11. Executive Compensation
----------------------
This Information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners
-----------------------------------------------
and Management
--------------
This information for Middlesex Water Company is included in Middlesex Water
Company's Proxy Statement for the 2000 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 2000 Annual Meeting of Stockholders and is
incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
---------------------------------------------------------------
(a) 1. The following Financial Statements and supplementary data
are included in Part II, Item 8.
Management's Discussion and Analysis, Pages 12-17.
Consolidated Balance Sheets at December 31, 1999, and 1998, Pages
21-22.
Consolidated Statements of Income for each of the three years in
the period ended December 31, 1999 1998 and 1997 Page 23.
Consolidated Statements of Capital Stock and Long-term Debt at
December 31, 1999, and 1998, Page 24.
Consolidated Statements of Cash Flows for each of the three years
in the period ended December 31, 1999, 1998 and 1997 Page 25.
Consolidated Statements of Retained Earnings for each of the three
years in the period ended December 31, 1999, 1998 and 1997 Page 26.
Notes to Consolidated Financial Statements, Pages 27-39.
Independent Auditors' Report, Page 40.
(a) 2. Financial Statement Schedules
All Schedules are omitted because of the absence of the conditions
under which they are required or because the required information
is shown in the financial statements or notes thereto.
(a) 3. Exhibits
See Exhibit listing on Pages 43-46.
(b) Reports on Form 8-K
None
CONSOLIDATED SELECTED FINANCIAL DATA
(Thousands of Dollars Except per Share Data)
1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Revenues $ 53,497 $ 43,058 $ 40,294 $ 38,025 $ 37,847 $ 36,122
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Expenses:
Operations and Maintenance 28,887 21,523 19,513 18,817 18,057 16,975
Depreciation 3,885 3,285 3,071 2,929 2,814 2,650
Other Taxes 6,871 6,102 5,782 5,569 5,479 5,343
Income Taxes 3,189 2,999 3,135 2,526 2,975 2,766
- -----------------------------------------------------------------------------------------------------------------------------------
Total Operating Expenses 42,832 33,909 31,501 29,841 29,325 27,734
- -----------------------------------------------------------------------------------------------------------------------------------
Operating Income 10,665 9,149 8,793 8,184 8,522 8,388
Other Income 1,911 1,795 405 288 303 151
- -----------------------------------------------------------------------------------------------------------------------------------
Income Before Interest Charges 12,576 10,944 9,198 8,472 8,825 8,539
- -----------------------------------------------------------------------------------------------------------------------------------
Interest Charges 4,695 4,423 3,337 3,304 3,121 3,044
- -----------------------------------------------------------------------------------------------------------------------------------
Net Income 7,881 6,521 5,861 5,168 5,704 5,495
Preferred Stock Dividend 301 319 226 159 159 188
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings Applicable to Common Stock $ 7,580 $ 6,202 $ 5,635 $ 5,009 $ 5,545 $ 5,307
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings per Share:
Basic $ 1.54 $ 1.42 $ 1.33 $ 1.20 $ 1.36 $ 1.33
Diluted $ 1.52 $ 1.41 $ 1.33 $ 1.20 $ 1.36 $ 1.32
Average Shares Outstanding:
Basic 4,926,893 4,353,879 4,235,082 4,169,334 4,078,890 4,003,393
Diluted 5,148,513 4,580,305 4,382,345 4,258,740 4,168,296 4,092,799
Dividends Declared and Paid $ 1.19 $ 1.15 1.12 1/2 $ 1.10 1/2 $ 1.08 1/2 $ 1.05 3/4
Total Assets $ 215,036 $ 203,501 $ 159,761 $ 148,660 $ 144,822 $ 132,413
Convertible Preferred Stock $ 2,961 $ 3,894 $ 3,894 $ 1,566 $ 1,566 $ 1,566
Long-term Debt $ 82,330 $ 78,032 $ 52,918 $ 52,961 $ 52,960 $ 49,500
- -----------------------------------------------------------------------------------------------------------------------------------
MIDDLESEX WATER COMPANY
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------------
1999 1998
------------ ------------
UTILITY PLANT:
Water Production $ 70,316,961 $ 28,154,961
Transmission and Distribution 122,002,931 118,234,900
General 19,717,575 19,300,406
Construction Work in Progress 2,858,703 25,794,061
------------ ------------
TOTAL 214,896,170 191,484,328
Less Accumulated Depreciation 35,174,531 32,367,936
------------ ------------
UTILITY PLANT - NET 179,721,639 159,116,392
------------ ------------
NONUTILITY ASSETS - NET 2,087,498 3,710,437
CURRENT ASSETS:
Cash and Cash Equivalents 5,169,772 9,388,822
Temporary Cash Investments - Restricted 5,731,827 9,776,072
Accounts Receivable 5,969,546 4,886,067
Unbilled Revenues 2,627,863 2,298,148
Materials and Supplies (at average cost) 956,950 906,866
Prepayments 616,224 528,348
------------ ------------
TOTAL CURRENT ASSETS 21,072,182 27,784,323
------------ ------------
DEFERRED CHARGES: Unamortized Debt Expense 3,029,362 3,143,384
Preliminary Survey and Investigation Charges 472,287 276,202
Regulatory Assets:
Income Taxes (Note 3) 5,955,879 5,788,752
Postretirement Costs (Note 8) 1,127,884 1,214,092
Other (Note 2) 1,568,934 2,467,674
------------ ------------
TOTAL DEFERRED CHARGES 12,154,346 12,890,104
------------ ------------
TOTAL $215,035,665 $203,501,256
------------ ------------
See Notes to Consolidated Financial Statements.
CAPITALIZATION AND LIABILITIES
December 31,
-----------------------------
1999 1998
------------ ------------
CAPITALIZATION
Common Stock $ 47,593,514 $ 45,507,172
Retained Earnings 22,895,844 21,222,294
------------ ------------
TOTAL COMMON EQUITY 70,489,358 66,729,466
Cumulative Preferred Stock 4,063,062 4,995,635
Long-term Debt 82,329,592 78,031,513
------------ ------------
TOTAL CAPITALIZATION 156,882,012 149,756,614
CURRENT
LIABILITIES:
Current Portion of Long-term Debt 201,921 71,730
Notes Payable 2,000,000 1,000,000
Accounts Payable 3,392,432 3,851,659
Taxes Accrued 5,358,737 5,220,669
Interest Accrued 1,760,470 1,701,330
Other 1,591,706 1,354,673
------------ ------------
TOTAL CURRENT LIABILITIES 14,305,266 13,200,061
------------ ------------
COMMITMENTS AND CONTINGENT LIABILITIES (Note 4)
DEFERRED CREDITS:
Customer Advances for Construction 11,775,581 11,275,660
Accumulated Deferred Investment Tax Credits (Note 3) 2,089,650 2,165,384
Accumulated Deferred Federal Income Taxes (Note 3) 12,113,286 12,070,474
Employee Benefit Plans (Note 8) 4,656,575 3,762,516
Other 1,059,206 791,460
------------ ------------
TOTAL DEFERRED CREDITS 31,694,298 30,065,494
------------ ------------
CONTRIBUTIONS IN AID OF CONSTRUCTION 12,154,089 10,479,087
------------ ------------
TOTAL $215,035,665 $203,501,256
------------ ------------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
OPERATING REVENUES (Note 2) $53,497,153 $43,057,966 $40,294,118
----------- ----------- -----------
OPERATING EXPENSES:
Operations (Note 4) 26,268,347 19,807,472 17,771,892
Maintenance 2,618,679 1,715,357 1,741,487
Depreciation 3,884,650 3,284,669 3,070,843
Other Taxes 6,871,105 6,101,719 5,781,641
Federal Income Taxes (Note 3) 3,188,893 2,999,288 3,135,118
----------- ----------- -----------
TOTAL OPERATING EXPENSES 42,831,674 33,908,505 31,500,981
----------- ----------- -----------
OPERATING INCOME 10,665,479 9,149,461 8,793,137
----------- ----------- -----------
OTHER INCOME:
Allowance for Funds Used During Construction 1,350,016 1,050,044 147,912
Other - Net 560,991 745,322 256,554
TOTAL OTHER INCOME 1,911,007 1,795,366 404,466
----------- ----------- -----------
INCOME BEFORE INTEREST CHARGES 12,576,486 10,944,827 9,197,603
----------- ----------- -----------
INTEREST CHARGES:
Interest on Long-term Debt 4,469,709 4,088,631 3,163,035
Amortization of Debt Expense 136,290 132,049 121,089
Other Interest Expense 89,446 202,921 52,573
----------- ----------- -----------
TOTAL INTEREST CHARGES 4,695,445 4,423,601 3,336,697
----------- ----------- -----------
NET INCOME 7,881,041 6,521,226 5,860,906
----------- ----------- -----------
PREFERRED STOCK DIVIDEND REQUIREMENTS 300,786 318,786 226,027
----------- ----------- -----------
EARNINGS APPLICABLE TO COMMON STOCK $ 7,580,255 $ 6,202,440 $ 5,634,879
----------- ----------- -----------
EARNINGS AND DIVIDENDS PER SHARE OF COMMON STOCK:
Earnings per Share (Note 7):
Basic $ 1.54 $ 1.42 $ 1.33
Diluted $ 1.52 $ 1.41 $ 1.33
Average Number of Shares Outstanding (Note 7):
Basic 4,926,893 4,353,879 4,235,082
Diluted 5,148,153 4,580,305 4,382,345
Dividends Paid per Share $ 1.19 $ 1.15 $ 1.12 1/2
----------- ----------- -----------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CAPITAL STOCK
AND LONG-TERM DEBT
Years Ended December 31,
------------------------------
1999 1998
------------ ------------
Common Stock, No Par Value (Note 7):
Shares Authorized - 10,000,000
Shares Outstanding - 1999 - 5,000,589 $ 48,116,537
1998 - 4,897,069 $ 45,889,980
Restricted Stock Plan (Note 8) (523,023) (382,80)
------------ ------------
TOTAL COMMON STOCK 47,593,514 45,507,172
------------ ------------
Cumulative Preference Stock, No Par Value:
Shares Authorized - 100,000
Shares Outstanding - None
Cumulative Preferred Stock, No Par Value (Note 7):
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 2,331,430
Nonredeemable:
Shares Outstanding, $7.00 Series - 1,017 101,700 101,700
Shares Outstanding, $4.75 Series - 10,000 1,000,000 1,000,000
------------ ------------
TOTAL CUMULATIVE PREFERRED STOCK 4,063,062 4,995,635
------------ ------------
Long-term Debt (Note 7):
8.05%, Amortizing Secured Note, due December 20, 2021 3,371,527 3,418,243
First Mortgage Bonds:
7.25%, Series R, due July 1, 2021 6,000,000 6,000,000
5.20%, Series S, due October 1, 2022 12,000,000 12,000,000
5.25%, Series T, due October 1, 2023 6,500,000 6,500,000
6.40%, Series U, due February 1, 2009 15,000,000 15,000,000
5.25%, Series V, due February 1, 2029 10,000,000 10,000,000
5.35%, Series W, due February 1, 2038 23,000,000 23,000,000
0.00%, Series X, due September 1, 2018 1,024,986 1,050,000
4.53%, Series Y, due September 1, 2018 1,135,000 1,135,000
0.00%, Series Z, due September 1, 2019 2,150,000 --
5.25%, Series AA, due September 1, 2019 2,350,000 --
------------ ------------
SUBTOTAL LONG-TERM DEBT 82,531,513 78,103,243
------------ ------------
Less: Current Portion of Long-term Debt (201,921) (71,730)
------------ ------------
TOTAL LONG-TERM DEBT $ 82,329,592 $ 78,031,513
------------ ------------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
-------------------------------------------------
1999 1998 1997
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 7,881,041 $ 6,521,226 $ 5,860,906
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation and Amortization 4,303,192 3,796,607 3,145,218
Provision for Deferred Income Taxes (124,315) 134,976 778,521
Allowance for Funds Used During Construction (1,350,016) (1,050,044) (147,912)
Changes in Assets and Liabilities:
Accounts Receivable (1,083,479) (1,091,207) 305,079
Accounts Payable (459,227) 302,246 2,173,616
Accrued Taxes 138,068 78,580 612,904
Accrued Interest 59,140 517,769 11,170
Unbilled Revenues (329,715) (122,214) 29,344
Employee Benefit Plans 894,059 1,015,280 536,342
Other-Net 111,068 313,982 (678,476)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,039,816 10,417,201 12,626,712
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Utility Plant Expenditures* (23,281,735) (26,275,281) (10,233,685)
Cash from Acquisition of Subsidiary -- 158,436
Notes Receivable 2,806,102 (1,619,065) 5,963
Preliminary Survey & Investigation Charges (196,085) (62,552) (458,016)
Other-Net (158,596) (654,605) (779,145)
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (20,830,314) (28,611,503) (11,306,447)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Redemption of Long-term Debt (71,730) (42,710) (41,780)
Proceeds from Issuance of Long-term Debt 4,500,000 25,185,000 --
Short-term Bank Borrowings 1,000,000 435,299 --
Deferred Debt Issuance Expenses (22,268) (502,200) --
Temporary Cash Investments-Restricted 4,044,245 (9,557,285) 9,996
Proceeds from Issuance of Common Stock-Net 1,104,469 14,288,456 1,147,418
Payment of Common Dividends (5,857,405) (4,987,013) (4,761,327)
Payment of Preferred Dividends (300,786) (318,751) (239,361)
Construction Advances and Contributions-Net 2,174,923 569,034 1,032,721
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 6,571,448 25,069,830 (2,852,333)
------------ ------------ ------------
NET CHANGES IN CASH AND CASH EQUIVALENTS (4,219,050) 6,875,528 (1,532,068)
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,388,822 2,513,294 4,045,362
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 5,169,772 $ 9,388,822 $ 2,513,294
------------ ------------ ------------
*Excludes Allowance for Funds Used During Construction
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash Paid During the Year for:
Interest (net of amounts capitalized) $ 3,137,411 $ 2,810,578 $ 3,045,867
Income Taxes $ 3,728,700 $ 3,162,975 $ 1,702,200
------------ ------------ ------------
See Notes to Consolidated Financial Statements.
MIDDLESEX WATER COMPANY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Years Ended December 31,
-------------------------------------------
1999 1998 1997
----------- ----------- -----------
BALANCE AT BEGINNING OF YEAR $21,222,294 $20,087,065 $19,226,847
NET INCOME 7,881,041 6,521,226 5,860,906
----------- ----------- -----------
TOTAL 29,103,335 26,608,291 25,087,753
----------- ----------- -----------
CASH DIVIDENDS:
Cumulative Preferred Stock 300,786 318,751 239,361
Common Stock 5,857,405 4,987,013 4,761,327
COMMON STOCK EXPENSES 49,300 80,233 --
----------- ----------- -----------
TOTAL DEDUCTIONS 6,207,491 5,385,997 5,000,688
----------- ----------- -----------
BALANCE AT END OF YEAR $22,895,844 $21,222,294 $20,087,065
----------- ----------- -----------
See Notes to Consolidated Financial Statements.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
Note 1 - Summary of Significant Accounting Policies
(a) Organization - Middlesex Water Company (Middlesex) is the parent company and
sole shareholder of Tidewater Utilities, Inc. (Tidewater), Pinelands Water
Company, Pinelands Wastewater Company, Utility Service Affiliates, Inc. (USA)
and Utility Service Affiliates (Perth Amboy) Inc. (USA-PA). White Marsh
Environmental Systems, Inc., is a wholly-owned subsidiary of Tidewater. Public
Water Supply Company, Inc., which was also a wholly-owned subsidiary of
Tidewater, was merged into Tidewater effective February 1, 2000. The combined
entity will continue to operate under the Tidewater name. The financial
statements for Middlesex and its wholly-owned subsidiaries (the Company) are
reported on a consolidated basis. All intercompany accounts and transactions
have been eliminated.
(b) System of Accounts - Middlesex, Pinelands Water and Pinelands Wastewater
maintain their accounts in accordance with the Uniform System of Accounts
prescribed by the Board of Public Utilities of the State of New Jersey (BPU).
Tidewater maintains its 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, 1999, there was no event or change in circumstance
that would indicate that the carrying amount of any long-lived asset was not
recoverable.
(d) Depreciation is computed by each regulated member of the Company utilizing a
rate approved by the applicable regulatory authority. The Accumulated Provision
for Depreciation is charged with the cost of property retired, together with
removal costs, less salvage.
(e) Allowance for Funds Used During Construction (AFUDC) - Middlesex, Tidewater,
Pinelands Water and Pinelands Wastewater capitalize AFUDC, which represents the
cost of financing major projects during construction. AFUDC is added to the
construction costs of individual projects exceeding specific cost thresholds
established for each company and then depreciated along with the rest of the
utility plant's costs over its estimated useful life. AFUDC is calculated using
each company's weighted cost of debt and equity.
(f) Accounts Receivable - Provision for allowance for doubtful accounts at
December 31, 1999, 1998 and 1997, and the corresponding expense and deduction
for those years, is less than $0.1 million.
(g) Revenues from regulated activities are recorded as service is rendered and
include estimates for amounts unbilled at the end of the period for services
provided subsequent to the last billing cycle. Fixed service charges are billed
in advance by Tidewater and are recognized in revenue as the service is
provided. Management contract fees are recorded as earned.
(h) Deferred Charges - Unamortized Debt Expense is amortized over the lives of
the related issues. As authorized by the BPU, main cleaning and lining costs,
tank painting and regulatory expenses are amortized over 3 to 15-year periods.
(i) Income Taxes - Middlesex files a consolidated federal income tax return for
the Company and income taxes are allocated based on the separate return method.
Investment tax credits have been deferred and are amortized over the estimated
useful life of the related property.
(j) Statements of Cash Flows - For purposes of reporting cash flows, the Company
considers all highly liquid investments with original maturity dates of three
months or less to be cash equivalents. Cash and cash equivalents represent bank
balances, commercial paper and money market funds maturing in less than 90 days.
(k) Use of Estimates - Conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts in the financial statements. Actual results could differ from those
estimates.
(l) In June 1998, The Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137,
"Deferral of the Effective Date of FASB Statement No. 133." This Statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts. The
Company is currently evaluating the requirements of this accounting standard,
which is required to be adopted in the first quarter of 2001.
(m) Certain prior year amounts have been reclassified to conform to the current
year reporting.
Note 2 - Rates and Revenues
In December 1999, Middlesex closed on 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,
originally signed in December 1998, received approval from the BPU on November
18, 1999. See Note 4.
In September 1999, Tidewater and Public jointly filed a petition with the
Delaware Public Service Commission (PSC) for a base rate increase of $1.7
million or 38.3%. The increase is necessary to cover additional capital
improvements and increased operating and maintenance costs. As prescribed by PSC
regulations, Tidewater was granted an interim rate increase, subject to refund,
of 14.8%, effective November 19, 1999. Concurrently with the rate increase
request, an application was filed and approved by the PSC for a corporate merger
of Tidewater and Public. Public merged into Tidewater effective February 1,
2000. The last increase in base rates for Tidewater and Public were in 1991 and
1992, respectively. A rate decision by the PSC is expected in the second quarter
of 2000.
In May 1999, the BPU approved an 11.5% or $4.3 million base rate increase for
Middlesex. Under the approval, the allowed return on equity is 10.8% with an
overall rate of return of 8.21%. The purpose of the increase is to allow
Middlesex the opportunity to earn a return on and recover the capital investment
in the upgrade and expansion of the Carl J. Olsen Water Treatment Plant. This
project was necessary to meet the new and anticipated regulatory standards
concerning water quality and to increase the plant's production capacity. The
Company's original rate request, which was filed in September 1998, was for $8.0
million.
In January 1998, the BPU approved an increase in the rates of Middlesex by 4.4%,
or $1.5 million. Under the approval, the allowed return on equity is 11.0% with
an overall rate of return of 8.56%. The increase includes the recovery of
postretirement costs other than pension expenses, which are mandated by the
Company's compliance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
In January 1997, the BPU approved a stipulation agreed to by the parties to the
Pinelands Water and Wastewater Companies' rate cases. The stipulations allow for
a combined rate increase, which will result in $0.4 million additional revenues.
The new rates were phased in over a three-year period to minimize the impact on
customers. The final phase was implemented in January 1999.
Included in Deferred Charges-Other are $1.3 million of deferred costs at
December 31, 1999, which Middlesex, Pinelands Water and Pinelands Wastewater are
recovering through rates over periods of 3 to 15 years. The BPU has excluded
these costs from their rate bases and, therefore, they are not earning a return
on the unamortized costs during the recovery periods.
Note 3 - Income Taxes
Federal income tax expense differs from the amount computed by applying the
statutory rate on book income subject to tax for the following reasons:
Years Ended December 31,
(Thousands of Dollars)
1999 1998 1997
------- ------- -------
Income Tax at Statutory Rate of 34% $ 3,764 $ 3,237 $ 2,956
Tax Effect of:
AFUDC (459) (357) (49)
Other (116) 119 (133)
------- ------- -------
Total Federal Income Tax Expense $ 3,189 $ 2,999 $ 2,774
------- ------- -------
Federal income tax expense is comprised of the following:
Current $ 3,432 $ 2,975 $ 2,117
Deferred:
Customer Advances 45 51 63
Accelerated Depreciation 234 595 753
Employee Benefit Plans (304) (358) (107)
Investment Tax Credit (76) (72) (72)
Other (142) (192) 20
------- ------- -------
Total Federal Income Tax Expense $ 3,189 $ 2,999 $ 2,774
------- ------- -------
Charged to:
Operating Expense $ 3,189 $ 2,999 $ 3,135
Other Income-Net -- -- (361)
------- ------- -------
Total Provision $ 3,189 $ 2,999 $ 2,774
------- ------- -------
The statutory review period for income tax returns for the years prior to 1996
has been closed. The Company is required to set up deferred income taxes for all
temporary differences regardless of the regulatory ratemaking treatment.
However, if it is probable that these additional taxes will be passed on to
ratepayers, an offsetting regulatory asset or liability can be recorded.
Management believes that it is probable that the consolidated deferred income
tax liability of approximately $6.0 million will be recovered in future rates.
Therefore, a regulatory asset has been set up to offset the increased liability.
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:
Years Ended December 31,
(Thousands of Dollars)
1999 1998
-------- --------
Utility Plant Related $ 17,953 $ 17,549
Customer Advances (4,628) (4,669)
Employee Benefits (1,110) (813)
Other (102) 3
-------- --------
Total Deferred Tax Liability $ 12,113 $ 12,070
======== ========
Note 4 - Commitments and Contingent Liabilities
Service Agreement - In December 1998, the Company's subsidiary, USA-PA, entered
into a 20-year agreement with the City of Perth Amboy, New Jersey (Perth Amboy)
and the Middlesex County Improvement Authority (MCIA) to operate and maintain
the water and wastewater systems of Perth Amboy. USA-PA began operating Perth
Amboy's systems on January 1, 1999.
Perth Amboy has a population of 40,000 and has approximately 8,600 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. Under the agreement, USA-PA receives
a fixed fee and a variable fee based on increased system billing. Fixed fee
payments began at $6.4 million in the first year and will increase to $9.7 in
year 20. The agreement also requires USA-PA to lease from Perth Amboy all of its
employees who currently work on the Perth Amboy water and wastewater systems. In
connection with the agreement, Perth Amboy through the MCIA, issued
approximately $68.0 million in three series of bonds on January 28, 1999. The
Company guaranteed one of those series of bonds, in the principal amount of
approximately $26.3 million. Perth Amboy guaranteed the two other series of
bonds.
In addition to the agreement with Perth Amboy, effective January 1, 1999, USA-PA
entered into a 20-year subcontract with a sewer contracting firm for the
operation and maintenance of the Perth Amboy wastewater system. The subcontract
requires the sharing of certain fixed and variable fees and operating expenses.
Franchise Agreement/Service Agreement - On December 2, 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, originally signed in December 1998,
received approval from the BPU on November 18, 1999. The implementation of the
franchise agreement has significantly impacted two existing agreements entered
into by the parties in 1994.
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. Certain advances made by USA to South Amboy at the
commencement of the management services contract have been forgiven in
consideration for the franchise agreement. Fixed fee revenues recognized under
the original contract have been eliminated in lieu of revenues derived from
providing water to South Amboy's 2,600 customers. In 1999, 1998 and 1997,
service contract revenues recognized under the original contract were $0.4
million, $0.5 million and $0.4 million, respectively.
Water Supply - Middlesex has an agreement with the Elizabethtown Water Company
for the purchase of treated water. This agreement, which expires December 31,
2005, provides for the minimum purchase of 3 million gallons daily (mgd) of
treated water with provisions for additional purchases. The 1999, 1998 and 1997
costs under this agreement were $1.7 million, $1.6 million and $1.5 million,
respectively.
Middlesex also has an agreement with the New Jersey Water Supply Authority
(NJWSA), which expires November 1, 2013, and provides for the minimum purchase
of 20 mgd of untreated water from the Delaware and Raritan Canal and the Raritan
River. In addition, the Company has a supplemental one-year agreement for an
additional 5 mgd through April 30, 2000. This agreement is renewable on an
annual basis. The total costs under this agreement in 1999, 1998 and 1997 were
$2.0 million, $1.8 million and $1.7 million, respectively.
Construction - The Company plans to spend approximately $18.1 million in 2000
and $16.1 million in 2001 and in 2002 on its construction program. Substantially
all of the utility plant of the Company is subject to the lien of its mortgage,
which also includes certain restrictions as to cash dividend payments and other
distributions on common stock.
Litigation - A motel in our Middlesex service area in 1994, and again in 1997,
suffered outbreaks of Legionella. Claims resulting from the death of a motel
guest from Legionella in 1997 and claims by two other patrons alleging illness
as a result of their stay at the motel in 1997 have been brought against the
motel and against us. We have substantial insurance coverage, which we believe
will be sufficient for all claims in this matter other than for punitive
damages. While the outcome of this case remains uncertain, we believe that the
final resolution will not have a significant effect on financial conditions or
results of operations.
The 1995 fire at a warehouse in our service territory resulted in multiple party
claims brought forth in the Superior Court for Middlesex County, New Jersey, as
well as, with the financial collapse of the principal tenant, in the Federal
Bankruptcy Court. The claims in the State court action are for unspecified
amounts but include claims against us for insufficient water pressure and
supply. The Bankruptcy Court has stayed all claims against the tenant except, to
the extent the tenant is insured, claims brought by us arising from claims made
against us by other tenants and the landlord. Under New Jersey case law, we will
not have financial responsibility to parties to the extent they receive payments
under their own insurance policies. We do not know either the total amount of
claims against us or how much of that amount will be covered by the parties' own
insurance policies. Our counsel in the litigation advises us that the case is
unlikely to be resolved rapidly. We believe we have substantial defenses to the
claims against us although we do not have insurance coverage for them.
The Company has been notified of a potential claim of $5.6 million involving the
break of both a Company water line and an underground electric power cable in
close proximity to it. The power cable contained both electric lines and
petroleum based insulating fluid. The Company is insured for damages except for
damages resulting from pollution discharge, which the Company is advised is
approximately $0.2 million. Causation and liability have not been established.
Note 5 - Lines of Credit, Notes Payable and
Restricted Cash
(Thousands of Dollars)
1999 1998 1997
------- ------- -------
Established Lines at Year End $18,000 $28,000 $20,000
Maximum Amount Outstanding 3,000 4,575 --
Average Outstanding 1,129 2,653 --
Notes Payable at Year End 2,000 1,000 --
Weighted Average Interest Rate 5.37% 5.37% --
To accommodate the funding requirements of the Company's on-going capital
program, in December 1997 the Board of Directors authorized an increase in the
amount of lines of credit for up to $30 million. Short-term borrowings are below
the prime rate with some requirements for compensating balances not exceeding 1%
of the line.
Restricted temporary cash investments at December 31, 1999, include $ 4.9
million balance of proceeds from the Series X, Y, Z and AA First Mortgage Bonds
issuances. These funds are held in trusts and restricted to specific capital
expenditures and debt service requirements. Series X and Y proceeds can only be
used for the 1999 main cleaning and cement lining program. Series Z and AA
proceeds can only be used for the 2000 and 2001 main cleaning and cement lining
programs.
Note 6 - Quarterly Operating Results - Unaudited
Quarterly operating results for 1999 and 1998 are as follows:
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th
1999 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- ----
Operating Revenues $11,680 $ 13,813 $15,392 $12,612 $53,497
Operating Income 1,946 2,981 3,615 2,123 10,665
Net Income 1,493 2,572 2,781 1,035 7,881
Basic Earnings per Share $ .29 $ .51 $ .55 $ .19 $ 1.54
Diluted Earnings per Share .29 .50 .54 .19 1.52
(Thousands of Dollars Except per Share Data)
1st 2nd 3rd 4th
1998 Quarter Quarter Quarter Quarter Year
- ---- ------- ------- ------- ------- ----
Operating Revenues $ 9,769 $ 10,591 $ 12,074 $ 10,624 $ 43,058
Operating Income 1,948 2,268 2,978 1,955 9,149
Net Income 1,263 1,574 2,348 1,336 6,521
Basic Earnings per Share $ 0.28 $ 0.34 $ 0.52 $ 0.28 $ 1.42
Diluted Earnings per Share 0.28 0.34 0.51 0.28 1.41
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 7 - Capitalization
All the transactions discussed below related to the issuance or redemption of
securities were approved by the BPU, except where noted.
Common Stock
In December 1998, the Company completed the sale of 517,000 shares of its no par
common stock at a price of $24.625 per share. Most of the offering proceeds were
used to fund a portion of the cost of the CJO Plant upgrade. In addition, other
capital improvement expenditures for the Company's utility systems were funded
by the proceeds.
In June 1998, the Company increased the number of shares authorized under the
Dividend Reinvestment and Common Stock Purchase Plan (DRP) from 900,000 to
1,700,000 shares. The cumulative number of shares issued under the DRP at
December 31, 1999, is 886,557. In October 1997, the Board of Directors approved
a 5% discount on the first 100,000 shares of common stock sold to participants
of the Company's DRP between the period of January 2, 1998, and June 1, 1998.
During 1999, 1998 and 1997, 48,664 shares ($1.3 million), 110,852 shares ($2.3
million) and 64,148 shares ($1.1 million) of common stock were issued under DRP
and the restricted stock plan, respectively.
In the event dividends on the preferred stock are in arrears, no dividends may
be declared or paid on the common stock of the Company. At December 31, 1999, no
restrictions were placed on common dividends.
Preferred Stock
If four or more quarterly dividends are in arrears, the preferred shareholders,
as a class, are entitled to elect two members to the Board of Directors in
addition to Directors elected by holders of the common stock. In 1999, the
number of authorized Preferred Stock, without par value, was reduced from
149,980 shares to 140,497 shares to account for the conversion of 8,000 shares
of the $8.00 Series into 54,856 shares of the Company's common shares in 1999
and the cancellation of 1,483 shares of the nonredeemable $7.00 Series
previously redeemed. At December 31, 1999, and 1998, respectively, 37,898 and
45,898 shares of Preferred Stock presently authorized were outstanding. There
were no dividends in arrears.
The conversion feature of the no par $7.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for six shares of the Company's common stock. In addition, the Company may
redeem up to 10% of the outstanding convertible stock in any calendar year at a
price equal to the fair market value of six shares of the Company's common stock
for each share of convertible stock redeemed.
The conversion feature of the no par $8.00 Cumulative and Convertible Preferred
Stock allows the security holders to exchange one convertible preferred share
for 6.857 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
On November 5, 1999, the Company issued $2.150 million, designated as Series Z,
and $2.350 million, designated as Series AA, First Mortgage Bonds through the
New Jersey State Revolving Fund (SRF). Series Z has a zero interest cost, while
Series AA has a coupon rate that varies from 5.25% to 5.75%. The SRF program,
which is administered by the New Jersey Environmental Infrastructure Trust,
evolved from the Federal Environmental Protection Agency's (EPA) regulations
issued under the Safe Drinking Water Act. Under this program, investor-owned
public water utilities can apply for construction loans, which are funded by the
participating state and the EPA through the state environmental agency. In New
Jersey, initial project approval must be granted by the New Jersey Department of
Environmental Protection. Funds from the EPA, which can equal up to 50% of
construction costs, are loaned at a zero interest cost; the interest rate on the
state portion of the loan is based upon the prevailing market conditions at time
of issuance. Interest paid to the bondholders is exempt from federal and New
Jersey income taxes (Tax Exempt). However, the interest is subject to the
Alternative Minimum Tax (AMT). The proceeds of the bonds are being used to fund
the 2000 and 2001 capital project to clean and cement line previously unlined
pipes and mains.
On November 1, 1998, the Company issued $1.05 million, designated as Series X,
and $1.135 million, designated as Series Y, First Mortgage Bonds through the
SRF. Series X has a zero interest cost, while Series Y has a coupon rate that
varies from 4.25% to 4.625%. The proceeds of the bonds were used to fund the
1999 capital project to clean and cement line previously unlined pipes and
mains.
On March 31, 1998, Middlesex issued $23.0 million of First Mortgage Bonds
designated as Series W with a maturity date of February 1, 2038, and a coupon
rate of 5.35%. The effective interest cost to maturity is 5.48%. The bond
offering was competitively bid in cooperation with the New Jersey Economic
Development Authority. The interest paid to bondholders is considered Tax Exempt
subject to AMT. The proceeds of the bonds were used to finance a significant
portion of the upgrade of the CJO Plant.
The aggregate annual maturities for the amortizing secured note and First
Mortgage Bonds issued under SRF for each of the next five years are as follows:
2000 and 2001 - $0.2 million; and 2002 through 2004; $0.4 million. All other
First Mortgage Bonds are term bonds with a single maturity date, which are
listed in the Consolidated Statements of Capital Stock and Long-Term Debt.
The weighted average interest rate on all long-term debt at December 31, 1999,
and 1998 was 5.95% and 6.0%, respectively.
Earnings Per Share
In accordance with SFAS No. 128, "Earnings Per Share," which requires dual
presentation of basic and diluted earnings per share in the Consolidated
Statement of Income and requires a reconciliation of basic earnings per share
(EPS) to diluted EPS, the following table presents the calculation of basic and
diluted EPS for the three years ended December 31. Basic EPS are computed on the
basis of the weighted average number of shares outstanding. Diluted EPS assumes
the conversion of both the Convertible Preferred Stock $7.00 Series and $8.00
Series.
(In Thousands Except per Share Amounts)
1999 1998 1997
Basic: Income Shares Income Shares Income Shares
------- -------- -------- ----- ------- -----
Net Income $ 7,881 4,927 $ 6,521 4,354 $ 5,861 4,235
Preferred Dividend (301) (319) (226)
-------------------- -------------------- -------------------
Earnings Applicable
to Common Stock $7,580 4,927 $ 6,202 4,354 $ 5,635 4,235
Basic EPS $ 1.54 $ 1.42 $ 1.33
Diluted:
Earnings Applicable
to Common Stock $7,580 4,927 $ 6,202 4,354 $ 5,635 4,235
$7.00 Series Dividend 104 89 104 89 104 89
$8.00 Series Dividend 142 132 160 137 68 58
-------------------- -------------------- -------------------
Adjusted Earnings
Applicable to
Common Stock $ 7,826 5,148 $ 6,466 4,580 $ 5,807 4,382
Diluted EPS $ 1.52 $ 1.41 $ 1.33
Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in estimating its
fair value disclosure for financial instruments for which it is practicable to
estimate that value. The carrying amounts reflected in the consolidated balance
sheets for cash and cash equivalents, marketable securities, and trade
receivables and payables approximate their respective fair values due to the
short-term maturities of these instruments. The fair value of the Company's
long-term debt relating to first mortgage bonds is based on quoted market prices
for similar issues. At December 31, 1999, and 1998, the carrying and fair market
value of the Company's bonds were as follows:
(Thousands of Dollars)
1999 1998
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
First Mortgage Bonds $79,160 $71,346 $74,685 $75,106
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, 1999, and 1998 was $3.4 million for each year.
Customer advances for construction have a carrying value of $11.8 million and
$11.3 million at December 31, 1999, and 1998, 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 8 - Employee Benefit Plans
Effective January 1, 1998, the Company adopted SFAS No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits," which revises and
standardizes disclosure requirements for pension and other postretirement
benefit plans but does not change the measurement or recognition of those plans.
SFAS No. 132 supersedes the disclosure requirements in SFAS No. 87, "Employers'
Accounting for Pensions," and SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions."
Pension
The Company has a noncontributory defined benefit pension plan, which covers
substantially all employees with more than 1,000 hours of service. The Company
makes contributions to the Plan consistent with the funding requirements of
federal laws and regulations. In 1998, employees of Public, Pinelands Water and
Pinelands Wastewater became eligible to participate in the Plan. Plan assets
consist primarily of corporate equities, cash equivalents and stock and bond
funds. In addition, the Company maintains an unfunded supplemental pension plan
for its executives.
Postretirement Benefits Other Than Pensions
The Company has a postretirement benefit plan other than pension for
substantially all of its retired employees. Coverage includes health care and
life insurance. Employee contributions are dependent on credited years of
service. Accrued retirement benefit costs are recorded each year. In 1998,
employees of Tidewater, Public, Pinelands Water and Pinelands Wastewater became
eligible to participate in the Plan.
The Company has recognized a deferred regulatory asset relating to the
difference between the accrued retirement benefit costs and actual cash paid for
plan premiums in years prior to 1998. Included in the regulatory asset is a
transition obligation from adopting SFAS No.106 on January 1, 1993. 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, 1999 and 1998 were $1.1 million and $1.2
million, respectively.
The following table sets forth information relating to the Company's Pension
Plans and Other Postretirement Benefits.
(Thousands of Dollars)
Pension Benefits Other Benefits
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
Reconciliation of Benefit Obligation
Beginning Balance $ 16,573 $ 15,577 $ 4,434 $ 4,209
Service Cost 669 619 140 132
Interest Cost 1,136 1,065 310 287
Actuarial (Gain)/Loss (1,394) -- (319) 1
Benefits Paid (680) (688) (219) (195)
Ending Balance $ 16,304 $ 16,573 $ 4,346 $ 4,434
Reconciliation of Plan Assets at Fair Value
Beginning Balance $ 17,058 $ 14,777 $ -- $ --
Actual Return on Plan Assets 1,504 2,922 -- --
Employer Contributions 46 46 219 195
Benefits Paid (680) (687) (219) (195)
Ending Balance $ 17,928 $ 17,058 $ -- --
Funded Status $ 1,624 $ 485 $ (4,346) $ (4,434)
Unrecognized Net Transition Obligation 30 44 1,759 1,894
Unrecognized Net Actuarial (Gain)/Loss (4,596) (3,661) 459 945
Unrecognized Prior Service Cost 647 758 (6) (146)
Accrued Benefit Cost $ (2,295) $ (2,374) $ (2,134) $ (1,741)
(Thousands of Dollars)
Pension Benefits Other Benefits
--------------------------------- ---------------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
Components of Net Periodic Benefit Cost
Service Cost $ 669 $ 619 $ 534 $ 140 $ 132 $ 116
Interest Cost 1,136 1,065 935 310 287 258
Expected Return on Plan Assets (1,336) (1,156) (1,002) -- -- --
Amortization of Net Transition Obligation 14 14 14 135 135 135
Amortization of Net Actuarial (Gain)/Loss (93) 10 7 29 64 41
Amortization of Prior Service Cost 111 102 98 (2) (11) (11)
Regulatory Deferral -- -- -- -- -- (325)
------- ------- ------- ------- ------- -------
Net Periodic Benefit Cost $ 501 $ 654 $ 586 $ 612 $ 607 $ 214
======= ======= ======= ======= ======= =======
(Thousands of Dollars)
Pension Benefits Other Benefits
-------------------------- -------------------------
Weighted-Average Assumptions 1999 1998 1997 1999 1998 1997
Discount Rate 7.75% 7.00% 7.00% 7.75% 7.00% 7.00%
Expected Return on Plan Assets 8.00% 8.00% 8.00% -- -- --
Actual Return on Plan Assets 9.00% 20.25% 20.42% -- -- --
Rate of Compensation Increase 5.00% 4.75% 4.75% 5.00% 4.75% 4.75%
For measurement purposes, a 5.0% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1999 and all future years.
Assumed health care trend rates have a significant effect on the amounts
reported for the health care plan. A one-percentage point change in assumed
health care cost trend rates would have the following effects:
(Thousands of Dollars)
1 Percentage Point
Increase Decrease
-------- --------
Effect on Current Year's Benefit Expense $ 88 $ (71)
Effect on Benefit Obligation 718 (600)
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 1999, 1998 and 1997 amounted to $0.2 million for each year.
Stock Based Compensation
The Company maintains a restricted stock plan, under which 41,950 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 160,000
shares. Compensation expense is determined by the market value of the stock on
the date of the award and is being amortized over a five-year period. The
compensation expenses were $0.1 million for each of the years 1999, 1998 and
1997.
As permitted by SFAS No. 123, "Accounting for Stock-Based Compensation," (SFAS
No. 123) the Company elected to account for its stock based compensation under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Had compensation costs for the Company's restricted stock plan been
determined based on methodology prescribed in SFAS No. 123, there would have
been no effect on its results of operations or cash flows.
Note 9 - 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
non-regulated contract services for the operation and maintenance of municipal
and private water and wastewater systems in New Jersey and Delaware. On January
1, 1999 the Company began operating the water and wastewater systems of the City
of Perth Amboy, New Jersey, under a service contract. The accounting policies of
the segments are the same as those described in the summary of significant
accounting policies in Note 1 to the Consolidated Financial Statements.
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: 1999 1998 1997
-------- -------- --------
Revenues:
Regulated $ 46,008 $ 42,593 $ 39,870
Non - Regulated 7,527 489 448
Inter-segment Elimination (38) (24) (24)
Consolidated Revenues $ 53,497 $ 43,058 $ 40,294
Operating Income:
Regulated $ 9,718 $ 8,925 $ 8,590
Non - Regulated 947 224 205
Inter-segment Elimination -- -- (2)
Consolidated
Operating Income $ 10,665 $ 9,149 $ 8,793
Depreciation/Amortization:
Regulated $ 3,854 $ 3,280 $ 3,066
Non - Regulated 31 5 5
Inter-segment Elimination -- -- --
Consolidated
Depreciation/Amortization $ 3,885 $ 3,285 $ 3,071
Other Income:
Regulated $ 3,438 $ 2,631 $ 1,051
Non - Regulated (21) -- --
Inter-segment Elimination (1,506) (836) (646)
Consolidated Other Income $ 1,911 $ 1,795 $ 405
Interest Expense:
Regulated $ 5,071 $ 4,596 $ 3,422
Non - Regulated 226 154 89
Inter-segment Elimination (602) (326) (174)
Consolidated Interest Expense $ 4,695 $ 4,424 $ 3,337
Net Income:
Regulated $ 8,064 $ 6,960 $ 6,219
Non - Regulated 721 70 117
Inter-segment Elimination (904) (509) (475)
Consolidated Net Income $ 7,881 $ 6,521 $ 5,861
Capital Expenditures:
Regulated $ 23,117 $ 26,222 $ 10,232
Non - Regulated 165 53 2
Inter-segment Elimination -- -- --
Total Capital Expenditures $ 23,282 $ 26,275 $ 10,234
As of As of
December 31, December 31,
1999 1998
--------- ---------
Assets:
Regulated $ 231,650 $ 217,489
Non - Regulated 2,405 2,782
Inter-segment Elimination (19,019) (16,770)
--------- ---------
Consolidated Assets $ 215,036 $ 203,501
========= =========
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 generally
accepted accounting principles considered appropriate under the circumstances
and include amounts based on necessary judgment and estimates deemed
appropriate.
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 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/J. Richard Tompkins /s/A. Bruce O'Connor
---------------------- --------------------
J. Richard Tompkins A. Bruce O'Connor
Chairman of the Board Vice President and
and President Controller
February 18, 2000
INDEPENDENT AUDITORS' REPORT
MIDDLESEX WATER COMPANY
We have audited the accompanying consolidated balance sheets and consolidated
statements of capital stock and long-term debt of Middlesex Water Company and
its subsidiaries as of December 31, 1999 and 1998 and the related consolidated
statements of income, retained earnings and of cash flows for each of the three
years in the period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Middlesex Water Company and its
subsidiaries at December 31, 1999 and 1998 and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1999 in conformity with generally accepted accounting principles.
/s/Deloitte & Touche LLP
- ------------------------
Deloitte & Touche LLP
Parsippany, New Jersey
February 18, 2000
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Chairman of the Board and /s/J. Richard Tompkins/
President and Director -----------------------
J. Richard Tompkins
Executive Vice President and /s/Richard A. Russo/ 3/25/00
Director -------------------- Date
Richard A. Russo
Vice President and Controller /s/A. Bruce O'Connor/ 3/25/00
Chief Financial Officer --------------------- Date
A. Bruce O'Connor
Director /s/John C. Cutting/ 3/25/00
------------------- Date
John C. Cutting
Director /s/John R. Middleton/ 3/25/00
--------------------- Date
John R. Middleton
Director /s/John P. Mulkerin/ 3/25/00
-------------------- Date
John P. Mulkerin
Director /s/Stephen H. Mundy/ 3/25/00
-------------------- Date
Stephen H. Mundy
Director /s/Jeffries Shein/ 3/25/00
------------------ Date
Jeffries Shein
Vice President and /s/Dennis G. Sullivan/ 3/25/00
General Counsel and ---------------------- Date
Director Dennis G. Sullivan
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.
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
4.1 Form of Common Stock Certificate. 2-55058 2(a)
4.2 Registration Statement, Form S-3, under
Securities Act of 1933 filed February 3,
1987, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
4.3 Post Effective Amendments No. 3 and 6,
Form S-3, under Securities Act of 1933 filed
May 28, 1993, relating to the Dividend Reinvestment
and Common Stock Purchase Plan. 33-11717
4.4 Revised Prospectus relating to the Dividend
Reinvestment and Common Stock Purchase Plan,
Submitted to the Securities and Exchange Commission,
January 20, 2000. 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.
10.2 Copy of Mortgage, dated April 1, 1927, between the Company and
Union County Trust Company, as Trustee, as supplemented by
Supplemental Indentures, dated as of
October 1, 1939 and April 1, 1949. 2-15795 4(a)-4(f)
10.3 Copy of Supplemental Indentures, dated as of
July 1, 1964 and June 15, 1991, between the Company
and Union County Trust Company, as Trustee. 33-54922 10.4 -10.9
and 10.16
10.4 Copy of Trust Indenture, dated as of June 15,
1991, between the New Jersey Economic Development
Authority and Midlantic National Bank, as Trustee. 33-54922 10.17
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
10.5 Copy of Supply Agreement, dated as of November
17, 1986, between the Company and the Old Bridge
Municipal Utilities Authority. 33-31476 10.12
10.6 Copy of Supply Agreement, dated as of July 14,
1987, between the Company and the Marlboro
Township Municipal Utilities Authority, as amended. 33-31476 10.13
10.7 Copy of Supply Agreement, dated as of February 11, 1988, with
modifications dated February 25, 1992, and April 20, 1994, between
the Company and the Borough of Sayreville filed as Exhibit No.
10.11 of 1994 First Quarter Form 10-Q.
10.8 Copy of Water Purchase Contract and Supple-
mental Agreement, dated as of May 12, 1993,
between the Company and the New Jersey
Water Supply Authority filed as Exhibit No. 10.12 of
1993 Form 10-K.
10.9 Copy of Treating and Pumping Agreement, dated
April 9, 1984, between the Company and the
Township of East Brunswick. 33-31476 10.17
10.10 Copy of Supply Agreement, dated June 4, 1990,
between the Company and Edison Township. 33-54922 10.24
10.11 Copy of Supply Agreement, between the
Company and the Borough of Highland Park,
filed as Exhibit No. 10.15 of 1996 Form 10-K.
10.12 Copy of Pipeline Lease Agreement, dated as of
January 9, 1987, between the Company and the
City of Perth Amboy. 33-31476 10.20
10.13 Copy of Supplemental Executive Retirement
Plan, filed as Exhibit 10.13 of 1999 Third 33-31476 10.21
Quarter Form 10-Q.
10.14 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
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
10.15(a) Employment Agreement between Middlesex
Water Company and J. Richard Tompkins,
filed as Exhibit 10.15(a) of 1999 Third
Quarter Form 10-Q.
10.15(b) Employment Agreement between Middlesex
Water Company and Walter J. Brady,
filed as Exhibit 10.15(b) of 1999 Third
Quarter Form 10-Q.
10.15(c) Employment Agreement between Middlesex
Water Company and A. Bruce O'Connor,
filed as Exhibit 10.15(c) of 1999 Third
Quarter Form 10-Q.
10.15(d) Employment Agreement between Middlesex
Water Company and Marion F. Reynolds,
filed as Exhibit 10.15(d) of 1999 Third
Quarter Form 10-Q.
10.15(e) Employment Agreement between Middlesex
Water Company and Richard A. Russo,
filed as Exhibit 10.15(e) of 1999 Third
Quarter Form 10-Q.
10.15(f) Employment Agreement between Middlesex
Water Company and Dennis G. Sullivan,
filed as Exhibit 10.15(f) of 1999 Third
Quarter Form 10-Q.
10.15(g) Employment Agreement between Middlesex
Water Company and Ronald F. Williams,
filed as Exhibit 10.15(g) of 1999 Third
Quarter Form 10-Q.
10.16 Copy of Transmission Agreement, dated October 16,
1992, between the Company and the Township of
East Brunswick. 33-54922 10.23
10.17 Copy of Agreement and Plan of Merger, dated
January 7, 1992, between the Company, Midwater
Utilities, Inc. and Tidewater Utilities, Inc. 33-54922 10.29
Previous Filing's
Exhibit Registration Exhibit
No. Document Description No. No.
--- -------------------- --- ---
10.18 Copy of Supplemental Indentures, dated September 1, 1993, (Series S
& T) and January 1, 1994, (Series U & V), between the Company and
United Counties Trust Company, as Trustee, filed as Exhibit No.
10.22 of 1993 Form 10-K.
10.19 Copy of Trust Indentures, dated September 1, 1993, (Series S & T)
and January 1, 1994, (Series V), between the New Jersey Economic
Development Authority and First Fidelity Bank (Series S & T), as
Trustee, and Midlantic National Bank (Series V), as Trustee, filed
as Exhibit No. 10.23 of 1993 Form 10-K.
10.20 Copy of Amended Pipeline Lease Agreement between the Company and
the City of Perth Amboy 333-66727 10.24
10.21 Copy of Supplemental Indenture dated March 1, 1998 between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Trust Indenture dated March 1, 1998 between the New Jersey
Economic Development Authority and PNC Bank, National Association,
as Trustee (Series W), filed as Exhibit No. 10.21 of the 1998 Third
Quarter Form 10-Q.
10.22 Copy of Supplemental Indenture dated October 15, 1998 Between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Loan Agreement Dated November 1, 1998 between the New
Jersey and Middlesex Water Company (Series X), filed as Exhibit No.
10.22 of the 1998 Third Quarter Form 10-Q.
10.23 Copy of Supplemental Indenture dated October 15, 1998
between Middlesex Water Company and First Union
National Bank, as Trustee. Copy of Loan Agreement
dated November 1, 1998 between the 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.
10.24 Copy of Operation, Maintenance and Management Services
Agreement dated January 1, 1999 between the Company, City
Of Perth Amboy, Middlesex County Improvement Authority
And Utility Service Affiliates, Inc. 333-66727 10.24
*10.25 Copy of Supplemental Indenture dated October 15, 1999 Between
Middlesex Water Company and First Union National Bank, as Trustee.
Copy of Loan Agreement Dated November 1, 1999 between the State of
New Jersey and Middlesex Water Company (Series Z).
*10.26 Copy of Supplemental Indenture dated October 15, 1999
between Middlesex Water Company and First Union
National Bank, as Trustee. Copy of Loan Agreement dated
November 1, 1999 between the New Jersey Environmental
Infrastructure Trust and Middlesex Water Company (Series AA)
*23 Independent Auditors' Consent.
*27 Financial Data Schedule
M O R T G A G E
TWENTY-FIFTH SUPPLEMENTAL INDENTURE
MIDDLESEX WATER COMPANY
TO
FIRST UNION NATIONAL BANK
Trustee
Dated as of October 15, 1999
Record and Return to:
Peter D. Hutcheon, Esq.
Norris, McLaughlin & Marcus
721 Route 202/206
P.O. Box 1018
Somerville, NJ 08876
(908) 722-0700
Prepared By:________________________
Peter D. Hutcheon, Esq.
THIS TWENTY-FIFTH SUPPLEMENTAL INDENTURE, dated as of the
fifteenth day of October, 1999, between MIDDLESEX WATER COMPANY, a corporation
organized and existing under the laws of the State of New Jersey, having its
principal office in the Township of Iselin, New Jersey (herein called the "Water
Company"), and FIRST UNION NATIONAL BANK, (as successor to Meridian Bank, the
successor to United Counties Trust Company in turn the successor to the Union
County Trust Company), a corporation organized and existing under the laws of
the United States, having its principal New Jersey corporate trust office in the
Town of Morristown, New Jersey, as Trustee under the Indenture of Mortgage
hereinafter mentioned (herein called the "Trustee"):
WHEREAS, on April 1, 1927, Water Company executed and
delivered to the Trustee an Indenture of Mortgage (herein called the "Mortgage")
to secure its First and Refunding Mortgage Gold Bonds, Series A, 5-1/2%, which
bonds have since been redeemed by Water Company, and which Mortgage provides
that bonds of other series may be issued under and pursuant to an indenture
supplemental thereto; and
WHEREAS, on May 14, 1935, Water Company executed and delivered
to the Trustee a Supplemental Indenture to secure its First and Refunding
Mortgage Bonds, Series B, 4-1/2%, which Supplemental Indenture, prior to the
execution and delivery hereof, was satisfied and discharged of record, no bonds
having been issued thereunder; and
WHEREAS, as of October 1, 1939, Water Company executed and
delivered to the Trustee a Second Supplemental Indenture of Mortgage (herein
called the "Second Supplemental Indenture") to secure its First and Refunding
Mortgage 3-3/4% Bonds, Series C (herein called the "Series C Bonds"), which
bonds were paid at maturity by Water Company, and otherwise modifying, amending
and supplementing the Mortgage; and
WHEREAS, as of April 1, 1946, Water Company executed and
delivered to the Trustee a Third Supplemental Indenture of Mortgage (herein
called the "Third Supplemental Indenture") to secure its First and Refunding
Mortgage 3% Bonds, Series D (herein called the "Series D Bonds"), which bonds
were paid at maturity by Water Company, and otherwise modifying, amending and
supplementing the Mortgage; and
WHEREAS, as of April 1, 1949, Water Company executed and
delivered to the Trustee a Fourth Supplemental Indenture of Mortgage (herein
called the "Fourth Supplemental Indenture") to secure its First Mortgage 3-1/2%
Bonds, Series E (herein called the "Series E Bonds"), which bonds were paid at
maturity by Water Company, and otherwise modifying, amending and supplementing
the Mortgage; and
WHEREAS, as of February 1, 1955, Water Company executed and
delivered to the Trustee a Fifth Supplemental Indenture of Mortgage (herein
called the "Fifth Supplemental Indenture") to secure its First Mortgage 3-5/8%
Bonds, Series F (herein called the "Series F Bonds"), which bonds were paid at
maturity by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of December 1, 1959, Water Company executed and
delivered to the Trustee a Sixth Supplemental Indenture of Mortgage (herein
called the "Sixth Supplemental Indenture") to secure its First Mortgage 5-3/4%
Bonds, Series G (herein called the "Series G Bonds"), which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of January 15, 1963, Water Company executed and
delivered to the Trustee a Seventh Supplemental Indenture of Mortgage (herein
called the "Seventh Supplemental Indenture") to secure its First Mortgage 4-1/2%
Bonds, Series H (herein called the "Series H Bonds"), which bonds were paid at
maturity by Water Company and otherwise supplementing the Mortgage; and
WHEREAS, as of July 1, 1964, Water Company executed and
delivered to the Trustee, an Eighth Supplemental Indenture of Mortgage (herein
called the "Eighth Supplemental Indenture") to secure its First Mortgage 4 3/4%
Bonds, Series I (herein called the "Series I Bonds"), which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of June 1, 1965, Water Company executed and
delivered to the Trustee a Ninth Supplemental Indenture of Mortgage (herein
called the "Ninth Supplemental Indenture") to secure its First Mortgage 4-3/4%
Bonds, Series J (herein called the "Series J Bonds"), which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of February 1, 1968, Water Company executed and
delivered to the Trustee a Tenth Supplemental Indenture of Mortgage (herein
called the "Tenth Supplemental Indenture") to secure its First Mortgage 6-3/4%
Bonds, Series K (herein called the "Series K Bonds"), and otherwise
supplementing the Mortgage; and
WHEREAS, as of December 1, 1968, Water Company executed and
delivered to the Trustee an Eleventh Supplemental Indenture of Mortgage (herein
called the "Eleventh Supplemental Indenture") to secure its First Mortgage
6-7/8% Bonds, Series L (herein called the "Series L Bonds"), which bonds have
since been redeemed by Water Company, and otherwise supplementing the Mortgage;
and
WHEREAS, as of December 1, 1970, Water Company executed and
delivered to the Trustee a Twelfth Supplemental Indenture of Mortgage (herein
called the "Twelfth Supplemental Indenture") to secure its First Mortgage 10%
Bonds, Series M (herein called the "Series M Bonds"), which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of December 1, 1972, Water Company executed and
delivered to the Trustee a Thirteenth Supplemental Indenture of Mortgage (herein
called the "Thirteenth Supplemental Indenture") to secure its First Mortgage
8-1/8% Bonds, Series N (herein called the "Series N Bonds"), which bonds have
since been redeemed by Water Company, and otherwise supplementing the Mortgage;
and
WHEREAS, as of April 1, 1979, Water Company executed and
delivered to the Trustee a Fourteenth Supplemental Indenture of Mortgage (herein
called the "Fourteenth Supplemental Indenture") to secure its First Mortgage 7%
Bonds, Series 0 (herein called the "Series 0 Bonds"), which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of April 1, 1983, Water Company executed and
delivered to the Trustee a Fifteenth Supplemental Indenture of Mortgage (herein
called the "Fifteenth Supplemental Indenture") to secure its First Mortgage
10-1/2% Bonds, Series P (herein called the "Series P Bonds"), which bonds have
since been redeemed by Water Company, and otherwise supplementing the Mortgage;
and
WHEREAS, as of August 1, 1988, Water Company executed and
delivered to the Trustee a Sixteenth Supplemental Indenture of Mortgage (herein
called the "Sixteenth Supplemental Indenture") to secure its First Mortgage 8%
Bonds, Series Q (herein called the "Series Q Bonds"), which bonds have since
been redeemed by Water Company, and otherwise supplementing the Mortgage; and
WHEREAS, as of June 15, 1991, Water Company executed and
delivered to the Trustee a Seventeenth Supplemental Indenture of Mortgage
(herein called the "Seventeenth Supplemental Indenture") to secure its First
Mortgage 7.25% Bonds, Series R (herein called the "Series R Bonds") and
otherwise supplementing the Mortgage; and
WHEREAS, as of March 1, 1993, Water Company executed and
delivered to the Trustee a Supplementary Indenture of Mortgage to the Fifteenth
Supplemental Indenture of Mortgage (herein called the "Supplementary Indenture
to the Fifteenth Supplemental Indenture") to secure its First Mortgage 2 7/8%,
Series P-1 (herein called the "Series P-1 Bonds"), which bonds have since been
redeemed by Water Company, and otherwise supplementing the Mortgage.
WHEREAS, as of September 1, 1993, Water Company executed and
delivered to the Trustee an Eighteenth Supplemental Indenture of Mortgage
(herein called the "Eighteenth Supplemental Indenture") to secure its First
Mortgage 5.20% Bonds, Series S (herein called the "Series S Bonds"), and
otherwise supplementing the Mortgage; and
WHEREAS, as of September 1, 1993, Water Company executed and
delivered to the Trustee a Nineteenth Supplemental Indenture of Mortgage (herein
called the "Nineteenth Supplemental Indenture") to secure its First Mortgage
5.25% Bonds, Series T (herein called the "Series T Bonds"), and otherwise
supplementing the Mortgage; and
WHEREAS, as of January 1, 1994, Water Company executed and
delivered to Trustee a Twentieth Supplemental Indenture of Mortgage (herein
called the "Twentieth Supplemental Indenture") to secure its First Mortgage 6.4%
Bonds, Series U (herein called the "Series U Bonds"), and otherwise
supplementing the Mortgage; and
WHEREAS, as of January 1, 1994, Water Company executed and
delivered to Trustee a Twenty-First Supplemental Indenture of Mortgage (herein
called the "Twenty-First Supplemental Indenture") to secure its First Mortgage
5.25% Bonds, Series V (herein called the "Series V Bonds"), and otherwise
supplementing the Mortgage; and
WHEREAS, as of March 1, 1998, Water Company executed and
delivered to Trustee a Twenty-Second Supplemental Indenture of Mortgage (herein
called the "Twenty-Second Supplemental Indenture") to secure its First Mortgage
5.35% Bonds, Series W (herein called the "Series W Bonds"), and otherwise
supplementing the Mortgage; and
WHEREAS, as of October 15, 1998, Water Company executed and delivered
to Trustee a Twenty-Third Supplemental Indenture of Mortgage (herein called the
"Twenty-Third Supplemental Indenture") to secure its First Mortgage 0% Bond,
Series X (herein called the "Series X Bond"), and otherwise supplementing the
Mortgage; and
WHEREAS, as of October 15, 1998, Water Company executed and
delivered to Trustee a Twenty-Fourth Supplemental Indenture of Mortgage (herein
called the "Twenty-Fourth Supplemental Indenture") to secure its First Mortgage
Scheduled Interest Rate Bonds, Series Y (herein called the "Series Y Bond"), and
otherwise supplementing the Mortgage; and
WHEREAS, Water Company deems it necessary to borrow money and
to issue its bonds therefor, to be secured by the Mortgage, the Second
Supplemental Indenture, the Third Supplemental Indenture, the Fourth
Supplemental Indenture, the Fifth Supplemental Indenture, the Sixth Supplemental
Indenture, the Seventh Supplemental Indenture, the Eighth Supplemental
Indenture, the Ninth Supplemental Indenture, the Tenth Supplemental Indenture,
the Eleventh Supplemental Indenture, the Twelfth Supplemental Indenture, the
Thirteenth Supplemental Indenture, the Fourteenth Supplemental Indenture, the
Fifteenth Supplemental Indenture, the Sixteenth Supplemental Indenture, the
Seventeenth Supplemental Indenture, the Supplementary Indenture to the Fifteenth
Supplemental Indenture and the Eighteenth, the Nineteenth, the Twentieth, the
Twenty-First, the Twenty-Second, the Twenty-Third, the Twenty-Fourth, and by
this Twenty-Fifth Supplemental Indenture;
WHEREAS, Water Company desires to authorize and create a
series of bonds under which a single bond shall be issued limited to an
aggregate principal amount of $2,150,000.00 designated Series Z and to be known
as its "First Mortgage 0% Bonds, Series Z" (herein called the "Series Z Bond"),
it being the intention of the parties that the Series Z Bond shall, together
with all other Bonds issued under the Mortgage and all indentures supplemental
thereto, be entitled to priority over all other obligations of the Water Company
and shall be secured by a prior first lien on all the mortgaged property,
subject only to the prior liens specifically permitted under the Mortgage or
under any indenture supplemental thereto; and
WHEREAS, Water Company desires that the Series Z Bond shall be
issued to fund payment of the principal of $2,150,000.00, the amount borrowed
from the State of New Jersey, acting by and through the New Jersey Department of
Environmental Protection ("State") under the Loan Agreement dated as of November
1, 1999 (the "Loan Agreement") by and between the State and the Water Company,
or such lesser amount as shall be determined in accordance with Section 3.01 of
the Loan Agreement, plus any other amounts due and owing under the Loan
Agreement at the time and in the amounts as provided therein, which principal
amount is to be applied for the cleaning and lining of certain pipes and mains
which are utilized by Water Company for the furnishing of water in its New
Jersey service area; and
WHEREAS, the State requires as a condition of making the loan
documented by the Loan Agreement, that a single Series Z Bond be issued to the
State, that such Bond evidence the payment obligations of the Water Company
under Section 3.03(a) of the Loan Agreement, that payments under the Series Z
Bond be made to the Loan Servicer (as defined in the Loan Agreement) for the
account of the State, that the Series Z Bond be subject to assignment or
transfer in accordance with the terms of the Loan Agreement, that all of the
terms, conditions and provisions of the Loan Agreement be expressly incorporated
by reference into the Series Z Bond, that the obligations of the Water Company
under the Series Z Bond shall be absolute and unconditional, without any defense
or right of set-off, counterclaim or recoupment by reason of default by the
State under the Loan Agreement or under any other agreement between the Water
Company and the State or out of any indebtedness or liability at any time owing
to the Water Company or for any other reason, that the Series Z Bond be subject
to optional prepayment under the terms and conditions and in the amounts
provided in Section 3.07 of the Loan Agreement, and that the Series Z Bond may
be subject to acceleration under the terms and conditions and in the amounts,
provided in Section 5.03 of the Loan Agreement; and
WHEREAS, Water Company represents that all acts and
proceedings required by law and by the Charter and By-Laws of Water Company, and
by the Mortgage and the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth,
Seventeenth Supplemental Indentures, the Supplementary Indenture to the
Fifteenth Supplemental Indenture, and the Eighteenth, the Nineteenth, the
Twentieth, the Twenty-First, the Twenty-Second, the Twenty-Third and the
Twenty-Fourth Supplemental Indentures (to the extent applicable) necessary to
make the Series Z Bond, when executed by Water Company, authenticated and
delivered by the Trustee, and duly issued, the valid, binding and legal
obligations of Water Company and to constitute this Twenty-Fifth Supplemental
Indenture a valid and binding supplement to the Mortgage and the Second, Third,
Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth,
Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures, the Supplementary Indenture to the Fifteenth Supplemental Indenture
and the Eighteenth, the Nineteenth, the Twentieth, the Twenty-First, the
Twenty-Second, the Twenty-Third and the Twenty-Fourth Supplemental Indentures,
in accordance with its and their terms, for the security of all bonds issued and
which may hereafter be issued pursuant to the Mortgage and all indentures
supplemental thereto, have been done and performed; and the execution and
delivery of this Twenty-Fifth Supplemental Indenture have been in all respects
duly authorized;
NOW THEREFORE, THIS INDENTURE WITNESSETH, that for and in
consideration of the premises, and of the sum of One Dollar ($1.00), lawful
money of the United States of America, by each of the parties paid to the other,
at or before the delivery hereof, and for other valuable consideration, the
receipt and sufficiency whereof is hereby acknowledged, Water Company has
executed and delivered this Twenty-Fifth Supplemental Indenture, and has
granted, bargained, sold, aliened, enfeoffed, conveyed and confirmed, and by
these presents does grant, bargain, sell, alien, enfeoff, convey and confirm,
unto to the Trustee, its successors and assigns forever, all real property of
Water Company, together with all appurtenances and contracts, rights,
privileges, permits and franchises used or useful in connection with the
business of the Water Company as a water company or as a water utility or used
directly for the purpose of supplying water, granted, bargained, sold, aliened,
enfeoffed, conveyed and confirmed unto the Trustee by the Mortgage and the
Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh,
Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth Supplemental
Indentures, and the Supplementary Indenture to the Fifteenth Supplemental
Indenture and the Eighteenth, the Nineteenth, the Twentieth, the Twenty-First,
the Twenty-Second, the Twenty-Third and the Twenty-Fourth Supplemental
Indentures, or intended to be (including without limitation all such property
acquired by Water Company since October 15, 1998, and all such property which
Water Company may hereafter acquire), subject, however, to Permissible
Encumbrances, and excepting all Property heretofore released from the lien of
the Mortgage and the indentures supplemental thereto, and excepting all property
of Water Company which is not used or useful in connection with its business as
a water company or as a water utility as well as all personal property (both
tangible and intangible) as to which a security interest may not be perfected by
a filing under the Uniform Commercial Code as in effect in the State of New
Jersey;
TO HAVE AND TO HOLD all and singular the above granted
property, unto the Trustee, its successors and assigns forever, IN TRUST,
nevertheless, for the equal and proportionate use, benefit, security and
protection of those who from time to time shall hold any bonds which have been
or may be issued under the Mortgage or any indenture supplemental thereto,
without any discrimination, preference or priority of any one bond over any
other by reason of priority in the time of issue, sale or negotiation thereof or
otherwise, except as otherwise in the Mortgage or in any indenture supplemental
thereto provided; and in trust for enforcing the payment of the principal of and
the interest on such bonds, according to the tenor, purport and effect of the
bonds and of the Mortgage and all indentures supplemental thereto and for
enforcing the terms, provisions, covenants and stipulations therein and in the
bonds set forth; and upon the trust, uses and purposes and subject to the
covenants, agreements and conditions set forth and declared in the Mortgage as
modified, amended and supplemented by all indentures supplemental thereto;
AND the parties do hereby covenant and agree that the Mortgage
and the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth
Supplemental Indentures, the Supplementary Indenture to the Fifteenth
Supplemental Indenture and the Eighteenth, the Nineteenth, the Twentieth, the
Twenty-First, the Twenty-Second, the Twenty-Third and the Twenty-Fourth
Supplemental Indentures be and hereby are supplemented as hereinafter provided,
and that the above granted property is to be held and applied subject to the
covenants, conditions, uses and trusts set forth in the Mortgage, as modified,
amended and supplemented by such Supplemental Indentures and this Twenty-Fifth
Supplemental Indenture; and Water Company for itself and its successors does
hereby covenant and agree to and with the Trustee, and its successors in said
trust, for the equal benefit of all present and future holders and registered
owners of the bonds issued under the Mortgage and all indentures supplemental
thereto, as follows:
ARTICLE I
First Mortgage 0% Bonds, Series Z
Section 1. Water Company hereby creates a series of bonds to
be issued under and secured by the Mortgage, the Second, Third, Fourth, Fifth,
Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth,
Fifteenth, Sixteenth, and Seventeenth Supplemental Indentures, the Supplementary
Indenture to the Fifteenth Supplemental Indenture, the Eighteenth, the
Nineteenth, the Twentieth, the Twenty-First, the Twenty-Second, the Twenty-Third
and the Twenty-Fourth Supplemental Indentures and by this Twenty-Fifth
Supplemental Indenture, and to be designated as, and to be distinguished from
the bonds of all other series by the title, "First Mortgage 0% Bond, Series Z".
The Series Z Bond shall be issued only as a single registered bond without
coupons in the principal amount of the Loan under the Loan Agreement; shall be
dated as of November 1, 1999; and shall be issued in non-negotiable form to the
State. The Series Z Bond shall bear no interest, shall state that, subject to
certain limitations, the Mortgage and all indentures supplemental thereto may be
modified, amended or supplemented as provided in the Mortgage as heretofore
supplemented; shall mature on September 1, 2019, and shall be earlier redeemable
(i) under the terms and conditions and in the amounts provided in Section 3.07
of the Loan Agreement at the option of the Water Company with, to the extent
required by the July 28,1999 Order (Docket No. WF99050343) of the Board of
Public Utilities of the State of New Jersey ("BPU") and/or required by then
applicable law and regulations, the prior approval of the BPU, (ii) as, when and
to the extent mandated pursuant to subsection B of Section 4 of Article VIII of
the Second Supplemental Indenture; and shall be subject to, entitled to the
benefit of, and expressly incorporate by reference, all of the terms, conditions
and provisions of the Loan Agreement.
The Series Z Bond shall evidence the obligation to pay to the order of
the State the principal amount of the loan made by the State under the Loan
Agreement which shall be $2,150,000.00 or such lesser amount as determined in
accordance with Section 3.01 of the Loan Agreement, at the times and in the
amounts determined as provided in the Loan Agreement, plus any other amounts due
and owing under the Loan Agreement at the times and in the amounts as provided
therein. The obligations of the Water Company to make payments under the Series
Z Bond are absolute and unconditional, without any defense or right of set-off,
counterclaim or recoupment by reason of any default by the State under the Loan
Agreement or under any other agreement between the Water Company and the State
or out of any indebtedness or liability at any time owing to the Water Company
by the State or for any other reason. The Series Z Bond is subject to assignment
or transfer in accordance with the terms of the Loan Agreement. The Series Z
Bond is subject to acceleration under the terms and conditions, and in the
amounts, provided in Section 5.03 of the Loan Agreement. Payments under the
Series Z Bond shall, except as otherwise provided in the Loan Agreement, be made
directly to the Loan Servicer (as defined in the Loan Agreement), for the
account of the State.
In addition to any other default provided for under the Mortgage and
the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth,
Supplemental Indentures and the Supplementary Indenture to the Fifteenth
Supplemental Indenture and the Eighteenth, the Nineteenth, the Twentieth, the
Twenty-First, the Twenty-Second, the Twenty-Third and the Twenty-Fourth
Supplemental Indentures, it shall be a default under this Twenty-Fifth
Supplemental Indenture if payment of principal is not made when the same shall
become due and payable in installments, at maturity, upon redemption or
otherwise.
Section 2. Disbursements of the proceeds of the loan from the
State under the Loan Agreement evidenced by the Series Z Bond shall be made by
the State to the Water Company upon receipt by the State of requisitions from
the Water Company executed and delivered in accordance with the requirements set
forth in Section 3.02 of the Loan Agreement.
Section 3. The Series Z Bond and the certificate of
authentication of the Trustee to be executed thereon shall be substantially in
the form prescribed for registered bonds without coupons in the Second
Supplemental Indenture (except that there may be deleted therefrom all
references to the issuance of coupon bonds in exchange therefor); shall be in
the form attached to this Twenty-Fifth Supplemental Indenture as Exhibit A; and
shall contain appropriate references to this Twenty-Fifth Supplemental Indenture
in addition to the Mortgage and the Second, Third, Fourth, Fifth, Sixth,
Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth,
Fifteenth, Sixteenth and Seventeenth Supplemental Indentures and the
Supplementary Indenture to the Fifteenth Supplemental Indenture and the
Eighteenth, the Nineteenth, the Twentieth, the Twenty-First, the Twenty-Second,
the Twenty-Third and the Twenty-Fourth Supplemental Indentures and appropriate
changes with respect to the aggregate principal amount, interest rate,
redemption dates and provisions, and maturity date of the Series Z Bond, and
with appropriate reference to the provision of the Fourth Supplemental Indenture
that, subject to certain limitations, the Mortgage and all indentures
supplemental thereto may be modified, amended or supplemented only as provided
in the Mortgage and except that the Series Z Bond shall not contain any
references to a sinking fund.
Section 4. Subject to the provisions of the Mortgage and the
Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh,
Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth
Supplemental Indentures, the Supplementary Indenture to the Fifteenth
Supplemental Indenture and the Eighteenth, the Nineteenth, the Twentieth, the
Twenty-First, the Twenty-Second, the Twenty-Third and the Twenty-Fourth
Supplemental Indentures, forthwith upon the execution and delivery of this
Twenty-Fifth Supplemental Indenture, or from time to time thereafter, Series Z
Bond in an aggregate principal amount of $2,150,000.00 may be executed by Water
Company and delivered to the Trustee for authentication and shall thereupon be
authenticated and delivered by the Trustee upon the written order of Water
Company, signed by its President or a Vice President and its Treasurer or
Assistant Treasurer, in such denominations and registered in such name or names
as may be specified in such written order.
Section 5. Sections 4(A)(iii) and (iv) of Article VIII of the
Second Supplemental Indenture shall not be available to the Water Company with
respect to the Series Z Bond. The Water Company shall issue its written order
under Section 4(a)(i) or (ii), as the case may be, reasonably promptly after
receipt by the Trustee of proceeds of sale, eminent domain or insurance (not
otherwise to be paid directly to the Company under the Mortgage as supplemented
by the Supplemental Indentures including this Twenty-Fifth Supplemental
Indenture).
ARTICLE II
Miscellaneous
Section 1. The provisions of the Mortgage as modified, amended
and supplemented by the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth,
Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth
and Seventeenth Supplemental Indentures, the Supplementary Indenture to the
Fifteenth Supplemental Indenture and the Eighteenth, the Nineteenth, the
Twentieth, the Twenty-First, the Twenty-Second, the Twenty-Third and the
Twenty-Fourth Supplemental Indentures, and as modified and extended by this
Twenty-Fifth Supplemental Indenture are hereby reaffirmed. Except insofar as
they are inconsistent with the provisions hereof, the provisions of the Mortgage
and the Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth,
Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth and Seventeenth
Supplemental Indentures and the Supplementary Indenture to the Fifteenth
Supplemental Indenture and the Eighteenth, the Nineteenth, the Twentieth, the
Twenty-First, the Twenty-Second, the Twenty-Third and the Twenty-Fourth
Supplemental Indentures with respect to the Series C, Series D, Series E, Series
F, Series G, Series H, Series I, Series J, Series K, Series L, Series M, Series
N, Series O, Series P, Series Q, Series R, Series P-1, Series S, Series T,
Series U, Series V, Series W, Series X and Series Y Bonds shall apply to the
Series Z Bond to the same extent as if they were set forth herein in full.
Unless there is something in the subject or context repugnant to such
construction, each reference in the Mortgage and the Second, Third, Fourth,
Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth,
Fourteenth, Fifteenth, Sixteenth and Seventeenth Supplemental Indentures, the
Supplementary Indenture to the Fifteenth Supplemental Indenture and the
Eighteenth, the Nineteenth, the Twentieth, the Twenty-First, the Twenty-Second,
the Twenty-Third and the Twenty-Fourth Supplemental Indentures to the Mortgage
or any of such Supplemental Indentures shall be construed as also referring to
this Twenty-Fifth Supplemental Indenture. The Mortgage and all indentures
supplemental thereto may be modified, amended or supplemented by Water Company
with prior notice by the Water Company to but without the consent of any of the
bondholders to accomplish any more of the following:
(1) to cure any ambiguity, supply any omission, or cure
or correct any defect or inconsistent provision in
the Mortgage or any indenture supplemental thereto;
(2) to cure any ambiguity, supply any omission, or cure
or correct any defect in any description of the
Mortgaged Property, if such action is not adverse to
the interests of the bondholder;
(3) to insert such provisions clarifying matters or
questions arising under the Mortgage or any indenture
supplemental thereto as are necessary or desirable
and are not contrary to or inconsistent with the
Mortgage or any indenture supplemental thereto as in
effect; or
(4) to restate the Mortgage as supplemented by the
Supplemental Indentures as a single integrated
document which may add headings, an index and other
provisions aiding the convenience of use.
The terms and provisions of the Series Z Bond shall not be amended by, and the
Series Z Bond shall not be entitled to the benefit of any covenant, term or
condition contained in any subsequent supplemental indenture without the express
written concurrence of the Water Company.
Section 2. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity and sufficiency of this
Twenty-Fifth Supplemental Indenture or the due execution hereof by Water Company
or for the recitals contained herein, all of which recitals are made by Water
Company solely.
Section 3. The Trustee hereby accepts the trusts hereby
declared and provided and agrees to perform the same upon the terms and
conditions in the Mortgage, the Second, Third, Fourth, Fifth, Sixth, Seventh,
Eighth, Ninth, Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth,
Sixteenth and Seventeenth Supplemental Indentures, the Supplementary Indenture
to the Fifteenth Supplemental Indenture, the Eighteenth, the Nineteenth,
Twentieth, the Twenty-First, the Twenty-Second, the Twenty-Third and the
Twenty-Fourth Supplemental Indentures and this Twenty-Fifth Supplemental
Indenture set forth. The Trustee also hereby agrees to execute and deliver the
Escrow Agreement (as defined in the Loan Agreement and to appoint the Escrow
Agent named therein as agent as set out therein.
Section 4. The Trustee hereby authorizes the Loan Servicer to
accept payments made by Water Company of principal of the Series Z Bond for the
account of the State.
Section 5. This Twenty-Fifth Supplemental Indenture has been
executed simultaneously in several counterparts and all of said counterparts
executed and delivered, each as an original, shall constitute one and the same
instrument.
Section 6. Although this Twenty-Fifth Supplemental Indenture,
for convenience and for the purpose of reference, is dated as of October
15,1999, the actual date of execution by Water Company and the Trustee is as
shown by their respective acknowledgments hereto annexed, and the actual date of
delivery hereof by Water Company and the Trustee is the date of the closing of
the sale of the Series Z Bonds by Water Company.
Section 7. In any case where the payment of principal of the
Series Z Bond or the date fixed for redemption of any Series Z Bond shall be a
Saturday or Sunday or a legal holiday or a day on which banking institutions in
the City of the principal corporate trust office of the Loan Servicer is located
are authorized by law to close, then payment of interest or principal or
redemption price need not be made on such date but may be made on the next
proceeding business day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest on such payment shall
accrue after such date.
THE MORTGAGOR HEREBY DECLARES AND ACKNOWLEDGES THAT IT HAS
RECEIVED, WITHOUT CHARGE, A TRUE COPY OF THIS MORTGAGE.
IN WITNESS WHEREOF said MIDDLESEX WATER COMPANY has caused
these presents to be signed by its President and its corporate seal to be
hereunto affixed, and duly attested by its Secretary; and in testimony of its
acceptance of the trusts created, FIRST UNION NATIONAL BANK, as successor to
United Counties Trust Company, has caused these presents to be signed by an
Officer or Corporate Trust Officer and its corporate seal to be hereunto affixed
and duly attested by an Officer or Corporate Trust Officer, as of the day and
year first above written.
ATTEST: MIDDLESEX WATER COMPANY
_________________________ By: _____________________________
Marion F. Reynolds J. Richard Tompkins
Vice President, Secretary Chairman of the Board and
and Treasurer President
ATTEST: FIRST UNION NATIONAL BANK
By: _____________________________
Rick Barnes
Thomas J. Brett Corporate Trust Officer
Assistant Vice President
STATE OF NEW JERSEY:
: ss:
COUNTY OF ESSEX :
BE IT REMEMBERED, that on this day of , 1999, before me, the
subscriber, personally appeared Marion F. Reynolds, who, being by me duly sworn
according to law, on her oath deposes and says and makes proof to my
satisfaction that she is the Vice President, Secretary and Treasurer of
Middlesex Water Company, one of the corporations named in and which executed the
foregoing Twenty-Fifth Supplemental Indenture; that she is the attesting witness
to said Twenty-Fifth Supplemental Indenture; that she well knows the seal of
said corporation and that the seal thereto affixed is the proper common or
corporate seal of Middlesex Water Company; that J. Richard Tompkins is Chairman
of the Board and President of said corporation; that this deponent saw the said
J. Richard Tompkins as such Chairman of the Board and President sign said
Twenty-Fifth Supplemental Indenture, and affix said seal thereto and heard him
declare that he signed, sealed and delivered the same as the voluntary act and
deed of the said corporation, for the uses and purposes therein expressed, he
being duly authorized by resolution of the Board of Directors of the said
corporation.
----------------------
Marion F. Reynolds
Sworn and subscribed to before me the day and year aforesaid.
- ----------------------------
STATE OF NEW JERSEY:
: ss:
COUNTY OF ESSEX :
BE IT REMEMBERED, that on this day of , 1999, before me, the
subscriber, personally appeared Rick Barnes, who, being by me duly sworn
according to law, on his oath deposes and says and makes proof to my
satisfaction that he is the Assistant Vice President of First Union National
Bank, one of the corporations named in and which executed the foregoing
Twenty-Fifth Supplemental Indenture; that he is the attesting witness to said
Twenty-Fifth Supplemental Indenture; that he well knows the seal of First Union
National Bank and that the seal thereto affixed is the proper common or
corporate seal of First Union National Bank; that Thomas J. Brett is the
Corporate Trust Officer of said corporation; that this deponent saw the said
Thomas J. Brett, as Corporate Trust Officer sign said Twenty-Fifth Supplemental
Indenture, and affix said seal thereto and heard him declare that he signed,
sealed and delivered the same as the voluntary act and deed of the said
corporation, for the uses and purposes therein expressed, he being duly
authorized by said corporation.
Rick Barnes
Assistant Vice President
Sworn and subscribed to before me the day and year aforesaid.
- ------------------------------
LOAN AGREEMENT
BY AND BETWEEN
THE STATE OF NEW JERSEY,
ACTING BY AND THROUGH THE NEW JERSEY
DEPARTMENT OF ENVIRONMENTAL PROTECTION,
AND
MIDDLESEX WATER COMPANY
DATED AS OF NOVEMBER 1, 1999
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions ............................................... 2
ARTICLE II
REPRESENTATIONS AND COVENANTS OF BORROWER
SECTION 2.01. Representations of Borrower................................ 6
SECTION 2.02. Particular Covenants of Borrower........................... 9
ARTICLE III
LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS
SECTION 3.01. Loan; Loan Term........................................... 14
SECTION 3.02. Disbursement of Loan Proceeds.............................. 14
SECTION 3.03. Amounts Payable............................................ 15
SECTION 3.04. Unconditional Obligations.................................. 16
SECTION 3.05. Loan Agreement to Survive Loan............................. 16
SECTION 3.06. Disclaimer of Warranties and Indemnification............... 16
SECTION 3.07. Option to Prepay Loan Repayments........................... 17
SECTION 3.08. Priority of Loan and Trust Loan............................ 17
ARTICLE IV
ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND
SECTION 4.01. Assignment and Transfer by State............................ 19
SECTION 4.02. Assignment by Borrower...................................... 19
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01. Events of Default........................................... 20
SECTION 5.02. Notice of Default........................................... 21
SECTION 5.03. Remedies on Default......................................... 21
SECTION 5.04. Attorneys' Fees and Other Expenses.......................... 21
SECTION 5.05. Application of Moneys....................................... 21
SECTION 5.06. No Remedy Exclusive; Waiver; Notice......................... 21
SECTION 5.07. Retention of State's Rights................................. 22
ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices .................................................... 23
SECTION 6.02. Binding Effect.............................................. 23
SECTION 6.03. Severability................................................ 23
SECTION 6.04. Amendments, Supplements and Modifications................... 23
SECTION 6.05. Execution in Counterparts................................... 24
SECTION 6.06. Applicable Law and Regulations.............................. 24
SECTION 6.07. Consents and Approvals...................................... 24
SECTION 6.08. Captions ................................................... 24
SECTION 6.09. Further Assurances.......................................... 24
EXHIBIT A (1) Description of Project and Environmental Infrastructure
System............................................ A-1-1
(2) Description of Loan............................... A-2-1
EXHIBIT B Basis for Determination of Allowable Project Costs.... B-1
EXHIBIT C Estimated Disbursement Schedule....................... C-1
EXHIBIT D Specimen Borrower Bond................................ D-1
EXHIBIT E Opinions of Borrower's Bond and General Counsels...... E-1
EXHIBIT F Additional Covenants and Requirements................. F-1
EXHIBIT G General Administrative Requirements for the State
Environmental Infrastructure Financing Program...... G-1
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NEW JERSEY ENVIRONMENTAL INFRASTRUCTURE FUND LOAN AGREEMENT
THIS LOAN AGREEMENT, made and entered into as of this 1st day of
November, 1999, by and between THE STATE OF NEW JERSEY, acting by and through
the New Jersey Department of Environmental Protection, and MIDDLESEX WATER
COMPANY, a corporation duly created and validly existing under the laws of the
State of New Jersey;
WITNESSETH THAT:
WHEREAS, the Borrower has, in accordance with the Regulations, made
timely application to the State for a Loan to finance a portion of the Cost of
the Project (as each of the foregoing terms is defined in Section 1.01 hereof;
all capitalized terms used in this Loan Agreement shall have, unless the context
otherwise requires, the meanings set forth in said Section 1.01);
WHEREAS, the State has approved the Borrower's application for a Loan
from Federal Funds, if and when received by and available to the State, and
moneys from repayments of loans previously made from such Federal Funds, in an
amount not to exceed Two Million One Hundred Fifty Thousand Dollars ($2,150,000)
to finance a portion of the Cost of the Project;
WHEREAS, the New Jersey State Legislature has approved an
appropriations act that authorizes an expenditure of said proceeds, Federal
Funds or related moneys to finance a portion of the Cost of the Project;
WHEREAS, the Borrower, in accordance with the Business Corporation Law
and all other applicable law, will issue a Borrower Bond to the State evidencing
said Loan at the Loan Closing; and
WHEREAS, in accordance with the New Jersey Environmental Infrastructure
Trust Act, P.L. 1985, c. 334, as amended, and the Regulations, the Borrower has
been awarded a Trust Loan for a portion of the Cost of the Project plus, if
applicable to the Borrower, capitalized interest on the Trust Loan, certain
costs of issuance and bond insurance premium related thereto.
NOW, THEREFORE, for and in consideration of the award of the Loan by
the State, the Borrower agrees to complete the Project and to perform under this
Loan Agreement in accordance with the conditions, covenants and procedures set
forth herein and attached hereto as part hereof, as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01. Definitions. The following terms as used in this Loan
Agreement shall, unless the context clearly requires otherwise, have the
following meanings:
"Administrative Fee" means an annual fee of up to one percent (1.0%) of
the initial principal amount of the Loan or such lesser amount, if any, as may
be authorized by any act of the New Jersey State Legislature and as the State
may approve from time to time.
"Authorized Officer" means, in the case of the Borrower, any person or
persons authorized pursuant to a resolution of the board of directors of the
Borrower to perform any act or execute any document relating to the Loan, the
Borrower Bond or this Loan Agreement.
"Borrower" means the corporation that is a party to and is described in
the first paragraph of this Loan Agreement, and its successors and assigns.
"Borrower Bond" means the general obligation bond, note, debenture or
other evidence of indebtedness authorized, executed, attested and delivered by
the Borrower to the State and authenticated on behalf of the Borrower to
evidence the Loan, a specimen of which is attached hereto as Exhibit D and made
a part hereof.
"Borrower Bond Resolution" means the indenture of the Borrower entitled
"Indenture of Mortgage" dated as of April 1, 1927, as amended and supplemented
from time to time, in particular by a supplemental indenture detailing the terms
of the Borrower Bond dated as of November 1, 1999 and entitled "Twenty-Fifth
Supplemental Indenture", pursuant to which the Borrower Bond has been issued.
"Borrowers" means any other Local Government Unit or Private Entity (as
such terms are defined in the Regulations) authorized to construct, operate and
maintain Environmental Infrastructure Facilities that have entered into Loan
Agreements with the State pursuant to which the State will make Loans to such
recipients from Federal Funds.
"Business Corporation Law" means the "New Jersey Business Corporation
Act", constituting Chapter 263 of the Pamphlet Laws of 1968 of the State of New
Jersey (codified at N.J.S.A. 14A:1-1 et seq.), as the same has been and may from
time to time be amended and supplemented.
"Code" means the Internal Revenue Code of 1986, as the same has been
and may from time to time be amended and supplemented, including any regulations
promulgated thereunder, any successor code thereto and any administrative or
judicial interpretations thereof.
"Cost" means those costs that are eligible, reasonable, necessary,
allocable to the Project and permitted by generally accepted accounting
principles, including Allowances and Building Costs (as defined in the
Regulations), as shall be determined on a project-specific basis in accordance
with the Regulations as set forth in Exhibit B hereto, as the same may be
amended by subsequent eligible costs as evidenced by a certificate of an
authorized officer of the State.
"Environmental Infrastructure Facilities" means Water Supply Facilities
(as such term is defined in the Regulations).
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"Environmental Infrastructure System" means the Environmental
Infrastructure Facilities of the Borrower, including the Project, described in
Exhibit A-1 attached hereto and made a part hereof for which the Borrower is
borrowing the Loan under this Loan Agreement.
"Event of Default" means any occurrence or event specified in Section
5.01 hereof.
"Federal Funds" means those funds awarded to the State pursuant to the
Clean Water Act (33 U.S.C.ss.1251 et seq.) or the Safe Drinking Water Act (42
U.S.C.ss.300f et seq.), as the same may from time to time be amended and
supplemented.
"Loan" means the loan made by the State to the Borrower to finance or
refinance a portion of the Cost of the Project pursuant to this Loan Agreement.
For all purposes of this Loan Agreement, the principal amount of the Loan at any
time shall be the amount of the loan commitment set forth in Exhibit A-2
attached hereto and made a part hereof (such amount being also specified as the
initial aggregate principal amount of the Borrower Bond) less any amount of such
principal amount that has been repaid by the Borrower under this Loan Agreement
and less any adjustment made for low bid or final building costs pursuant to the
provisions of N.J.A.C. 7:22-3.26 and the appropriations act of the New Jersey
State Legislature authorizing the expenditure of moneys to finance a portion of
the Cost of the Project.
"Loan Agreement" means this Loan Agreement, including the Exhibits
attached hereto, as it may be supplemented, modified or amended from time to
time in accordance with the terms hereof.
"Loan Agreements" means any other loan agreements entered into by and
between the State and one or more of the Borrowers pursuant to which the State
will make Loans to such Borrowers from Federal Funds.
"Loan Closing" means the date upon which the Borrower shall deliver its
Borrower Bond, as previously authorized, executed, attested and authenticated,
to the State.
"Loan Repayments" means the repayments of the principal amount of the
Loan payable by the Borrower pursuant to Section 3.03 of this Loan Agreement,
including payments payable under the Borrower Bond, but excluding the
Administrative Fee.
"Loan Servicer" means, initially, First Union National Bank, the loan
servicer for the Loan and the Trust Loan, duly appointed and designated as "Loan
Servicer" pursuant to the Loan Servicing and Trust Bonds Security Agreement
dated as of November 1, 1999 by and among the Trust, the State of New Jersey,
acting by and through the Treasurer of the State of New Jersey on behalf of the
New Jersey Department of Environmental Protection, and First Union National
Bank, and any successors as "Loan Servicer" under such agreement, as the same
may be modified, amended or supplemented from time to time in accordance with
its terms.
"Loan Term" means the term of this Loan Agreement provided in Sections
3.01 and 3.03 hereof and in Exhibit A-2 attached hereto and made a part hereof.
"Loans" means the loans made by the State to the Borrowers under the
Loan Agreements from Federal Funds.
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"Master Program Trust Agreement" means that certain Master Program
Trust Agreement dated as of November 1, 1995 by and among the Trust, the State
of New Jersey, United States Trust Company of New York, as Master Program
Trustee thereunder, The Bank of New York (NJ), in several capacities thereunder,
and First Fidelity Bank, N.A. (predecessor to First Union National Bank), in
several capacities thereunder, as the same may be amended and supplemented from
time to time in accordance with its terms.
"Prime Rate" means the prevailing commercial interest rate announced by
the Loan Servicer from time to time in the State of New Jersey as its prime
lending rate.
"Project" means the Environmental Infrastructure Facilities of the
Borrower described in Exhibit A-1 attached hereto and made a part hereof, which
constitutes a project for which the State is permitted to make a loan to the
Borrower pursuant to the Regulations, all or a portion of the Cost of which is
financed or refinanced by the State through the making of the Loan under this
Loan Agreement.
"Regulations" means the rules and regulations, as applicable, now or
hereafter promulgated under N.J.A.C. 7:22-3 et seq., 7:22-4 et seq., 7:22-5 et
seq., 7:22-9 et seq. and 7:22-10 et seq., as the same may from time to time be
amended and supplemented.
"State" means the State of New Jersey, acting, unless otherwise
specifically indicated, by and through the New Jersey Department of
Environmental Protection, and its successors and assigns.
"Trust" means the New Jersey Environmental Infrastructure Trust, a
public body corporate and politic with corporate succession duly created and
validly existing under and by virtue of P.L. 1985, c. 334, as amended (N.J.S.A.
58:11B-1 et seq.).
"Trust Loan" means the loan made to the Borrower by the Trust pursuant
to the Trust Loan Agreement.
"Trust Loan Agreement" means the loan agreement by and between the
Borrower and the Trust dated as of November 1, 1999 to finance or refinance a
portion of the Cost of the Project.
Except as otherwise defined herein or 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, agencies and districts. Words importing one gender shall include
the other gender.
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ARTICLE II
REPRESENTATIONS AND COVENANTS OF BORROWER
SECTION 2.01. Representations of Borrower. The Borrower represents for
the benefit of the State as follows:
(a) Organization and Authority.
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(i) The Borrower is a corporation duly created and validly
existing under the laws of the State of New Jersey.
(ii) The acting officials of the Borrower who are
contemporaneously herewith performing or have previously performed any
action contemplated in this Loan Agreement either are or, at the time
any such action was performed, were the duly appointed or elected
officials of such Borrower empowered by applicable New Jersey law and,
if applicable, authorized by resolution of the Borrower to perform such
actions. To the extent any such action was performed by an official no
longer the duly acting official of such Borrower, all such actions
previously taken by such official are still in full force and effect.
(iii) The Borrower has full legal right and authority and all
necessary licenses and permits required as of the date hereof to own,
operate and maintain its Environmental Infrastructure System, to carry
on its activities relating thereto, to execute, attest and deliver this
Loan Agreement and the Borrower Bond, to authorize the authentication
of the Borrower Bond, to sell the Borrower Bond to the State, to
undertake and complete the Project and to carry out and consummate all
transactions contemplated by this Loan Agreement.
(iv) The proceedings of the Borrower's board of directors
approving this Loan Agreement and the Borrower Bond, authorizing the
execution, attestation and delivery of this Loan Agreement and the
Borrower Bond, authorizing the sale of the Borrower Bond to the State,
authorizing the authentication of the Borrower Bond on behalf of the
Borrower and authorizing the Borrower to undertake and complete the
Project, including, without limitation, the Borrower Bond Resolution
(collectively, the "Proceedings"), have been duly and lawfully adopted
in accordance with the Business Corporation Law and other applicable
New Jersey law at a meeting or meetings that were duly called and held
in accordance with applicable New Jersey law and at which quorums were
present and acting throughout.
(v) By official action of the Borrower taken prior to or
concurrent with the execution and delivery hereof, including, without
limitation, the Proceedings, the Borrower has duly authorized, approved
and consented to all necessary action to be taken by the Borrower for:
(A) the execution, attestation, delivery and performance of this Loan
Agreement and the transactions contemplated hereby; (B) the issuance of
the Borrower Bond and the sale thereof to the State upon the terms set
forth herein; and (C) the execution, delivery and due performance of
any and all other certificates, agreements and instruments that may be
required to be executed, delivered and performed by the Borrower in
order to carry out, give effect to and consummate the transactions
contemplated by this Loan Agreement.
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(vi) This Loan Agreement and the Borrower Bond have each been
duly authorized by the Borrower and duly executed, attested and
delivered by Authorized Officers of the Borrower, and the Borrower Bond
has been duly sold by the Borrower to the State, duly authenticated by
the trustee or paying agent under the Borrower Bond Resolution and duly
issued by the Borrower in accordance with the terms of the Borrower
Bond Resolution; and assuming that the State has all the requisite
power and authority to authorize, execute, attest and deliver, and has
duly authorized, executed, attested and delivered, this Loan Agreement,
and assuming further that this Loan Agreement is the legal, valid and
binding obligation of the State, enforceable against the State in
accordance with its terms, each of this Loan Agreement and the Borrower
Bond constitutes a legal, valid and binding obligation of the Borrower,
enforceable against the Borrower in accordance with its respective
terms, except as the enforcement thereof may be affected by bankruptcy,
insolvency or other laws or the application by a court of legal or
equitable principles affecting creditors' rights; and the information
contained under "Description of Loan" in Exhibit A-2 attached hereto
and made a part hereof is true and accurate in all respects.
(b) Full Disclosure. There is no fact that the Borrower has not
disclosed to the State in writing on the Borrower's application for the Loan or
otherwise that materially adversely affects or (so far as the Borrower can now
foresee) that will materially adversely affect the properties, activities,
prospects or condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System, or the ability of the Borrower to make all
Loan Repayments or otherwise to observe and perform its duties, covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond.
(c) Pending Litigation. There are no proceedings pending or, to the
knowledge of the Borrower, threatened against or affecting the Borrower in any
court or before any governmental authority or arbitration board or tribunal
that, if adversely determined, would materially adversely affect (i) the
undertaking or completion of the Project, (ii) the properties, activities,
prospects or condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System, (iii) the ability of the Borrower to make
all Loan Repayments, (iv) the authorization, execution, attestation or delivery
of this Loan Agreement or the Borrower Bond, (v) the issuance of the Borrower
Bond and the sale thereof to the State, (vi) the adoption of the Borrower Bond
Resolution, or (vii) the Borrower's ability otherwise to observe and perform its
duties, covenants, obligations and agreements under this Loan Agreement and the
Borrower Bond, which proceedings have not been previously disclosed in writing
to the State either in the Borrower's application for the Loan or otherwise.
(d) Compliance with Existing Laws and Agreements. (i) The
authorization, execution, attestation and delivery of this Loan Agreement and
the Borrower Bond by the Borrower, (ii) the authentication of the Borrower Bond
by the trustee or paying agent under the Borrower Bond Resolution, as the case
may be, and the sale of the Borrower Bond to the State, (iii) the adoption of
the Borrower Bond Resolution, (iv) the observation and performance by the
Borrower of its duties, covenants, obligations and agreements hereunder and
thereunder, (v) the consummation of the transactions provided for in this Loan
Agreement, the Borrower Bond Resolution and the Borrower Bond, and (vi) the
undertaking and completion of the Project will not (A) other than the lien,
charge or encumbrance created hereby, by the Borrower Bond, by the Borrower Bond
Resolution and by any other outstanding debt obligations of the Borrower that
are at parity with the Borrower Bond as to lien on, and source and security for
payment thereon from, the revenues of the Borrower's Environmental
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Infrastructure System, result in the creation or imposition of any lien, charge
or encumbrance upon any properties or assets of the Borrower pursuant to, (B)
result in any breach of any of the terms, conditions or provisions of, or (C)
constitute a default under, any existing resolution, outstanding debt or lease
obligation, trust agreement, indenture, mortgage, deed of trust, loan agreement
or other instrument to which the Borrower is a party or by which the Borrower,
its Environmental Infrastructure System or any of its properties or assets may
be bound, nor will such action result in any violation of the provisions of the
charter or other document pursuant to which the Borrower was established or any
laws, ordinances, injunctions, judgments, decrees, rules, regulations or
existing orders of any court or governmental or administrative agency, authority
or person to which the Borrower, its Environmental Infrastructure System or its
properties or operations is subject.
(e) No Defaults. No event has occurred and no condition exists that,
upon the authorization, execution, attestation and delivery of this Loan
Agreement and the Borrower Bond, the issuance of the Borrower Bond and the sale
thereof to the State, the adoption of the Borrower Bond Resolution or the
receipt of the amount of the Loan, would constitute an Event of Default
hereunder. Since December 31, 1975 and as of the date of delivery of this Loan
Agreement, the Borrower has not been, and is not now, in default in the payment
of the principal of or interest on any of its bonds, notes, lease purchase
agreements or other debt obligations. The Borrower is not in violation of, and
has not received notice of any claimed violation of, any term of any agreement
or other instrument to which it is a party or by which it, its Environmental
Infrastructure System or its properties may be bound, which violation would
materially adversely affect the properties, activities, prospects or condition
(financial or otherwise) of the Borrower or its Environmental Infrastructure
System or the ability of the Borrower to make all Loan Repayments, to pay all
principal of the Borrower Bond or otherwise to observe and perform its duties,
covenants, obligations and agreements under this Loan Agreement and the Borrower
Bond.
(f) Governmental Consent. The Borrower has obtained all permits and
approvals required to date by any governmental body or officer for the
authorization, execution, attestation and delivery of this Loan Agreement and
the Borrower Bond, for the issuance of the Borrower Bond and the sale thereof to
the State, for the adoption of the Borrower Bond Resolution, for the making,
observance and performance by the Borrower of its duties, covenants, obligations
and agreements under this Loan Agreement and the Borrower Bond and for the
undertaking or completion of the Project and the financing or refinancing
thereof, including, but not limited to, the approval by the New Jersey Board of
Public Utilities (the "BPU") of the issuance by the Borrower of the Borrower
Bond to the State and any other approvals required therefor by the BPU; and the
Borrower has complied with all applicable provisions of law requiring any
notification, declaration, filing or registration with any governmental body or
officer in connection with the making, observance and performance by the
Borrower of its duties, covenants, obligations and agreements under this Loan
Agreement and the Borrower Bond or with the undertaking or completion of the
Project and the financing or refinancing thereof. No consent, approval or
authorization of, or filing, registration or qualification with, any
governmental body or officer that has not been obtained is required on the part
of the Borrower as a condition to the authorization, execution, attestation and
delivery of this Loan Agreement and the Borrower Bond, the issuance of the
Borrower Bond and the sale thereof to the State, the undertaking or completion
of the Project or the consummation of any transaction herein contemplated.
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(g) Compliance with Law. The Borrower:
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(i) is in compliance with all laws, ordinances, governmental
rules and regulations to which it is subject, the failure to comply
with which would materially adversely affect (A) the ability of the
Borrower to conduct its activities or to undertake or complete the
Project or (B) the condition (financial or otherwise) of the Borrower
or its Environmental Infrastructure System; and
(ii) has obtained all licenses, permits, franchises or other
governmental authorizations presently necessary for the ownership of
its properties or for the conduct of its activities that, if not
obtained, would materially adversely affect (A) the ability of the
Borrower to conduct its activities or to undertake or complete the
Project or (B) the condition (financial or otherwise) of the Borrower
or its Environmental Infrastructure System.
(h) Use of Proceeds. The Borrower will apply the proceeds of the Loan
from the State as described in Exhibit B attached hereto and made a part hereof
(i) to finance or refinance a portion of the Cost of the Borrower's Project; and
(ii) where applicable, to reimburse the Borrower for a portion of the Cost of
the Borrower's Project, which portion was paid or incurred in anticipation of
reimbursement by the State and is eligible for such reimbursement under and
pursuant to the Regulations, the Code and any other applicable law. All of such
costs constitute Costs for which the State is authorized to make Loans to the
Borrower pursuant to the Regulations.
SECTION 2.02. Particular Covenants of Borrower.
(a) Promise to Pay. The Borrower unconditionally promises, in
accordance with the terms of and to the extent provided in the Borrower Bond
Resolution, to make punctual payment of the principal of the Loan and the
Borrower Bond and all other amounts due under this Loan Agreement and the
Borrower Bond according to their respective terms.
(b) Performance Under Loan Agreement; Rates. The Borrower covenants and
agrees (i) to comply with all applicable State of New Jersey and federal laws,
rules and regulations in the performance of this Loan Agreement; (ii) to
maintain its Environmental Infrastructure System in good repair and operating
condition; (iii) to cooperate with the State in the observance and performance
of the respective duties, covenants, obligations and agreements of the Borrower
and the State under this Loan Agreement; and (iv) to establish, levy and collect
rents, rates and other charges for the products and services provided by its
Environmental Infrastructure System, which rents, rates and other charges shall
be at least sufficient to comply with all covenants pertaining thereto contained
in, and all other provisions of, any bond resolution, trust indenture or other
security agreement, if any, relating to any bonds, notes or other evidences of
indebtedness issued or to be issued by the Borrower.
(c) Borrower Bond; No Prior Liens. Except for (i) the Borrower Bond,
(ii) any bonds at parity with the Borrower Bond and currently outstanding or
issued on the date hereof, (iii) any future bonds of the Borrower issued under
the Borrower Bond Resolution at parity with the Borrower Bond, and (iv) any
Permitted Encumbrances (as defined in the Borrower Bond Resolution), the assets
of the Borrower that are subject to the Borrower Bond Resolution are and will be
free and clear of any pledge, lien, charge or encumbrance thereon or with
respect thereto prior to, or of equal rank with, the Borrower Bond, and all
corporate or other action on the part of the Borrower to that end has been and
will be duly and validly taken.
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(d) Completion of Project and Provision of Moneys Therefor. The
Borrower covenants and agrees (i) to exercise its best efforts in accordance
with prudent environmental infrastructure utility practice to complete the
Project and to accomplish such completion on or before the estimated Project
completion date set forth in Exhibit G hereto and made a part hereof; (ii) to
comply with the terms and provisions contained in Exhibit G hereto; and (iii) to
provide from its own fiscal resources all moneys, in excess of the total amount
of loan proceeds it receives under the Loan and Trust Loan, required to complete
the Project.
(e) Disposition of Environmental Infrastructure System. The Borrower
shall not permit the disposition of all or substantially all of its
Environmental Infrastructure System, directly or indirectly, including, without
limitation, by means of sale, lease, abandonment, sale of stock, statutory
merger or otherwise (collectively, a "Disposition"), except on ninety (90) days'
prior written notice to the State, and, in any event, shall not permit a
Disposition unless the Borrower shall, in accordance with Section 4.02 hereof,
assign this Loan Agreement and the Borrower Bond and its rights and interests
hereunder and thereunder to the purchaser or lessee of the Environmental
Infrastructure System, and such purchaser or lessee shall assume all duties,
covenants, obligations and agreements of the Borrower under this Loan Agreement
and the Borrower Bond.
(f) [Reserved.]
(g) Operation and Maintenance of Environmental Infrastructure System.
The Borrower covenants and agrees that it shall, in accordance with prudent
environmental infrastructure utility practice, (i) at all times operate the
properties of its Environmental Infrastructure System and any business in
connection therewith in an efficient manner, (ii) maintain its Environmental
Infrastructure System in good repair, working order and operating condition, and
(iii) from time to time make all necessary and proper repairs, renewals,
replacements, additions, betterments and improvements with respect to its
Environmental Infrastructure System so that at all times the business carried on
in connection therewith shall be properly and advantageously conducted;
provided, that no provision of this subsection shall prevent the sale, lease,
abandonment or other disposition of property that comprises a portion of the
Borrower's Environmental Infrastructure System, so long as such sale, lease,
abandonment or other disposition does not materially adversely affect the
Borrower's Environmental Infrastructure System.
(h) Records and Accounts. The Borrower shall keep accurate records and
accounts for its Environmental Infrastructure System specifically relating to
the Project (the "Project Records") separate and distinct from its other records
and accounts (the "General Records"). Such Project Records shall be audited
annually by an independent certified public accountant, which may be part of the
annual audit of the General Records of the Borrower. Such Project Records and
General Records shall be made available for inspection by the State at any
reasonable time upon prior written notice, and a copy of such annual audit(s)
therefor, including all written comments and recommendations of such accountant,
shall be furnished to the State within 150 days of the close of the fiscal year
being so audited or, with the consent of the State, such additional period as
may be provided by law.
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(i) Inspections; Information. The Borrower shall permit the State and
any party designated by the State, at any and all reasonable times during
construction of the Project and thereafter upon prior written notice, to
examine, visit and inspect the property, if any, constituting the Project and to
inspect and make copies of any accounts, books and records, including (without
limitation) its records regarding receipts, disbursements, contracts,
investments and any other matters relating thereto and to its financial
standing, and shall supply such reports and information as the State may
reasonably require in connection therewith.
(j) Insurance. The Borrower shall maintain or cause to be maintained,
in force, insurance policies with responsible insurers or self-insurance
programs providing against risk of direct physical loss, damage or destruction
of its Environmental Infrastructure System at least to the extent that similar
insurance is usually carried by utilities constructing, operating and
maintaining Environmental Infrastructure Facilities of the nature of the
Borrower's Environmental Infrastructure System, including liability coverage,
all to the extent available at reasonable cost but in no case less than will
satisfy all applicable regulatory requirements.
(k) Cost of Project. The Borrower certifies that the building cost of
the Project, as listed in Exhibit B hereto and made a part hereof, is a
reasonable and accurate estimation thereof, and it will supply to the State a
certificate from a licensed professional engineer authorized to practice in the
State of New Jersey stating that such building cost is a reasonable and accurate
estimation and that the useful life of the Project exceeds twenty (20) years
from the expected date of the Loan Closing.
(l) Delivery of Documents. Concurrently with the delivery of this Loan
Agreement (as previously authorized, executed and attested) at the Loan Closing,
the Borrower will cause to be delivered to the State each of the following
items:
(i) an opinion of the Borrower's bond counsel substantially in
the form of Exhibit E hereto; provided, however, that the State may
permit portions of such opinion to be rendered by general counsel to
the Borrower and may permit variances in such opinion from the form set
forth in Exhibit E if such variances are acceptable to the State;
(ii) counterparts of this Loan Agreement as previously
executed and attested by the parties hereto;
(iii) copies of those resolutions finally adopted by the board
of directors of the Borrower and requested by the State, including,
without limitation, (A) the resolution of the Borrower authorizing the
execution, attestation and delivery of this Loan Agreement, (B) the
Borrower Bond Resolution, as amended and supplemented as of the date of
the Loan Closing, authorizing the execution, attestation,
authentication, sale and delivery of the Borrower Bond to the State,
(C) the resolution of the Borrower confirming the details of the sale
of the Borrower Bond to the State, each of said resolutions of the
Borrower being certified by an Authorized Officer of the Borrower as of
the date of the Loan Closing, (D) the resolution of the BPU approving
the issuance by the Borrower of the Borrower Bond to the State and
setting forth any other approvals required therefor by the BPU, and (E)
any other Proceedings; and
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(iv) the certificates of insurance coverage as required
pursuant to the terms of Section 3.06(c) hereof and such other
certificates, documents, opinions and information as the State may
require in Exhibit F hereto, if any.
(m) Execution and Delivery of Borrower Bond. Concurrently with the
delivery of this Loan Agreement at the Loan Closing, the Borrower shall also
deliver to the State the Borrower Bond, as previously executed, attested and
authenticated.
(n) Notice of Material Adverse Change. The Borrower shall promptly
notify the State of any material adverse change in the properties, activities,
prospects or condition (financial or otherwise) of the Borrower or its
Environmental Infrastructure System, or in the ability of the Borrower to make
all Loan Repayments and otherwise to observe and perform its duties, covenants,
obligations and agreements under this Loan Agreement and the Borrower Bond.
(o) Continuing Representations. The representations of the Borrower
contained herein shall be true at the time of the execution of this Loan
Agreement and at all times during the term of this Loan Agreement.
(p) Additional Covenants and Requirements. No later than the Loan
Closing and, if necessary, in connection with the making of the Loan, additional
covenants and requirements have been included in Exhibit F hereto and made a
part hereof. Such covenants and requirements may include, but need not be
limited to, the maintenance of specified levels of Environmental Infrastructure
System rates, the issuance of additional debt of the Borrower and the transfer
of revenues and receipts from the Borrower's Environmental Infrastructure
System. The Borrower agrees to observe and comply with each such additional
covenant and requirement, if any, included in Exhibit F hereto.
(q) Year 2000 Compliance. All software or computer programs used by the
Borrower after calendar year 1999 in the operation of its Environmental
Infrastructure System and material to such operation will be designed to be used
prior to, during and after calendar year 2000, and all such software or computer
programs will operate during each time period without material error relating to
date data, specifically including any error relating to, or the product of, date
data that represents or references different centuries or more than one century.
Without limiting the generality of the foregoing, all such software or computer
programs (i) will not abnormally end or provide invalid or incorrect results as
a result of date data and (ii) have been designed to ensure year 2000
compatibility, including date data, century recognition, calculations that
accommodate same century and multi-century formulas and date values, and date
data interface values that reflect the century.
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ARTICLE III
LOAN TO BORROWER; AMOUNTS PAYABLE; GENERAL AGREEMENTS
SECTION 3.01. Loan; Loan Term. The State hereby agrees to make the Loan
as described in Exhibit A-2 hereof and to disburse proceeds of the Loan to the
Borrower in accordance with Section 3.02 and Exhibit C hereof, and the Borrower
hereby agrees to borrow and accept the Loan from the State upon the terms set
forth in Exhibit A-2 attached hereto and made a part hereof; provided, however,
that the State shall be under no obligation to make the Loan if (a) at the Loan
Closing, the Borrower does not deliver to the State a Borrower Bond and such
other documents required under Section 2.02(l) hereof, or (b) an Event of
Default has occurred and is continuing under this Loan Agreement. Although the
State intends to disburse proceeds of the Loan to the Borrower at the times and
up to the amounts set forth in Exhibit C to pay a portion of the Cost of the
Project, due to unforeseen circumstances there may not be sufficient Federal
Funds on deposit on any date to make the disbursement in such amount.
Nevertheless, the Borrower agrees that the aggregate principal amount set forth
in Exhibit A-2 hereto shall constitute the initial principal amount of the Loan
(as the same may be adjusted downward in accordance with the definition
thereof), and the State shall have no obligation thereafter to loan any
additional amounts to the Borrower.
The Borrower shall have no legal or equitable interest in the Federal
Funds received by and available to the State or in moneys from repayments of
loans previously made from Federal Funds by the State.
The Borrower shall use the proceeds of the Loan strictly in accordance
with Section 2.01(h) hereof.
The payment obligations created under this Loan Agreement and the
obligations to pay the principal of and other amounts due under the Borrower
Bond are each direct, general, irrevocable and unconditional obligations of the
Borrower payable from any source legally available to the Borrower in accordance
with the terms of and to the extent provided in the Borrower Bond Resolution.
SECTION 3.02. Disbursement of Loan Proceeds. (a) The State shall
disburse Federal Funds earmarked for the Loan to the Borrower in accordance with
the terms hereof. Before each and every disbursement of the proceeds of the Loan
by the State to the Borrower, the Borrower shall in accordance with the
procedures set forth in the Regulations submit to the State a requisition
executed by an Authorized Officer of the Borrower.
(b) The State shall not be under any obligation to disburse any Loan
proceeds to the Borrower under this Loan Agreement, unless:
(i) the Loan Closing shall have occurred on the date
established therefor by the State;
(ii) there shall be Federal Funds available from time to time
to fund the Loan, as determined solely by the State;
(iii) in accordance with the "New Jersey Environmental
Infrastructure Trust Act", P.L. 1985, c. 334, as amended (N.J.S.A.
58:11B-1 et seq.), and the Regulations, the Borrower shall have timely
applied for, shall have been awarded and, prior to or simultaneously
with the Loan Closing, shall have closed a Trust Loan for a portion of
the Allowable Costs (as defined in such regulations) of the Project in
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an amount not in excess of the amount of Allowable Costs of the Project
covered by the Loan from the State, plus the amount of: (i) capitalized
interest during the Project construction period, if any, (ii) the cost
of funding reserve capacity for the Project, if any, as well as that
portion of the Debt Service Reserve Fund (as defined in the Trust Loan
Agreement) attributable to the cost of funding such reserve capacity
for the Project, and (iii) certain issuance expenses related thereto,
including, if applicable, a municipal bond insurance policy premium;
(iv) the Borrower shall have on hand moneys to pay for the
greater of (A) that portion of the total cost of the Project that is
not eligible to be funded from the Loan or the Trust Loan, or (B) that
portion of the total cost of the Project that exceeds the actual
amounts of the loan commitments made by the State and the Trust,
respectively, for the Loan and the Trust Loan; and
(v) no Event of Default nor any event that, with the passage
of time or service of notice or both, would constitute an Event of
Default shall have occurred and be continuing hereunder.
SECTION 3.03. Amounts Payable. (a) The Borrower shall repay the Loan at
zero-interest in principal installments payable to the Loan Servicer
semiannually on February 1 and August 1, commencing August 1, 2000, in
accordance with the schedule set forth in Exhibit A-2 attached hereto and made a
part hereof, as the same may be amended or modified by the State, in particular,
without limitation, to make any adjustments to the amount of the Loan in
accordance with the definition thereof; provided, however, that the amount of
any reduction in the principal amount of the Loan pursuant to N.J.A.C. 7:22-3.26
shall be credited to the principal payments set forth in Exhibit A-2 in inverse
order of their maturity. The obligations of the Borrower under the Borrower Bond
shall be deemed to be amounts payable under this Section 3.03. Each payment made
to the Loan Servicer pursuant to the Borrower Bond shall be deemed to be a
credit against the corresponding obligation of the Borrower under this Section
3.03, and any such payment made to the Loan Servicer shall fulfill the
Borrower's obligation to pay such amount hereunder and under the Borrower Bond.
Each payment made to the Loan Servicer pursuant to this Section 3.03 shall be
applied to the principal of the Loan.
(b) In addition to the principal payments on the Loan required by
subsection (a) of this Section 3.03, the Borrower shall pay a late charge for
any such payment that is received by the Loan Servicer later than the tenth
(10th) day following its due date in an amount equal to the greater of twelve
percent (12%) per annum or the Prime Rate plus one half of one percent per annum
on such late payment from its due date to the date actually paid; provided,
however, that such late charge payable on the Loan shall not be in excess of the
maximum interest rate permitted by law.
(c) In addition to the Loan Repayments payable under subsections (a)
and (b) of this Section 3.03, the Borrower shall pay one-half of the
Administrative Fee, if any, to the Loan Servicer semiannually on each February 1
and August 1, commencing February 1, 2000 or such later date as the State
authorizes, during the term of the Loan.
SECTION 3.04. Unconditional Obligations. The obligation of the Borrower
to make the Loan Repayments and all other payments required hereunder and the
obligation to perform and observe the other duties, covenants, obligations and
agreements on its part contained herein shall be absolute and unconditional, and
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shall not be abated, rebated, set-off, reduced, abrogated, terminated, waived,
diminished, postponed or otherwise modified in any manner or to any extent
whatsoever while any Loan Repayments remain unpaid, for any reason, regardless
of any contingency, act of God, event or cause whatsoever, including (without
limitation) any acts or circumstances that may constitute failure of
consideration, eviction or constructive eviction, the taking by eminent domain
or destruction of or damage to the Project or Environmental Infrastructure
System, commercial frustration of the purpose, any change in the laws of the
United States of America or of the State of New Jersey or any political
subdivision of either or in the rules or regulations of any governmental
authority, any failure of the State to perform and observe any agreement,
whether express or implied, or any duty, liability or obligation arising out of
or connected with the Project or this Loan Agreement, or any rights of set-off,
recoupment, abatement or counterclaim that the Borrower might otherwise have
against the State, the Loan Servicer or any other party or parties; provided,
however, that payments hereunder shall not constitute a waiver of any such
rights. The Borrower shall not be obligated to make any payments required to be
made by any other Borrowers under separate Loan Agreements.
SECTION 3.05. Loan Agreement to Survive Loan. The Borrower acknowledges
that its duties, covenants, obligations and agreements set forth in Sections
3.06(a) and (b) hereof shall survive the payment in full of the Loan.
SECTION 3.06. Disclaimer of Warranties and Indemnification. (a) The
Borrower acknowledges and agrees that: (i) the State does not make any warranty
or representation, either express or implied, as to the value, design,
condition, merchantability or fitness for particular purpose or fitness for any
use of the Environmental Infrastructure System or the Project or any portions
thereof or any other warranty or representation with respect thereto; (ii) in no
event shall the State or its agents be liable or responsible for any incidental,
indirect, special or consequential damages in connection with or arising out of
this Loan Agreement or the Project or the existence, furnishing, functioning or
use of the Environmental Infrastructure System or the Project or any item or
products or services provided for in this Loan Agreement; and (iii) during the
term of this Loan Agreement and to the fullest extent permitted by law, the
Borrower shall indemnify and hold the State harmless against, and the Borrower
shall pay any and all, liability, loss, cost, damage, claim, judgment or expense
of any and all kinds or nature and however arising and imposed by law, which the
State may sustain, be subject to or be caused to incur by reason of any claim,
suit or action based upon personal injury, death or damage to property, whether
real, personal or mixed, or upon or arising out of contracts entered into by the
Borrower, the Borrower's ownership of the Environmental Infrastructure System or
the Project, or the acquisition, construction or installation of the Project.
(b) It is mutually agreed by the Borrower and the State that the State
and its commissioners, officers, agents, servants or employees shall not be
liable for, and shall be indemnified and saved harmless by the Borrower in any
event from, any action performed under this Loan Agreement and any claim or suit
of whatsoever nature, except in the event of loss or damage resulting from their
own negligence or willful misconduct.
(c) In connection with its obligation to provide the insurance required
under Section 2.02(j) hereof: (i) the Borrower shall include, or cause to be
included, the State and its employees and officers as additional "named
insureds" on (A) any certificate of liability insurance procured by the Borrower
(or other similar document evidencing the liability insurance coverage procured
by the Borrower) and (B) any certificate of liability insurance procured by any
contractor or subcontractor for the Project, and from the latter of the date of
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the Loan Closing or the date of the initiation of construction of the Project
until the date the Borrower receives the written certificate of Project
completion from the State, the Borrower shall maintain said liability insurance
covering the State and said employees and officers in good standing; and (ii)
the Borrower shall include the State as an additional "named insured" on any
certificate of insurance providing against risk of direct physical loss, damage
or destruction of the Environmental Infrastructure System, and during the Loan
Term the Borrower shall maintain said insurance covering the State in good
standing.
The Borrower shall provide the State with a copy of each of any such
original, supplemental, amendatory or reissued certificates of insurance (or
other similar documents evidencing the insurance coverage) required pursuant to
this Section 3.06(c).
SECTION 3.07. Option to Prepay Loan Repayments. The Borrower may prepay
the Loan Repayments, in whole or in part, upon not less than ninety (90) days'
prior written notice to the State; provided, however, that any such full or
partial prepayment may only be made (i) if the Borrower is not then in arrears
on its Trust Loan, (ii) if the Borrower is contemporaneously making a full or
partial prepayment of the Trust Loan such that, after the prepayment of the Loan
and the Trust Loan, the Trust gives its consent required under Section 3.07(iii)
of the Trust Loan Agreement, and (iii) upon the prior written approval of the
State. Prepayments shall be applied to the principal payments on the portion of
the Loan to be prepaid in inverse order of their maturity.
SECTION 3.08. Priority of Loan and Trust Loan. (a) The Borrower hereby
acknowledges that, to the extent allowed by law, including, without limitation,
the appropriations act of the New Jersey State Legislature authorizing the
expenditure of Trust bond proceeds to finance a portion of the Cost of the
Project, or the Borrower Bond Resolution, any loan repayments then due and
payable on the Borrower's Trust Loan, including, without limitation, any
administrative fees and any late payment charges then due and payable under the
Trust Loan Agreement, shall be satisfied by the Loan Servicer before any Loan
Repayments then due and payable hereunder on the Loan shall be satisfied by the
Loan Servicer. The Borrower agrees not to interfere with any such action by the
Loan Servicer.
(b) The Borrower hereby acknowledges that in the event the Borrower
fails or is unable to pay promptly to the Trust in full any loan repayments on
the Trust Loan, then to the extent allowed by law any Loan Repayments paid by
the Borrower on the Loan under this Loan Agreement and received by the Loan
Servicer during the time of any such loan repayment deficiency under the Trust
Loan Agreement shall be applied by the Loan Servicer first to satisfy such Trust
Loan Agreement loan repayment deficiency as a credit against the obligations of
the Borrower to make loan repayments of that portion of interest under the Trust
Loan Agreement that is allocable to the interest payable on the Trust Bonds (as
defined in the Trust Loan Agreement) and to make payments of that portion of
interest under the bond issued by the Borrower to the Trust that is allocable to
the interest payable on the Trust Bonds, second, to the extent available, to
make loan repayments of principal under the Trust Loan Agreement and payments of
principal on the bond issued by the Borrower to the Trust pursuant to the Trust
Loan Agreement, third, to the extent available, to the payment of the
administrative fee payable under the Trust Loan Agreement and to make payments
of that portion of interest under the bond issued by the Borrower to the Trust
that is allocable to the administrative fee payable under the Trust Loan
-15-
Agreement, fourth, to the extent available, to the payment of late charges
payable under the Trust Loan Agreement and to make payments of that portion of
interest under the bond issued by the Borrower to the Trust that is allocable to
the late charges payable under the Trust Loan Agreement, and finally, to the
extent available, to make Loan Repayments on the Loan.
(c) The Borrower hereby further acknowledges that any Loan Repayments
paid by the Borrower on the Loan under this Loan Agreement shall be applied (i)
according to Section 3(c) of the Loan Servicing and Trust Bonds Security
Agreement (as defined in the definition of Loan Servicer herein) and (ii)
according to the provisions of the Master Program Trust Agreement.
-16-
ARTICLE IV
ASSIGNMENT OF LOAN AGREEMENT AND BORROWER BOND
SECTION 4.01. Assignment and Transfer by State. The Borrower hereby
approves and consents to any assignment or transfer of this Loan Agreement and
the Borrower Bond that the State deems to be necessary in connection with the
environmental infrastructure loan program of the State under the Regulations.
SECTION 4.02. Assignment by Borrower. Neither this Loan Agreement nor
the Borrower Bond may be assigned by the Borrower for any reason, unless the
following conditions shall be satisfied: (i) the State shall have approved said
assignment in writing; (ii) the assignee shall have expressly assumed in writing
the full and faithful observance and performance of the Borrower's duties,
covenants, obligations and agreements under this Loan Agreement and, to the
extent permitted under applicable law, the Borrower Bond; and (iii) immediately
after such assignment, the assignee shall not be in default in the observance or
performance of any duties, covenants, obligations or agreements of the Borrower
under this Loan Agreement or the Borrower Bond.
-17-
ARTICLE V
EVENTS OF DEFAULT AND REMEDIES
SECTION 5.01. Events of Default. If any of the following events occur,
it is hereby defined as and declared to be and to constitute an "Event of
Default":
(a) failure by the Borrower to pay, or cause to be paid, any Loan
Repayment required to be paid hereunder when due, which failure shall continue
for a period of fifteen (15) days;
(b) failure by the Borrower to pay, or cause to be paid, any late
charges incurred hereunder or any portion thereof when due or to observe and
perform any duty, covenant, obligation or agreement on its part to be observed
or performed under this Loan Agreement, other than as referred to in subsection
(a) of this Section 5.01 or other than the obligations of the Borrower contained
in Section 2.02(d)(ii) hereof and in Exhibit F hereto, which failure shall
continue for a period of thirty (30) days after written notice, specifying such
failure and requesting that it be remedied, is given to the Borrower by the
State, unless the State shall agree in writing to an extension of such time
prior to its expiration; provided, however, that if the failure stated in such
notice is correctable but cannot be corrected within the applicable period, the
State may not unreasonably withhold its consent to an extension of such time up
to 120 days from the delivery of the written notice referred to above if
corrective action is instituted by the Borrower within the applicable period and
diligently pursued until the Event of Default is corrected;
(c) any representation made by or on behalf of the Borrower contained
in this Loan Agreement, or in any instrument furnished in compliance with or
with reference to this Loan Agreement or the Loan, is false or misleading in any
material respect;
(d) a petition is filed by or against the Borrower under any federal or
state bankruptcy or insolvency law or other similar law in effect on the date of
this Loan Agreement or thereafter enacted, unless in the case of any such
petition filed against the Borrower such petition shall be dismissed within
thirty (30) days after such filing and such dismissal shall be final and not
subject to appeal; or the Borrower shall become insolvent or bankrupt or shall
make an assignment for the benefit of its creditors; or a custodian (including,
without limitation, a receiver, liquidator or trustee) of the Borrower or any of
its property shall be appointed by court order or take possession of the
Borrower or its property or assets if such order remains in effect or such
possession continues for more than thirty (30) days;
(e) the Borrower shall generally fail to pay its debts as such debts
become due; and
(f) failure of the Borrower to observe or perform such additional
duties, covenants, obligations, agreements or conditions as are required by the
State and specified in Exhibit F attached hereto and made a part hereof.
SECTION 5.02. Notice of Default. The Borrower shall give the State
prompt telephonic notice of the occurrence of any Event of Default referred to
in Section 5.01(d) or (e) hereof and of the occurrence of any other event or
condition that constitutes an Event of Default at such time as any senior
administrative or financial officer of the Borrower becomes aware of the
existence thereof.
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SECTION 5.03. Remedies on Default. Whenever an Event of Default
referred to in Section 5.01 hereof shall have occurred and be continuing, the
State shall have the right to take whatever action at law or in equity may
appear necessary or desirable to collect the amounts then due and thereafter to
become due hereunder or to enforce the observance and performance of any duty,
covenant, obligation or agreement of the Borrower hereunder.
In addition, if an Event of Default referred to in Section 5.01(a)
hereof shall have occurred and be continuing, the State shall, to the extent
allowed by applicable law, have the right to declare all Loan Repayments and all
other amounts due hereunder (including, without limitation, payments under the
Borrower Bond) to be immediately due and payable, and upon notice to the
Borrower the same shall become due and payable without further notice or demand.
SECTION 5.04. Attorneys' Fees and Other Expenses. The Borrower shall on
demand pay to the State the reasonable fees and expenses of attorneys and other
reasonable expenses (including, without limitation, the reasonably allocated
costs of in-house counsel and legal staff) incurred by the State in the
collection of Loan Repayments or any other sum due hereunder or in the
enforcement of the observation or performance of any other duties, covenants,
obligations or agreements of the Borrower upon an Event of Default.
SECTION 5.05. Application of Moneys. Any moneys collected by the State
pursuant to Section 5.03 hereof shall be applied (a) first to pay any attorneys'
fees or other fees and expenses owed by the Borrower pursuant to Section 5.04
hereof, (b) second, to the extent available, to pay principal due and payable on
the Loan, (c) third, to the extent available, to pay any other amounts due and
payable hereunder, and (d) fourth, to the extent available, to pay principal on
the Loan and other amounts payable hereunder as such amounts become due and
payable.
SECTION 5.06. No Remedy Exclusive; Waiver; Notice. No remedy herein
conferred upon or reserved to the State is intended to be exclusive, and every
such remedy shall be cumulative and shall be in addition to every other remedy
given under this Loan Agreement or now or hereafter existing at law or in
equity. No delay or omission to exercise any right, remedy or power accruing
upon any Event of Default shall impair any such right, remedy or power or shall
be construed to be a waiver thereof, but any such right, remedy or power may be
exercised from time to time and as often as may be deemed expedient. In order to
entitle the State to exercise any remedy reserved to it in this Article V, it
shall not be necessary to give any notice other than such notice as may be
required in this Article V.
SECTION 5.07. Retention of State's Rights. Notwithstanding any
assignment or transfer of this Loan Agreement pursuant to the provisions hereof,
or anything else to the contrary contained herein, the State shall have the
right upon the occurrence of an Event of Default to take any action, including
(without limitation) bringing an action against the Borrower at law or in
equity, as the State may, in its discretion, deem necessary to enforce the
obligations of the Borrower to the State pursuant to Section 5.03 hereof.
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ARTICLE VI
MISCELLANEOUS
SECTION 6.01. Notices. All notices, certificates or other
communications hereunder shall be sufficiently given and shall be deemed given
when hand delivered or mailed by registered or certified mail, postage prepaid,
to the Borrower at the address specified in Exhibit A-1 attached hereto and made
a part hereof and to the State and the Loan Servicer at the following addresses:
(a) State:
New Jersey Department of Environmental Protection
Municipal Finance and Construction Element
401 East State Street - 3rd Floor
Trenton, New Jersey 08625-0425
Attention: Assistant Director
New Jersey Department of the Treasury
Office of Public Finance
State Street Square - 5th Floor
Trenton, New Jersey 08625-0002
Attention: Director
(b) Loan Servicer:
First Union National Bank
21 South Street
Morristown, New Jersey 07960
Attention: Corporate Trust Department
Any of the foregoing parties may designate any further or different
addresses to which subsequent notices, certificates or other communications
shall be sent by notice in writing given to the others.
SECTION 6.02. Binding Effect. This Loan Agreement shall inure to the
benefit of and shall be binding upon the State and the Borrower and their
respective successors and assigns.
SECTION 6.03. Severability. In the event any provision of this Loan
Agreement shall be held illegal, invalid or unenforceable by any court of
competent jurisdiction, such holding shall not invalidate, render unenforceable
or otherwise affect any other provision hereof.
SECTION 6.04. Amendments, Supplements and Modifications. This Loan
Agreement may not be amended, supplemented or modified without the prior written
consent of the State and the Borrower.
SECTION 6.05. Execution in Counterparts. This Loan Agreement may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
SECTION 6.06. Applicable Law and Regulations. This Loan Agreement shall
be governed by and construed in accordance with the laws of the State of New
Jersey, including the Regulations, which Regulations are, by this reference
thereto, incorporated herein as part of this Loan Agreement.
-19-
SECTION 6.07. Consents and Approvals. Whenever the written consent or
approval of the State shall be required under the provisions of this Loan
Agreement, such consent or approval may only be given by the State.
SECTION 6.08. Captions. The captions or headings in this Loan Agreement
are for convenience only and shall not in any way define, limit or describe the
scope or intent of any provisions or sections of this Loan Agreement.
SECTION 6.09. Further Assurances. The Borrower shall, at the request of
the State, authorize, execute, attest, acknowledge and deliver such further
resolutions, conveyances, transfers, assurances, financing statements and other
instruments as may be necessary or desirable for better assuring, conveying,
granting, assigning and confirming the rights, security interests and agreements
granted or intended to be granted by this Loan Agreement and the Borrower Bond.
-20-
IN WITNESS WHEREOF, the State and the Borrower have caused this Loan
Agreement to be executed, sealed and delivered as of the date first above
written.
THE STATE OF NEW JERSEY,
ACTING BY AND THROUGH THE
NEW JERSEY DEPARTMENT OF
ENVIRONMENTAL PROTECTION
[SEAL]
By ________________________
ATTEST: Robert C. Shinn, Jr.
Commissioner, Department of
Environmental Protection
- -----------------------------
Nicholas G. Binder, P.E., P.P.
Assistant Director,
Municipal Finance and Construction Element,
Department of Environmental Protection
MIDDLESEX WATER COMPANY
[SEAL]
By: ________________________
ATTEST: Authorized Officer
- -----------------------------
Authorized Officer
Approval of New Jersey State
Treasurer
By: ________________________
Roland M. Machold
Acting New Jersey State
Treasurer
[Signature Page]
EXHIBIT A-1
Description of Project and Environmental Infrastructure System
A-1-1
EXHIBIT A-2
Description of Loan
A-2-1
EXHIBIT B
Basis for Determination of Allowable Project Costs
B-1
EXHIBIT C
Estimated Disbursement Schedule
C-1
EXHIBIT D
Specimen Borrower Bond
D-1
(To be supplied by Borrower's
bond counsel in substantially the following form)
IMPORTANT NOTE: The next two pages set forth the form of the Borrower
Bond prepared by the Trust's Bond Counsel for municipal/county Borrowers.
Although the Trust recognizes that each corporate Borrower has its own bond form
as required pursuant to its Borrower Bond Resolution, please incorporate in the
bond form the pertinent information from this municipal/county bond form (e.g.,
include the concept of principal amount or lesser amount under Section 3.01,
reference to payments to the Loan Servicer, disbursement process, unconditional
nature, prepayment, security and date).
D-2
SEE IMPORTANT NOTE ON PRIOR PAGE
FOR VALUE RECEIVED, Middlesex Water Company, a corporation duly created
and validly existing under the Constitution and laws of the State of New Jersey
(the "Borrower"), hereby promises to pay to the order of the State of New Jersey
(the "State") the principal amount of Two Million One Hundred Fifty Thousand
Dollars ($2,150,000), or such lesser amount as shall be determined in accordance
with Section 3.01 of the Loan Agreement (as hereinafter defined), at the times
and in the amounts determined as provided in the Loan Agreement, plus any other
amounts due and owing under the Loan Agreement at the times and in the amounts
as provided therein. The Borrower irrevocably pledges its full faith and credit
for the punctual payment of the principal of, and all other amounts due under,
this Borrower Bond and the Loan Agreement according to their respective terms.
This Borrower Bond is issued pursuant to the Loan Agreement dated as of
November 1, 1999 by and between the State, acting by and through the New Jersey
Department of Environmental Protection, and the Borrower (the "Loan Agreement"),
and is issued in consideration of the loan made thereunder (the "Loan") and to
evidence the payment obligations of the Borrower set forth in Section 3.03(a)
thereof. Payments under this Borrower Bond shall, except as otherwise provided
in the Loan Agreement, be made directly to the Loan Servicer (as defined in the
Loan Agreement) for the account of the State. This Borrower Bond is subject to
assignment or endorsement in accordance with the terms of the Loan Agreement.
All of the terms, conditions and provisions of the Loan Agreement are, by this
reference thereto, incorporated herein as part of this Borrower Bond.
Pursuant to the Loan Agreement, disbursements shall be made by the
State to the Borrower upon receipt by the State of requisitions from the
Borrower executed and delivered in accordance with the requirements set forth in
Section 3.02 of the Loan Agreement.
This Borrower Bond is entitled to the benefits and is subject to the
conditions of the Loan Agreement. The obligations of the Borrower to make the
payments required hereunder shall be absolute and unconditional, without any
defense or right of set-off, counterclaim or recoupment by reason of any default
by the State under the Loan Agreement or under any other agreement between the
Borrower and the State or out of any indebtedness or liability at any time owing
to the Borrower by the State or for any other reason.
This Borrower Bond is subject to optional prepayment under the terms
and conditions, and in the amounts, provided in Section 3.07 of the Loan
Agreement. To the extent allowed by applicable law, this Borrower Bond may be
subject to acceleration under the terms and conditions, and in the amounts,
provided in Section 5.03 of the Loan Agreement.
To the extent provided by law, this Borrower Bond is junior and
subordinate in all respects to any bonds of the Borrower issued on even date
herewith to the New Jersey Environmental Infrastructure Trust as to lien on, and
source and security for payment from, the revenues of the Borrower.
IN WITNESS WHEREOF, the Borrower has caused this Borrower Bond to be
duly executed, sealed and delivered as of this 15th day of October, 1999.
MIDDLESEX WATER COMPANY
[SEAL]
By:_______________________
ATTEST: _____________
_______________________ By:_______________________
D-3
EXHIBIT E
Opinions of Borrower's Bond and General Counsels
See Closing Item No. 10.04
E-1
[LETTERHEAD OF COUNSEL TO BORROWER]
November 4, 1999
State of New Jersey
Department of Environmental Protection
401 East State Street
Trenton, New Jersey 08625
Ladies and Gentlemen:
We have acted as counsel to Middlesex Water Company, a corporation duly
organized and validly existing under the laws of the State of New Jersey (the
"Borrower"), which has entered into a Loan Agreement (as hereinafter defined)
with the State of New Jersey, acting by and through the New Jersey Department of
Environmental Protection (the "State"), and have acted as such in connection
with the authorization, execution, attestation and delivery by the Borrower of
its Loan Agreement and Borrower Bond (as hereinafter defined) pursuant to the
New Jersey Business Corporation Act, P.L. 1968, c. 263, as amended (the
"Business Corporation Law"), and an indenture of the Borrower dated as of April
1, 1927 and entitled "Indenture of Mortgage", as amended and supplemented,
including by a supplemental indenture dated as of November 1, 1999 and entitled
"Twenty-Fifth Supplemental Indenture" (such indentures shall be collectively
referred to herein as the "Resolution"). All capitalized terms used but not
defined herein shall have the meanings ascribed to such terms in the Loan
Agreement.
In so acting, we have examined the Constitution and laws of the State
of New Jersey, including, without limitation, the Business Corporation Law, and
the certificate of incorporation and by-laws of the Borrower. We have also
examined originals, or copies certified or otherwise identified to our
satisfaction, of the following:
(a) the Loan Agreement dated as of November 1, 1999 (the "Loan
Agreement") by and between the State and the Borrower;
(b) the proceedings of the board of directors of the Borrower relating
to the approval of the Loan Agreement and the execution, attestation and
delivery thereof on behalf of the Borrower and the authorization of the
undertaking and completion of the Project;
(c) the Borrower Bond dated as of October 15, 1999 (the "Borrower
Bond") issued by the Borrower to the State to evidence the Loan; and
(d) the proceedings (together with the proceedings referred to in
clause (b) above and Section 5 below, the "Proceedings") of the board of
directors of the Borrower, including, without limitation, the Resolution,
relating to the authorization of the Borrower Bond and the sale, execution,
attestation, authentication and delivery thereof to the State (the Loan
Agreement and the Borrower Bond are referred to herein collectively as the "Loan
Documents").
We have also examined and relied upon originals, or copies certified or
otherwise authenticated to our satisfaction, of such other records, documents,
certificates and other instruments, and have made such investigation of law as
in our judgment we have deemed necessary or appropriate, to enable us to render
the opinions expressed below.
We are of the opinion that:
1. The Borrower is a corporation duly created and validly existing
under and pursuant to the Constitution and statutes of the State of New Jersey,
including the Business Corporation Law, with the legal right to carry
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on the business of its Environmental Infrastructure System as currently being
conducted and as proposed to be conducted.
2. The Borrower has full legal right and authority to execute, attest
and deliver the Loan Documents, to sell the Borrower Bond to the State, to cause
the authentication of the Borrower Bond, to observe and perform its duties,
covenants, obligations and agreements under the Loan Documents and to undertake
and complete the Project.
3. The acting officials of the Borrower who are contemporaneously
herewith performing or have previously performed any action contemplated in the
Loan Agreement are, and at the time any such action was performed were, the duly
appointed or elected officials of the Borrower empowered by applicable New
Jersey law and authorized by resolution of the Borrower to perform such actions.
4. The proceedings of the Borrower's board of directors (i) approving
the Loan Documents, (ii) authorizing their execution, attestation and delivery
on behalf of the Borrower, (iii) with respect to the Borrower Bond only,
authorizing its sale by the Borrower to the State and authorizing its
authentication on behalf of the Borrower, (iv) authorizing the Borrower to
consummate the transactions contemplated by the Loan Documents, (v) authorizing
the Borrower to undertake and complete the Project, and (vi) authorizing the
execution and delivery of all other certificates, agreements, documents and
instruments in connection with the execution, attestation and delivery of the
Loan Documents, have each been duly and lawfully adopted and authorized in
accordance with applicable law and applicable resolutions of the Borrower,
including, without limitation, the Resolution, the other Proceedings and the
Business Corporation Law, which Proceedings constitute all of the actions
necessary to be taken by the Borrower to authorize its actions contemplated by
clauses (i) through (vi) above and which Proceedings, including, without
limitation, the Resolution, were duly adopted in accordance with applicable New
Jersey law at a meeting or meetings duly called and held in accordance with
applicable New Jersey law and at which quorums were present and acting
throughout.
5. The Loan Documents have been duly authorized, executed, attested and
delivered by the Authorized Officers of the Borrower, the Borrower Bond has been
duly sold by the Borrower to the State, and the Borrower Bond has been duly
authenticated by the trustee or paying agent under the Resolution; and assuming
in the case of the Loan Agreement that the State has the requisite power and
authority to authorize, execute, attest and deliver, and has duly authorized,
executed, attested and delivered, the Loan Agreement, the Loan Documents
constitute the legal, valid and binding obligations of the Borrower, enforceable
against the Borrower in accordance with their respective terms, subject,
however, to the effect of, and to restrictions and limitations imposed by or
resulting from, bankruptcy, insolvency, moratorium, reorganization or other
similar laws affecting creditors' rights generally. No opinion is rendered as to
the availability of any particular remedy.
6. The authorization, execution, attestation and delivery of the Loan
Documents by the Borrower and, in the case of the Borrower Bond only, the
authentication thereof by the trustee or paying agent under the Resolution and
the sale thereof to the State, the observation and performance by the Borrower
of its duties, covenants, obligations and agreements thereunder, the
consummation of the transactions contemplated therein, and the undertaking and
completion of the Project do not and will not (i) other than the lien, charge or
encumbrance created by the Loan Documents, by the Resolution and by any other
outstanding debt obligations of the Borrower that are at parity with the
Borrower Bond as to lien on, and source and security for payment thereon from,
the revenues of the Borrower, result in the creation or imposition of any lien,
charge or encumbrance upon any properties or assets of the Borrower
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pursuant to, (ii) result in any breach of any of the terms, conditions or
provisions of, or (iii) constitute a default under, any existing resolution,
outstanding debt or lease obligation, trust agreement, indenture, mortgage, deed
of trust, loan agreement or other instrument to which the Borrower is a party or
by which the Borrower, its Environmental Infrastructure System or any of its
properties or assets may be bound, nor will such action result in any violation
of the provisions of the charter or other document pursuant to which the
Borrower was established or any laws, ordinances, injunctions, judgments,
decrees, rules, regulations or existing orders of any court or governmental or
administrative agency, authority or person to which the Borrower, its
Environmental Infrastructure System or its properties or operations is subject.
7. All approvals, consents or authorizations of, or registrations of or
filings with, any governmental or public agency, authority or person required to
date on the part of the Borrower in connection with the authorization,
execution, attestation, delivery and performance of the Loan Documents, the sale
of the Borrower Bond and the undertaking and completion of the Project have been
obtained or made.
8. There is no litigation or other proceeding pending or, to our
knowledge, after due inquiry, threatened in any court or other tribunal of
competent jurisdiction (either State or federal) (i) questioning the creation,
organization or existence of the Borrower, (ii) questioning the validity,
legality or enforceability of the Resolution, the Loan or the Loan Documents,
(iii) questioning the undertaking or completion of the Project, (iv) otherwise
challenging the Borrower's ability to consummate the transactions contemplated
by the Loan or the Loan Documents, or (v) that, if adversely decided, would have
a materially adverse impact on the financial condition of the Borrower.
9. Other than its bond dated as of October 15, 1999 issued to the New
Jersey Environmental Infrastructure Trust, the Borrower has no bonds, notes or
other debt obligations outstanding that are superior or senior to the Borrower
Bond as to lien on, and source and security for payment thereof from, the
revenues of the Borrower.
We hereby authorize McCarter & English, LLP, acting as bond counsel to
the State in connection with the Loan, and the Attorney General of the State of
New Jersey, acting as general counsel to the State in connection with the Loan,
to rely on this opinion as if we had addressed this opinion to them in addition
to you.
Very truly yours,
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EXHIBIT F
Additional Covenants and Requirements
[None]
F-1
EXHIBIT G
General Administrative Requirements for the
State Environmental Infrastructure Financing Program
G-1