-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RlswUgNvZN2RpcgKs3CvZ5yKV4pnw4Psgd+JopxWXzEQVk6dwjVaK0tm3HHokAef bO8v4PaHG8eU/cY4EBa28w== 0000915656-97-000010.txt : 19970401 0000915656-97-000010.hdr.sgml : 19970401 ACCESSION NUMBER: 0000915656-97-000010 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BIRMINGHAM UTILITIES INC CENTRAL INDEX KEY: 0000006694 STANDARD INDUSTRIAL CLASSIFICATION: WATER SUPPLY [4941] IRS NUMBER: 060878647 STATE OF INCORPORATION: CT FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-06028 FILM NUMBER: 97569772 BUSINESS ADDRESS: STREET 1: 230 BEAVER ST STREET 2: P O BOX 426 CITY: ANSONIA STATE: CT ZIP: 06401-0426 BUSINESS PHONE: 2037351888 MAIL ADDRESS: STREET 2: 230 BEAVER ST P O BOX 426 CITY: ANSONIA STATE: CT ZIP: 06401-0426 FORMER COMPANY: FORMER CONFORMED NAME: ANSONIA DERBY WATER CO DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: ANSONIA WATER CO DATE OF NAME CHANGE: 19720217 10-K405 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13, OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission file No. 0-6028 BIRMINGHAM UTILITIES, INC. (Exact Name of registrant as specified in its charter) CONNECTICUT 06-0878647 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 230 Beaver Street, Ansonia, CT 06401 (Address of principal executive (Zip Code) offices) Registrant's telephone number including area code (203) 735-1888 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange 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 (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting stock held by non-affiliates* of the registrant based on the average bid and asked prices of such stock as of February 28, 1997: $5,399,961. Indicate the number of shares outstanding or each of the registrant's class of common stock, as of the latest practicable date. Class Outstanding at February 28, 1997 Common Stock, no par value 757,892 *For purposes of setting forth on the cover sheet of this Annual Report on Form 10-K the aggregate market value of the voting stock held by non- affiliates of the registrant, the registrant has deemed that all shares beneficially held by officers, directors, and nominees are shares held by affiliates. PART I Item 1. Business The Company is a specially chartered Connecticut public service corporation in the business of collecting and distributing water for domestic, commercial and industrial uses and fire protection in Ansonia and Derby, Connecticut, and in small parts of the contiguous Town of Seymour. Under its charter, the Company enjoys a monopoly franchise in the distribution of water in the area which it serves. In conjunction with its right to sell water, the Company has the power of eminent domain and the right to erect and maintain certain facilities on and in public highways and grounds, all subject to such consents and approvals of public bodies and others as may be required by law. The current sources of the Company's water are wells located in Derby and Seymour and interconnections with the South Central Connecticut Regional Water Authority's (the "Regional Water Authority") system (a) at the border of Orange and Derby (the "Grassy Hill Interconnection") and (b) near the border of Seymour and Ansonia (the "Woodbridge Interconnection"). The Company maintains its interconnected Peat Swamp, Middle and Quillinan Reservoirs, a 2.2 million gallons per day (MGD) surface supply, for emergency use only. During 1996 approximately 1.19 billion gallons of water from all sources were delivered to the Company's customers. The Company has approximately 8,775 customers of whom approximately 98.7% are residential and commercial. No single customer accounted for as much as 10% of total billings in 1996. The business of the Company is to some extent seasonal, since greater quantities of water are delivered to customers in the hot summer months. The Company had, as of March 3, 1997, 18 full-time employees. The Company's employees are not affiliated with any union organization. The Company is subject to the jurisdiction of the Connecticut Department of Public Utility Control ("DPUC") as to accounting, financing, ratemaking, disposal of property, the issuance of long term securities and other matters affecting its operations. The Connecticut Department of Public Health and Addiction Services (the "Health Department" or "DPHAS") has regulatory powers over the Company under state law with respect to water quality, sources of supply, and the use of watershed land. The Connecticut Department of Environmental Protection ("DEP") is authorized to regulate the Company's operations with regard to water pollution abatement, diversion of water from streams and rivers, safety of dams and the location, construction and alteration of certain water facilities. The Company's activities are also subject to regulation with regard to environmental and other operational matters by federal, state and local authorities, including, without limitation, zoning authorities. The Company is subject to regulation of its water quality under the Federal Safe Drinking Water Act ("SDWA"). The United States Environmental Protection Agency has granted to the Health Department the primary enforcement responsibility in Connecticut under the SDWA. The Health Department has established regulations containing maximum limits on contaminants which have or may have an adverse effect on health. Executive Officers of the Registrant Business Experience Name, Age and Position Past 5 Years Betsy Henley-Cohn, 44, Chairwoman of the Board Chairwoman of the Board of Directors of the Company since May of 1992; Chairman of the Board of Directors and Treasurer, Joseph Cohn & Sons, Inc, (painting contractors); Director, United Illuminating Company; Aristotle Corp.; Society for Savings Bancorp., Director 1985 - 1993. Aldore J. Rivers, 63, President of the Company since 1985. President Item 2. Properties The Company's properties consist chiefly of land, wells, reservoirs, and pipelines. The Company has 4 production wells with an aggregate effective capacity of approximately 3.0 MGD. The Company's existing interconnections with the Regional Water Authority can provide 3.8 MGD. The Company's entire system has a safe daily yield (including only those supplies that comply with the SDWA on a consistent basis) of approximately 6.8 MGD, while the average daily demand and the maximum daily demand on the system during 1996 were approximately 3.25 MGD and 3.99 MGD, respectively. The distribution system, with the exception of the well supplies, is mainly through gravity, but there are seven distinct areas at higher elevations where pumping, pressure tanks and standpipes are utilized. These higher areas serve approximately 25% of the Company's customers. The Company has three emergency stand-by reservoirs (Peat Swamp, Quillinan and Middle) with a storage capacity of 484 million gallons and a safe daily yield of approximately 2.2 MGD. Because the water produced by those reservoirs does not consistently meet the quality standards of the SDWA, none of those reservoirs is actively being used by the Company to supply water to the system. In addition, the Company owns the Great Hill reservoir system and the portion of the Sentinel Hill Reservoirs located in Derby which were abandoned as usable reservoirs in 1994 and 1988 respectively, with the approval of the Health Department. Because these reservoirs do not meet the requirements of the SDWA and because of their minimal storage capacity, the Company has determined that they are not large enough to build filtration plants to bring the water into compliance economically. During 1996, the Company sold to the City of Ansonia a portion of the Sentinel Hill Reservoir system and its watershed located in Ansonia. The Company's dams are subject to inspection by and the approval of the DEP. All of the Company's dams are in compliance with improvements previously ordered by the U.S. Army Corps. of Engineers. The Company has an office building at 230 Beaver Street, in Ansonia. That building was built in 1964, is of brick construction, and contains 4,200 square feet of office and storage space. In addition, the Company owns two buildings devoted to equipment storage. The Company also maintains some office space in a wood frame, residential building owned by the Company at 228 Beaver Street, Ansonia. The Company's approximately 3,400 acres of land were acquired over the years principally in watershed areas to protect the quality and purity of the Company's water at a time when land use was not regulated and standards for water quality in streams were non-existent. Under Connecticut law a water company cannot abandon a source of supply or dispose of any land holdings associated with a source of supply until it has a "water supply plan" approved by the Health Department. The Health Department approved the Company's first Water Supply Plan in 1988 and an updated Water Supply Plan in 1993. Pursuant to abandonment permits issued by the Health Department in 1988, the Company abandoned its Upper and Lower Sentinel Hill Reservoirs, Steep Hill (Bungay) Reservoir, and Fountain Lake Reservoir, and the land associated with them then became available for sale. In 1994, the abandonment of Great Hill Reservoir was approved by the Health Department. Since 1988, the Company has sold approximately 150 acres of land in Bethany for a gain after taxes of $765,367, 96 acres in Ansonia, Derby and Seymour for a net gain of $974,567, 151 acres in Seymour for a net gain of $796,527 and 59 acres in Ansonia for a net gain of $529,739. The Company believes that approximately 1,400 acres of its land holdings will not be needed in the future for water supply purposes and can be sold. The Company has proposed, and the DPUC has accepted with respect to prior transactions, an accounting and ratemaking mechanism by which the gain on the sale of the Company's land holdings is shared between ratepayers and stockholders as contemplated by Connecticut law. (See Note 1 to the Company's Financial Statements). Item 3. Legal Proceedings None. Item 4. Submission of Matters to a Vote of Security Holders None. Item 5. Market for the Registrant's Common Stock and Related Security Holding Matters As of February 28, 1997 there were approximately 496 record holders of the Company's common stock. Approximately 37% of the Company's stock is held in "nominee" or "street" name. The Company's common stock is traded on the NASDAQ Small-Cap Market. The market is not active, and actual trades are infrequent. The following table sets forth the dividend record for the Company's common stock and the range of bid prices for the last two calendar years. The stock prices are based upon NASDAQ records provided to the Company. The prices given are retail prices. The Company's Mortgage Bond Indenture under which its First Mortgage Bonds are issued contains provisions that limit the dividends the Company may pay, under certain circumstances.
Bid High Low Dividend Paid 1995 First Quarter 10.50 10.50 $0.12 Second Quarter 10.50 10.00 $0.12 Third Quarter 10.50 10.50 $0.12 Fourth Quarter 10.50 10.00 $0.12 1996 First Quarter 11.00 10.00 $0.12 Second Quarter 11.00 9.50 $0.125 Third Quarter 10.00 8.50 $0.13 Fourth Quarter 10.00 10.00 $0.13 1997 Through February 28 10.50 10.50 -
Item 6. Selected Financial Data Presented below is a summary of selected financial data for the years 1992 through 1996:
(000's omitted except for per share data) 1996 1995 1994 1993 1992 Operating Revenues $4,380 $4,238 $4,124 $4,033 $3,847 Income before Interest Charges 968 863 913 910 810 Income from Land Dispositions* 387 279 - - 39 Net Income 765 518 363 378 342 Earnings Per Share** 1.02 .69 .48 .50 .46 Cash Dividends Declared (per share)** .50 .48 .48 .46 .44 Total Assets 15,568 14,624 15,246 14,602 13,944 Long Term Debt 5,981 6,001 6,329 5,815 5,511 Short Term Debt 294 75 165 - - Shareholder Equity 3,841 3,408 3,220 3,217 3,195
* See Management Discussion and Analysis, Results of Operations - Land Dispositions ** Per share amounts for 1992 have been restated for comparability to reflect the impact of the July 16, 1993 two for one stock split. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS Net Income Net income increased from $362,520 in 1994 to $518,065 in 1995 and $764,737 in 1996. The $155,545 increase in net income from 1994 to 1995 reflected both a gain on a sale of land, recognized in 1995, of $279,101 and an increase of $34,970 in other income, resulting primarily from fees from a management contract. These increases were partially offset by increased operating expenses of $84,940 and a $73,586 increase in interest expense in 1995. Operating revenues in 1996 increased $141,696, and interest expense declined by $33,959, compared to 1995. Other income, however, decreased by $71,335 which resulted in an increase of $99,896 in net income before land sales. Current land sale gains of $386,709 in 1996, along with $161,065 in amortization of prior years gains produced total gains of $547,774 as compared with $400,998 in 1995. The increase of $146,776, when combined with the increase from operations of $99,896, resulted in the overall increase in 1996 net income of $246,672 over 1995 net income. Revenues The Company's business is to provide water service to customers, primarily in the cities of Ansonia and Derby, Connecticut. In 1996, revenues from sales of water increased by $141,696 (3.34%) over 1995 revenues. The Company was granted a 6.89% increase in rates by the Connecticut DPUC effective January 1, 1996. Due to a sharp decline (5.77%) in water consumed by the Company's customers during the year, the Company did not enjoy the full impact of the increase granted. The decline in consumption is attributable, for the most part, to the wet summer of 1996, when consumption declined (13.80%) from the summer drought conditions of 1995. Consumption of water by commercial and industrial customers continued to decrease both from 1994 to 1995 and from 1995 to 1996, due to continuing poor economic conditions in the Company's service area, which has resulted in the loss of several commercial and industrial customers. In 1995, revenues increased $113,688 (2.8%) over 1994 revenues, primarily as a result of the full impact in 1995 of a July 20, 1994 2.75% annual rate increase granted by the Connecticut DPUC and the increased use of water during the 1995 summer drought conditions. Because of favorable supply situations, the Company did not need to impose use restrictions despite the drought. While residential water consumption and total water consumption were higher in 1995 than in 1994, commercial and industrial customers' consumption dropped from 1994 to 1995 for the same reasons as noted previously. Operating Deductions Operating deductions in 1996 increased by only $4,424 (.0012%) when compared to 1995. Operating expenses declined by $109,136 in 1996 from the 1995 level, due mainly to a decrease in purchased water of $63,779 resulting from the weather differences previously noted. The other major expense reduction from 1995 to 1996 was $33,307 in special services caused mainly by decreased auditing fees. Maintenance expenses increased in 1996 by $70,133 over 1995, caused primarily by the harsh winter of 1996 which created the necessity for several major repairs. The increase of $12,207 in depreciation expense from 1995 to 1996 reflects the additions to plant of $2,885,872 over the past three years. Taxes other than income taxes decreased by $29,497, due to a decrease in property taxes caused by a sale of land and a decrease in the mill rate by one Town in the Company's service area, while the gross receipts tax increased due to the increase in revenues discussed previously. Operating deductions in 1995 increased $194,497 (5.6%) when compared to 1994. The cost of purchased water increased $53,904, due to the Company's increased reliance on purchased water during drought conditions experienced in 1995's summer months. The cost of maintaining distribution mains increased $26,064 primarily the result of fixing two significant main breaks in 1995. Customer account expense increased $31,368 as the result of a concerted collection effort which significantly reduced delinquent accounts during 1995. The remaining increase reflects the $28,990 increase in depreciation expense associated with the cost of capital expenditures of $671,390 in 1995 and $696,340 in 1994, the annual increase in salaries and the general level of inflation affecting many accounts, including the $18,875 increase in taxes other than income. The decline in taxes on income partially offset the impact of the increases noted above. Interest Interest expense, which increased from $550,155 in 1994 to $623,741 in 1995, decreased in 1996 to $589,782, reflecting a sale of land in late September 1995 the proceeds of which were used to reduce debt incurred to fund the construction of improvements to utility plant, and the capitalization of $20,262 in interest costs. Income Taxes Taxes on the Company's income from operations were $128,459, in 1996, $67,742 in 1995 and $95,884 in 1994. The decrease in 1995 from 1994 reflects the reduction in operating income in that year, while the increase in 1996 from 1995 reflects the increase in operating income for that year. The Company also incurs income tax liability for gains from land transactions, both in the year in which they occur and in the later years in which income, previously deferred in accordance with the DPUC's orders concerning the sharing of the gains between the Company's shareholders and ratepayers, is recognized by the Company. Taxes related to gains on land transactions were $382,107, $286,694 and $90,977 in 1996, 1995 and 1994, respectively. The Company's total income tax liability including both the tax on operating income and on land sale gains was $510,566 in 1996, $354,436 in 1995 and $186,861 in 1994. Land Dispositions When the Company disposes of land, any gain, net of tax, recognized is shared between rate payers and stockholders based upon a formula approved by the DPUC. The impact of land dispositions is recognized in two places on the statement of income. The 1996 statement of income reflects income from a disposition of land (net of taxes) of $386,709 and the 1995 statement of income reflects income from dispositions of land (net of taxes) of $279,101 which, in both cases, represent the stockholders' immediate share of income from land dispositions occurring in each year. In 1994, there were no dispositions of land. The second place where land disposition income is recognized in the financial statements is as a component of operating income on the line entitled "Amortization of Deferred Income on Dispositions of Land." These amounts represent the recognition of income deferred on land dispositions which occurred in prior years. The amortization of deferred income on land dispositions, net of tax was $161,065, $121,897 and $126,028 for the years 1996, 1995 and 1994, respectively. Recognition of deferred income will continue over time periods ranging from four to fifteen years depending upon the amortization period ordered by the DPUC for each particular disposition. See Note 7 of the Financial Statements. Effects of Inflation The Company received a rate order from the DPUC allowing an increase in the Company's rates designed to produce increases in the Company's annual revenues of $113,287 (effective July 20, 1994). The Company sought approval for additional rate relief on July 3, 1995. As a result of that application, the DPUC approved a 6.9% increase in rates effective January 1, 1996 designed to produce an annual increase in revenues of approximately $289,333. The Company is currently reviewing the need to seek an additional rate increase in 1997 to become effective on or about January 1, 1998. FINANCIAL RESOURCES During 1996, 1995 and 1994, the Company's water operations generated funds available for investment in utility plant and for use in financing activities, including payment of dividends on common stock, of $348,773, $471,196 and $333,579, respectively (see Statement of Cash Flows). Net cash provided by operating activities decreased $122,423 from 1995 to 1996. The major factors causing the decrease were an increase in deferred charges and other assets of $80,425 related mostly to the promotion of land sales and a lesser contribution arising from changes in accounts receivable and accrued revenues and accounts payable and accrued liabilities. During the three-year period 1994, 1995 and 1996, the Company has generated sufficient funds to meet its day-to-day operational needs, including regular expenses, payment of dividends, and investment in normal plant replacements, such as new services, meters and hydrants. It expects to be able to continue to do so for the forseeable future. In order to meet day-to-day cash needs that may arise unexpectedly, the Company maintains an unsecured working capital line of credit of up to $600,000 with a local bank. There were borrowings outstanding of $125,000 under the working capital line of credit as of December 31, 1996 at an interest rate of 8.375% and at present an interest rate of 7.125%. Completion of the Company's Long Term Capital Improvement Program is dependent upon the Company's ability to raise capital from external sources, including, for the purpose of this analysis, proceeds from the sale of the Company's holdings of excess land. During 1996, 1995, and 1994, the Company's additions to utility plant, net of customer advances, cost $1,461,152, $600,278, and $619,773, respectively (see Statement of Cash Flows). These additions were financed primarily from external sources, including proceeds from land sales and increases in debt. The Company has outstanding $4,700,000 principal amount of Mortgage Bonds, due September 1, 2011, issued under its Mortgage Indenture. The Mortgage Indenture limits the issuing of additional First Mortgage Bonds and the payment of dividends. It does not, however, restrict the issuance of either long term or short term debt which is either unsecured or secured with liens subject to the lien of the Mortgage Indenture. The Company also has a secured, term loan with a principal amount outstanding on December 31, 1996 of $1,300,000, at an interest rate of 8.18%. The term loan provides for annual sinking fund payments and must be paid in full in 2004. The Company also maintains an additional, secured, two-year line of credit in the principal amount of $1,500,000 maturing on May 1, 1998. The secured line of credit is being used to provide funds to continue the Company's construction program; at the Company's option it may be converted to a term loan at the end of the two year revolving period, with the term loan maturing in 2004. (See Note 6 to the Financial Statements). In April 1996 when the revolving loan financing arrangement was approved by the DPUC, the DPUC prohibited the Company from drawing down funds under the revolving line of credit if, at the time of or as a result of the draw down, the amount of the Company's long-term debt (including amounts outstanding under the two year revolving line of credit) would exceed 67% of the Company's total capitalization. The effect of the limitation,as of December 31, 1996, is to limit the Company to advances outstanding under the line of credit in the aggregate amount of approximately $750,000 for use on budgeted projects until such time as the Company obtains additional equity capital. There was a balance of $150,000 outstanding under the two year revolving line of credit at December 31, 1996 at an interest rate of 8.375% and at present an interest rate of 7.125%. The Company's 1997 Capital Budget of $1,430,000 is two-tiered. The first tier consists of typical capital improvements made each year for services, hydrants and meters budgeted for $230,000 in 1997 and is expected to be financed primarily with internally generated funds. The second tier of the 1997 Capital Budget consists of replacements and betterments which are part of the Company's Long Term Capital Improvement Program and includes $1,200,000 of budgeted plant additions. Plant additions from this part of the 1997 budget will require external financing in addition to the Company's line of credit. Second tier plant additions can be, and portions of it are expected to be, deferred to future years if funds are not available for their construction in 1997. As of December 31, 1996, the Company has approximately 1,400 acres of excess land available for sale, consisting of land currently classified as Class III, non-watershed land under the statutory classification system for water company lands. The Company believes that by selling these excess lands it can generate sufficient equity capital to support its 10 year capital budget, currently estimated at $11,824,000. Such land dispositions are subject to approval by the DPUC. During 1996, the Company entered into an agreement with the Connecticut Department of Transportation ("DOT") to sell to DOT a 3.6 acre parcel of land in Seymour for $175,000. The Company has applied to the DPUC for permission to sell the parcel, and the application is pending. The Company knows of no reason why the DPUC should not approve the sale. The DPUC has issued a schedule pursuant to which it expects to render a decision in May. Assuming a favorable decision, the Company hopes to be able to close the transaction shortly thereafter. On March 18, 1997, the Company entered into a Purchase and Sale Agreement with M/1 Homes, LLC ("M/1 Homes"), pursuant to which the Company agreed to sell and M/1 Homes agreed to purchase approximately 245 acres of the Company's unimproved real property in Seymour, Connecticut for $3,950,000. The purchase and sale are subject to the DPUC's approval. While the Company cannot predict whether it will be able to obtain the approval of the DPUC, it again knows of no reason why the DPUC should not approve the sale. Connecticut law requires that the DPUC render a decision on such an application within 150 days from its filing. The agreement between the Company and M/1 Homes may be terminated by the Company if it has not received the required approval by November 14, 1997. the obligation of M/1 Homes to purchase the property is conditioned upon its receipt of local, state and federal approvals of its proposed development of the site as an 18 hole golf course, along with not fewer than 180 detached residential units for adults 55 years old and older, a clubhouse and catering facilities. The agreement may be terminated by either party if M/1 Homes had not received all the required development approvals by December 31, 1998. There is a provision in the agreement to extend its term through December 31, 2000 to accommodate appeals of required governmental approvals, in which case the purchase price for the property will increase by $20,000 for each month, or portion thereof, after December 31, 1999 until the closing shall occur. The Company cannot predict whether M/1 Homes will be able to obtain all of the required approvals. Finally, late last year the Company reached a tentative, non- binding agreement to sell all of the approximately 145 acres of the portion of its Sentinel Hill property located in Derby, Connecticut to the City of Derby for $1,800,000. The City expects to use the property primarily for open space purposes and, on March 19, 1997, obtained overwhelming voter approval to issue bonds to fund the purchase price. Since the voter approval, the Company and the City have been negotiating the terms of a definitive, binding agreement for the sale. If formal agreement between the parties is reached shortly as the Company expects, the Company will submit the agreement to the DPUC for approval approximately 40 days after reaching such agreement. The Company knows of no reason why the DPUC should not approve the sale. In 1994 the Company's Board of Directors approved a common stock Dividend Reinvestment Plan (the "Plan") pursuant to which shareholders will be entitled to purchase up to 70,000 new shares of the Company's Common Stock by applying to the purchase price of the new shares cash dividends which otherwise would be issued by the Company with respect to its existing common stock. The Dividend Reinvestment Plan provides that the purchase price for the new shares will be their fair market value at the time of the purchase. All regulatory approvals for the Plan were obtained during the first six months of 1995 and the Plan was in place for the quarterly dividends paid on June 30, 1995 and each quarterly dividend payment thereafter. Dividends reinvested during 1995 totalled $31,108 and in 1996 $51,386. Item 8. Financial Statements and Supplementary Data Index To Financial Statements Page Reports of Independent Accountants 13 & 14 Balance Sheet as of December 31, 1996 and December 31, 1995 15 & 16 Statement of Income and Retained Earnings for the three years ended December 31, 1996 17 Statement of Cash Flows for the three years ended December 31, 1996 18 Notes to Financial Statements 19 - 33 Financial Statement Schedule: Schedule IX - Short Term Borrowings 34 All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or the notes thereto. Report of Independent Accountants February 24, 1995 To the Board of Directors and Shareholders of Birmingham Utilities, Inc. In our opinion, the accompanying statements of income and retained earnings and of cash flows present fairly, in all material respects, the results of operations and cash flows of Birmingham Utilities, Inc. for the year ended December 31, 1994, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. We have not audited the financial statements of Birmingham Utilities, Inc. for any period subsequent to December 31, 1994. /s/ Price Waterhouse LLP Independent Auditors' Report To the Shareholders Birmingham Utilities, Inc. Ansonia, Connecticut We have audited the accompanying balance sheets of Birmingham Utilities, Inc. as of December 31, 1996 and 1995, and the related statements of income and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the 1996 and 1995 financial statements referred to above present fairly, in all material respects, the financial position of Birmingham Utilities, Inc. as of December 31, 1996 and 1995 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. February 14, 1997 Bridgeport, Connecticut
BIRMINGHAM UTILITIES, INC. BALANCE SHEETS December 31, 1996 and 1995 Assets 1996 1995 Utility plant $17,766,937 $16,352,307 Accumulated depreciation (5,472,071) (5,130,305) 12,294,866 11,222,002 Current assets: Cash and cash equivalents 185,479 398,869 Accounts receivable, net of allowance for doubtful accounts of $75,000 681,194 725,154 Accrued utility and other revenue 411,542 412,876 Materials and supplies 51,792 50,840 Prepayments 34,586 27,160 Total current assets 1,364,593 1,614,899 Deferred charges 870,736 713,417 Unamortized debt expense 193,466 205,429 Income taxes recoverable 422,844 456,659 Other assets 421,844 411,352 1,908,961 1,786,857 $15,568,420 $14,623,758
Shareholders' Equity and Liabilities 1996 1995 Shareholders' equity: Common stock, no par value; authorized 2,000,000 shares; issued and outstanding (1996, 757,892 shares; $2,221,786 $2,172,116 Retained earnings 1,619,188 1,235,116 3,840,974 3,407,598 Notes payable 1,375,000 1,300,000 Long term debt 4,606,000 4,700,564 5,981,000 6,000,564 Current liabilities: Note payable 125,000 Current portion of note payable and long-term debt 169,000 75,000 Accounts payable and accrued liabilitie 747,323 674,488 Total current liabilities 1,041,323 749,488 Customers' advances for construction 1,291,114 1,229,985 Contributions in aid of construction 719,736 719,736 Regulatory liability - income taxes refundable 187,477 195,049 Deferred income taxes 1,484,972 1,263,932 Deferred income on dispositions of land 1,021,824 1,057,406 Commitments and contingent liabilities (Note 13) 15,568,420 $14,623,758
See notes to financial statements.
BIRMINGHAM UTILITIES, INC. STATEMENTS OF INCOME AND RETAINED EARNINGS Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Operating revenues: Residential and commercial $3,325,758 $3,214,442 $3,089,759 Industrial 169,070 164,192 152,402 Fire protection 628,558 615,563 608,954 Public authorities 74,320 83,212 97,933 Other 182,065 160,666 175,339 4,379,771 4,238,075 4,124,387 Operating deductions: Operating expenses 2,394,730 2,503,866 2,370,823 Maintenance expenses 225,062 154,929 113,198 Depreciation 395,059 382,852 353,862 Taxes, other than income taxes 509,799 539,296 520,421 Taxes on income 128,459 67,742 95,884 3,653,109 3,648,685 3,454,188 726,662 589,390 670,199 Amortization of deferred income on dispositions of land (net of income taxes of $115,977 in 1996, $90,091 in 1995 and $90,977 in 1994) 161,065 121,897 126,028 Operating income 887,727 711,287 796,227 Other income, net 80,083 151,418 116,448 Income before interest expense 967,810 862,705 912,675 Interest expense 589,782 623,741 550,155 Income from dispositions of land (net of income taxes of $266,130 in 1996 and $196,603 in 1995) 386,709 279,101 - Net income 764,737 518,065 362,520 Retained earnings, beginning of year 1,235,482 1,077,185 1,074,266 Dividends 381,031 359,768 359,601 Retained earnings, end of year $1,619,188 $1,235,482 $1,077,185 Earnings per share $1.02 $.69 $.48 Dividends per share $.50 $.48 $.48 Shares outstanding 757,892 752,282 749,168
See notes to financial statements.
BIRMINGHAM UTILITIES, INC. STATEMENTS OF CASH FLOWS Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Cash flows from operating activities: Net income $ 764,737 $ 518,065 $ 362,520 Adjustments to reconcile net income to net cash provided by operating activities: Income from land dispositions (386,709) (279,101) - Depreciation and amortization 453,116 460,108 429,425 Amortization of deferred income (161,065) (121,897) (126,028) Deferred income taxes (302,617) (256,489) 29,935 Allowance for funds used during construction (20,262) - (21,515) Change in assets and liabilities: (Increase) decrease in accounts receivable and accrued revenues 45,294 85,008 (103,588) (Increase) decrease in materials and supplies (952) (5,391) 4,442 Increase in prepayments (7,426) (421) (551) Increase (decrease) in accounts payable and accrued liabilities 72,835 99,067 (14,398) Increase in deferred charges and other assets (108,178) (27,753) (226,663) Net cash provided by operating activities 348,773 471,196 333,579 Cash flows from investing activities: Capital expenditures (1,518,142) (671,390) (696,340) Sale of utility plant - 2,248 3,187 Proceeds from land disposition 1,041,350 - - Note receivable - 1,213,222 - Customer advances 56,990 71,112 76,567 Customer advances for construction (9,180) (2,107) (6,074) Net cash provided by (used in) investing activities (428,982) 613,085 (622,660) Cash flows from financing activities: Issuance of long-term debt - - 1,500,000 Net borrowing under revolving line of credit 275,000 - 340,000 Repayment of long-term debt (75,564) (75,564) (50,939) Repayment of revolving line of credit - (340,000) (1,110,000) Debt issuance cost (2,972) - (38,267) Dividends paid, net (329,645) (328,660) (359,601) Net cash provided by (used in) financing activities (133,181) (744,224) 281,193 Net increase (decrease) in cash (213,390) 340,057 (7,888) Cash and cash equivalents, beginning of year 398,869 58,812 66,700 Cash and cash equivalents, ending of year $185,479 $398,869 $58,812
See notes to financial statements. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS Years Ended December 31, 1996, 1995 and 1994 1. Accounting policies: Description of business: Birmingham Utilities, Inc.'s (the "Company") predominant business activity is to provide water service to various cities and towns in Connecticut. The Company's accounting policies conform to generally accepted accounting principles, and the Uniform System of Accounts and ratemaking practices prescribed by the Connecticut Department of Public Utility Control ("DPUC"). Estimates and assumptions: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. Actual results could vary from those estimates. Utility plant: The costs of additions to utility plant and the costs of renewals and betterments are capitalized. The cost of repairs and maintenance is charged to income. Upon retirement of depreciable utility plant in service, accumulated depreciation is charged with the book cost of the property retired and the cost of removal, and is credited with the salvage value and any other amounts recovered. Depreciation: For financial statement purposes, the Company provides for depreciation using the straight-line method. The rates used are intended to distribute the cost of depreciable properties over their estimated service lives. For income tax purposes, the Company provides for depreciation utilizing the straight-line and accelerated methods. Cash and cash equivalents: Cash and cash equivalents consist of cash in banks and overnight investment accounts in banks. From time to time, the Company has on deposit at financial institutions cash balances which exceed federal deposit insurance limitations. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31, 1996, 1995 and 1994 1. Accounting policies (continued): Allowance for funds used during construction: An allowance for funds used during construction ("AFUDC") is made by applying the last allowed rate of return on rate base granted by the DPUC to construction projects exceeding $10,000 and requiring more than one month to complete. AFUDC represents the net cost, for the period of construction, of borrowed funds used for construction purposes and a reasonable rate on other funds used. AFUDC represents a noncash credit to income. Utility plant under construction is not recognized as part of the Company's rate base for ratemaking purposes until facilities are placed into service. Accordingly, the Company capitalizes AFUDC as a portion of the construction cost of utility plant until it is completed. Capitalized AFUDC is recovered through water service rates over the service lives of the facilities. Revenue recognition: The Company follows the practice of recognizing revenue when bills are rendered to customers. In addition, the Company accrues revenue for the estimated amount of water sold but not billed as of the balance sheet date. Advances for construction/contributions in aid of construction: The Company receives cash advances from developers and customers to finance construction of new water main extensions. A portion of these advances are refunded to developers and customers as revenues are earned on the new water mains. Any unrefunded balances are reclassified to "Contributions in aid of Construction" and are no longer refundable. Fair value of financial instruments: The carrying amount of cash and cash equivalents, trade accounts receivable, and trade accounts payable approximate their fair values due to their short-term nature. The carrying amount of note payable and long-term debt approximates fair value based on market conditions for debt of similar terms and maturities. Income taxes: Except for accelerated depreciation since 1981 (federal only) and the tax effect of post-1986 contributions in aid of construction, for which deferred income taxes have been provided, the Company's policy is to reflect as income tax expense the amount of tax currently payable. This method, known as the flow-through method of accounting, is consistent with the ratemaking policies of the DPUC, and is based on the expectation that tax expense payments in future years will be allowed for ratemaking purposes. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31, 1996, 1995 and 1994 1. Accounting policies (continued): Income taxes (continued): The Company's deferred tax provision was determined under the liability method. Deferred tax assets and liabilities were recognized based on differences between the book and tax bases of assets and liabilities using presently enacted tax rates. The provision for income taxes is the sum of the amount of income tax paid or payable as determined by applying the provisions of enacted tax laws to the taxable income for that year and the net change during the year in the Company's deferred tax assets and liabilities. In addition, the Company is required to record an additional deferred liability for temporary differences not previously recognized. This additional deferred tax liability totaled $235,438 at December 31, 1996 and $261,610 at December 31, 1995. Management believes that these deferred taxes will be recovered through the ratemaking process. Accordingly, the Company has recorded an offsetting regulatory asset and regulatory liability. Employee benefits: The Company has a noncontributory defined benefit plan which covers substantially all employees. The benefits are primarily based on years of service and the employee's compensation. Pension expense includes the amortization of a net transition obligation over a twenty-three year period. The Company's funding policy is to make annual contributions in an amount that approximates what was allowed for ratemaking purposes consistent with ERISA funding requirements. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company has a 401(k) Plan. Employees are allowed to contribute a percentage of salary, based on certain parameters. From January 1, 1994 through March 31, 1996 the Company matched 25% of employee contributions up to 6% of total compensation. Effective April 1, 1996, the Company matches 50% of employee contributions up to 6% of total compensation. In addition, the Company provides certain health care and life insurance benefits for retired employees and their spouses. Generally, the plan provides for Medicare wrap-around coverage plus life insurance based on a percentage of each participant's final salary. Substantially all of the Company's employees may become eligible for these benefits if they reach retirement age while working for the Company. The Company's obligation for postretirement benefits expected to be provided to or for an employee must be fully accrued by the date that the employee attains full eligibility for all benefits. The Company has elected to recognize the unfunded accumulated postretirement benefit obligation over 20 years. The Company's funding policy is to contribute amounts annually to a benefit trust and pay directly all current retiree premiums. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31, 1996, 1995 and 1994 1. Accounting policies (continued): Compensated absences: Company policy and practice does not provide for any accumulated but unused vacation, sick time or any other compensated absences to be carried over beyond the year end. Deferred charges relating to land dispositions: Deferred charges are allocated to dispositions of land based on specific identification, if applicable, and on the percentage of acres disposed to total surplus acres. Land dispositions: The Company is actively seeking to dispose of surplus land not required for utility operations. The net gain of each disposition, after deducting costs, expenses and taxes is allocated between the shareholders and ratepayers by a method approved by the DPUC based on legislation passed by the Connecticut General Assembly. The portion of income applicable to shareholders is recognized in the year of disposition. Income attributable to ratepayers is deferred and amortized in a manner that reflects reduced water revenue arising from the sharing formula as determined by the DPUC. Unamortized debt expense: Costs related to the issuance of debt are capitalized and amortized over the term of the related indebtedness. The Company has received permission from the DPUC to amortize the costs associated with debt previously outstanding over the term of the new indebtedness.
2. Utility plant: 1996 1995 Pumping, treatment and distribution $13,368,635 $12,260,402 Source of supply $ 3,126,167 $ 2,879,303 General plant 1,132,329 1,010,268 Organization 30,219 30,219 17,657,350 16,180,192 Construction in process 109,587 172,115
BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31, 1996, 1995 and 1994
3. Accounts payable and accrued liabilities: 1996 1995 Accounts payable $239,886 $116,313 Accrued liabilities: Interest 151,027 151,172 Taxes 173,777 297,810 Pension 147,250 72,710 Other 35,383 36,483 747,323 674,488
4. Taxes, other than income taxes: 1996 1995 1994 Municipal $225,320 $267,183 $261,685 Gross receipts 215,300 208,201 198,548 Payroll 69,179 63,912 60,188 $509,799 $539,296 $520,421
5. Long term debt: 1996 1995 First mortgage bonds, Series E, 9.64%, due September 1, 2011 $4,700,000 $4,700,000 Other - 564 $4,700,000 $4,700,564
Pursuant to its Mortgage Bond Indenture, the Company has outstanding, a series of first mortgage bonds in the amount of $4,700,000 due on September 1, 2011. The terms of the indenture provide, among other things, annual sinking fund requirements commencing September 1, 1997, and limitations on (a) payment of cash dividends; and (b) incurrence of additional bonded indebtedness. Under the dividend limitation, approximately $696,000 was available to pay dividends at December 31, 1996 after the quarterly dividend payment made on that date. Interest is payable semi-annually on the first day of March and September. The indenture is secured by a lien on all of the Company's utility property other than excess land available for sale. There are no maturities of long term debt until September 1, 1997, when the Company is required to pay $94,000 and on each September 1 thereafter, until the bonds are paid in full. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (CONTINUED) Years Ended December 31, 1996, 1995 and 1994 6. Note payable: In a previous year, the Company converted certain short term borrowings to a ten year $1,500,000 term loan, established a $1,500,000 revolving line of credit to fund additional capital improvements, and obtained an unsecured line of credit of $600,000 to be used for working capital purposes. The revolving line of credit and unsecured line of credit become due and payable May 1, 1998 and May 1, 1997, respectively, with the unsecured portion required to be reduced to a zero balance for 30 consecutive days prior to the maturity date. The outstanding balance of the revolving note may be converted to a term loan at maturity with the same maturity and payment terms as the original term loan. Both the term loan and the revolving line of credit are secured by a lien (subordinate to the lien of the Mortgage Bond Indenture - See Note 5) on all of the Company's utility property other than its excess land available for sale. The term loan portion of the facility has both fixed and variable interest rate options. The applicable interest rate at December 31, 1996 and through July 2000 is 8.18%. Interest is payable monthly. The revolving line of credit also has various interest rate options, including a variable rate at 0.125% above the prime rate and LIBOR rate options, fixed for various short term periods including 30, or 90 days at 1.75% over the applicable LIBOR rate. Interest is payable monthly. Borrowings of $150,000 were outstanding on the revolving line of credit at December 31, 1996. The unsecured line of credit also provides for various interest rate options, including a variable rate at 0.125% above the prime rate, a variable rate at 1.75% above the bank's cost of funds (as provided by the bank), and the LIBOR options also available under the revolving line of credit. Borrowings of $125,000 were outstanding on the unsecured line of credit at December 31, 1996. All three facilities provide that a default under any of them or under the Mortgage Bond Indenture is considered a default under the others. They also provide that the net proceeds from the sale of any of the Company's excess land must be used to reduce the balance of the revolving line of credit first and then the term loan and require maintenance of certain financial ratios and shareholders' equity of at least $3,000,000. In addition, the DPUC has restricted the Company from borrowing funds under the revolving line of credit if at any time or as a result of the borrowing, the Company's long-term debt (including amounts outstanding under the revolving line of credit) would exceed 67% of the Company's total capitalization. The DPUC has also required the Company's ratio of long-term debt to total capital not exceed 62% by May 1, 1998. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 6. Notes payable (continued):
Minimum annual principal payments due on the term loan follows: Year ending December 31: 1997 $ 75,000 1998 75,000 1999 75,000 2000 75,000 2001 75,000 Thereafter 925,000 $1,300,000
7. Deferred income on dispositions of land: Deferred income on the prior dispositions of land is amortized to operating income under a method that coordinates the sharing of the net gains from land sales between the Company's shareholders and ratepayers in accordance with a rate making formula approved by the DPUC. Amortization of deferred income and related taxes to be included in future years operating income for land sales completed as of the balance sheet date follow:
Amortization To Be Deferred Included In Year ending December 31: Deferred Income Income Taxes Operating Income 1997 $ 299,883 $124,718 $175,165 1998 231,777 96,148 135,629 1999 171,578 71,093 100,485 2000 126,387 52,506 73,881 2001 87,233 36,382 50,851 Thereafter 104,966 43,558 61,408 $1,021,824 $424,405 $579,419
The amortization of deferred income on prior land sales does not include the effect of anticipated future land sales under the Company's ongoing land sales program. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 8. Income taxes: The provisions for taxes on income for the years ended December 31, 1996, 1995 and 1994 consist of:
1996 1995 1994 Current: Federal $318,311 $212,705 $ 26,820 State 112,765 111,526 20,838 Deferred: Federal: Accelerated depreciation 81,714 117,076 96,405 Alternative minimum tax credit Income on land dispositions 15,127 (112,489) 65,821 Investment tax credit (14,700) (14,700) (14,700) Construction advances and other (5,071) (6,165) (9,137) State 2,420 30,372 25,156 $510,566 $354,436 $186,861
State deferred income taxes relate solely to timing differences in the recognition of income related to land dispositions. A reconciliation of the income tax expense at the federal statutory tax rate of 34 percent to the effective rate follows:
1996 1995 1994 Federal income tax at statutory rates $433,603 $296,650 $185,500 Increase (decrease) resulting from: State income tax, net of federal benefit 72,828 93,653 30,356 Rate case expense 4,536 (9,103) 9,187 SFAS 106 expense in excess of funding 768 2,068 995 Other, net 13,531 (14,132) (24,477) Investment tax credit (14,700) (14,700) (14,700) Total provision for income taxes 510,566 354,436 186,861 Taxes related to land dispositions (382,107) (286,694) (90,977) Operating provision for taxes $128,459 $ 67,742 $ 95,884
BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 8. Income taxes (continued): Deferred tax liabilities (assets) were comprised of the following:
1996 1995 Depreciation $1,572,362 $1,483,004 Investment tax credits 363,961 378,661 Other 229,181 251,598 Gross deferred tax liabilities 2,165,504 2,113,263 Land sales (424,405) (441,952) Alternative minimum tax (2,228) (164,879) Other (253,899) (242,500) Gross deferred tax assets (680,532) (849,331) Total deferred income taxes $1,484,972 $1,263,932
9. Related party transactions: The Company has paid legal and consulting fees to firms whose partners are directors and shareholders of the Company. During the years ended December 31, 1996, 1995 and 1994 fees paid amounted to $32,378, $34,748, and $27,912, respectively. Amounts due to these firms at year end are not significant. 10.Allowance for doubtful accounts:
1996 1995 1994 Allowance for doubtful accounts, beginning $75,000 $75,000 $100,000 Provision 43,237 46,712 42,487 Recoveries 8,549 13,036 1,916 Charge-offs (51,786) (59,748) (69,403) Allowance for doubtful accounts, ending $75,000 $75,000 $ 75,000
11.Supplemental information: Amortization of deferred charges follows:
1996 1995 1994 Rate case and other $62,596 $62,592 $ 71,391 Debt issue costs 14,934 14,934 13,658 $77,530 $77,526 $85,049
BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 11.Supplemental information (continued): The Company has received revenues through the rate making process to recover the amortization of deferred charges. 12.Postemployment benefits: Pension plan:
The plan's funded status and related pension accrual follows: 1996 1995 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $523,864 in 1996 and $413,926 in 1995 $537,226 $419,625 Projected benefit obligation (742,517) (562,788) Plan assets at fair value 502,793 460,380 Projected benefit obligation in excess of plan assets (239,724) (102,408) Unrecognized prior service cost (44,183) (46,437) Unrecognized deferred loss 194,709 71,173 Other liability (33,311) - Unrecognized net obligation at transition 88,077 93,949 Prepaid (accrued) pension obligation included in accounts payable accrued liabilities ($ 34,432) $ 16,277 The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations was 7.0% in 1996 and 7.5% in 1995. The expected long-term rate of return on assets was 8.0% and 8.5% in 1996 and 1995, respectively. Net periodic pension costs include the following components: 1996 1995 1994 Service cost $40,780 $30,077 $23,945 Interest cost on projected benefit obligation 46,694 38,004 34,843 Amortization of net loss from prior years 8,065 6,167 3,182 Amortization of net obligation at transition 5,872 5,872 5,872 Amortization of unrecognized prior service cost (2,254) (2,263) (2,271) Deferred gain (loss) (13,119) 61,097 (39,600) Actual return on assets (24,638) (91,892) 9,507 Net pension cost $61,400 $47,062 $35,478
BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 12.Postemployment benefits (continued): Employer matching contributions to the 401(k) plan were $14,372, $7,731 and $6,722 in 1996, 1995 and 1994, respectively. Other postretirement benefit: The net periodic postretirement benefit cost includes the following components:
1996 1995 1994 Service cost-benefits earned during the period $19,612 $22,268 $15,230 Interest cost on benefit obligation 29,385 29,700 35,205 Actual return on plan assets (16,003) (27,185) 2,376 Net amortization and deferral (8,985) 11,430 (13,704) Amortization of transition obligation 25,378 25,378 25,378 Net periodic postretirement benefit cost $49,387 $61,591 $64,485 The funded status and the related accrual for postretirement benefits other than pensions were as follows: 1996 1995 Accumulated postretirement benefit obligation: Retirees ($234,544) ($233,530) Other vested ( 196,674) ( 205,659) ( 431,218) ( 439,189) Plan assets at fair value 214,759 170,275 Accumulated postretirement obligation in excess of plan assets ( 216,459) ( 268,914) Unrecognized net gain ( 189,588) ( 162,512) Unrecognized net transition obligation 406,047 431,426 Accrued postretirement benefit cost included in current assets $ 0 $ 0
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% in 1996 and 1995. The expected long-term rate of return on assets was 7.5% in 1996 and 1995. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 12.Postemployment benefits (continued): Other postretirement benefits (continued): For measurement purposes, a 11.0% annual increase in the per capita cost of covered health care benefits was assumed for 1997. This rate was assumed to decrease gradually to 6% for 2004 and remain at that level thereafter. A 1% increase in health care cost trend rate assumptions would produce an increase in the accumulated postretirement benefit obligation at December 31, 1996 of $70,121 and an increase in the aggregate service and interest cost of the net periodic postretirement benefit cost of $9,597. The Company has established tax effective funding vehicles for such retirement benefits in the form of a qualified Voluntary Employee Beneficiary Association (VEBA) trust. The Company funded the VEBA trust with tax deductible contributions totaling $49,387, $57,767 and $61,559 in 1996, 1995 and 1994, respectively. The Company president's employment contract requires accounting for benefits payable in accordance with SFAS 106. The accumulated present value of future benefits attributable to the Company's president is being recognized over his remaining years of service to retirement. The liability recorded at December 31, 1996 and 1995 was $112,818 and $88,987, respectively. At December 31, 1996, an amount of $70,818 has been included in other assets relating to a regulatory asset for costs which were included in the Company's rate case. 13.Commitments and contingent liabilities: Leases: The Company leases equipment under several noncancellable operating leases expiring through 2001. Total minimum rentals under noncancellable operating leases are as follow:
Year ending December 31: 1997 $11,341 1998 11,808 1999 8,990 2000 5,841 2001 467 $38,447
Lease expense was $27,903 in 1996, $35,274 in 1995 and $31,173 in 1994, respectively. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 13. Commitments and contingent liabilities (continued): Management agreement: The Company maintains an agreement with the City of Derby (the "City"), pursuantto which agreement, the Company manages the water system owned by the City. The Company is responsible for costs of maintenance and improvements. Amounts collected from customers, net of expenses, are retained by the Company. Capital budget: Management has budgeted $1,430,000 for capital expenditures in 1997, $225,000 of which is expected to be necessary to meet its service obligations for the coming year. The balance of the capital budget depends on the Company's ability to raise additional capital. Purchase commitment: The Company has an agreement with South Central Connecticut Regional Water Authority to purchase water. This agreement provides for a minimum purchase of 600 million gallons of water annually. Charges to expense were $680,125, $743,904, and $690,000 for the years 1996, 1995 and 1994, respectively. The purchase price is based on South Central Connecticut Regional Water Authority's wholesale rate. At December 31, 1996, this rate was approximately $1,150 per million gallons. This agreement expires December 31, 2015 and provides for two ten year extensions at the Company's option. 14. Rate matters: On December 27, 1995, the DPUC granted the Company an increase in annual revenues of $289,333 (6.89% increase) effective January 1, 1996. BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 15. Equity: Stock option plans: On September 13, 1994, the Company adopted two stock option plans. A non-employee director stock option plan and a key employee incentive stock option plan. 40,000 and 35,000 shares respectively were authorized under the two plans which provide for options to purchase common stock of the Company at the fair market value at the date of the grant. The options vest over various periods and must be exercised within 10 years from date of grant. The following table summarizes the issuance of options for the Company's common stock:
Granted Exercisable Number Weighted Average Number Weighted Average of Shares Exercise Price of Shares Exercise Price Granted during 1994 54,000 $10.50 December 31, 1994 54,000 $10.50 - - Granted during 1995 3,750 $11.00 December 31, 1995 57,750 $10.53 22,750 $10.50 Granted during 1996 5,000 $ 8.50 December 31, 1996 62,750 $10.37 55,875 $10.52
All of the options granted in 1996 and 1995 were granted under the non- employee director stock option plan. As of December 31, 1996, no options granted under the plans had been exercised or forfeited. On January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 123 - "Accounting for Stock Based Compensation" (SFAS 123). As permitted by SFAS 123, the Company has chosen to apply Accounting Principles Board Opinion No. 25 - "Accounting for Stock Issued to Employees" (APB 25) and related interpretations in accounting for stock based compensation. There being no grants of options to employees in 1996 or 1995, there was no material effect on the Company's results of operations in those years. Dividend reinvestment plan: On September 13, 1994, the Company adopted a dividend reinvestment plan which provides for the issuance and sale of up to 70,000 shares of the Company's authorized but unissued common stock to its shareholders who elect to reinvest cash dividends on the Company's existing shares. Shares under the plan will be purchased at their fair market value price on the date of the dividends to be invested in the new shares. The following table summarizes the activity in common shares related to the dividend reinvestment plan:
1996 1995 Number of shares issued 5,610 3,114 Value of shares when issued $51,386 $31,108
BIRMINGHAM UTILITIES, INC. NOTES TO FINANCIAL STATEMENTS (Continued) Years Ended December 31, 1996, 1995 and 1994 16.Supplemental disclosure of cash flow information and noncash financing activities: Cash paid for interest for the years ended 1996, 1995 and 1994 was $574,993, $608,764 and $557,909, respectively. Cash paid for income taxes for the years ended 1996, 1995 and 1994 was $539,200, $188,575, and $82,200, respectively. The Company receives contributions of plant from developers. These contributions are reported in utility plant and in customers' advances for construction. The contributions are deducted from construction expenditures to determine cash expenditures by the Company.
1996 1995 1994 Gross plant additions $1,518,142 $671,390 $696,340 Customers' advances for construction ( 56,990) ( 71,112) ( 76,567) $1,461,152 $600,278 $619,773
BIRMINGHAM UTILITIES, INC. SCHEDULE IX - SHORT TERM BORROWINGS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Weighted Average average Weighted Maximum amount interest Category of Balance interest outstanding outstanding rate short-term at the end rate at end during during during the borrowings of period of period the period the period period Year ended December 31, 1996 Notes payable $125,000 8.38% $480,000 $39,083 8.45% Year ended December 31, 1995 Notes payable $ 75,000 8.53% $408,717 $138,199 8.63% Year ended December 31, 1994 Notes payable $165,000 7.93% $165,000 $ 52,250 6.97%
PART III Item 10. Directors and Executive Officers of the Registrant (a) The following list identifies all current directors of the Company. No directoror executive officer has (i) any family relationship with any other such person or (ii) been involved in any legal proceeding which would require disclosure under Item 401 of Regulation S-K. There are no arrangements between any director or officer and any other person pursuant to which he or she was or is to be selected as a director or officer or as a nominee therefor.
Business Experience during the Last Director Name Age Five Years and Other Directorships Since Stephen P. Ahern 67 V.P., Ogden Allied Security Services; 1994 Principal, Ahern Builders Edward G. Brickett 67 Retired; Director of Finance, Town of 1979 Southington, CT until June, 1995. James E. Cohen 50 Lawyer in Practice in Derby; Director 1982 Great Country Bank 1987-1993 Betsy Henley-Cohn 44 Chairwoman of the Board of Directors 1981 of the Company since May of 1992; Chairman and Treasurer, Joseph Cohn & Sons, Inc., (painting contractors); Director, United Illuminating Corp. and Aristotle Corp.; Director, Society for Savings Bancorp,Inc. (1985-1993). Aldore J. Rivers 63 President of the Company 1986 B. Lance Sauerteig 51 Lawyer in Practice in Westport; Principal 1996 in BLS Strategic Capital, Inc. (financial and investment advisory company); previously, President First Spring Corporation, 1986-1994 (private family investment management company); Director OFFITBANK (a New York based private investment management bank) Kenneth E. Schaible 55 Banking Consultant/Developer since 1996; 1994 Senior Vice President, Webster Bank 1995-1996; previously, President Shelton Savings Bank and Shelton Bancorp, Inc. 1967 to 1995 Charles T. Seccombe 70 President and Treasurer, Seccombe's Men's 1967 Shop, Inc. (retail clothing business) David Silverstone 50 Lawyer in Practice in Hartford 1994
(b) Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten-percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the Company. Based solely on review of copies of such forms furnished to the Company, or written representations that no reconciliation forms were required, the Company believes that during fiscal year ending December 31, 1996, all Section 16(a) filing requirements applicable to its officers, directors and greater than ten-percent shareholders were complied with. Item 11. Compensation of Directors and Executive Officers Directors: The Company's Directors, except for Ms. Henley-Cohn and Mr. Rivers, received an annual fee of $3,000 plus $500 for each full Board meeting and $300 for each Committee meeting actually attended in 1996. Ms. Henley-Cohn received an annual salary of $49,139 for services in pursuit of land sales during 1996 and as Chairwoman of the Board of Directors. Executive Officers: During 1994, the Company had no Executive Officer whose total annual salary exceeded $100,000. The Company does not have any long-term incentive plans. The following table sets forth the annual cash compensation for Mr. Rivers, the Company's Chief Executive Officer, for each of 1994, 1995 and 1996.
Annual Compensation Securities Name and Underlying Principal Position Year Salary* Bonus Options** Aldore J. Rivers, President, CEO and Director 1994 $ 92,945 N/A 10,000 1995 $101,404 $2,500 N/A 1996 $105,404 N/A N/A
* Includes the economic benefit of premiums on a split-dollar life insurance policy pursuant to which Mr. Rivers is the Insured and the Company is the owner and paid the premiums in 1994, 1995 and 1996. **On September 13, 1994, the Company's Board of Directors approved the Birmingham Utilities, Inc. 1994 Stock Incentive Plan (The "1994 Plan"), subject to approval by the Company's shareholders and by the Connecticut Department of Public Utility Control (DPUC"). The amounts set forth in the table above, represent the award of options to Mr. Rivers which vested on September 12, 1996. None of the options have been exercised, and there were no options granted to Mr. Rivers in 1996. Employment Agreement and Split-Dollar Insurance Plan: The Company entered into an Employment Agreement with Mr. Rivers in 1990 (the" Employment Agreement"), pursuant to which the Company agreed to employ Mr. Rivers as President of the Company for a period of five years, until August of 1996. The Employment Agreement was amended in 1992 and 1993. The Employment Agreement, as amended, provides for a so-called "Split Dollar Life Insurance" plan for the benefit of both the Company and Mr. Rivers. The plan provides for the Company to maintain insurance on Mr. Rivers' life in an amount not less than $150,000, and to pay to Mr. Rivers' designee $150,000 if he should die on or before the age of 65. The balance of the life insurance proceeds, if any, may be retained by the Company. If Mr. Rivers dies after reaching the age of 65, all death benefits of the policy are retained by the Company. The Company has agreed to make one hundred eighty (180) monthly supplemental pension payments of $1,170 each to Mr. Rivers commencing when he reaches the age of 65 and continuing until the earlier of his death or the end of the 180-month period. The Company expects to use the proceeds of the life insurance to reimburse itself for the supplemental pension payments that may be made to Mr. Rivers after his 65th birthday. Item 12. Security Ownership of Management and Certain Beneficial Owners (a) The following table sets forth certain information with respect to the only persons, to the knowledge of the Company, who own as much as 5% of the Company's stock as of February 26, 1996.
Name and Address Amount and Nature of Percent of Beneficial Owner Beneficial Ownership Of Class Group consisting of Cohn Realty & Investment, 181,550 Shares (1) 23.95% Betsy Henley-Cohn, John J. Crawford, as custod- ian for Juri Henley-Cohn, and as custodian for Jesse Henley-Cohn, Joel Cohn Revocable Trust 1A, Betsy Cohn Spray Trust, Harry Berkowitz Revocable Trust, Betsy Cohn Income Trust, Rosenfield- Weisman Trust, 441 Chapel St., New Haven, CT 06510, and Ruth Weisman, 26 Kohary Drive, New Haven, CT 06515. John J. Crawford, 70 Indian Road, Guilford, CT 06437 66,262 Shares (2) 8.81%
(1) Of the 181,550 shares owned by this Group, Cohn Realty & Investment (a Connecticut general partnership consisting of three investment trusts whose managing agent is Betsy Henley-Cohn, whose beneficiaries are certain members of the Cohn Family and whose Trustees are Rhoda Cohn and Stanley Bergman) has beneficial ownership of 35,640 shares; John J. Crawford, as custodian for Juri Henley-Cohn, has beneficial ownership of 21,785 shares; John J. Crawford, as custodian for Jesse Henley-Cohn, has beneficial ownership of 22,091 shares; Joel Cohn Revocable Trust 1A has beneficial ownership of 26,060 shares; Betsy Cohn Spray Trust has beneficial ownership of 32,188 shares; Betsy Cohn Income Trust has beneficial ownership of 10,460 shares; Harry Berkowitz Revocable Trust has beneficial ownership of 16,098 shares; Rosenfield-Weisman Trust has beneficial ownership of 7,000 shares and Ruth Weisman has beneficial ownership of 10,228 shares. Betsy Henley-Cohn has either a controlling or a beneficial interest in Cohn Realty & Investment, Betsy Cohn Spray Trust and Betsy Cohn Income Trust. No member of the Group owns or has the right to acquire, directly or indirectly, any other shares. Unless otherwise indicated, the named beneficial owner of the shares has sole voting and dispositive power with respect thereto. The information set forth in this footnote is derived from a filing with the Securities and Exchange Commission made by the Group. (2) Includes 5,830 shares held jointly by Mr. Crawford and his wife, 22,091 shares held by Mr. Crawford as custodian for the benefit of Jesse Henley -Cohn, and 21,785 shares held by Mr. Crawford as custodian for the benefit of Juri Henley-Cohn. Mr. Crawford has sole voting power over the shares held for the benefit of Jesse Henley-Cohn and Juri Henley- Cohn, but has no family relationship with Jesse Henley-Cohn or Juri Henley-Cohn. The 22,091 shares held in trust for the benefit of Jesse Henley-Cohn and the 21,785 shares held in trust for the benefit of Juri Henley-Cohn are also included in the shares set forth in footnote (1), above, as being held by John J. Crawford as custodian for Jesse Henley- Cohn and Juri Henley-Cohn. (b) The following table sets forth certain information concerning ownership of the Company's Shares by management:
Common Shares Beneficially Owned Percent Name As of February 26, 1995 of Class Stephen P. Ahern 13,403 (1) 1.77 Edward G. Brickett 3,550 .47 James E. Cohen 33,598 (2) 4.43 Betsy Henley-Cohn 181,550 (3) 23.95 Aldore J. Rivers 2,051 .27 B. Lance Sauerteig 200 .03 Kenneth E. Schaible 980 .13 Charles T. Seccombe 8,169 (4) 1.08 David Silverstone 109 .01 Executive Officers and Directors as a group, 8 in number 243,610 32.14
(1) Includes 1,700 shares owned by Ahern Family Limited Partnership. (2) Includes 32,598 shares held by Mr. Cohen, as Trustee of the David B. Cohen Family Trust, and 1,000 shares held in a brokerage custodial account for Mr. Cohen's benefit. (3) Ms. Henley-Cohn is a member of the shareholder group described in the preceding table. The 181,550 shares set forth in this table is the aggregate number of shares held by all of the members of the group. See note (1) to the preceding table for information concerning shares beneficially held by Ms. Henley-Cohn. (4) All of which are held in a Trust, of which Mr. Seccombe is the Grantor and Trustee. Item 13. Certain Relationships and Related Transactions Mr. Cohen is a partner in the law firm of Cohen and Thomas, which has represented the Company on occasions in past years; the Company may continue to employ that firm on occasion in the future. Seccombe's Men's Shop, owned by Mr. Seccombe, in downtown Ansonia has been utilized as a collection facility for the paying of bills and will be used in that capacity in the future. Mr. Silverstone is a partner in the law firm of Silverstone & Koontz, which represented the Company on rate matters in 1995 and may do so in the future. Mr. Sauerteig is a principal in the law firm of Levett, Rockwood and Sanders, which provided legal services to the Company in 1996 and may do so in the future. Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) (1) and (2). See Index to Item 8. Financial Statements and Supplementary Data are herein incorporated by reference. (3) Certificate of Incorporation and By-Laws of Birmingham Utilities, Inc. Incorporated herein by reference is Exhibit 3 of Birmingham Utilities, Inc.'s Annual Report on Form 10K for the period ended December 31, 1994. (4) Instruments Defining Rights of Security Holders (i) Amended and Restated Mortgage Indenture by and between The Ansonia Derby Water Company and The Connecticut National Bank as Trustee, dated as of August 9, 1991. Incorporated herein by reference is Exhibit (4) (i) of The Ansonia Derby Water Company's Annual Report on Form 10-K for the period ending December 31, 1991. (ii) Commercial Term and Revolving Loan Agreement by and between Birmingham Utilities, Inc. and Fleet Bank, N.A., dated April 29, 1994. Incorporated herein by reference is Exhibit 10(1) of the Quarterly Report on Form 10-Q/A of Birmingham Utilities, Inc. for the period ended June 30, 1994. (iii) Birmingham Utilities, Inc. Dividend Reinvestment Plan, adopted by its Board of Directors on September 13, 1994. Incorporated herein by reference is Exhibit 4 (iii) of Birmingham Utilities, Inc.'s Annual Report on Form 10-K for the period ended December 31, 1994. (10) Material Contracts (10.1) Agreement to Purchase Water by and between The Ansonia Derby Water Company and South Central Connecticut Regional Water Authority dated January 18, 1984 for the sale of water by the Authority to the Company and subsequent amendment dated December 29, 1988. Incorporated herein by reference is Exhibit (10.1) of the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the period ended December 31, 1993. (10.2) Agreement to Purchase Water by and between The Ansonia Derby Water Company and South Central Connecticut Regional Water Authority dated November 30, 1984 for the sale by the Authority to the Company of water and for the construction of the pipeline and pumping and storage facilities in connection therewith by the Authority at the expense primarily of the Company and Bridgeport Hydraulic Company. Attached hereto as pp. 46 to 82. (10.3) Employment Agreement between The Ansonia Derby Water Company and Aldore J. Rivers dated August 5, 1990, as amended by amendments dated July 28, 1992 and April 20, 1993. Incorporated herein by reference is Exhibit (10.6) of the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the period ended December 31, 1993. (10.4) Birmingham Utilities, Inc. 1994 Stock Incentive Plan adopted by its Board of Directors on September 13, 1994. Incorporated herein by reference is Exhibit (10.9) of Birmingham Utilities, Inc.'s Annual Report on Form 10-K for the period ended December 31, 1994. (10.5) Birmingham Utilities, Inc. Stock Option Plan for Non- Employee Directors adopted by its Board of Directors on September 13, 1994. Incorporated herein by reference is Exhibit (10.10) of Birmingham Utilities, Inc.'s Annual Report on Form 10-K for the period ended December 31, 1994. (10.6) Purchase and Sale Agreement by and between Birmingham Utilities, Inc. and M/1 Homes, LLC dated March 18, 1997 for the sale by the Company to M/1 Homes of approximately 245 acres of unimproved land in Seymour, Connecticut. Attached hereto as pp. 83 to 104. (23) Consent of Price Waterhouse LLP (23.1) Consent of Dworken, Hillman, LaMorte & Sterczala, P.C. (b) Reports on Form 8-K. No reports on Form 8-K were filed by the Registrant during the last quarter of 1996. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) BIRMINGHAM UTILITIES, INC. BY:/s/ Betsy Henly-Cohn Betsy Henley-Cohn Chairwoman of the Board BY:/s/ Leroy A. DeFrances Leroy A. DeFrances Controller Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Stephen P. Ahern /s/ B. Lance Sauerteig Stephen P. Ahern, Director B. Lance Sauerteig, Director Date: March 14, 1997 Date: March 14, 1997 /s/ Edward G. Brickett /s/ Charles T. Seccombe Edward G. Brickett, Director Charles T. Seccombe, Director Date: March 14, 1997 Date: March 14, 1997 /s/ James E. Cohen /s/ Kenneth E. Schaible James E. Cohen, Director Kenneth E. Schaible, Director Date: March 14, 1997 Date: March 14, 1997 /s/ Betsy Henley-Cohn /s/ David Silverstone Betsy Henley-Cohn, Chairwoman David Silverstone, Director Board of Directors Date: March 14, 1997 Date: March 14, 1997 /s/ Aldore J. Rivers Aldore J. Rivers, President Date: March 14, 1997 DATE: March 14, 1997 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Registration Statements of Birmingham Utilities, Inc. on Form S-8 dated July 25, 1995 and in the Prospectus constituting part of the Registration Statement of Birmingham Utilities, Inc. on Form S-3 dated June 12, 1995 of our report dated February 24, 1995, which appears on page 13 of the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the year ended December 31, 1996. Price Waterhouse LLP New York, New York March 25, 1997 Dworken, Hillman, LaMorte & Sterczala, P.C. We hereby consent to the incorporation by reference in the Registration Statements of Birmingham Utilities, Inc. on Form S-8 dated July 25, 1995 and in the Prospectus constituting part of the Registration Statement of Birmingham Utilities, Inc. on Form S-3 dated June 12, 1995 of our report dated February 14, 1995, which appears in the Annual Report on Form 10-K of Birmingham Utilities, Inc. for the year ended December 31, 1996. /s/ Dworken, Hillman, LaMorte & Sterczala, P.C. March 25, 1997 BIRMINGHAM UTILITIES, INC. INDEX TO EXHIBITS Item No. Page No. 10.2 Agreement to Purchase Water by and between The Ansonia Derby Water Company and South Central Connecticut Regional Water Authority . . . 46 10.6 Purchase and Sale Agreement by and between Birmingham Utilities, Inc. and M/1 Homes, LLC. . . 83 EX-10.2 2 APPENDIX III-B WATER PURCHASE AGREEMENT THE ANSONIA DERBY WATER CO. and SOUTH CENTRAL CT REGIONAL WATER AUTHORITY dated November 30, 1984 November 30, 1984 Mr. John B. Dearborn, President The Ansonia Derby Water Company 230 Beaver Street Ansonia, Connecticut 06401 Dear Mr. Dearborn: Agreement to Purchase Water By and Between The Ansonia Derby Water Company (the ("Company") and South Central Connecticut Regional Water Authority (the "Regional Water Authority"), dated November 30, 1984 (the "Contract") This letter shall serve as a confirmation of the Regional Water Authority's understanding that, in addition to any rights that the Company may have either at common law or pursuant to the Contract, if the Regional Water Authority experiences a renewed outbreak of the bacteria problem it recently experienced or any similar bacteria problems, to the extent that the water to be supplied to the Company under the Contract is not in compliance with all standards imposed by any federal or state agency having jurisdiction over the quality of public drinking water, and if as a result of the purchase of such water under the Contract the Company experiences a similar outbreak of bacteria within the area of its distribution system served by water supplied under the Contract, the Regional Water Authority agrees to indemnify the Company with respect to all necessary expenses to cleanse the system of such bacteria required by any such governmental agency with jurisdiction. Sincerely, SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY BY: Its Chief Operating Officer Duly Authorized AGREEMENT AGREEMENT entered into this 30th day of November, 1984 by and between SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY (hereinafter referred to as the "AUTHORITY") and THE ANSONIA DERBY WATER COMPANY (hereinafter referred to as "ANSONIA DERBY"). W I T N E S S E T H: WHEREAS, ANSONIA DERBY wishes to purchase a portion of its water supply requirements from the AUTHORITY; and WHEREAS, the AUTHORITY is willing to sell water to ANSONIA DERBY; and WHEREAS, in order to accomplish the purpose stated above, pipeline and control facilities, tank, pumps, and related items will be required to be designed, constructed, installed, maintained and operated between the AUTHORITY's existing water system and ANSONIA DERBY'S existing water system; and WHEREAS, the AUTHORITY proposes to design, construct, install, maintain, replace or repair, and operate such pipeline and related facilities and thereby to sell water to ANSONIA DERBY; and WHEREAS, ANSONIA DERBY proposes to finance and own a portion of such pipeline and related facilities with the remainder being owned by the Bridgeport Hydraulic Company; and WHEREAS, the parties hereto wish to set forth their respective rights, responsibilities and remedies; NOW, THEREFORE, in consideration of the foregoing and of the mutual promises contained herein, the parties do hereby agree as follows: 1. Project Definition and Description. The pipeline and related facilities shall consist of approximately 22,500 feet of 20 inch pipeline, 4,500 feet of 24 inch pipeline, a seven million gallon per day pumping station, a one million gallon storage tank (the "Storage Tank"), a meter, and all related appurtenances, valves, points of connection and other facilities necessary or desirable to enable the AUTHORITY to deliver water from its water supply system to the water supply system of ANSONIA DERBY. All such facilities are herein referred to as the "Project". The AUTHORITY agrees to design, construct,install, maintain, replace or repair, and operate the Project. The division of ownership of the various components of the Project between Bridgeport Hydraulic Company and ANSONIA DERBY shall be as specified in Exhibit A hereto; provided, however, that if the total amounts paid by Bridgeport Hydraulic Company pursuant to Section 3(a) of that certain Agreement dated May 31, 1984 between the AUTHORITY and Bridgeport Hydraulic Company (the "Bridgeport Hydraulic Agreement") shall differ by an amount in excess of $100,000 from Bridgeport Hydraulic's Company's undepreciated book cost (determined in accordance with the requirements of the Department of Public Utility Control) of that portion of the Project owned by Bridgeport Hydraulic Company upon completion of construction of the Project, the parties hereto agree that the division of ownership of the Project shall be redetermined at that time in order to match, as closely as reasonably possible, the ownership portion of the Project of ANSONIA DERBY and Bridgeport Hydraulic Company, respectively, with each such party's total investment in the Project, any such redetermination to be reflected in a written supplement to Exhibit A hereto. The Project pipeline, pumping station, Storage Tank, meter, and points of connection to the AUTHORITY's, ANSONIA DERBY's and Bridgeport Hydraulic Company's water supply systems shall be at the approximate locations indicated in Exhibit A hereto. Exhibit A hereto also sets forth the time schedules and deadlines relating to the project, which schedules and deadlines the AUTHORITY hereby agrees, subject to Section 14 hereof, to meet, provided, however, that the AUTHORITY shall in no extent be liable for special or consequential damages. The Project is to be more specifically defined by the complete engineering plans and material and installation specifications which will be obtained by the AUTHORITY. By way of illustration and not by way of limitation, said plans shall delineate the following items: a. Pipeline Route. b. Pipeline Diameter. c. Number and Capacity of Pumps. d. Description of Surge Control, if required. e. Description of Pressure Reducing/Flow Control Facilities, if required. f. Maps, Hydraulic Profiles and Sketches supplementing, explaining and diagramming the foregoing. g. Metering Facilities. h. Land and Right of Way Acquisition. j. Description of Storage Tank. Such engineering plans and specifications shall be furnished for information purposes to ANSONIA DERBY; however, ANSONIA DERBY shall have no right of approval with respect thereto. The standard of design and construction to he used in the Project is the quality of design and construction used currently by the AUTHORITY for similar types of facilities. The AUTHORITY will use its best efforts to keep Project costs as low as possible while remaining cost effective. 2. Modifications to ANSONIA DERBY Water Supply System. ANSONIA DERBY agrees to effect, at its own cost, any and all modifications to its existing water supply system that are necessary or desirable to enable it to accept delivery of water through the Project. 3. (a) Out-of-Pocket Expenses. ANSONIA DERBY will reimburse the AUTHORITY for that portion of out-of-pocket engineering expenses associated with the Project which are allocable to ANSONIA DERBY pursuant to Section 4 hereof, payable on a monthly basis commencing with the end of the month during which this Agreement is executed. (b) Financing of Project. ANSONIA DERBY agrees to finance and to pay that portion of the costs associated with the Project which are allocable to it pursuant to Section 4 hereof. The AUTHORITY and Bridgeport Hydraulic Company shall finance and pay all costs associated with the Project which are not so allocable to ANSONIA DERBY pursuant to Section 4 hereof. The AUTHORITY may terminate this Agreement prior to June 1, 1985 if the D.P.U.C. shall not have approved the Bridgeport Hydraulic Agreement on or before February 1, 1985. ANSONIA DERBY shall pay to the AUTHORITY, within 10 days after the AUTHORITY notifies ANSONIA DERBY that physical construction of the Project has commenced, $200,000 in partial payment of costs associated with the Project which are allocable to ANSONIA DERBY pursuant to Section 4 hereof; thereafter, that portion of construction costs which are allocable to ANSONIA DERBY pursuant to this subsection (b) shall be appropriately calculated and documented by the AUTHORITY and billed by the AUTHORITY monthly in arrears, with ANSONIA DERBY continuing to maintain an advanced payment balance of $200,000 during the construction period. All payments required to be made pursuant hereto shall be made within 30 days of receipt of an invoice therefor. (c) Monthly Payments. ANSONIA DERBY agrees to pay to the AUTHORITY, monthly and in arrears, the Water Charge, as determined below, for the particular month. All payments required to be made pursuant hereto shall be made within 30 days of receipt of an invoice therefor. (d) Water Charge. The Water Charge will be calculated as a charge per million gallons of water delivered each month by the AUTHORITY to ANSONIA DERBY through the Project (currently $730 per MG) and shall be computed using the cost allocations detailed in the study entitled "Wholesale Rate Study" prepared by Guastella Associates, Inc., and dated June 27, 1983, a copy of which is attached hereto as Exhibit C. It is agreed that this study will be updated at the time of each rate case of the AUTHORITY subsequent to the date of this Agreement and that the Water Charge will be revised to reflect such updating. The AUTHORITY will give ANSONIA DERBY written notice of any public hearing on any proposal to raise the wholesale water rates of the AUTHORITY not later than the date of publication of the public notice thereof. The amount used in such updating for calculating the operating and maintenance expenditure portion of the Water Charge will be based on the budget used by the AUTHORITY for rate-making purposes and will include any adjustments made during the rate-making process. The book value of Utility Plant used in such updating calculation will be based on the most recent filing with the Department of Public Utility Control. The percentages used to allocate expenditures to general service as used on Schedule B and Schedule C-1 of Exhibit C hereof, will not change during the term of this Agreement. Notwithstanding the foregoing or the amount of water actually delivered to ANSONIA DERBY, the monthly Water Charge and the Water Charge for the last month of each calendar year shall be adjusted if necessary, as provided in Section 6 hereof, to reflect the minimum purchase requirements of Section 6 hereof. 4. Project Allocation. For purposes of Section 3 hereof, the following portion of the costs associated with the Project are allocable to ANSONIA DERBY and the remainder (other than that percentage of the construction and related costs of Section A of the Project pipeline and the pumping station shown in Exhibit B hereto as allocable to the AUTHORITY) are allocable to the Bridgeport Hydraulic Company: (a) 42% of the construction and related costs of Section A of the Project pipeline and the pumping station, as shown on the map contained in Exhibit B hereto. (b) 60% of the construction and related costs of Section B of the Project pipeline as shown on the map contained in Exhibit B hereto. (c) 1OO% of the cost of the metering facilities located at the Project's point of connection to ANSONIA DERBY'S water supply system. (d) all engineering and construction and related costs of the Storage Tank, except $112,000, which will be paid by Bridgeport Hydraulic Company. (e) That percentage of the engineering costs of the Project (excluding engineering costs specified in (d) above) which the amount paid by ANSONIA DERBY pursuant to subsections (a), (b), (c) and (d) of this Section 4 bears to the total costs associated with the Project. The AUTHORITY will change the design flow requirements of the Project to increase Ansonia Derby's portion of the total capacity thereof upon receipt of written request to that effect from Ansonia Derby prior to December 15, 1984, provided, however, that in such event the foregoing allocations in this Section 4 shall be adjusted by revising the figures inserted in the formula as specified in Exhibit B hereto. For purpose of this Section 4, "construction and related costs" include any of the following costs incurred by the AUTHORITY subsequent to the execution of this Agreement: a. Payments to contractors and materialmen constructing, working on, or supplying materials to the Project. b. Actual costs of acquisition of property, easements, rights of way, or the like required for the Project. c. Actual costs of legal services relating to the Project. d. Payroll costs (calculated in accordance with the respective normal practices of the respective parties) for AUTHORITY personnel, and actual costs for materials used in design, construction, inspection and installation of the Project. 5. Approvals and Conditions. It is understood by the parties that this Agreement and/or certain of the transactions contemplated hereby are subject to approval by the duly authorized State of Connecticut agencies including the Department of Health Services and the Department of Environmental Protection. ANSONIA DERBY and the AUTHORITY agree to cooperate and use their best efforts in securing all necessary approvals. Neither party shall have any other obligation under this Agreement unless and until said requisite approvals are obtained by June 1, 1985, except for ANSONIA DERBY'S obligation to pay its allocated share of out-of-pocket engineering expenses pursuant to Section 3(a). 6. Quantities. The AUTHORITY agrees to deliver not less than three million gallons of potable water per day to ANSONIA DERBY's point of connection to the Project at a hydraulic gradient of 450 feet based on U.S.G.S. datum, with a maximum flow rate for peak demands of not less than six million gallons per day. ANSONIA DERBY agrees to purchase a minimum quantity of 600 million gallons of potable water per year (the "Annual Minimum") commencing January 1, 1986 and during the term of this Agreement, and further agrees during such period that it will purchase a minimum quantity of 30 million gallons of potable water per month (the "Monthly Minimum"). Water purchased from the AUTHORITY by Ansonia Derby pursuant to the contract between them dated January 18, 1984 relating to the Grassy Hill Connection (the "Grassy Hill Purchase Agreement") shall be Credited against the Annual Minimum hereunder, and water purchased hereunder shall be credited against the Annual Minimum contained in the "Grassy Hill Purchase Agreement". If ANSONIA DERBY should fail to take the Monthly Minimum in any calendar month included in the term of this Agreement and during such calendar month such Monthly Minimum was available for delivery at the point of delivery to ANSONIA DERBY, then ANSONIA DERBY shall be deemed to have taken and the AUTHORITY shall be deemed to have delivered the Monthly Minimum during such month. If ANSONIA DERBY should fail to take the Annual Minimum in any calendar year included in the term of this Agreement (including for purposes of determining the amount taken during any such calendar year all amounts previously deemed to have been taken during such year) and during such calendar year such Annual Minimum was available for delivery at the point of delivery to ANSONIA DERBY, then ANSONIA DERBY shall be deemed to have taken and the AUTHORITY shall be deemed to have delivered during December of such year that amount of water equal to the difference between the Annual Minimum and the amount of water taken during such calendar year (including for purposes of determining the amount taken during any such calendar year all amounts previously deemed to have been taken during such year). In the event any partial calendar year is included in the term of this Agreement, then ANSONIA DERBY shall be deemed to have taken during the last calendar month so included that amount of water, if any, necessary in order to result in the ratio of (w) water taken during such partial calendar year (included for purposes of determining the amount taken during any such partial calendar year all amounts previously deemed to have been taken during such calendar year) to (x) the Annual Minimum being greater than or equal to the ratio derived by dividing (y) the number of calendar months in such partial year by (z) 12; provided, however, that during such partial calendar year an amount of water equal to (i) the Annual Minimum divided by (ii) the number of calendar months in such partial calendar year must have been available for delivery at the point of delivery to ANSONIA DERBY. 7. Water Quality. The water supplied by the AUTHORITY under this agreement at all times shall satisfy all standards imposed by any Federal or State agency having jurisdiction over the quality of public drinking water and applicable to the AUTHORITY and/or to ANSONIA DERBY; provided, however, that the AUTHORITY shall have no responsibility for any water quality problems resulting solely from conditions within the water distribution system of ANSONIA DERBY. 8. Term of Contract. Subject to the other terms and conditions contained herein, this contract shall be effective as of the date of its execution, and will remain in full force and effect until December 31, 2015, unless otherwise terminated in accordance with the terms and provisions hereof. 9. Renewal: Purchase upon Termination. This Agreement may be renewed, at the option of ANSONIA DERBY, for two additional periods of ten years each after the expiration date referred to in Paragraph 8 above. The renewal options referred to above are deemed to be exercised automatically unless ANSONIA DERBY shall have given written notification of its election not to renew at least two years prior to the end of the term of the Agreement then in effect. The terms and conditions for any such renewal period shall be the same as provided herein, with ANSONIA DERBY responsible for the Water Charge, as set forth in Section 3(b) hereof. Upon final termination of this Agreement, the AUTHORITY agrees to purchase from ANSONIA DERBY and ANSONIA DERBY agrees to sell to the AUTHORITY that portion of the Project then owned by ANSONIA DERBY at a purchase price equal to the net book value, defined as original cost less depreciation, of that portion of the Project owned by ANSONIA DERBY as shown on its books at the date of such purchase. Upon such purchase ANSONIA DERBY shall have no further rights with respect to the Project. 11. Metering. ANSONIA DERBY shall own the Project meter located at ANSONIA DERBY's point of connection to the Project; the AUTHORITY shall have the right and obligation to maintain such meter. The meter shall be tested semiannually and if there is a meter error of five percent or more, adjustment will be made to ANSONIA DERBY's Water Charge on the basis of one-half the time elapsed since the last test of the meter in question, unless the exact period of existence of said error can be conclusively established. In the event of loss of registration of flow during any month, ANSONIA DERBY will be deemed to have consumed during such month an amount of water equal to the historical average monthly consumption by ANSONIA DERBY for such month determined by dividing (x) the sum of the consumption by ANSONIA DERBY for such month in each year commencing with the first such month after January 1, 1986 and extending to and including such month in the immediately preceding year, by (y) that number which represents the total number of years elapsed since the first such month after January 1, 1986; provided that if such loss of registration should occur prior to January 1, 1987 ANSONIA DERBY will be deemed to have consumed during such month an amount of water equal to that consumed by it during the immediately preceding month. 12. Acquisition of Property and Interest in Property. Each party consents to the other's presence on such party's property to accomplish the purposes of this Agreement. The parties hereto understand that the Project may require for completion the acquisition of property and various interests in property owned by third parties. Any such acquisition shall be negotiated by the AUTHORITY and the terms thereof shall be determined in the sole discretion of the AUTHORITY. 13. Use of Project. The parties hereto agree that the AUTHORITY, ANSONIA DERBY and Bridgeport Hydraulic Company shall have the right to use the Project to provide water service and fire protection service to customers within their respective service territories, and that in furtherance of said right, each of the parties may effect one or more interconnections with the Project and may install hydrants and related facilities connected to the Project so long as such interconnections and facilities effected by any party are connected to that portion of the Project lying within the service territory of that party. Each of the parties shall have the right to bill for, collect and retain its respective water service and fire protection charges and revenues resulting from such use of the Project. Nothing contained in this Section 13 shall be construed to alter or negate ANSONIA DERBY's obligation to pay for service provided by the AUTHORITY in accordance with Section 3 hereof. The AUTHORITY'S right to utilize the Project as set forth in this Section 13 is subject to the condition that no such use of the Project by the AUTHORITY shall interfere with, or be inconsistent with, the AUTHORITY'S obligation to provide water service to ANSONIA DERBY under the terms of this Agreement. 14. Force Majeure. The AUTHORITY shall not be liable in damages or otherwise for any failure to perform any obligation under this Agreement, which failure is occasioned by or in consequence of any act of God, act of public enemy, war, acts of terrorism, blockages, insurrection, riot, epidemic, land slide, lightning, earthquake, fire, storm, flood, washout, civil disturbance, power failure, explosion, breakage or accident to machinery or lines of pipe, binding order, decree, regulation or, judgment of any court or governmental authority, and any other cause, whether of the kind herein enumerated or otherwise, not within the control of the AUTHORITY which act, omission, or circumstance the AUTHORITY is unable to prevent or overcome by the exercise of due diligence and/or good waterworks practices. All deadlines relating to construction of the Project provided for herein (including any such deadline contained in any plan, map or sketch referred to in Section 1 hereof) shall be extended for a period of time equal to the period of time that delay in the Project is caused by any of the causes stated herein (other than failure to obtain necessary regulatory approvals). Such causes or contingencies affecting performance by the AUTHORITY shall not relieve ANSONIA DERBY from its obligation to make payments required hereunder as they become due, except that the minimum water purchase requirement of Sections 3(c) and 6 hereof shall not be in effect when and if the AUTHORITY is unable to supply such minimum water purchase requirements with water meeting the requirements of Section 7 hereof. 15. Indemnification. ANSONIA DERBY and the AUTHORITY hereby agree to indemnify and hold harmless each other against all costs, fees, expenses, damages and loss of any type or nature which may be incurred by either party as a result of the breach of any of the terms of this Agreement by the other party. The AUTHORITY hereby agrees to indemnify and hold harmless ANSONIA DERBY against all costs, fees, expenses, damages and loss of any type or nature (other than obligations of ANSONIA DERBY under this Agreement) arising out of the construction, maintenance and operation of the Project; provided, however, that the AUTHORITY shall not be obligated to so indemnify ANSONIA DERBY for any costs, etc. resulting from the actions of ANSONIA DERBY, its agents or employees. 16. All the terms, conditions, and the provisions of this Agreement shall inure to the benefit of, and be binding upon the successors and assigns of, the AUTHORITY and ANSONIA DERBY. 17. Default. Upon the occurrence of an event of default by ANSONIA DERBY hereunder, all sums due to the AUTHORITY for services performed and water supplied to date shall immediately become due and payable. In addition to any other remedy provided for hereunder, in the event of any default by one party hereunder, the non-defaulting party shall have the right, at its sole option, to terminate this Agreement and/or to lien any property of the defaulting party pursuant to statute. each of the following shall he deemed to be an event of default hereunder: a. Failure to observe, perform, or comply with any obligation, condition, or covenant to be observed, performed, or complied with by any party hereunder within 60 days after sending notice of default by the non-defaulting party. b. Default in the payment of any sum due hereunder and the continuance of such default for 5 days after receipt by the defaulting party of notice of such default by the non-defaulting party. c. The filing by or against any party hereunder of a petition, arrangement, reorganization, or the like under any insolvency or bankruptcy law, which filing against such party is (i) not contested within the appropriate time period and (ii) not dismissed within 100 days after the expiration of the appropriate time period for contesting such filing, or the adjudication of any party hereunder as a bankrupt, or the making of an assignment for the benefit of creditors, or the appointment of a receiver for any part of its assets, or if the entity who then owns the assets of any party hereunder dissolves or liquidates, or is dissolved or liquidated, or shall legally cease to exist; provided, however, that the AUTHORITY shall have the right without liability to ANSONIA DERBY to defer the construction deadlines set forth in Exhibit A hereto for that period of time that such a petition, arrangement, reorganization or the like has been filed against ANSONIA DERBY or Bridgeport Hydraulic Company and has not been dismissed. 18. Costs, Fees, and Expenses of Enforcement. The AUTHORITY and ANSONIA DERBY each agree to pay all costs, fees, expenses or other charges incurred by the other party in successfully protecting, sustaining or enforcing any term, provision, or condition of this Agreement against the other, including without limitation reasonable attorneys' fees. 19. Further Assurances. Upon request, both parties agree to perform all other acts and execute and deliver all other documents necessary or advantageous to facilitate and complete construction of the project, and to carry out the intent and purposes of the Agreement. 20. Modification. This Agreement constitutes the complete agreement of the parties, all prior agreements and negotiations with respect to the subject matter of this Agreement are merged herein, and no modification or cancellation of this Agreement shall be effective unless in writing and signed by both parties hereto. 21. Notice. Any notice or demand required, permitted or desired to be given pursuant to any of the provisions of this Agreement shall be deemed to have been given in accordance with the terms of this Agreement if delivered in person to the persons designated below or their successors, or sent by registered mail, return receipt requested, postage prepaid, to the following addresses: The Ansonia Derby Water Company 230 Beaver Street Ansonia, Connecticut 06401 Attention: John B. Dearborn President South Central Connecticut Regional Watt@r Authority 90 Sargent Drive New Haven, Connecticut 06511-5966 Attn: George E. Block, Jr., P.E. Director of Engineering IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the 30th day of November, 1984. SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY By Its Chief Operating Officer Duly Authorized THE ANSONIA DERBY WATER COMPANY By Its President Duly Authorized Sheet 2 of 2 EXHIBIT A Project Schedule Submit Finished Design of Inter- connection Facilities to Department of Health Services March 1, 1985 Complete Bidding and Award Contracts June 1, 1985 Complete Construction of Facilities and Place in Service January 1, 1986 [MAP] [CALCULATION OF PROJECTED SHARES] November 8, 1984 The Ansonia Derby Water Company 230 Beaver Street Ansonia, CT 06401 Attention: John B. Dearborn, President Re: Agreement to Purchase Water By and Between The Ansonia Derby Water Company (the "Company") and South Central Connecticut Regional Water Authority (the "Regional Water Authority"), dated January 18, 1984 (the "Contract") Dear Mr. Dearborn: This letter shall serve as a confirmation of t@e Regional Water Authority's understanding that, in addition to any rights that the Company may have either at common law or pursuant to the Contract, if the Regional Water Authority experiences a renewed outbreak of the bacteria problem it recently experienced or any similar bacteria problems, to the extent that the water to be supplied by the Company under the Contract is not in compliance with all standards imposed by any federal or state agency having jurisdiction over the quality of public drinking water, and if as a result of the purchase of such water under the Contract the Company experiences a similar outbreak of bacteria within the area of its distribution system served by water supplied under the Contract, the Regional Water Authority agrees to indemnify the Company with respect to all necessary expenses required by any such governmental agency with jurisdiction to cleanse the system of such bacteria. Sincerely, SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY By Its Executive Director Duly Authorized November 8, 1984 The Ansonia Derby Water Company 230 Beaver Street Ansonia, Connecticut 06401 Attention: John B. Dearborn Gentlemen: SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY (the "AUTHORITY") hereby agrees with you to amend the Agreement to Purchase Water dated January 18, 1984, between the AUTHORITY and you (the "Agreement") and such Agreement is hereby amended as follows: 1. Section 1 of the Agreement is amended by deleting the word "size" in the second sentence thereof and inserting in lieu thereof the word "location." 2. Section 1 of the Agreement is further amended by deleting the comma following the word "pipeline" in the second sentence thereof, and by deleting the phrase "its location and necessary control facilities" from the second sentence thereof. 3. Section 4 of the Agreement is amended by inserting the phrase "(the "Annual Minimum")" in the second sentence thereof between the words "year" and "during", and by inserting the phrase "(the "Monthly Minimum")" in the second sentence thereof between the words "month" and "during". 4. Section 4 of the Agreement is further amended by inserting the following as the second paragraph thereof: If the COMPANY should fail to take the Monthly Minimum in any calendar month included in the term of this Agreement and during such calendar month such Monthly Minimum was available for deliver at the point of delivery to the COMPANY, then the COMPANY shall be deemed to have taken and the AUTHORITY shall he deemed to have delivered the Monthly Minimum during such month. If the COMPANY should fail to take the Annual Minimum in any calendar year included in the term of this Agreement (including for purposes of determining the amount taken during any such calendar year all amounts previously deemed to have been taken during such year) and during such calendar year such Annual Minimum was available for delivery at the point of delivery to the COMPANY, then the COMPANY shall be deemed to have taken and the AUTHORITY shall be deemed to have delivered during December of such year that amount of water equal to the difference between the Annual Minimum and the amount of water taken during such calendar year (including for purposes of determining the amount taken during any such calendar year all amounts previously deemed to have been taken during such year). In the event any partial calendar year is included in the term of this Agreement, then the COMPANY shall be The Ansonia Derby Water Company Page Two deemed to have taken during the last calendar month so included that amount of water, if any, necessary in order to result in the ratio of (w) water taken during such partial calendar year (including for purposes of determining the amount taken during any such partial calendar year all amounts previously deemed to have been taken during such calendar year) to (x) the Annual Minimum being greater than or equal to the ratio derived by dividing (y) the number of calendar months in such partial year by (z) 12; provided, however, that during such partial calendar year an amount of water equal to (i) the Annual minimum divided by (ii) the number of calendar months in such partial calendar year must have been available for delivery at the point of delivery to the COMPANY. 5. Section 5 of the Agreement is amended by deleting the phrase "the point of metering (which shall be considered to be the point of delivery)" in the first sentence thereof and inserting in lieu thereof the phrase "the downside face of the meter located at the end of the connecting pipeline referred to in Section 1 of this Agreement (which for all purposes of this Agreement shall be deemed to be the point of delivery)". 6. Section 9 of the Agreement is amended by inserting in the first sentence of the second paragraph thereof between the words "delivered" and "during" the phrase "(or deemed to be delivered)". If the foregoing amendment is satisfactory to you, please so indicate by signing the acceptance at the foot of a counterpart of this letter and return such counterpart to the AUTHORITY, whereupon this Amendment to the Agreement will become binding between us in accordance with its terms and as if fully set forth in the Agreement. THE ANSONIA DERBY WATER COMPANY SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY By By Its President Its Executive Director AGREEMENT TO PURCHASE WATER AGREEMENT entered into this 18th day of January, 1984 by and between THE SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY (hereinafter referred to as the "AUTHORITY") and THE ANSONIA DERBY WATER COMPANY (hereinafter referred to as the "COMPANY") WHEREAS, the COMPANY wishes to purchase a portion of its water supply requirements from the AUTHORITY; and WHEREAS, the AUTHORITY is willing to sell specific amounts of water to the COMPANY; and WHEREAS, in order to accomplish the purposes stated above, pipeline, control facilities, and related items (collectively, the "Project") will be required to be designed, constructed and installed between the location of the AUTHORITY's existing water system and the COMPANY's existing water system; and WHEREAS, the parties hereto wish to set forth the respective rights, responsibilities and remedies of the parties. NOW THEREFORE, in consideration of the premises and of the mutual agreements contained herein, the parties hereto intending to be bound, agree as follows: 1. Connection Between Water Systems - The AUTHORITY will construct a pipeline from its Grassy Hill Tank in Orange, Connecticut to the COMPANY's water system in Derby, Connecticut. The size of this connecting pipeline, its location and necessary control facilities will be as recommended by the COMPANY's Consulting Engineer, Roald Haestad, Inc. of Waterbury, Connecticut and as approved by the AUTHORITY. The design criteria for the connection will be that it is sufficient in capacity to meet maximum day and peak hour demands for the portion of the COMPANY's water system currently served by the Derby Hill (Sentinel Hill) Reservoirs which will be abandoned after this connection is completed. The cost of constructing this connection is the responsibility of the AUTHORITY. 2. Condition Precedent to Authority's Obligation - The AUTHORITY shall have no obligation to commence construction of the connecting pipeline or take any other action with respect to the Project unless and until the City of Derby shall have approved, in form satisfactory to the AUTHORITY, the connection of such pipeline to the 12-inch main owned by the City of Derby which runs along New Haven Avenue from The Ansonia Derby Water Company distribution system at Washington Avenue in Derby. 3. Ownership of Facilities - All facilities constructed pursuant to this Agreement will be owned solely by the AUTHORITY. 4. Quantities - The AUTHORITY agrees to deliver up to 2 million gallons of water per day to the COMPANY water system at a hydraulic gradient of 277 feet based on U.S.C.S. data. Commencing on the Purchase Effective Date, the COMPANY agrees to purchase at least 200 million gallons per year during each calendar year included in the term (including any extensions pursuant to Section 7 hereof) of this Agreement and to purchase at least 5 million gallons per month during each calendar month included in such term. As used herein, the term "Purchase Effective Date" shall mean the later to occur of (i) September 1, 1984 and (ii) the date the pipeline described herein is placed in service. 5. Water Quality - The water supplied by the AUTHORITY under this Agreement at all times shall, at the point of metering (which shall be considered to be the point of delivery), satisfy all standards imposed by any Federal or State agency having jurisdiction over the quality of public drinking water. If the AUTHORITY shall fail to provide to the COMPANY water which satisfies all such standards and such failure shall continue for 30 days after receipt by the AUTHORITY of written notice thereof, the COMPANY, in its sole discretion, by written notice to the AUTHORITY may terminate its obligation to purchase water hereunder. Such termination shall be effective upon receipt by the AUTHORITY of notice thereof. 6. Term of Contract - This Agreement shall be effective as of the date first above written, and will remain in full force and effect until the Termination Date. As used herein, the term "Termination Date" shall mean the earlier to occur of (i) the effective date of the merger of the COMPANY with and into the AUTHORITY or any wholly-owned subsidiary of the AUTHORITY, (ii) the effective date of the purchase by the AUTHORITY of substantially all of the assets of the COMPANY, and (iii) that date which is seven years after the Purchase Effective Date; provided that in the event of each extension of the term of this Agreement pursuant to Section 7 hereof, the date described in (iii) above shall be automatically extended by the term of such extension. Subject to Section 2 hereof, the AUTHORITY will use its best efforts to construct the necessary facilities and commence delivery of water to the COMPANY on or prior to September 1, 1984. 7. Extension - This Agreement may be extended for additional ten-year periods after the expiration of the initial contract period referred to in clause (iii) of Section 5 above with the written consent of both the AUTHORITY and the COMPANY. In order to effect such an extension, the COMPANY must give written notification of each such election no later than two years prior to the last day of the immediately preceding term. The AUTHORITY shall, no later than 90 days after receipt of such notice from the COMPANY, give the COMPANY written notice of either its approval or its disapproval, as the case may be, of such extension. The terms and conditions applicable to any such period of extension shall be the same as provided herein. 8. Metering - The parties hereto agree that metering shall be considered to be a part of the Project and the obligations of the parties with respect to metering shall be on the same terms and conditions as provided for herein with respect to other portions of the Project. Notwithstanding anything herein to the contrary, the AUTHORITY shall have ownership of such meters and the right and obligation to maintain such meters. The meters shall be tested at six-month intervals and if there is a meter error of five percent or more, adjustment will be made to the COMPANY's water service charge on the basis of one-half the time elapsed since the last test of the meter in question, unless the exact period of existence of said error can be conclusively established. In the event of loss of registration of flow during any month, the COMPANY will be deemed to have consumed during such month an amount of water equal to the historical average monthly consumption by the COMPANY for such month, determined by dividing (x) the sum of the consumption by the COMPANY for such month in each year commencing with the first such month after the Purchase Effective Date and extending to and including such month in the immediately preceding year, by (y) that number which represents the total number of years elapsed since the first such month after the Purchase Effective Date; provided that if such loss of registration should occur prior to twelve months after the Purchase Effective Date, the COMPANY will be deemed to have consumed during such month an amount of water equal to that consumed by it during the immediately preceding month. 9. Cost of Water to be Delivered - The cost to the COMPANY of water delivered pursuant to this Agreement will be computed using the cost allocations detailed in the study entitled "Wholesale Rate Study" prepared by Guastella Associates, Inc., and dated June 27, 1983, which cost to the COMPANY as of the date hereof would be $680 per million gallons. It is agreed that this study and the cost allocations detailed therein will be updated at the time of each of the AUTHORITY'S rate cases subsequent to the date of this Agreement. It is agreed that with respect to each such updating: (i) the amount used for expenditures will be based on the operating and maintenance budget used for rate making purposes, and will include any adjustments made during the rate making process; (ii) book value of Utility Plant will be based on the AUTHORITY's most recent annual filing with the Connecticut Department of Public Utility Control; and (iii) the percentages used to allocate expenditures to general service, as used on Schedule B and Schedule C-1 of said study, will not change during the term (including any extension pursuant to Section 7 hereof) of this Agreement. The AUTHORITY will invoice the COMPANY each month for the cost of the full amount of water delivered during the previous month. The COMPANY will pay to the AUTHORITY the amount set forth on each invoice no later than 30 days after the date thereof. 10. Approvals - It is understood by the parties that this Agreement is subject to approval by all agencies and regulatory bodies of the State of Connecticut which have jurisdiction with respect hereto, including without limitation the Department of Public Utility Control, the Department of Health Services and the Department of Environmental Protection, and is also subject to the approval of the Representative Policy Board of the AUTHORITY. The AUTHORITY and the COMPANY agree to cooperate and use their best efforts in securing all necessary approvals. 11. Force Majeure - The AUTHORITY shall have no liability of any type whatsoever to the COMPANY or any other party for any failure, or as a result of any failure, to perform any obligation under this Agreement, which failure is occasioned by or in consequence of any act of God, act of public enemy, war, blockage, insurrection, riot, epidemic, land slide, lightning, earthquake, fire, storm, flood, washout, civil disturbance, power failure, explosion, breakage or accident to machinery or lines of pipe, failure or want of water supply, binding order, decree, regulation or judgment of any court or governmental authority, or any other cause, whether of the kind herein enumerated or otherwise, not within the control of the AUTHORITY which act, omission, or circumstance the AUTHORITY is unable to prevent or overcome by the exercise of due diligence. 12. Indemnification - Subject to Section 11 hereof, the AUTHORITY and the COMPANY each hereby agree to indemnify and hold harmless the other against all costs, fees, expenses, damages and losses of any type or nature which may be incurred as a result of the breach of any of the terms of this Agreement by the other party. 13. Non-Assignability - This Agreement shall inure to the benefit of the parties hereto and their successors; neither this Agreement nor the rights or obligations of the parties hereunder may be assigned to any other party, either in whole or in part, by either party hereto without the written consent of the other party hereto. For the purposes of this Section 13, the term successor shall be deemed to include any entity which purchases substantially all of the assets of either the AUTHORITY or the COMPANY, as well as any successor through merger to either the AUTHORITY or the COMPANY. 14. Default - Upon the occurrence of any event of default hereunder, all sums due to the AUTHORITY to date shall immediately become due and payable. In addition to any other remedy provided for hereunder, upon the occurrence of any event of default hereunder, the AUTHORITY shall have the right, at its sole option, to terminate the supply of water service to the COMPANY and to exercise all rights and remedies available to it either at law or in equity. Each of the following shall be deemed to be an event of default hereunder: a. The COMPANY fails to promptly observe, perform or comply with any obligation, condition, or covenant to be observed, performed, or complied with by the COMPANY hereunder. b. The COMPANY fails to pay to the AUTHORITY any amount due hereunder on or prior to the 30th day after the date of the invoice with respect to such amount. c. The COMPANY makes an assignment for the benefit of creditors or is generally unable to pay its debts as they become due; or a decree or order appointing a receiver, custodian or trustee for it or for substantially all of its properties is entered and, if entered without its consent, remains in effect for more than 30 days; or the COMPANY commences a voluntary case under any law relating to bankruptcy, insolvency, reorganization or other relief of debtors or any such case of an involuntary nature is filed against it and is consented to by it or, if not consented to, is not dismissed within 30 days. 15. Further Assurances - The COMPANY and the AUTHORITY each agrees to perform all other acts and execute and deliver all other documents reasonably requested by the other to facilitate and complete construction of the project and to carry out the intent and purposes of this Agreement, including without limitation the execution and delivery by the COMPANY of such documents, instruments and agreements as are necessary to grant to the AUTHORITY such easements and rights of access as are reasonably necessary for the construction and maintenance of the Project. 16. Trade Secrets - The COMPANY and the AUTHORITY each agree that in the event it shall obtain any trade secrets or other information of a confidential nature relating to the other, such information will be held in confidence and not be disclosed to any other person or party. 17. Notice - Any notice or demand given pursuant to this Agreement shall be deemed to have been given in accordance with the terms hereof when delivered in person to the persons designated below or their successors or permitted assigns, or when sent by registered mail, return receipt requested, postage prepaid, addressed as follows: If to the COMPANY: The Ansonia Derby Water Company 230 Beaver Street Ansonia, Connecticut 06401 Attn: John B. Dearborn, President If to the AUTHORITY: South Central Connecticut Regional Water Authority 90 Sargent Drive New Haven, Connecticut 06511-05966 Attn: George E. Block, Jr. Director of Engineering Either party may change its address or addresses by notice to the other party. 18. Governing Law. This Agreement is being delivered in, and shall be construed and interpreted according to the laws of, the State of Connecticut. IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals this 18th day of January, 1984. SOUTH CENTRAL CONNECTICUT REGIONAL WATER AUTHORITY By: Its Chairman THE ANSONIA DERBY WATER COMPANY By: Its President EX-10.6 3 PURCHASE AND SALE AGREEMENT AGREEMENT, made as of the 18th day of March 1997, by and between BIRMINGHAM UTILITIES, INC., a Connecticut corporation, having its principal place of business in Ansonia, Connecticut (hereinafter referred to as the "Seller"); and M/1 HOMES, LLC, a limited liability company organized under the laws of Connecticut and having an office at 262 Putting Green Road, Fairfield, Connecticut (hereinafter referred to as the "Buyer"); WITNESSETH: In consideration of the Purchase Price described in Paragraph 1 hereof, and subject to the further terms and conditions set forth herein, the Seller hereby agrees to sell and convey, and the Buyer hereby agrees to purchase, the approximately 245 acres of unimproved real property on Holbrook Road and Cemetery Road in the Town of Seymour, Connecticut shown and described on a certain map consisting of sheets 1 of 4, 2 of 4, 3 of 4 and 4 of 4 entitled, "Birmingham Utilities, Parcel "A", Seymour, Connecticut, Scale 1" = 100', by Michael H. Horbal, Registered Land Surveyors-Planners dated June 10, 1996," a copy of which is attached hereto in four separate sheets as Schedule A and made a part hereof (hereinafter referred to as the "Premises"). Title to the Premises will be conveyed free and clear of all encumbrances, liens, or exceptions to title other than those set forth in Schedule B or in Paragraph 7 hereof. 1. CONSIDERATION The Purchase Price, subject to the provisions of Paragraph 13(a) hereof, is: . . . . . . . . . . . . . . . . . . . . . .$3,950,000.00 which the Buyer agrees to pay, as follows: (a) As Earnest Money, paid with the execution hereof, receipt of which, subject to collection, is hereby acknowledged: . . . . . . . . . . . . . . . . . $ 50,000.00 (b) No later than 30 days prior to the first day of public hearings scheduled by the Connecticut Department of Public Utility Control ("DPUC") as set forth in the first schedule of proceedings to be issued in the docket opened by the DPUC to consider the Company's application contemplated in Paragraph 12(b) hereof, a Supplementary Deposit, in immediately available funds:. . . . . . . . . . . . . . . .$ 147,500.00 (c) In immediately available funds delivered to the Seller on the date of the Closing of the title and upon delivery of the deed as hereinafter provided below. . . . . . . . . . . . . . . . .$3,752,500.00 Total Purchase Price . . . . . .$3,950,000.00 The Earnest Money deposit paid herewith in accordance with Paragraph 1(a) above and the Supplementary Deposit paid in accordance with Paragraph 1(b) above shall be held, subject to the provisions of Paragraphs 12 and 13 hereof, by the Seller's attorney in an interest bearing account. 2. DEED The deed of conveyance to the Premises shall be in the form of a full covenant and Warranty Deed in the usual Connecticut form, which shall be duly executed, acknowledged and delivered, all at the Seller's expense, conveying the fee simple title in and to the Premises to the Buyer, free and clear of all encumbrances, liens and exceptions to title other than those set forth in Schedule B hereof or in Paragraph 7 hereof. 3. APPORTIONMENTS The taxes and assessments of the Town of Seymour will be apportioned, in accord with local custom, as of the date of the closing of title. Should any tax, assessment, or rate be undetermined on the date of the closing of title, the last determined tax, assessment, or rate shall be used for the purpose of the apportionment. 4. CONDITION OF PREMISES The Buyer further agrees with and represents to the Seller that it has examined the Premises, that it is fully satisfied with the physical condition thereof, and that neither the Seller nor any representative of the Seller has made any representation or promise upon which the Buyer has relied concerning the physical condition of the Premises or of any property covered by this Agreement, except as herein may be expressly set forth. 5. TITLE (a) It is further understood and agreed that if, on the date herein set for the closing of title, the Seller shall be unable to convey marketable title to the Premises to the Buyer free and clear of encumbrances, liens or exceptions to title other than those set forth in Schedule B hereof or in Paragraph 7 hereof, then, and in that event, the Seller shall have a further period of thirty (30) days within which to perfect title. If, at the end of said period, the Seller is still unable to convey title to the Premises free and clear of all encumbrances, liens or, exceptions to title except as aforesaid, the Buyer may elect to accept such title as the Seller can convey, upon the payment of the aforesaid Purchase Price, or may reject the deed conveying such title on that ground. Upon such rejection, all sums paid on account hereof, including the Earnest Money deposit and the Supplementary Deposit contemplated in Paragraphs 1(a) and 1(b) hereof, respectively, together with interest thereon, and together with any expenses actually incurred by the Buyer for the examination of the title to the Premises shall be repaid by the Seller to the Buyer. The Buyer agrees to obtain a title search of the Premises within thirty (30) days of the execution hereof. The Buyer shall notify the Seller within said thirty (30) day period whether the title is clear according to the Standards of Title of the Connecticut Bar Association, and conforms to the terms hereof. In the event that said title is clear as aforesaid as of said date, and from and after said date the title becomes encumbered or otherwise clouded such that the Seller is unable to convey clear title at closing as required hereunder, in addition to the Buyer's expenses for examination of title, the Seller shall reimburse the Buyer an amount equal to any expenses actually incurred by the Buyer on account of legal fees, surveying and engineering expenses, inspection expenses, and any bank charges and fees. Upon receipt of such payments by the Buyer, this Agreement shall terminate and become null and void and the parties hereto shall be released and discharged of all further claims and obligations, each to the other, hereunder. Nothing shall constitute an encumbrance, lien or exception to title for the purposes of this Agreement if the Standards of Title of the Connecticut Bar Association recommends that no corrective or curative action is necessary in circumstances substantially similar to those presented by such encumbrances, liens, or exception to title. (b) The Buyer shall give written notice to the Seller's attorney, not less than ten (10) business days prior to the Closing Date, of any encumbrances or defects then known to the Buyer which the Buyer claims affect title other than those set forth in this Agreement. 6. INSURANCE Throughout the period between the date of this Agreement and the date of the closing of title, the Seller shall maintain existing liability insurance on the Premises. 7. ENCUMBRANCES In addition to the exceptions to title in Schedule B, the Premises will be conveyed subject to: (a) Any applicable restrictions or limitations imposed or to be imposed by governmental authority, including the planning and zoning rules and regulations of the Town of Seymour; (b) Taxes of the Town of Seymour which become due and payable after the date of delivery of the Deed, which taxes, if any, the Buyer will assume and agree to pay as part of the consideration for the deed; (c) Public improvement assessments, and/or any installments thereof, which assessments and/or installments become due and payable after the date of the delivery of the Deed, which assessments and/or installments, if any, the Buyer will assume and agree to pay as part of the consideration for the deed, provided however, that the Seller as of the date hereof has no knowledge of any such assessment; and (d) The following restriction, which shall run with the land and be included in the Warranty Deed: "The Grantee covenants and agrees that at least fifty percent (50%) of the Premises conveyed hereunder shall be perpetually used for `open space or recreational purposes' as said terms are defined in subsection (f) of Section 16-5Od of the Connecticut General Statutes." 8. ENTIRE AGREEMENT It is understood and agreed that this written Agreement (including Schedule B, a Rider dated of even date herewith and referred to as Schedule C, and any other schedules or any riders referred to in the body of this Agreement and attached hereto) constitutes the entire agreement between the parties hereto, and that no oral statements or promises, and no understandings not embodied in this writing, shall be valid or binding. 9. CLOSING It is agreed by the parties hereto that the Closing of Title (hereinafter referred to as the "Closing") shall, subject to the provisions of Paragraph 13(a) concerning the Buyer's election to extend this Agreement and the date for the Closing under certain conditions, take place at the offices of Tyler Cooper & Alcorn, Hartford, Connecticut on or before the earlier of (a) December 31, 1998 or (b) 30 days after all of the Seller Contingencies set forth in Paragraph 12 hereof and all of the Buyer Contingencies set forth in Paragraph 13 hereof have been satisfied or waived in writing by both parties hereto. (the "Closing Date"), at a time to be determined, or such other place and date as may be mutually agreed upon by the parties hereto, at which time the deed shall be delivered upon receipt of the balance of the Purchase Price. 10. BROKER The parties hereto recognize that there was no agent or broker who negotiated the sale of the Premises. This Agreement is consummated by the Seller in reliance on the representation of the Buyer that no broker or agent brought the Premises to the Buyer's attention or was, in any way, a procuring cause of this sale and purchase. The Seller represents to the Buyer that no broker or agent represented the Seller in the sale of the Premises to the Buyer or has any exclusive sale or exclusive agency listing on the Premises. Any damages which may accrue as a result of any breach of a representation contained in this Paragraph 10 shall include without limitation, all reasonable costs of defending any claim for commissions, including reasonable attorney's fees. The Buyer hereby agrees to indemnify and hold harmless the Seller against any judgment against the Seller arising out of the claim of any broker or agent for a commission due by reason of this sale, where it is alleged that said broker or agent called the Premises to the Buyer's attention or interested the Buyer therein, provided that said indemnity shall also include all costs of defending any such claim whether or not such claim results in a judgment against the Seller and provided further that said indemnity shall also include any settlement of such claim to the extent such settlement shall have been approved in writing by the Buyer, including without limitation reasonable attorney's fees. The provisions of this paragraph shall survive the delivery of the deed hereunder. 11. DEFAULT If the Buyer shall fail to comply with any term of this Agreement by the time set for Closing of Title, the Seller shall hold and retain all sums of money paid in accordance with this Agreement or any modification or extension hereof, including without limitation both the Earnest Money deposit and the Supplementary Deposit contemplated in Paragraphs 1(a) and 1(b) hereof, respectively, with all interest earned thereon, as liquidated damages for the breach of this Agreement, whereupon all rights and remedies hereunder shall cease and be at an end. In this case, the Buyer shall immediately return its copy of this Agreement to the Seller for cancellation. If this Agreement shall have been recorded on the Land Records by either party hereto, the Buyer shall, at its expense, deliver to the Seller a Quit Claim Deed releasing any and all interest hereunder. If the Buyer shall fail to deliver such a deed to the Seller within thirty (30) days after the date set for the Closing of Title, the Seller shall have the right to commence an action to procure an adjudication of the termination of the Buyer's rights hereunder in which case the Buyer shall pay the expense of searching the title for the purpose of such action, together with all costs including, without limitation, the reasonable fees of the Seller's attorneys. If the Seller shall fail to comply with any term of this Agreement by the time set for the Closing of Title, the Buyer may enforce this Agreement according to law and equity, except that failure to comply by the Seller as a result of (i) encumbrances or defects in title shall be governed by the provisions of Paragraphs 5 and 7 of this Agreement and (ii) any violation of any representations set forth in Paragraph 15 shall be treated as if such violation were a defect in title and the Buyer shall have only the remedies set forth in Paragraph 5 hereof. Notwithstanding any other provision of this Agreement, in the event either party hereto shall breach this Agreement, the non- breaching party shall be entitled to recover all costs and expenses (including, without limitation, reasonable attorney's fees) incurred in enforcing this Agreement or resulting from the said breach. 12. SELLER CONTINGENCIES (a) Purchase Rights. The Premises are subject to statutory purchase rights in favor of the Town of Seymour, the State of Connecticut, Bridgeport Hydraulic Company, The Connecticut Water Company, Heritage Village Water Company, South Central Connecticut Regional Water Authority, and certain non-profit organizations, all as set forth in the applicable provisions of the Connecticut General Statutes (Sections 16-50c, 16-5Od, and 25-331). If any of said rights are exercised or shall not have expired or been waived in accordance with their statutory terms by December 31, 1997, Seller shall return to Buyer any sums paid hereunder, including both the Earnest Money deposit and the Supplementary Deposit contemplated in Paragraphs 1(a) and 1(b) hereof, respectively, together with interest thereon, within seven (7) days after such exercise and, upon such return of said sums, this Agreement and the obligations of the parties hereunder shall terminate and come to an end. (b) DPUC Approval. Notwithstanding any provision of this Agreement to the contrary, the Seller's obligation to sell the Premises hereunder is contingent upon the Seller obtaining Final approval from the DPUC (which approval shall become "Final" only upon the expiration of the applicable appeal periods without any appeal having been filed or served), for the sale of the Premises to the Buyer pursuant to Section 16-43 of the Connecticut General Statutes, and upon final approval by the DPUC, as defined above, of a ratemaking accounting treatment for the net gain from such sale reasonably satisfactory to the Seller. Such satisfaction shall be deemed to have been obtained if the Seller does not notify the Buyer to the contrary in writing within five (5) business days from the DPUC's Final approval of the sale and ratemaking accounting treatment. Seller agrees to submit this Agreement to the DPUC for approval within 35 days after publishing notice of its intention to sell in accordance with Section 16-50c(b)(2) of the Connecticut General Statutes, to diligently pursue such application and to supply to the Buyer copies of all appraisals of the fair market value of the Premises obtained by the Seller to be submitted to the DPUC in connection with he Seller's application for approval. If the Seller shall not have received such Final approval by November 14, 1997, the Seller shall return to Buyer all sums paid hereunder, including the Earnest Money deposit and the Supplementary Deposit contemplated in Paragraphs 1(a) and 1(b) hereof, respectively, together with interest thereon, within seven (7) days after said date and, upon such return of said sums, this Agreement shall terminate and the obligations of the parties hereunder shall terminate and come to an end. 13. BUYER CONTINGENCIES (a) Notwithstanding any provision of this Agreement to the contrary, the Buyer's obligation to purchase the Premises hereunder is conditioned upon the Buyer obtaining Final approval (which term shall have the meaning set forth in Paragraph 12(b) hereof) reasonably satisfactory to the Buyer of federal, state and local land use regulatory authorities, including without limitation an appropriate change in the Town of Seymour zoning regulations applicable to the Premises, the Traffic Commission of the State of Connecticut, the United States Army Corps of Engineers, and the Town of Seymour Planning and Zoning and Inlands Wetlands Commissions necessary for the development on the Premises of an 18 hole golf course together with not less than 180 active adult residential building lots with detached single family dwellings and a club house and catering facility on or before December 31, 1998. The Buyer agrees to submit and diligently pursue timely and complete applications to the Traffic Commission of the State of Connecticut for approval of the Buyer's above proposed use of the Premises as soon as practicable after the execution of this Agreement. The Buyer agrees to submit and diligently pursue timely applications for all other such approvals as soon as practicable after the earlier of (a) the date Seller provides to the Buyer copies of the appraisals contemplated in Paragraph 12(b) hereof, but only if the average fair market value for the Premises disclosed in those appraisals is less than or equal to than the Purchase Price for the Premises herein, or (b) if the said average fair market value disclosed in said appraisals is not less than or equal to the said Purchase Price, as soon as practicable after the Final approval of the sale of the Premises by the DPUC as contemplated in Paragraph 12(b) hereof. Seller agrees to provide reasonable cooperation to the Buyer in connection with the Buyer's applications. If the Buyer shall not have received all such Final approvals by December 31, 1998, the Buyer may, upon written notice submitted to the Seller not later than December 31, 1998, terminate this Agreement and, subject to the remaining provisions of this Paragraph 13(a), the obligations of the parties hereunder shall terminate and come to an end. In the event that the Seller Contingencies described in Paragraph 12 hereof have been satisfied, or the date for their satisfaction has not yet occurred, and this Agreement is terminated in accordance with the provisions of this Paragraph 13, the Seller shall return to the Buyer the Supplementary Deposit paid in accordance with Paragraph 1(b) hereof, together with interest thereon and the Seller may retain the Earnest Money deposit paid in accordance with Paragraph 1(a) hereof, together with the interest thereon. If this Agreement is terminated or the purchase and sale of the Premises contemplated herein does not take place for any reason other than the failure of the Seller to comply with the provisions of this Agreement, the Buyer shall, upon the request of the Seller, provide to the Seller as soon as practicable after such request copies of all documents, plans, drawings, letters, notebooks, reports, or other papers or electronic media detailing the Buyer's proposed development of the Premises and all applications for the approvals contemplated in this Paragraph 13. Notwithstanding the provisions set forth in this Paragraph 13(a) above, if (i) the Buyer shall have obtained all of the approvals contemplated in this Paragraph 13(a) on or before December 31, 1998, but one or more of the said approvals has not become Final solely because a third party has initiated an appeal of such approval to a court of competent jurisdiction, in lieu of terminating this Agreement as contemplated above, the Buyer may, by written notice submitted to the Seller not later than December 31, 1998, elect to extend this Agreement and the date for the Closing to the earlier of (A) December 31, 2000, or (B) the date which thirty (30) days after all such appeals have been determined finally in a manner reasonably satisfactory to the Buyer, and (ii) if, prior to December 31, 1998, one or more of the Buyer's applications for approval contemplated in this Paragraph 13 is denied, the Buyer may, by written notice submitted to the Seller not later than December 31, 1998, elect to appeal, at Buyer's expense, any such denial and to extend this Agreement and the date for the Closing to the earlier of (X) December 31, 2000, or (Y) the date which is thirty (30) days after all such appeals have been determined finally in a manner reasonably satisfactory to the Buyer, provided however, that if the Closing shall occur after December 31, 1999 by reason of the Buyer's election pursuant to this Paragraph 13(a), the Purchase Price to be paid by the Buyer for the Premises shall be increased by twenty thousand dollars ($20,000) for each month, or portion thereof, which passes from December 31, 1999 until the Closing, which amounts shall be payable monthly, in advance, and shall be deemed to be additional Earnest Money deposit for all purposes under this Agreement. (b) Seller agrees that it shall, at its sole expense, construct a sanitary sewer line with capacity reasonably satisfactory to the Buyer's engineer to serve the Buyer's proposed development on the Premises of a golf course, not less than 180 detached single family residential units and a club house and catering facility, which sanitary sewer line shall connect to the sanitary sewer system of the Seymour Water Pollution Control Authority through an easement over the Seller's property adjacent to the Premises located on Cemetery and Holbrook Roads. The sanitary sewer to be constructed by the Seller shall end at the boundary of the Premises on Cemetery Road. It shall be a condition of the Closing herein that (i) the Seller shall have obtained, at its expense, final design plans and local approvals necessary for the construction of the sanitary sewer extension not later than ninety (90) days after the satisfaction of the Seller Contingencies contemplated in Paragraph 12 hereof, and (ii) Seller shall have begun construction of the sanitary sewer line on or before the date of the Closing. The Seller agrees to pursue diligently all governmental approvals necessary for the construction of the sewer line and shall provide reasonable surety for the completion of the sewer line, provided that the Buyer agrees that if the Town of Seymour shall require a bond for the completion of the sewer line, such surety shall be deemed to satisfy the surety required herein. 14. EFFECT AND ASSIGNMENT The covenants and agreements herein are to be binding upon and inure to the benefit of the parties hereto, their respective heirs, representatives, successors and assigns and shall survive the delivery of the deed hereunder. No assignment of this Agreement by the Buyer shall be valid unless the Seller assents thereto in writing, provided however, that the Buyer may, subject to any approval as may be required by law, including without limitation, the provisions of Section 16-1-61 of the Regulations of Connecticut State Agencies, assign its rights under this Agreement to an entity which is an Affiliate of the Buyer. For the purposes hereof, an Affiliate is a person or entity that directly controls, or is controlled by, or is under common control with the Buyer and which has, in the reasonable opinion of the Seller, the financial capacity to comply with the Buyer's obligation hereunder equal to or greater than the financial capacity of the Buyer. This Agreement constitutes the entire agreement between the parties and may not be changed except by a contract in writing signed by the party or parties against which enforcement of any waiver, change, modification, extension, estoppel, or discharge is sought. Whenever used, the singular number shall include the plural, the plural the singular, and the use of any gender shall be applicable to all genders. 15. NO VIOLATIONS The Seller represents that at the time of the closing of title, there shall exist with respect to the Premises no violations of government (including environmental and zoning and planning) rules, regulations or limitations, unless same have become legally non-conforming, and no violations of any restrictive covenant, agreement or condition subject to which the title is to be conveyed in accord with the terms hereof, provided however, the sole remedy for any violation of the representations contained in this Paragraph 15 shall be treated as if such violation were a defect in title, and the Buyer shall have only the remedies set forth in Paragraph 5 hereof. 16. OWNERSHIP Seller represents that at the signing of this Contract, the Seller is the record owner in fee simple of the Premises being conveyed herein and is not under any incapacity, other than the statutory provisions set forth in Section 12 hereof, which prevents it from entering into this Agreement or complying with the terms thereof. 17. NOTICES Any notice provided for by this Agreement and any other notice or communication which either party may wish to send to the other (collectively "Notices") shall be in writing and given by personal delivery or sent by (a) United States registered or certified mail, return receipt requested, (b) or a nationally recognized commercial courier such as Federal Express Corporation for overnight delivery, in a properly sealed envelope, postage or fees, as the case may be, prepaid, addressed to the party for which such notice is intended, at such party's address set forth below or at any other address provided in writing by such party to the other by notice complying with this Paragraph 17: If to Buyer, to: M/1 HOMES, LLC 262 Putting Green Road Fairfield, Connecticut 06432 With a copy to: Stephen E. Tower, Esquire Willinger, Shepro, Tower & Bucci 855 Main Street Bridgeport, Connecticut 06604 If to the Seller, to: Birmingham Utilities, Inc. 236 Beaver Street P.O. Box 426 Ansonia, Connecticut 06401 Attention: Betsy Henley-Cohn, Chairwoman With a copy to: Robert J. Metzler, Esq. Tyler Cooper and Alcorn 185 Asylum Street, CityPlace I Hartford, Connecticut 06103 18. BUYER'S FINANCIAL CONDITION DOCUMENTATION At or prior to the time of the payment of the Supplementary Deposit contemplated in Paragraph 1(b) hereof, the Buyer (or its assignee, if applicable) shall submit documentation (the "Documentation") which shall demonstrate and substantiate to the Seller's reasonable satisfaction that the Buyer has the financial ability to purchase the Premises in accordance with the terms of this Agreement. In the event that the Documentation fails to reasonably satisfy the Seller concerning Buyer's (or its assignee's, if applicable) financial capacity, the Seller may terminate this Agreement, return to the Buyer the Supplementary Deposit (if paid) contemplated in Paragraph 1(b) and retain the Earnest Money deposit contemplated in Paragraph 1(a) as liquidated damages. Notwithstanding the above termination rights, prior to such termination, the Seller shall give notice to Buyer of the specific inadequacies of the information set forth in the Documentation, and give Buyer a reasonable period, in no event less than ten (10) days, to correct or supplement the Documentation. The parties agree that the Buyer may, by way of illustration but not limitation, obtain financing in part from one or more lenders, and may obtain cash infusions from one or more investors (whether by equity participation or loan). IN WITNESS WHEREOF, the parties hereto have hereunto set their hands and seals as of the day and in the year hereinbefore indicated. SIGNED, SEALED AND DELIVERED IN THE PRESENCE OF: As to Seller: BIRMINGHAM UTILITIES, INC. ID# 06-0878647 __________________________ By____________________________ Betsy Henley-Cohn Its Chairwoman __________________________ Duly Authorized As to Buyer: M/1 HOMES, LLC __________________________ By____________________________ Glenn Tantangelo Its Member __________________________ Duly Authorized STATE OF CONNECTICUT) ) ss: New Haven March 18, 1997 COUNTY OF NEW HAVEN ) Personally appeared Betsy Henley-Cohn, Chairwoman of BIRMINGHAM UTILITIES, INC., signer and sealer of the foregoing instrument, and acknowledged the same to be her free act and deed and the free act and deed of said BIRMINGHAM UTILITIES, INC., before me. __________________________________ Commissioner of the Superior Court STATE OF CONNECTICUT) ) ss: New Haven March 18, 1997 COUNTY OF NEW HAVEN ) Personally appeared Glenn Tantangelo, Member of the M/1 HOMES, LLC, signer and sealer of the foregoing instrument, and acknowledged the same to be his free act and deed and the free act and deed of said M/1 HOMES, LLC, before me. __________________________________ Commissioner of the Superior Court SCHEDULE A [MAP NOT INCLUDED] SCHEDULE B None. SCHEDULE C RIDER TO PURCHASE AND SALE AGREEMENT ("Agreement") BIRMINGHAM UTILITIES, INC. (SELLER) AND M/1 HOMES, LLC (BUYER) DATED: March 18,1997 1. Seller represents and warrants, in order to induce Buyer to enter into the Agreement (as amended by this Rider), unless otherwise stated, at the time of closing of title that: (i) No utilities cross the property of any adjoining owner in servicing the premises being conveyed herein, except as specifically set forth herein; and no utilities cross the premises being conveyed herein and serve the property of any adjoining owner except as specifically set forth herein. (ii) There are no municipal assessments, and or installments, community or association dues and the premises does not lie within any special tax district in which taxes or assessments are levied separate and distinct from municipal taxes. 2. As part consideration for the sale and purchase of the subject premises, the Seller hereby agrees to: (i) Remove from the premises, all items of personal property other than those specifically included in the sale. (ii) Execute at the time of closing of title hereunder, an affidavit verifying the nonexistence of mechanics and materialmen liens and lien rights, tenants rights and security interests in personal property and fixtures being sold with the premises. (iii)Deliver exclusive possession of the premises being conveyed hereunder to the Buyer. (iv) Deliver, if the Seller is a corporation, to the Buyer a corporate resolution and other appropriate proof certifying that said corporation is a duly formed and validly existing corporation, authorized to do business in the State of Connecticut, and has good and full right and authority to execute the terms of the Agreement (as amended by this Rider) and to convey the premises to the Buyer as stated hereunder. 3. In the event it is expressly provided in the Agreement (as amended by this Rider) that the premises are to be conveyed subject to any provisions of any easements, rights of way, covenants, restrictions or agreements, the Buyer shall have no obligation to purchase the subject premises in the event any of the same render title to the premises unmarketable or in the event any of the same restrict the use of the premises as contemplated herein. 4. This Agreement is expressly contingent upon the Buyer's ability to procure a title insurance policy in form and substance reasonably satisfactory to the Buyer and Buyers mortgage institution, issued by a title insurance company approved by the Buyer in the amount of the purchase price (fee policy), insuring the Buyer without exceptions other than those exceptions to title set forth in this Agreement and other than those exceptions approved by the Buyer. Said policy shall be issued at standard rates and all fees incurred for the issuance of the same shall be the sole expense of the Buyer. The Seller agrees to execute all affidavits and documents required by the title insurance company to enable the company to insure over any survey, rights of others in possession of the premises, mechanic's liens rights and any other exceptions not approved by the Buyer, or permitted by the Agreement. Seller shall have the same opportunity to cure, as set forth in paragraph 5 of the Agreement. 5. The Seller hereby grants the Buyer and Buyer's agents, representatives and employees the right to enter the subject premises at any and all times after the execution and delivery of the Agreement (after prior Notice to Seller, and in sole discretion of Seller in the presence of the Seller and/or its agent) in order to make physical inspections of the premises, including subsurface tests, utility surveys, sewage disposal surveys, perimeter surveys, inspections and appraisals and to conduct and carry out any and all other engineering studies and operations Buyer may desire, all at Buyers sole cost and expense. The Buyer agrees to indemnify the Seller for any claim made against Seller as a result of Buyers entry (including acts of Buyer's agents, contractors and/or employees) and further agrees to restore the premises to substantially the condition the same were in prior to the taking of said tests and surveys. 6. Notwithstanding any provisions contained in the Agreement which may allow the Seller to postpone the closing of title beyond 30 days after the scheduled closing, in the extent the Seller shall postpone the closing of title for any reason whatsoever, which postponement would cause the closing date to occur subsequent to the expiration date of the mortgage commitment obtained by the Buyer, and in the event such lending institution increases the rate of interest, or the mortgage origination fees or other comparable charges, or the monies once committed become unavailable, the Buyer shall have the right to terminate this Agreement and receive a return of all deposit monies paid hereunder without interest. 7. The Seller agrees not to further voluntarily encumber the premises and to notify the Buyer immediately of any matters including, but not limited to, attachments, liens and zoning matters which may affect the premises during the pendency of this Agreement. 8. Intentionally deleted. 9. The Seller represents that Seller is not a foreign person as defined in The Foreign Investment in Real Property Tax Act ("FIRPTA"), as amended by The Tax Reform Act/Deficit Reduction Act of 1984 ("DEFRA"). Seller agrees to execute, at or before the time of closing, an affidavit disclosing Seller's United States taxpayer identification number and certifying that Seller is not a foreign person. Said affidavit shall be in form and content acceptable to Buyer. The Seller shall indemnify and hold the Buyer harmless from any loss, damage or expense, including reasonable attorney fees, Buyer may incur due to misrepresentation of the statements contained in this paragraph. In the event Seller fails to execute and deliver to Buyer the aforementioned affidavit, the Buyer shall withhold from the Seller ten (10%) percent of the gross amount realized on the disposition and remit said sum to the Internal Revenue Service to be applied toward the Seller's tax liability in accordance with the requirements of said Acts. The foregoing representations shall survive the closing of title and delivery of deed hereunder. 10. The Seller represents that Seller has not caused any "spill" as such term is defined in Public Act No. 87-475 of the State of Connecticut, entitled "An Act Concerning The State's Lien For Reimbursement For Expenses Incurred In Containing, Removing or Mitigating Hazardous Waste" or any amendments, substitutions or successor statute thereof. Seller further represents that Seller has no knowledge of any discharge, spillage, uncontrolled loss, seepage or filtration of oil or petroleum or chemical liquids or solid, liquid or gaseous products or hazardous waste impacting the subject premises. The Seller shall indemnify and hold the Buyer and Buyer's mortgagee harmless from any loss, damage or expense, including reasonable attorney fees, Buyer and Buyer's mortgagee may incur due to misrepresentation of the statements contained in this paragraph. The foregoing representations shall survive the closing of title and delivery of deed hereunder for three (3) years. The Seller agrees to execute an affidavit in form substantially as appended hereto marked Exhibit A-A. 11. In the event of a conflict between the terms of this Rider and the Agreement of which it is a part, the terms of this Rider shall control. SELLER: BIRMINGHAM UTILITIES, INC. By: Its Duly authorized BUYER: M/1 HOMES, LLC By: Its Duly authorized EXHIBITA-A AFFIDAVIT STATE OF CONNECTICUT ) ) SS COUNTY OF ) being duly sworn, deposes and says: 1. I am familiar with the premises certain 245 acres of unimproved land in Seymour, Connecticut, being more particularly described on Schedule A attached hereto and made a part hereof. 2. From , 19 , until the date of this affidavit, I have been the of the owner of the Premises. 3. No part of the Premises is in violation of any statute, law, rule or regulation of, or under any remediation or monitoring order of, the Environmental Protection Agency ("EPA"), Connecticut Department of Environmental Protection ("DEP"), or any other municipal, state, or federal agency or authority having jurisdiction thereof, in connection with air compliance, noise compliance, hazardous materials, waste management, water compliance and/or any other environmental concern. 4. There has been no determination by the EPA or any court of law that the Owner of the premises has caused any discharge, spillage, loss, seepage or filtration of hazardous waste, oil, petroleum, chemical liquids, or solid, liquid, or gaseous products, within the meeting of any federal statute, rule or regulation, on the premises or on any other property owned or leased by the Owner. 5. There has been no determination by the Commissioner of Environmental Protection or any court of law that the Owner of the Premises has caused any discharge, spillage, loss, seepage or filtration of hazardous waste, oil, petroleum, chemical liquids or solid, liquid or gaseous products, within the meaning of Connecticut General Statutes Section 22a-1 34, et seq., as amended, on the Premises, or any other property owned or leased by the Owner in the State of Connecticut. 6. No monies have been expended nor has any contract been entered into with any party, including but not limited to the Commissioner of Environmental Protection, for which a lien could arise under Connecticut General Statutes Section 22a-1 34, et seq., as amended, with respect to the Premises. 7. During the period of the Owner's ownership of the Premises, the Premises have been occupied by the following occupants: None. 8. During the period of the Owner's ownership of the Premises, the Premises have been used only for the following uses, businesses, activities: Public drinking water supply water shed. 9. The current use of the Premises is as follows: Public drinking water supply water shed. 10. Prior to the Owner taking title to the Premises, the premises had been to the best of the knowledge of the undersigned used for the following purpose(s): farm land or forest land. 11. To the best of my knowledge and belief, there has been no discharge, spillage, loss, seepage or filtration of oil, petroleum, chemical liquids or hazardous waste on or abutting the Premises except as follows: None. 12. To the best of my knowledge and belief, there exists no environmental site assessments concerning the Premises. 13. To the best of my knowledge and belief, the Premises comply with all applicable regulations of any federal, state or governmental agency, including the Connecticut Department of Environmental Protection. 14. The following permits have been issued by federal, state and/or local governmental agencies concerning the Premises or any operations conducted thereon, copies of which permits are attached: None. 15. To the best of my knowledge and belief, the Premises have never been investigated by any federal, state or local agency for possible illegal storage or dumping of oil, petroleum, chemical liquid or hazardous waste except as follows: None. 16. There are no underground storage tanks on the Premises, and no oil, petroleum, chemical liquids or hazardous waste is stored on the Premises. 17. The Premises is not an "establishment" as defined by Connecticut General Statutes Section 22a-134, et seq., as amended. 18. The undersigned makes the aforementioned representations and indemnification in order to induce M/1 Homes, LLC to purchase the Premises with the knowledge and understanding that M/1 Homes, LLC is relying on the truth and accuracy of the same. Subscribed and sworn to before me this day of , 1997. Commissioner of the Superior Court Notary Public EX-27 4
UT This schedule contains summary financial information extracted from the Registrant's December 31, 1996 audited balance sheet, income statement and cash flow statement, and notes thereto, and is qualified in its entirety by reference to such financial statements. 12-MOS DEC-31-1996 DEC-31-1996 PER-BOOK 12,294,866 0 1,864,593 870,786 1,038,225 15,568,420 2,221,786 0 1,619,188 3,840,974 0 0 5,981,000 125,000 0 0 169,000 0 0 0 5,452,446 15,568,420 4,379,771 128,459 3,524,650 3,653,109 726,662 627,857 1,354,519 589,782 764,737 0 764,737 381,031 464,187 348,773 1.02 1.02
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