-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, R35VBT33gc5VRc2yKuk0F2zxpHLKpQNGQP2OBmhpvB8okcw2Im3/K8owXXqV18oY FztitPlYV70dn27h2SyioQ== 0000764403-94-000004.txt : 19941026 0000764403-94-000004.hdr.sgml : 19941026 ACCESSION NUMBER: 0000764403-94-000004 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ETOWN CORP CENTRAL INDEX KEY: 0000764403 STANDARD INDUSTRIAL CLASSIFICATION: 4941 IRS NUMBER: 222596330 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-11023 FILM NUMBER: 94518890 BUSINESS ADDRESS: STREET 1: 600 SOUTH AVE STREET 2: P O BOX 788 CITY: WESTFIELD STATE: NJ ZIP: 07090 BUSINESS PHONE: 9086541234 MAIL ADDRESS: STREET 1: P O BOX 788 STREET 2: C/O E'TOWN CORP CITY: WESTFIELD STATE: NJ ZIP: 07091 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ELIZABETHTOWN WATER CO /NJ/ CENTRAL INDEX KEY: 0000032379 STANDARD INDUSTRIAL CLASSIFICATION: 4941 IRS NUMBER: 221683171 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-00628 FILM NUMBER: 94518891 BUSINESS ADDRESS: STREET 1: 600 SOUTH AVE STREET 2: P O BOX 788 CITY: WESTFIELD STATE: NJ ZIP: 07090 BUSINESS PHONE: 9086541234 10-K 1 BODY OF 10-K FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 0-18595 E'TOWN CORPORATION (Exact name of registrant as specified in its charter) New Jersey 22-2596330 (State of incorporation) (I.R.S. Employer Identification No.) 600 South Avenue Westfield, New Jersey 07090 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 654-1234 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, without par value New York Stock Exchange Commission file number 0-628 ELIZABETHTOWN WATER COMPANY (Exact name of registrant as specified in its charter) New Jersey 22-1683171 (State of incorporation) (I.R.S. Employer Identification No.) 600 South Avenue Westfield, New Jersey 07090 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 654-1234 Securities reSecurities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Secrities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes __X__ No_____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of regulation S-K is 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__ On December 31, 1993, the aggregate market value of E'town Corporation's voting stock held by non-affiliates was $177,643,368. On December 31, 1993, there were 5,639,472 shares of Common Stock outstanding, exclusive of treasury shares or shares held by subsidiaries of E'town Corporation. Note: All of the Common Stock of Elizabethtown Water Company is owned by E'town Corporation. Parts II and IV incorporate information by reference from the Annual Report to Shareholders of E'town Corporation for the Year Ended December 31, 1993. Part III incorporates information by reference from the definitive Proxy Statement in connection with E'town Corporation's Annual Meeting of Shareholders to be held on May 2, 1994. E'TOWN CORPORATION ELIZABETHTOWN WATER COMPANY 1993 ANNUAL REPORT ON FORM 10-K TABLE OF CONTENTS PART I ITEM PAGE ---- ---- 1. Business...................................................... 1 Organization............................................... 1 Service Area and Customers................................. 1 Water Supply............................................... 2 Water Quality Regulations and Water Treatment Facilities................................ 3 Transmission and Distribution.............................. 7 Energy Supply.............................................. 7 Environmental Matters...................................... 8 Franchises................................................. 8 Employee Relations......................................... 8 Rate Matters............................................... 9 Real Estate Matters........................................ 10 2. Properties.................................................... 11 3. Legal Proceedings............................................. 11 4. Submission of Matters to a Vote of Security Holders............................................. 11 PART II ITEM ---- 5. Market for the Corporation's Common Stock and Related Stockholder Matters.................................. 13 6. Selected Financial Data....................................... 14 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations......................................... 15 8. Financial Statements and Supplementary Data................... 21 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure....................... 21 PART III ITEM PAGE ---- ---- 10. Directors and Executive Officers of the Registrant............ 21 11. Executive Compensation........................................ 21 12. Security Ownership of Certain Beneficial Owners and Management........................................ 21 13. Certain Relationships and Related Transactions................................................. 21 PART IV ITEM ---- 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.......................................... 22 SIGNATURES............................................................. 24 APPENDIX I Elizabethtown Water Company and Subsidiary Consolidated Financial Statements for the Years Ended December 31, 1993, 1992 and 1991 and Independent Auditors' Report E'TOWN CORPORATION ELIZABETHTOWN WATER COMPANY Form 10-K Annual Report For the year ended December 31, 1993 PART I ITEM 1. Business Organization E'town Corporation (E'town or Corporation) was incorporated under the laws of the State of New Jersey in 1985 to serve as a holding company for Elizabethtown Water Company, (Elizabethtown or Company) and its wholly owned subsidiary The Mount Holly Water Company (Mount Holly). Elizabethtown and Mount Holly are regulated water utilities which, as a consolidated entity, are referred to herein as Elizabethtown Water Company (Elizabethtown Water Company). E'town Properties, Inc. (Properties) was incorporated in 1987 as a wholly owned and non-regulated subsidiary of E'town to acquire, develop and sell real estate holdings. Elizabethtown and Mount Holly are engaged in the distribution of water for domestic, commercial, industrial and fire protection purposes and for resale by other water companies and public bodies. Elizabethtown is a New Jersey corporation, one of whose predecessors was first incorporated in 1854. The present corporation was formed in 1961 as a result of a consolidation of Elizabethtown Water Company Consolidated and Plainfield-Union Water Company. Princeton and Somerville Water Companies were merged into Elizabethtown in 1973, and, as of January 1, 1977, Bound Brook Water Company was also merged into Elizabethtown. Elizabethtown owns all of the common stock of Mount Holly which contributed approximately 3% of the Company's consolidated operating revenues for 1993. Service Area and Customers At December 31, 1993 Elizabethtown and Mount Holly furnished water service on a retail basis to general customers and to industrial customers served through 188,677 meters in 54 municipalities in the counties of Union, Middlesex, Somerset, Mercer, Hunterdon, Ocean, Morris and Burlington in the central part of New Jersey, serving a population of approximately 560,000. Elizabethtown also provides, on a wholesale basis, a portion of the water requirements of eight additional municipalities with their own retail water systems and of three other -1- investor-owned water companies. Water for fire protection service is provided to 53 municipalities and also to commercial and industrial establishments. The Company's operating revenues by major classifications for the twelve months ending December 31, 1993 are as follows: General customers 63.1% Sales to other systems 17.2% Larger industrial customers 6.6% Fire protection service/miscellaneous 13.1% The systems are substantially all metered except for fire service. Additional operating statistics appear on page 14. Water Supply The water supply systems of Elizabethtown and Mount Holly are physically separate. During 1993, Elizabethtown's pumpage averaged 127.2 million gallons per day (MGD) and Mount Holly's pumpage averaged 3.4 MGD. Elizabethtown believes that it has sufficient water supply sources to meet the needs of its retail service areas and wholesale customers for the foreseeable future. Mount Holly plans to construct additional facilities to augment its water supplies. In 1993, surface water sources supplied about 88% of Elizabethtown's supply with wells supplying the remaining 12%. All of Mount Holly's water is produced from wells. Substantially all of Elizabethtown's surface water is purchased under a long-term contract with the New Jersey Water Supply Authority (NJWSA) which requires Elizabethtown to purchase (i) 32 MGD from the state-owned Delaware and Raritan Canal which transports water from the Delaware River Basin plus (ii) an average of 70 MGD from the Raritan River Basin which includes the state-owned Spruce Run-Round Valley Reservoir System. The safe yield of the Raritan River Basin and the Delaware and Raritan Canal is 225 MGD of which 151 MGD is presently allocated to Elizabethtown and others. Elizabethtown has available and, as needed to meet system demand, purchases water over and above its minimum purchase obligation. The Company is analyzing the potential effect of federal and state regulations on the long-term capacity of Elizabethtown's wells. Since 1985, wells with an aggregate capacity of 11 MGD have been withdrawn from service due to more stringent federal and state regulations and increased groundwater contamination at certain well sites. Under state and federal regulations now in effect, Elizabethtown owns and operates wells with an aggregate safe daily yield of approximately 18 MGD. If regulations governing radionuclides in drinking water proposed by the United States Environmental Protection Agency (USEPA) are adopted, Elizabethtown's well capacity will decrease to about 13 MGD. -2- All of Mount Holly's system delivery of 3.4 MGD in 1993 was supplied from wells. To assure an adequate supply of quality water from an aquifer serving parts of southern New Jersey, recent state legislation will require Mount Holly, as well as other suppliers obtaining water from designated portions of this aquifer, to reduce pumpage from its wells by the earlier of: (i) the date a new regional system planned by another purveyor is completed or (ii) the date Mount Holly develops its own alternate sources. Mount Holly's pumpage for 1993 was 1,237 million gallons (MG) and, under the new legislation, Mount Holly must reduce its pumpage to 538 MG from its existing wells. Mount Holly has received preliminary approval from the New Jersey Department of Environmental Protection and Energy (NJDEPE) for its conceptual plan to develop wells, treatment and transmission facilities necessary to obtain water outside the designated portion of the aquifer. The preliminary estimate of the the cost of this project of $12.2 million has been included in Mount Holly's capital expenditure projections. Mount Holly intends to request rate relief to recover the financing and operating costs of these facilities. Water Treatment Facilities and Water Quality Regulations Elizabethtown owns and operates a treatment plant at the confluence of the Raritan and Millstone Rivers adjacent to the Delaware and Raritan Canal to treat surface waters purchased from the NJWSA. The plant can withdraw water from any of these sources, which is an advantage in the event that one source becomes contaminated. The plant was placed in service in 1931 and has continually been upgraded since that time. Elizabethtown also operates smaller treatment facilities to treat groundwater produced by certain wells. Mount Holly operates similar groundwater treatment facilities. Both the USEPA and the NJDEPE regulate the operation of Elizabethtown's and Mount Holly's water treatment and distribution systems and the quality of the water Elizabethtown and Mount Holly deliver to their customers. Elizabethtown and Mount Holly believe they are currently in compliance with all present federal and state water quality standards, including all regulations promulgated to date by the USEPA pursuant to the Federal Safe Drinking Water Act, as amended (SDWA), and by the NJDEPE pursuant to similar state legislation. However, Elizabethtown has included certain capital projects in its five-year capital budget which it anticipates will be necessary to comply with regulations that have been proposed by the USEPA and NJDEPE. Recovery of the financing and operating costs of such improvements, plus those costs for any additional projects which cannot be foreseen at this time, will be requested in rates. -3- Elizabethtown has responded to recent water quality regulations promulgated by NJDEPE and the USEPA by replacing groundwater supplies with increased withdrawals of surface water. Accordingly, the proportion of supply produced from surface water has increased from 85% in 1986 to 88% in 1993. The Company expects this trend to continue because it is preferable from the standpoint of operational efficiency and cost to modify treatment processes and facilities at one or two large plants than to attempt to constantly upgrade treatment facilities at multiple well sites. New Surface Water Treatment Plant As part of its ongoing planning process, Elizabethtown continually evaluates the present and projected capacity of its facilities to obtain, treat, and distribute water meeting water quality regulations in amounts necessary to satisfy present and foreseeable maximum day demands. In light of ongoing growth in demand by retail and wholesale customers and the trend towards increased use of surface water, which requires treatment, Elizabethtown commissioned a study by a consulting firm specialized in water treatment plant design and operation. The purpose of this study was to assess the capacity of Elizabethtown's existing Raritan Millstone plant under present and likely water quality regulations. The consultant concluded that the existing plant has a sustainable capacity of 155 MGD which, when coupled with well capacity of 13 MGD (adjusted for the effect of the proposed radionuclide regulations), results in a systemwide production capacity, sustainable over the long term, which is less than current and expected maximum day demand. After reviewing various options to increase treatment capacity, such as expanding its existing Raritan Millstone Plant or purchasing treated water from another supplier, Elizabethtown concluded that constructing a new plant was the only feasible alternative. Accordingly, the Company intends to construct a treatment plant (Plant), with an initial capacity of 40 MGD, across the river from its existing plant to increase Elizabethtown's sustainable production capacity. The Plant has an estimated cost of approximately $100 million, excluding an allowance for funds used during construction (AFUDC) and will take approximately 2 1/2 years to construct. -4- The Plant has been designed by a joint venture of two engineering firms, nationally recognized as experts in the field. The Company owns the land where the Plant will be built and has obtained all material permits to construct the Plant. Elizabethtown has solicited bids from general contractors for the construction of the Plant. The Company expects to execute a contract and commence construction in the spring of 1994. One of the partners of the joint venture which designed the Plant will also manage its construction. In August 1993, the New Jersey Board of Regulatory Commissioners (BRC) approved a stipulation (1993 Plant Stipulation) signed by all parties to the Company's petition filed in connection with the Plant which states that the parties affirm that the Plant is necessary and that its cost estimate, at that time of $87 million, and construction schedule are reasonable. The 1993 Plant Stipulation also provides for a rate setting mechanism for the Plant during the construction period. The company has notified all parties to the 1993 Plant Stipulation that the estimated cost of the Plant has increased. (See "Rate Matters"). Water Quality Regulations As required by the SDWA, the USEPA has established maximum contaminant levels (MCLs) for various substances found in drinking water. As authorized by similar state legislation, the NJDEPE has set MCLs for certain substances which are more restrictive than the MCLs set by the USEPA. In certain cases, the USEPA and NJDEPE have also mandated that certain treatment procedures be followed in addition to satisfying MCLs established for specific contaminants. The NJDEPE is also the USEPA's agent for enforcing the SDWA in New Jersey and, in that capacity, monitors the activities of Elizabethtown and Mount Holly and reviews the results of water quality tests performed by Elizabethtown and Mount Holly for adherence to applicable regulations. Regulations applicable to water utilities generally, including Elizabethtown and Mount Holly, include the Lead and Copper Rule (LCR), the MCLs established for various volatile organic compounds (VOCs), the MCLs proposed for radionuclides and the Surface Water Treatment Rule (SWTR). Lead and Copper Rule The LCR requires Elizabethtown and Mount Holly to test the quantity of lead and copper in drinking water at the customer's tap and, if certain contaminant levels (action levels) are exceeded, to notify customers and initiate a public information campaign advising customers how to minimize exposure to lead and copper. The LCR also requires -5- Elizabethtown to add corrosion inhibitors to water to minimize leaching of lead from piping, faucets and soldered joints into water consumed at the tap. Results from two separate tests completed during 1992 within Elizabethtown and Mount Holly's systems do not indicate lead and copper concentrations above the action levels. Accordingly, public notification and a public information campaign have not been required. Capital costs of corrosion inhibitor facilities of $2.6 million have been included in Elizabethtown's five-year capital budget. Elizabethtown will request that the costs of compliance be recovered in rates. Volatile Organic Compounds VOCs include various substances (primarily synthetic organic solvents) which have percolated into groundwater aquifers from surface sources. Elizabethtown has found VOCs in excess of the applicable MCLs in certain of its wells and has either suspended the use of such wells or constructed aeration towers which remove such contaminants from the water by venting them into the atmosphere. Because underground water flows are difficult to map, it is difficult to predict when and where contamination will occur in the future. To the extent that contamination in excess of applicable MCLs occurs at wells lacking aeration towers, Elizabethtown will consider building such facilities if feasible and cost effective, or closing such wells, thereby increasing its reliance on surface water. To date, Mount Holly has not been affected by VOC contamination. Radionuclides Radionuclides are naturally occurring radioactive substances (primarily radon) found in groundwater. Like VOCs, radon can be removed from groundwater using aeration towers. If the MCLs proposed for all radionuclides are finally adopted, Elizabethtown believes that it will abandon wells with aggregate production capacity of approximately 5 MGD, thereby further increasing Elizabethtown's reliance on surface water. Surface Water Treatment Rule The operation of Elizabethtown's existing Raritan-Millstone treatment plant is subject to the SWTR. Elizabethtown has assessed the plant's sustainable production capacity, assuming operation consistent with the requirements of the SWTR, and determined that improvements to the existing plant are necessary. -6- Specifically, Elizabethtown has installed additional pumps to increase capacity and reliability at peak times. Also, Elizabethtown will replace existing chlorine gas disinfection facilities with liquid sodium hypoclorite to improve community and employee safety, will install corrosion inhibitor facilities in conformance with the LCR, will construct a new building to house offices and lab facilities and will construct facilities to handle waste materials generated from the treatment process. (See "Environmental Matters".) Elizabethtown has included the capital costs of these facilities in its capital program and will request that the financing and operating costs of these facilities be recovered in rates. (See "Capital Expenditures Program" at Item 7.) Transmission and Distribution As of December 31, 1993, the Company's transmission and distribution system included 2,800 miles of transmission and distribution mains. Mains range in size up to 60 inches, substantially all of which are either ductile iron, cast iron or prestressed concrete pipe. Elizabethtown conducts an ongoing program costing approximately $1 million per year to clean and line its older cast iron mains. Such costs are capitalized and have been included in rate base in stipulations settling recent rate cases. As of December 31, 1993, Elizabethtown also had in service pumping equipment having capacities of 283 MGD for low lift pumping capacity, 577 MGD for system supply pumping capacity and 194 MGD for transfer booster pumping capacity. Distribution storage facilities as of December 31, 1993 consisted of standpipes, elevated and ground storage tanks and reservoirs with an aggregate capacity of 82 MG. Such pumping, transmission and storage facilities are necessary to maintain adequate water pressures throughout the service territory. Failure to maintain pressures could adversely affect domestic service and impede local fire departments' efforts to fight fires, particularly during peak summer loads. On an ongoing basis, Elizabethtown assesses the capacity of its system to maintain adequate pressures under all load conditions and initiates plans to construct pumping, transmission and storage facilities as needed. Energy Supply Elizabethtown pumps substantially all of its water with electric power purchased from two major electric utilities. Elizabethtown also has diesel powered pumping and generating facilities at its major treatment plants and at certain transfer stations to provide basic service during possible electrical shortages. Elizabethtown has not, to date, experienced any shortage of electric energy or diesel fuel to operate its pumps and has cooperated with its electric suppliers during their peak periods by operating non-electrical pumping facilities upon request. -7- Environmental Matters Elizabethtown and Mount Holly are also subject to regulation by the NJDEPE with respect to water supply plans and specifications for the construction, improvement, alteration and operation of public water supply systems and with respect to the quality of any effluent from treatment plants. As a normal by-product of treating surface water, Elizabethtown's existing surface water treatment plant generates silt removed from untreated river water plus residue from chemicals used in the treatment process. Historically, Elizabethtown has disposed of this material in landfills. As a result of revised regulations governing landfills, Elizabethtown has been reusing this material on site. Due to limited on site storage capacity, Elizabethtown has developed plans and designed a facility to dry the by-product for beneficial reuse. This project is included in the Company's capital program. During the late 1980's, Elizabethtown withdrew a well field from service because of increased groundwater contamination and more stringent water quality regulations. Subsequently, residents in the area have claimed that Elizabethtown's decision to withdraw such wells from service has caused the local water table to rise to the level where basement flooding occurs during periods of heavy rain. Elizabethtown has commissioned an engineering firm to determine whether it is feasible and cost effective to install treatment facilities so that those wells not presently complying with current regulations can be returned to service. The study will also evaluate whether the resumption of pumping would have any effect on the local water table. Preliminary estimates of treatment facilities necessary to return certain wells in this area to service are included in the Company's capital program. Under New Jersey law, environmental matters are addressed by the NJDEPE before diversion allowances or other water supply projects are authorized. To date, Elizabethtown and Mount Holly have been able to construct all plant facilities and obtain all diversion authorizations necessary to maintain customer service. Franchises The property and franchises of Elizabethtown and Mount Holly are subject to rights of eminent domain of the State of New Jersey. These rights have been delegated by statutes now in effect to municipalities or groups of municipalities and have been or may be delegated to various public agencies. No such rights of eminent domain have been exercised since 1931. Employee Relations As of December 31, 1993, the Corporation had a total of 384 full-time employees, of which 209 were covered by union contracts. The contracts between the Company and the Utility Workers Union of America (A.F.L.-C.I.O.), were renegotiated on February 1, 1993 and will expire on January 31, 1996. -8- The Company considers relations with both union and non-union employees to be satisfactory. Rate Matters Elizabethtown and Mount Holly are subject to regulation by the BRC with respect to the issuance and sale of securities, rates and service, classification of accounts, mergers, and other matters. Elizabethtown and Mount Holly periodically seek rate relief to cover the cost of increased operating expenses, increases in financing expenses due to additional investments in utility plant, and other costs of doing business. Assuming Elizabethtown's construction program proceeds as planned, Elizabethtown anticipates filing for rate increases annually for the next several years. The BRC is required by New Jersey law to issue a ruling within nine months of the filing of a petition to increase rates. As mentioned previously, the 1993 Plant Stipulation, approved in August 1993, states that the Plant is necessary and that the Company's estimates regarding the Plant's cost, at that time of $87 million, and construction period are reasonable. In addition, the 1993 Plant Stipulation authorizes the Company to levy a rate surcharge if the Company's pre-tax interest coverage ratio for any 12-month historical period drops below 2.0 times. The surcharge would equal 20% of the Company's gross interest expense for the prior 12 months, adjusted for revenue taxes. The surcharge would go into effect at the same time as the Company's next base rate increase after the coverage ratio falls below 2.0 times, but in no event prior to January 1, 1995. Also, the surcharge would remain in effect for 12 months and could be extended by the BRC for up to six additional months. The 1993 Plant Stipulation also provides that the rate of return on common stockholder's equity used to calculate the rate for the equity component of the AFUDC for the Plant will be 1.5% less than the rate of return on common stockholder's equity established in the Company's most recent base rate case. The authorized rate of return on common stockholder's equity is currently 11.5%. Elizabethtown has solicited bids from general contractors for the construction of the Plant. The estimated cost of the Plant, as of March 23, 1994, is approximately $100 million, excluding AFUDC. The Company has notified all parties to the 1993 Plant Stipulation that the estimated cost of the Plant has increased. The Company expects to execute a contract and commence construction in the spring of 1994. On January 4, 1994, Elizabethtown filed with the BRC for a Purchased Water Adjustment Clause, a procedure established by BRC Rules, which would allow Elizabethtown to recover in rates approximately $.5 million for the increase in the cost of purchased water from the NJWSA without a complete rate case. The NJWSA has given notice that effective July 1, 1994, it will increase charges for water from $220.47 to $232.65 per million gallons. The Company expects the BRC to render a decision prior to July 1994. -9- On March 18, 1993, the BRC approved a stipulation (1993 Stipulation) for a rate increase of $5.0 million, effective as of that date. The 1993 Stipulation contains a provision allowing for the deferral of expenses, calculated under Statement of Financial Accounting Standards 106, for postretirement benefits accrued that are in excess of the cash benefits paid. Recovery of such deferrals will be considered in future rate cases. On March 18, 1992, the BRC approved a stipulation for a rate increase of $4.0 million effective as of that date. Real Estate Matters Properties and E'town currently own several parcels of land aggregating approximately 740 acres located in central New Jersey having an original acquisition cost of approximately $8 million. Approximately half of this acreage was purchased from a third party and the balance was land formerly owned by Elizabethtown and no longer needed for utility purposes. These holdings are owned in fee. The Corporation has no plans to acquire additional real estate. Over the next several years, the Corporation expects to work with local and state officials to obtain various approvals to enhance the value and development potential of its real estate holdings while minimizing expenditures. On August 24, 1993, E'town, Properties and Elizabethtown sold three parcels of land totalling 260 acres to the Somerset County Park Commission for $3.4 million. The sale produced an after-tax gain of approximately $1.1 million or $.21 per share. -10- Executive Officers of the Corporation and Elizabethtown Robert W. Kean, Jr. 71 Chief Executive Officer of the Corporation since 1985 and Elizabethtown since 1973. Henry S. Patterson, II 71 President of the Corporation since March 1985 and its subsidiary, E'town Properties, Inc., since July 1987. Thomas J. Cawley 63 President of Elizabethtown and its subsidiary, The Mount Holly Water Company since August 1992. Executive Vice President of Elizabethtown since January 1987 and Vice President of its subsidiary, The Mount Holly Water Company since 1973. Previously, Vice President, Operations since 1975. Frank Critelli 64 Controller of the Corporation since 1985 and of Properties since 1987. Senior Vice President - Accounting and Rates of Elizabethtown since 1987. Andrew M. Chapman 38 Chief Financial Officer and Treasurer of the Corporation, and Properties since December 1990 and Senior Vice President, Chief Financial Officer and Treasurer of Elizabethtown since May 1993. Treasurer of Elizabethtown since August 1989. Previously, Director, Office of Financial Management, New Jersey Department of Treasury, since June 1985. Anne Evans Gibbons 49 Vice President of the Corporation since September 1987. Owner of the Elberon Development Co., (a real estate holding company) since 1984 and President of David O. Evans, Inc. (a construction company) since 1983. Walter M. Braswell 44 Secretary of the Corporation, Properties and Elizabethtown since December 1990 and Vice President and General Counsel and Assistant Secretary of Elizabethtown since August 1988. Previously, Assistant Secretary and General Attorney of Elizabethtown since May 1983. -11- Norbert Wagner 58 Senior Vice President-Operations since May 1992. Vice President-Operations since March 1987, Chief Engineer since October 1978. ITEM 2. Properties All principal plants and other materially important units of property of Elizabethtown and Mount Holly are owned in fee. The Company considers that the properties of Elizabethtown and Mount Holly are in good operating condition. ITEM 3. Legal Proceedings None expected to be material. See Note 8 to Elizabethtown's Consolidated Financial Statements. ITEM 4. Submission of Matters to a Vote of Security Holders None -12- PART II ITEM 5. Market for the Corporation's Common Stock and Related Stockholder Matters This information is included in Exhibit 13, filed herewith, and is incorporated herein by reference. All of the common stock of Elizabethtown Water Company is owned by E'town. -13- ITEM 6. Selected Financial Data E'town Corporation This information is included in Exhibit 13, filed herewith, and is incorporated herein by reference. Elizabethtown Water Company
1993 1992 1991 1990 1989 -------- -------- -------- -------- --------- Utility Plant (Thousands) Utility Plant--net .......... $373,293 $347,253 $319,421 $297,577 $275,588 Construction Expenditures (excluding AFUDC)........... 32,500 33,293 27,732 27,301 38,589 Total Assets (Thousands)...... $437,405 $386,880 $371,103 $350,487 $316,701 Capitalization (Thousands) Shareholder's Equity ........ $125,765 $103,024 $ 85,877 $ 74,081 $ 72,215 Redeemable Preferred Stock .. 12,000 12,000 12,000 12,000 12,000 Debt (l) .................... 141,952 147,841 154,984 159,049 131,567 Total Capitalization ........ $279,717 $262,865 $252,861 $245,130 $215,782 Capitalization Ratios Common Stock ................ 45% 39% 34% 30% 33% Preferred Stock ............. 4% 5% 5% 5% 6% Debt (1) .................... 51% 56% 61% 65% 61% Earnings Applicable to Common Stock (Thousands)..... $ 13,783 $ 11,099 $ 10,311 $ 6,929 $ 6,074 Operating Statistics Revenues (Thousands) General Customers .......... $ 63,100 $ 55,570 $ 54,071 $ 48,267 $ 45,088 Other Water Systems ........ 17,187 15,080 14,082 12,947 11,060 Industrial Wholesale ....... 6,652 6,044 5,846 5,515 5,183 Fire Service/Miscellaneous.. 13,057 12,473 12,087 11,386 9,906 Total Revenues ............. $ 99,996 $ 89,167 $ 86,086 $ 78,115 $ 71,237 Water Sales - Millions of Gallons (mg) General Customers .......... 23,883 22,062 22,659 21,686 21,119 Other Water Systems ........ 15,109 14,118 13,811 14,379 14,450 Industrial Wholesale ....... 3,213 3,145 3,155 3,313 3,757 System Use and Unaccounted For 5,453 5,843 6,368 5,854 6,297 Total Water Sales .......... 47,658 45,168 45,993 45,232 45,623 System Delivery by Source - mg Surface .................... 40,742 38,558 39,222 40,343 38,937 Wells ...................... 6,776 6,480 6,658 4,805 6,587 Purchased .................. 140 130 113 84 99 Total System Delivery ...... 47,658 45,168 45,993 45,232 45,623 Millions of Gallons Pumped: Average Day ................ 131 123 126 124 125 Maximum Day ................ 191 159 169 155 148 __________________________________________________________________________________________ (1)Includes long-term debt, notes payable and long-term debt-current portion.
-14- ITEM 7. Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations E'town Corporation This information is included in Exhibit 13, filed herewith, and is incorporated herein by reference. Elizabethtown Water Company and Subsidiary The water utility operations of Elizabethtown Water Company (Elizabethtown or Company) and its subsidiary The Mount Holly Water Company (Mount Holly), the consolidated entity being referred to herein as Elizabethtown Water Company (Elizabethtown Water Company), presently constitute the major portion of E'town Corporation's (E'town) assets and earnings. E'town, a New Jersey holding company, is the parent company of Elizabethtown Water Company and E'town Properties, Inc. The following analysis sets forth significant events affecting the financial condition at December 31, 1993 and 1992, and the results of operations for the years ended December 31, 1993, 1992 and 1991 for Elizabethtown Water Company. LIQUIDITY AND CAPITAL RESOURCES Capital Expenditures Program Capital expenditures were $32.5 million during 1993. Capital expenditures for the three-year period ending December 31, 1996, are estimated to be $196.5 million. Elizabethtown's construction program includes additional mains and storage facilities necessary to serve customers who were added during the last several years. In addition, Elizabethtown anticipates upgrading its existing surface water treatment plant by rehabilitating certain components and adding facilities designed to maximize its capacity. These projects are designed to ensure the plant's compliance with proposed water quality and other environmental regulations. Elizabethtown's estimated capital expenditures through 1996 include $100.0 million, excluding an Allowance for Funds Used During Construction (AFUDC), for construction of a new water treatment plant, the Canal Road Water Treatment Plant (Plant), near its existing plant. The Plant is scheduled to be completed in 1996. The Plant, which will have a rated production capacity of 40 million gallons per day, is necessary to meet existing and anticipated customer demands and to replace groundwater supplies withdrawn from service as a result of more restrictive water quality regulations and groundwater contamination. In August 1993, the Board of Regulatory Commissioners (BRC) approved a stipulation (1993 Plant Stipulation) signed by the parties to the Company's petition relating to the Plant. The 1993 Plant Stipulation states that the Plant is necessary and that the Company's estimate regarding the Plant's cost, at that time of $87 million, and construction period were reasonable. The 1993 Plant Stipulation authorizes the Company to levy a rate surcharge if the Company's pre-tax interest coverage ratio for any 12-month historical period drops below -15- 2.0 times. The surcharge would equal 20% of the Company's gross interest expense for the prior 12 months, adjusted for revenue taxes. The surcharge would go into effect at the same time as the Company's next base rate increase after the coverage ratio falls below 2.0 times, but in no event prior to January 1, 1995. Also, the surcharge would remain in effect for 12 months and could be extended by the BRC for up to six additional months. The 1993 Plant Stipulation also provides that the rate of return on common stockholder's equity used to calculate the rate for the equity component of the AFUDC for the Plant will be 1.5% less than the rate of return on common stockholder's equity established in the Company's most recent base rate case. The authorized rate of return on common stockholder's equity is currently 11.5%. Elizabethtown has solicited bids from general contractors for the construction of the Plant. The estimated cost of the Plant, as of March 23, 1994, is approximately $100 million, excluding AFUDC. The Company has notified all parties to the 1993 Plant Stipulation that the estimated cost of the Plant has increased. The Company expects to execute a contract and commence construction in the spring of 1994. Also included in the capital program is $12.2 million for new wells, treatment facilities and transmission lines to augment Mount Holly's water supplies. Such projects are necessary for Mount Holly to comply with recent state legislation requiring Mount Holly and other water purveyors located in a particular area in southern New Jersey to obtain additional sources of water to replace portions of their existing supplies. Capital Resources During 1993, Elizabethtown Water Company financed 28.2% of its capital expenditures from internally generated funds (after payment of common stock dividends). The balance was funded from (i) capital contributions from E'town from the sale of common stock, (ii) the remaining proceeds of various New Jersey Economic Development Authority (NJEDA) tax-exempt bond issues from prior years and (iii) short-term bank debt on an interim basis. For the three-year period ending December 31, 1996, Elizabethtown Water Company estimates that 15% of its capital expenditures will be financed with internally generated funds (after the payment of common stock dividends). The balance will be financed with a combination of capital contributions from E'town from the proceeds from the sale of E'town common stock, long-term debentures, proceeds of tax-exempt NJEDA bonds and short-term borrowings under a revolving credit agreement (see below), on an interim basis. The NJEDA has granted preliminary approval for the financing of almost all of Elizabethtown's major projects over the next three years, including the Plant. Elizabethtown expects to pursue tax-exempt financing to the extent that final allocations are granted by the NJEDA. -16- On May 17, 1993, E'town issued 575,000 shares of common stock for net proceeds of $16.6 million. The net proceeds were used to fund equity contributions to Elizabethtown of $11.0 million in May 1993 and $2.8 million in September 1993. Elizabethtown used a portion of such contributions to repay $7.0 million of short-term bank debt incurred for construction expenditures and invested the balance on a short-term basis until needed for construction expenditures. During 1993, E'town raised $6.0 million from the sale of common stock issued under its Dividend Reinvestment and Stock Purchase Plan (DRP). Such proceeds were used to fund equity contributions to Elizabethtown primarily for Elizabethtown's capital expenditures. On November 9, 1993, Elizabethtown issued $50 million of 7 1/4% Debentures due November 1, 2028. The proceeds of the issue were used to redeem $30 million of the Company's 8 5/8% Debentures due 2007 and $20 million of the Company's 10 1/8% Debentures due 2018. The aggregate redemption premiums of $2.7 million were paid from general Company funds. During 1994, E'town Corporation expects to issue approximately 500,000 shares of common stock, through a public offering prior to June 30, 1994, to finance additional equity contributions to Elizabethtown. Proceeds from all stock issued under E'town's DRP will continue to fund additional equity contributions to Elizabethtown. Elizabethtown is negotiating a committed revolving credit agreement, which is expected to be in place by April 1994, with an agent bank and up to five additional participating banks to replace its existing uncommitted lines of credit. The agreement will provide up to $60 million in revolving short-term notes to provide sufficient short-term financing for the Company to fund, together with other monies, its $196.5 million capital program. The agreement will allow the Company to borrow, repay and reborrow up to $60 million for the first three years, after which time the Company may convert any outstanding balances to a five-year fully amortizing term loan. The agreement will further provide that among other covenants, the Company must maintain a ratio of common and preferred equity to total capitalization of not less than 35% and a pre-tax interest coverage ratio of at least 1.5 to 1. December 31, 1992 and 1991 In April 1992, E'town issued 500,000 shares of common stock for net proceeds of $12.7 million. Proceeds of the issue funded an $11.0 million capital contribution to Elizabethtown. Also, E'town funded -17- additional equity contributions of $4.2 million to Elizabethtown from E'town's DRP. During 1992, Elizabethtown issued $15 million of 8% Debentures to repay short-term bank debt, of which, $9 million was incurred to repay Elizabethtown's 4 7/8% Debentures due February 1, 1992, and the remainder was incurred to finance construction expenditures. On February 14, 1991, E'town issued 523,700 shares of common stock for net proceeds of $11.6 million. Proceeds of the issue funded an $8 million capital contribution to Elizabethtown. Also, E'town funded additional equity contributions of $1.8 million to Elizabethtown from E'town's DRP. During 1991, Elizabethtown issued $27.5 million of 8 3/4% Debentures to retire $25 million of 11 1/8% Debentures and, through the NJEDA, issued a total of $25.5 million of tax-exempt debentures with interest rates of 6.6% and 6.7% to refinance $10.5 million of tax-exempt 8.20% Debentures and $15 million of 6.20% NJEDA Notes. RESULTS OF OPERATIONS Earnings Applicable to Common Stock for 1993 were $13.8 million as compared to $11.1 million for 1992. The increase in net income resulted from higher levels of outdoor water use due to abnormally hot and dry summer weather. Also, rate increases received in March of 1993 and 1992, enabled the Company to cover higher levels of operating and financial expenses in 1993 without adversely affecting net income. Summer water use in excess of what management believes to be normal contributed approximately $1.8 million. Assuming a return to normal weather patterns in 1994, the Company expects that earnings for 1994 will be less than earnings realized in 1993. Earnings Applicable to Common Stock for 1992 were $11.1 million, as compared to $10.3 million for 1991. The increased resulted primarily because the Company realized $3.3 million from the rate increase granted in March 1992, which was partially offset by increased expenses. Operating Revenues increased $10.8 million or 12.1% in 1993. Of this increase, $4.8 million relates to the combined effect of the rate increases of $5.0 million and $4.0 million effective March 1993 and 1992, respectively. Also, sales to retail customers increased $3.8 million and sales to other water systems increased $1.2 million due to hot, dry summer weather. Operating Revenues increased $ $3.1 million or 3.6% in 1992 primarily because of the rate increase effective March 1992. Retail water consumption dropped by $1.5 million in 1992 due to relatively wet summer weather. However, lower consumption by retail customers was partially offset by an increase in sales to other water systems of $.4 million. -18- Operation Expenses increased by $3.5 million or 10.0% in 1993 primarily due to increases in the quantity of power and raw water purchased to meet higher than normal summer loads. Also, the unit costs of power and purchased water increased, as did labor costs and the cost of medical and other benefits. Operation Expenses increased $1.6 million or 4.9% in 1992. Increases in labor, the price of purchased water and worker's compensation premiums were partially offset by a reduction in hospitalization premiums. Maintenance Expenses increased less than $.1 million or .2% in 1993 and $.3 million or 5.7% in 1992 due to fluctuations in routine maintenance at various operating facilities. Depreciation Expense increased $.6 million or 9.5% in 1993 and $.4 million or 6.3% in 1992 due to additional depreciable plant being placed in service during those periods. Revenue Taxes increased $1.4 million or 12.8% in 1993 and $.4 million or 3.4% in 1992 due to additional taxes on the higher revenues explained above. Real Estate, Payroll and Other Taxes increased $.1 million in 1993 due to increased payroll taxes resulting from labor cost increases. Real Estate, Payroll and Other Taxes increased by $.1 million in 1992. Federal Income Taxes increased $1.8 million or 31.2% in 1993 and $.2 million or 3.6% in 1992 due to the changes in the components of taxable income discussed herein. The increase in 1993 also includes $.2 million due to the change in the federal statutory tax rate from 34% to 35%. Other Income increased in total by $.1 million in 1993. Other Income increased due to a gain on the sale of land in August 1993, of $.1 million. A decrease in the equity component of AFUDC of $.2 million resulted from the timing of construction expenditures. Other increases of $.2 million resulted from various miscellaneous items. Federal income taxes, as a result of all of the above, increased $.1 million. In 1992 Other Income increased in total by $.4 million. Other Income in 1992 includes an equity component of AFUDC of $.6 million. Federal income taxes, as a result of the above, increased $.2 million. Total Interest Charges increased $.8 million or 7.7% in 1993, due primarily to an increase in interest for long-term debt issued in September 1992 and a reduction in earnings from NJEDA trust funds due to reduced trust fund balances. These items were partially offset by lower interest on short-term debt due to reduced borrowings. -19- Total Interest Charges decreased $.4 million or 3.6% in 1992 due to the net effect of (i) new long-term debt issued in September 1992, (ii) lower interest costs as a result of long-term debt refinancing and (iii) lower levels of short-term debt balances and their related rates. ECONOMIC OUTLOOK Earnings for Elizabethtown Water Company for the next several years will be primarily affected by weather and customer usage, the magnitude and timing of capital expenditures, the rate of growth of revenues and expenses and the adequacy and timeliness of regulatory relief. Elizabethtown and Mount Holly believe that they have sufficient surface and well water supplies to meet their customers' needs and that they are, and will remain, in compliance with all water quality standards. Nonetheless, governmental water quality and service regulations will require Elizabethtown and Mount Holly to make significant investments in water treatment, transmission and storage facilities including, most significantly, the Plant. This capital program will require regular external financing and rate relief for the next several years. Because Elizabethtown expects its rate base to grow more quickly than pumpage over the next several years, Elizabethtown anticipates filing for a rate increase in 1994, and regularly thereafter, so that it may have the opportunity to realize satisfactory returns on equity. Adequate equity returns will enable Elizabethtown to continue to attract external capital to finance improvements necessary to maintain safe and adequate service. -20- Item 8. Financial Statements and Supplementary Data The information for E'town is included in Exhibit 13, filed herewith, and is incorporated herein by reference. The information for Elizabethtown Water Company is contained on pages 2 through 20 of Appendix I included herein. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant Information with respect to directors of E'town and Elizabethtown is included in E'town's Proxy Statement for the 1994 Annual Meeting of Stockholders, and is incorporated herein by reference. Information regarding the executive officers of both E'town and Elizabethtown follows Item 1 in Part I of this Form 10-K. Item 11. Executive Compensation This information for E'town and Elizabethtown is included in E'town's Proxy Statement for the 1994 Annual Meeting of Stockholders, and is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management This information for E'town and Elizabethtown is included in E'town's Proxy Statement for the 1994 Annual Meeting of Stockholders, and is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions This information for E'town and Elizabethtown is included in E'town's Proxy Statement for the 1994 Annual Meeting of Stockholders, and is incorporated herein by reference. -21- PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) The following documents are filed as part of this report: 1. Financial Statements: E'town Corporation Elizabethtown Water Company Statements of Consolidated Income for the years ended December 31, 1993, 1992 and 1991. Statements of Consolidated Cash Flows for the years ended December 31, 1993, 1992 and 1991. Consolidated Balance Sheets as of December 31, 1993 and 1992. Statements of Consolidated Capitalization as of December 31, 1993 and 1992. Statement of Consolidated Shareholders' Equity for the years ended December 31, 1993, 1992 and 1991. Notes to Consolidated Financial Statements. E'town Corporation A portion of the 1993 Annual Report to Shareholders which includes Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Consolidated Financial Statements, Notes to Consolidated Financial Statements, Independent Auditors' Report and Other Financial and Statistical Data is filed herewith as Exhibit 13 and is herein incorporated by reference. Elizabethtown Water Company Elizabethtown Water Company's consolidated financial statements and notes thereto are included herein on pages 2 through 20 of Appendix I. E'town and Elizabethtown Water Company The Independent Auditors' Reports for E'town and Elizabethtown Water Company appear on page 26 herein and page 1 of Appendix I, respectively. -22- 2. Financial Statement Schedules: All financial schedules required to be filed contain the same data and amounts for both E'town and Elizabethtown Water Company, except for Schedule V, which includes property, plant and equipment for each company. Schedule V - Property, Plant and Equipment for the Years Ended December 31, 1993, 1992 and 1991. Schedule VI - Accumulated Depreciation and Amortization of Property, Plant and Equipment for the Years Ended December 31, 1993, 1992 and 1991. Schedule VIII - Valuation and Qualifying Accounts for the Years Ended December 31, 1993, 1992 and 1991. Other schedules are omitted because of the absence of the condition under which they are required or because the required information is included in the financial statements or the notes accompanying each company's financial statements. 3. Exhibits (a) Exhibits for E'town and Elizabethtown Water Company are listed in the Exhibit Index. (b) Reports on Form 8-K: None -23- 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. March 30, 1994 E'TOWN CORPORATION By: /s/ Robert W. Kean, Jr. ------------------------- Chairman, Chief Executive Officer and Director 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 indicated on March 30, 1994. Chairman, Chief Executive Officer and Director /s/ Robert W. Kean, Jr. ------------------------- President and Director /s/ Henry S. Patterson II ------------------------- Vice President and Director /s/ Ann Evans Gibbons ------------------------- Chief Financial Officer and Treasurer /s/ Andrew M. Chapman (Principal Financial Officer) ------------------------- Controller /s/ Frank Critelli (Principal Accounting Officer) ------------------------- Director /s/ Brendan T. Byrne ------------------------- Director /s/ Thomas J. Cawley ------------------------- Director /s/ John Kean ------------------------- Director ------------------------- Director /s/ Arthur P. Morgan ------------------------- Director /s/ Barry T. Parker ------------------------- Director /s/ Hugo M. Pfaltz, Jr. ------------------------- Director /s/ Chester A. Ring III ------------------------- -24- 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. March 30, 1994 ELIZABETHTOWN WATER COMPANY By: /s/ Robert W. Kean, Jr. -------------------------- Chairman, Chief Executive Officer and Director 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 indicated on March 30, 1994. Chairman, Chief Executive Officer and Director /s/ Robert W. Kean, Jr. -------------------------- President and Director /s/ Thomas J. Cawley -------------------------- Chief Financial Officer and Treasurer /s/ Andrew M. Chapman (Principal Financial Officer) -------------------------- Vice President-Controller /s/ Gail P. Brady (Principal Accounting Officer) -------------------------- Director /s/ Brendan T. Byrne -------------------------- Director /s/ Ann Evans Gibbons -------------------------- Director /s/ John Kean -------------------------- Director -------------------------- Director /s/ Arthur P. Morgan -------------------------- Director /s/ Barry T. Parker -------------------------- Director /s/ Henry S. Patterson, II -------------------------- Director /s/ Hugo M. Pfaltz, Jr. -------------------------- Director /s/ Chester A. Ring III -------------------------- -25- INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF E'TOWN CORPORATION: We have audited the consolidated financial statements of E'town Corporation and its subsidiaries as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, and have issued our report thereon dated February 15, 1994, except for the subsequent events discussed in Notes 10 and 11, as to which the dates are February 23, 1994 and March 23, 1994, respectively; such consolidated financial statements and report are included in your 1993 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the financial statement schedules of E'town Corporation and its subsidiaries, listed in Item 14. These financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedules based on our audits. In our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ Deloitte & Touche Parsippany, New Jersey February 15, 1994, except for the subsequent events discussed in Notes 10 and 11, as to which the dates are February 23, 1994 and March 23, 1994, respectively E'TOWN CORPORATION Schedule V ELIZABETHTOWN WATER COMPANY Page 1 of 3 PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1993
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- -------- BALANCE AT OTHER BALANCE AT BEGINNING ADDITIONS CHANGES END CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD -------------- ----------- ----------- ----------- --------- ----------- ELIZABETHTOWN WATER COMPANY: - - - - ---------------------------- UTILITY PLANT IN SERVICE: Intangible Plant $ 252,688 (G) (1,922) $ 250,766 Source of Supply Plant 8,482,741 $ 421,211 $ 127,580 (G) (159,879) 8,616,493 Pumping Plant 36,108,450 5,843,997 240,456 (G) (141,603) 41,570,388 Water Treatment Plant 44,120,659 435,846 57,517 (G) (6,029) 44,492,959 Transmission & Distribution Plant 309,429,376 20,230,754 216,562 (G) (599,920) 328,843,648 General Plant 12,854,811 1,210,922 490,938 (G) (7,477) 13,567,318 Leasehold Improvements 69,264 69,264 Acquisition Adjustments (G,C) 767,988 767,988 ------------ ----------- ---------- ------------ ------------ Utility Plant in Service 411,317,989 28,142,730 1,133,053 (148,842) 438,178,824 Construction Work in Progress 11,809,783 (D) 5,432,305 17,242,088 ------------ ----------- ---------- ------------ ------------ Total Utility Plant 423,127,772 33,575,035 1,133,053 (148,842) 455,420,912 NON-UTILITY PROPERTY - net 96,785 (A) (2,201) (B) 94,584 (E) (7,002) (7,002) ------------ ----------- ---------- ----------- ------------ TOTAL $423,224,557 $33,575,035 $1,133,053 $ (158,045) $455,508,494 ============ =========== ========== =========== ============ E'TOWN CORPORATION: - - - - ------------------- UTILITY PLANT (as above) $423,127,772 $33,575,035 $1,133,053 $ (148,842) $455,420,912 NON-UTILITY PROPERTY - net 13,400,698 563,870 (E) (1,703,936) (B) 11,989,116 (F) (269,315) (2,201) ------------ ----------- ---------- ----------- ------------ TOTAL $436,528,470 $34,138,905 $1,133,053 $(2,124,294) $467,410,028 ============ =========== ========== =========== ============ -------------------------------- (A) Amortization of non-utility property. (B) Non-utility property net of accumulated amortization. (C) Includes $148,842 of write-offs of fully amortized acquisition adjustments. (D) Additions net of transfers of completed projects to utility plant in service. (E) Book value of land sold. (F) Write-down of non-utility property. (G) Reclassification of utility plant acquisition adjustments.
E'TOWN CORPORATION Schedule V ELIZABETHTOWN WATER COMPANY Page 2 of 3 PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1992
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- -------- BALANCE AT OTHER BALANCE AT BEGINNING ADDITIONS CHANGES END CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD -------------- ----------- ----------- ----------- --------- ----------- ELIZABETHTOWN WATER COMPANY: - - - - ---------------------------- UTILITY PLANT: Utility Plant in Service: Intangible Plant $ 252,688 $ 252,688 Source of Supply Plant 8,308,518 $ 186,251 $ 12,028 8,482,741 Pumping Plant 24,556,158 11,694,357 142,065 36,108,450 Water Treatment Plant 39,609,867 4,554,073 43,281 44,120,659 Transmission & Distribution Plant 288,920,672 20,768,357 259,653 309,429,376 General Plant 12,441,440 1,040,266 626,895 12,854,811 Leasehold Improvements 459,674 (C)$ (390,410) 69,264 ------------ ----------- ---------- ---------- ------------ Utility Plant in Service 374,549,017 38,243,304 1,083,922 (390,410) 411,317,989 Construction Work in Progress 15,490,846 (D) (3,681,063) 11,809,783 ------------ ----------- ---------- ---------- ------------ Total Utility Plant 390,039,863 34,562,241 1,083,922 (390,410) 423,127,772 NON-UTILITY PROPERTY - net 98,986 (A) (2,201) (B) 96,785 ------------ ----------- ---------- ---------- ------------ TOTAL $390,138,849 $34,562,241 $1,083,922 $ (392,611) $423,224,557 ============ =========== ========== ========== ============ E'TOWN CORPORATION: - - - - ------------------- UTILITY PLANT (as above) $390,039,863 $34,562,241 $1,083,922 $ (390,410) $423,127,772 NON-UTILITY PROPERTY - net 12,686,180 714,518 (B) 13,400,698 ------------ ----------- ---------- ---------- ------------ TOTAL $402,726,043 $35,276,759 $1,083,922 $ (390,410) $436,528,470 ============ =========== ========== ========== ============ - - - - --------------------------------- (A) Amortization of non-utility property. (B) Non-utility property net of accumulated amortization. (C) Write-off of fully amortized leasehold improvements. (D) Additions net of transfers of completed projects to utility plant in service.
E'TOWN CORPORATION Schedule V ELIZABETHTOWN WATER COMPANY Page 3 of 3 PROPERTY, PLANT AND EQUIPMENT FOR THE YEAR ENDED DECEMBER 31, 1991
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- -------- BALANCE AT OTHER BALANCE AT BEGINNING ADDITIONS CHANGES END CLASSIFICATION OF PERIOD AT COST RETIREMENTS (DEDUCT) OF PERIOD -------------- ----------- ----------- ----------- --------- ---------- ELIZABETHTOWN WATER COMPANY: - - - - ---------------------------- UTILITY PLANT: Utility Plant in Service: Intangible Plant $ 252,688 $ 252,688 Source of Supply Plant 8,266,295 $ 52,725 $ 10,502 8,308,518 Pumping Plant 23,696,921 1,210,422 351,185 24,556,158 Water Treatment Plant 39,299,178 312,976 2,287 39,609,867 Transmission & Distribution Plant 270,713,925 18,376,794 170,047 288,920,672 General Plant 11,516,415 1,064,382 139,357 12,441,440 Leasehold Improvements 459,674 459,674 ------------ ----------- ---------- ------------ Utility Plant in Service 354,205,096 21,017,299 673,378 374,549,017 Construction Work in Progress 8,465,633 (C) 7,025,213 15,490,846 ------------ ----------- ---------- ------------ Total Utility Plant 362,670,729 28,042,512 673,378 390,039,863 NON-UTILITY PROPERTY - net 101,189 (A)$ (2,203) (B) 98,986 ------------ ----------- ---------- ---------- ------------ TOTAL $362,771,918 $28,042,512 $ 673,378 $ (2,203) $390,138,849 ============ =========== ========== ========== ============ ETOWN CORPORATION: - - - - ------------------ UTILITY PLANT (as above) $362,670,729 $28,042,512 $ 673,378 $390,039,863 NON-UTILITY PROPERTY - net 11,918,286 767,894 (B) 12,686,180 ------------ ----------- ---------- ---------- ------------ TOTAL $374,589,015 $28,810,406 $ 673,378 $ -0- $402,726,043 ============ =========== ========== ========== ============ - - - - --------------------------------- (A) Amortization of non-utility property. (B) Non-utility property net of accumulated amortization. (C) Additions net of transfers of completed projects to utility plant in service.
E'TOWN CORPORATION Schedule VI ELIZABETHTOWN WATER COMPANY ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F -------- -------- -------- -------- -------- -------- ADDITIONS BALANCE AT CHARGED TO OTHER BALANCE AT BEGINNING COSTS AND CHANGES END DESCRIPTION OF PERIOD EXPENSES RETIREMENTS ADD OF PERIOD (DEDUCT) -------------- ----------- ----------- ----------- ----------- ----------- Year Ended December 31, 1993 $75,874,538 $7,285,309 $1,133,053 (A) 85,544 $82,128,023 (B) 75,771 (D) (2,201) (E) (148,843) (F) 90,958 Year Ended December 31, 1992 $70,618,476 $6,654,986 $1,083,922 (A) (7,315) $75,874,538 (B) 84,924 (C) (390,410) (D) (2,201) Year Ended December 31, 1991 $65,093,698 $6,258,302 $673,378 (A) (142,867) $70,618,476 (B) 84,924 (D) (2,203) - - - - ---------------------------------- (A) Salvage value, net of cost of removal, for property disposed of during the year. (B) Amortization of utility plant acquisition adjustments arising from acquisitions of various water utility companies and charged to "Other Income-net". (C) Write-off of fully amortized leasehold improvements and leased wells. (D) Amortization of non-utility property included in depreciation expense (Column C) but not included in accumulated depreciation. The amortization is included in non-utility property. (E) Write-off of fully amortized acquisition adjustments. (F) Accumulated depreciation acquired with purchase of water system from the Township of Cranbury.
E'TOWN CORPORATION Schedule VII ELIZABETHTOWN WATER COMPANY VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E -------- -------- -------- -------- -------- ADDITIONS BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND END DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS OF PERIOD -------------- ----------- ----------- ---------- ----------- Reserve for Uncollectible Accounts: Year Ended December 31, 1993 $377,000 $571,116 (A) $514,116 $434,000 Year Ended December 31, 1992 $281,800 $472,261 (A) $377,061 $377,000 Year Ended December 31, 1991 $180,000 $383,621 (A) $281,821 $281,800 - - - - --------------------------------- (A) Write-off of uncollectible accounts, net of recoveries.
EXHIBIT INDEX Certain of the following exhibits, designated with an asterisk(*), are filed herewith. The exhibits not so designated have heretofore been filed with the Commission and are incorporated herein by reference to the documents indicated in brackets following the description of such exhibits. E'town Corporation Exhibit No. Description 3(a) - Certificate of Incorporation of E'town Corp. [Registration Statement No. 33-42509, Exhibit 4(a)] 3(b) - By-Laws of E'town Corp. [Form 10-K for the year ended December 31, 1992 Exhibit 3(b)] 3(c) - Certificate of Incorporation of E'town Properties, Inc. [Registration Statement No. 33-32143, Exhibit 4(j)] 3(d) - By-Laws of E'town Properties, Inc. [Registration Statement No. 33-32143, Exhibit 4(n)] 4(a) - Rights Agreement dated as of February 4, 1991 between E'town and the Rights Agent [Registration Statement No. 33-38566, Exhibit 4(n)] 4(b) - Indenture dated as of January 1, 1987 from E'town Corporation to Boatmen's Trust, Trustee, relating to the 6 3/4% Convertible Subordinated Debentures due 2012 [Registration Statement No. 33-32143, Exhibit 4(a)] 10(a) - Incentive Stock Option Plan [Registration Statement No. 2-99602, Exhibit 28(a)] 10(b) - Savings and Investment Plan [Registration Statement No. 33-19600, Exhibit 28] 10(c) - Management Incentive Plan [Registration Statement No. 33-38566, Exhibit 10(i)] 10(d) - E'town's 1987 Stock Option Plan [Registration Statement No. 33-42509, Exhibit 28] 10(e) - E'town's 1990 Performance Stock Program [Registration Statement No. 33-46532, Exhibit 10(k)] 10(f) - E'town's Dividend Reinvestment and Stock Purchase Plan [Registration No. 33-45625, Exhibit 4(e)] Exhibit No. Description *11 - Statement Regarding Computation of Per Share Earnings *13 - Portion of the 1993 Annual Report to Shareholders which includes Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations, Consolidated Financial Statements, Notes to Consolidated Financial Statements, Independent Auditors' Report and Other Financial and Statistical Data and is herein incorporated by reference. *23 - Consent of Deloitte & Touche, Independent Auditors Elizabethtown Water Company Exhibit No. Description *3(a) - Form of Restated Certificate of Incorporation of Elizabethtown Water Company 3(b) - By-Laws of Elizabethtown Water Company [Registration Statement No. 33-11320, Exhibit 4(b)(2)] *4(a) - Indenture dated as of November 1, 1993 from Elizabethtown Water Company to The Bank of New York, Trustee, relating to the 7 1/4% Debentures due 2028. 4(b) - Indenture dated as of September 1, 1992 from Elizabethtown Water Company to The Bank of New York, Trustee, relating to the 8% Debentures due 2022 4(c) - Indenture dated as of October 1, 1991 from Elizabethtown Water Company to The Bank of New York, Trustee, relating to the 8 3/4% Debentures due 2021 [Registration Statement No. 33-46532, Exhibit 4(f)] 4(d) - Indenture dated as of August 1, 1991 from Elizabethtown Water Company to The Bank of New York, Trustee, relating to the 6.60% Debentures due 2021 [Registration Statement No. 33-46532, Exhibit 4(g)] 4(e) - Indenture dated as of August 1, 1991 from Elizabethtown Water Company to The Bank of New York, Trustee, relating to the 6.70% Debentures due 2021 [Registration Statement No. 33-46532, Exhibit 4(h)] 4(f) - Indenture dated as of October 1, 1990 from Elizabethtown Water Company to Citibank, N.A., Trustee, relating to the 7 1/2% Debentures due 2020 [Registration Statement No. 33-38566, Exhibit 4(e)] Exhibit No. Description 4(g) - Indenture dated as of December 1, 1989 from Elizabethtown Water Company to Citibank, N.A., Trustee, relating to the 7.20% Debentures due 2019 [Registration Statement No. 33-38566, Exhibit 4(f)] 10(a) - Contract for service to Middlesex Water Company. [Registration Statement No. 33-38566, Exhibit 10(a)] 10(b) - Contract for service to Edison Township. [Registration Statement No. 2-58262, Exhibit 13(c)] 10(c) - Contract for service to New Jersey-American Water Company. [Form 10-K for the year ended December 31, 1992 Exhibit 10(c)] 10(d) - Contract for service to City of Elizabeth. [Form 10-K for the year ended December 31, 1992, Exhibit 10(d)] 10(e) - Contract for service to Franklin Township. [Registration Statement No. 33-46532, Exhibit 10(e)] 10(f) - Contract with the New Jersey Water Supply Authority for the purchase of water from the Raritan Basin. [Registration Statement No. 33-32143, Exhibit 10(e)] 10(g) - Supplemental Executive Retirement Plan of Elizabethtown Water Company [Form 10-K for the year ended December 31, 1992 Exhibit 10(g)] 10(h) - Medical Reimbursement Plan of Elizabethtown Water Company [Form 10-K for the year ended December 31, 1992 Exhibit 10(h)] *12(a) - Computation of Ratio of Earnings to Fixed Charges *12(b) - Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends APPENDIX I ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 AND INDEPENDENT AUDITORS' REPORT APPENDIX I ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY ------------------------------------------ TABLE OF CONTENTS --------------------------------------------------------------------------- PAGE ---- INDEPENDENT AUDITORS' REPORT 1 STATEMENTS OF CONSOLIDATED INCOME FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 2 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1993 AND 1992 3 STATEMENTS OF CONSOLIDATED CAPITALIZATION AS OF DECEMBER 31, 1993 AND 1992 5 STATEMENTS OF CONSOLIDATED SHAREHOLDER'S EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991 6 STATEMENTS OF CONSOLIDATED CASH FLOWS FOR THE YEARS ENDED 7 DECEMBER 31, 1993, 1992 AND 1991 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8 --------------------------------------------------------------------------- INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF ELIZABETHTOWN WATER COMPANY: We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of Elizabethtown Water Company and its subsidiary as of December 31, 1993 and 1992, and the related statements of consolidated income, shareholder's equity, and cash flows for each of the three years in the period ended December 31, 1993. Our audits also included the financial statement schedules listed in the Index at Item 14. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Elizabethtown Water Company and its subsidiary at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Notes 3 and 10 to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretirement benefit costs and income taxes to conform with Statements of Financial Accounting Standards Numbers 106 and 109, respectively. /s/ Deloitte & Touche Parsippany, New Jersey February 15, 1994, except for the subsequent events discussed in Notes 8 and 9, as to which the dates are February 23, 1994 and March 23, 1994, respectively -1- Elizabethtown Water Company and Subsidiary APPENDIX I Statements of Consolidated Income Year Ended December 31, -------------------------------------- 1993 1992 1991 ------------ ------------ ------------ Operating Revenues $99,996,120 $89,167,337 $86,086,103 ----------- ----------- ----------- Operating Expenses: Operation 38,529,149 35,041,222 33,416,310 Maintenance 5,716,157 5,704,843 5,399,139 Depreciation 7,285,309 6,654,986 6,258,302 Revenue taxes 12,501,804 11,086,349 10,717,838 Real estate, payroll and other taxes 2,513,891 2,429,446 2,281,272 Federal income taxes (Note 3) 7,658,770 5,836,464 5,632,135 ----------- ----------- ----------- Total operating expenses 74,205,080 66,753,310 63,704,996 ----------- ----------- ----------- Operating Income 25,791,040 22,414,027 22,381,107 ----------- ----------- ----------- Other Income: Gain on sale of land 122,400 Allowance for equity funds used during construction (Note 2) 445,339 599,443 Federal income taxes (Note 3) (258,024) (185,000) 1,870 Other-net 169,474 (55,326) (5,500) ----------- ----------- ----------- Total other income 479,189 359,117 (3,630) ----------- ----------- ----------- ----------- ----------- ----------- Total Operating and Other Income 26,270,229 22,773,144 22,377,477 ----------- ----------- ----------- Interest Charges: Interest on long-term debt 11,527,301 10,516,521 10,585,336 Other interest expense-net 77,921 514,122 535,834 Capitalized interest (Note 2) (391,895) (616,473) (391,936) Amortization of debt discount-net 224,383 209,631 287,180 ----------- ----------- ----------- Total interest charges 11,437,710 10,623,801 11,016,414 ----------- ----------- ----------- Income Before Preferred Stock Dividends 14,832,519 12,149,343 11,361,063 Preferred Stock Dividends 1,050,000 1,050,000 1,050,000 ----------- ----------- ----------- Earnings Applicable to Common Stock $13,782,519 $11,099,343 $10,311,063 =========== =========== =========== See Notes to Consolidated Financial Statements. -2- Elizabethtown Water Company and Subsidiary APPENDIX I Consolidated Balance Sheets December 31, --------------------------- Assets 1993 1992 ------------ ------------ Utility Plant-at Original Cost: Utility plant in service $438,178,824 $411,317,989 Construction work in progress 17,242,088 11,809,783 ------------ ------------ Total utility plant 455,420,912 423,127,772 Less accumulated depreciation and amortization 82,128,023 75,874,538 ------------ ------------ Utility plant-net 373,292,889 347,253,234 ------------ ------------ Non-utility Property 87,582 96,785 ------------ ------------ Funds Held by Trustee for Construction Expenditures (Note 2) 382,306 8,902,183 ------------ ------------ Current Assets: Cash and cash equivalents 3,263,456 2,309,751 Customer and other accounts receivable (less reserve: 1993, $434,000; 1992, $377,000) 11,887,985 11,047,500 Unbilled revenues 7,248,322 6,559,721 Materials and supplies-at average cost 1,623,702 1,616,832 Prepaid insurance, taxes, other 1,603,955 1,606,276 ------------ ------------ Total current assets 25,627,420 23,140,080 ------------ ------------ Deferred Charges (Note 7): Prepaid pension expense (Note 10) 1,003,145 808,135 Abandonments 152,097 228,146 Waste residual management 587,589 561,551 Emergency water projects 113,412 230,013 Unamortized debt expenses 8,025,677 4,886,106 Taxes recoverable through future rates (Note 3) 26,643,663 Postretirement benefit expense (Note 10) 1,004,556 Other unamortized expenses 484,767 773,765 ------------ ------------ Total deferred charges 38,014,906 7,487,716 ------------ ------------ Total $437,405,103 $386,879,998 ============ ============ See Notes to Consolidated Financial Statements. -3- Elizabethtown Water Company and Subsidiary APPENDIX I Consolidated Balance Sheets December 31, --------------------------- Capitalization and Liabilities 1993 1992 ------------ ------------ Capitalization (Notes 4 and 5): Common shareholder's equity $125,764,979 $103,023,524 Cumulative preferred stock-redeemable 12,000,000 12,000,000 Long-term debt-net 141,909,533 142,299,463 ------------ ------------ Total capitalization 279,674,512 257,322,987 ------------ ------------ Current Liabilities: Notes payable-banks (Note 5) 5,500,000 Long-term debt-current portion (Note 4) 42,000 42,000 Accounts payable and other liabilities 9,589,716 8,923,897 Customers' deposits 276,497 273,238 Municipal and state taxes accrued 12,569,445 11,087,926 Federal income taxes accrued 704,771 1,466,188 Interest accrued 2,699,483 3,189,165 Preferred stock dividends accrued 89,178 89,178 ------------ ------------ Total current liabilities 25,971,090 30,571,592 ------------ ------------ Deferred Credits: Customer advances for construction 45,149,522 45,292,966 Federal income taxes (Note 3) 55,955,366 25,785,513 Unamortized investment tax credits 8,852,487 9,046,119 Emergency water projects (Note 7) 127,704 244,304 Accumulated postretirement benefits (Note 10) 1,004,556 ------------ ------------ Total deferred credits 111,089,635 80,368,902 ------------ ------------ Contributions in Aid of Construction 20,669,866 18,616,517 ------------ ------------ Commitments and Contingent Liabilities (Note 9) ------------ ------------ Total $437,405,103 $386,879,998 ============ ============ See Notes to Consolidated Financial Statements. -4- Elizabethtown Water Company and Subsidiary APPENDIX I Statements of Consolidated Capitalization December 31, --------------------------- 1993 1992 ------------ ----------- Common Shareholder's Equity (Notes 4 and 5): Common stock without par value, authorized, 10,000,000 shares; issued 1993 and 1992, 1,974,902 shares $ 15,740,602 $ 15,740,602 Paid-in capital 63,522,594 43,713,297 Capital stock expense (484,702) (484,702) Retained earnings 46,986,485 44,054,327 ------------ ------------ Total common shareholder's equity 125,764,979 103,023,524 ------------ ------------ Cumulative Preferred Stock-Redeemable (Note 4): $100 par value, authorized, 200,000 shares; $8.75 series, issued and outstanding, 120,000 shares 12,000,000 12,000,000 ------------ ------------ Cumulative Preferred Stock: $25 par value, authorized, 500,000 shares; none issued Elizabethtown Water Company: 8 5/8% Debentures, due 2007 30,000,000 10 1/8% Debentures, due 2018 20,000,000 7.20% Debentures, due 2019 10,000,000 10,000,000 7 1/2% Debentures, due 2020 15,000,000 15,000,000 6.60% Debentures, due 2021 10,500,000 10,500,000 6.70% Debentures, due 2021 15,000,000 15,000,000 8 3/4% Debentures, due 2021 27,500,000 27,500,000 8% Debentures, due 2022 15,000,000 15,000,000 7 1/4% Debentures, due 2028 50,000,000 The Mount Holly Water Company: Notes Payable (due serially through 2000) 186,300 228,300 ------------ ------------ Total long-term debt 143,186,300 143,228,300 Unamortized discount-net (1,276,767) (928,837) ------------ ------------ Total long-term debt-net 141,909,533 142,299,463 ------------ ------------ Total capitalization $279,674,512 $257,322,987 ============ ============ See Notes to Consolidated Financial Statements. -5- Elizabethtown Water Company and Subsidiary APPENDIX I Statements of Consolidated Cash Flows Year Ended December 31, ------------------------------------ 1993 1992 1991 Cash Provided by Operating Activities: ---------- ---------- ---------- Income Before Preferred Stock Dividends $ 14,832,519 $ 12,149,343 $ 11,361,063 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,285,309 6,654,986 6,258,302 Gain on sale of land (122,400) Amortization of deferred charges 1,354,404 1,939,272 3,610,811 Increase in deferred charges (4,233,375) (1,847,202) (7,502,504) Deferred income taxes and investment tax credits-net 3,332,558 2,685,426 4,129,615 Allowance for debt and equity funds used during construction (AFUDC) (837,234) (1,215,916) (391,936) Other operating activities-net (449,792) (182,669) (499,536) Change in current assets and liabilities excluding cash, short-term investments and current portion of debt: Customer and other accounts receivable (840,485) 1,308,263 (1,477,943) Unbilled revenues (688,601) (164,241) (450,793) Accounts payable and other liabilities 669,078 (934,312) 1,802,083 Accrued/prepaid interest and taxes 232,741 678,208 1,827,388 Other (6,870) 3,473 (34,699) ---------- ----------- ----------- Net cash provided by operating activities 20,527,852 21,074,631 18,631,851 Cash Provided by Financing Activities: ----------- ----------- ----------- Decrease in funds held by Trustee for construction expenditures 8,519,877 12,390,518 6,650,299 Proceeds from issuance of debentures 50,000,000 15,000,000 53,000,000 Capital contributed by parent company 19,809,297 15,331,713 9,766,797 Repayment of short-term notes (15,000,000) Repayment of long-term debt (50,042,000) (9,042,000) (35,639,500) Contributions and advances for construction-net 1,909,905 3,066,832 5,270,774 Net decrease in notes payable-banks (5,500,000) (13,000,000) (6,000,000) Dividends paid on common and preferred stock (11,900,361) (10,334,160) (9,332,142) ----------- ----------- ----------- Net cash provided by financing activities 12,796,718 13,412,903 8,716,228 Cash Used for Investing Activities: ----------- ----------- ----------- Utility plant expenditures (excluding AFUDC) (32,500,265) (33,292,602) (27,732,407) Selling costs of land (1,600) Proceeds from sale of land 131,000 ----------- ----------- ----------- Net cash used for investing activities (32,370,865) (33,292,602) (27,732,407) ----------- ----------- ----------- Net Increase (Decrease) in Cash and Cash Equivalents 953,705 1,194,932 (384,328) Cash and Cash Equivalents at Beginning of Year 2,309,751 1,114,819 1,499,147 ----------- ----------- ----------- Cash and Cash Equivalents at End of Year$ 3,263,456 $ 2,309,751 $ 1,114,819 =========== =========== =========== Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest (net of amount capitalized) $ 11,837,347 $ 10,970,625 $ 12,076,601 Income taxes 5,881,008 3,875,774 3,898,793 Preferred stock dividends $ 1,050,000 $ 1,050,000 $ 1,050,000 See Notes to Consolidated Financial Statements. -6- Elizabethtown Water Company and Subsidiary APPENDIX I Statements of Consolidated Shareholder's Equity Year Ended December 31, --------------------------------------- 1993 1992 1991 ------------ ----------- ---------- Common Stock: $ 15,740,602 $ 15,740,602 $ 15,740,602 ------------ ------------ ------------ Paid-in Capital: Balance at Beginning of Year 43,713,297 28,381,584 18,614,787 Capital contributed by parent company 19,809,297 15,331,713 9,766,797 ------------ ------------ ------------ Balance at End of Year 63,522,594 43,713,297 28,381,584 ------------ ------------ ------------ Capital Stock Expense: (484,702) (484,702) (484,702) ------------ ------------ ------------ Retained Earnings: Balance at Beginning of Year 44,054,327 42,239,144 40,210,223 Income Before Preferred Stock Dividends 14,832,519 12,149,343 11,361,063 Dividends on Common Stock (10,850,361) (9,284,160) (8,282,142) Preferred Stock Dividends (1,050,000) (1,050,000) (1,050,000) ------------ ------------ ------------ Balance at End of Year 46,986,485 44,054,327 42,239,144 ------------ ------------ ------------ Total Common Shareholder's Equity $125,764,979 $103,023,524 $ 85,876,628 ============ ============ ============ See Notes to Consolidated Financial Statements. -7- APPENDIX I ELIZABETHTOWN WATER COMPANY AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION Elizabethtown Water Company (Elizabethtown or Company) and its wholly owned subsidiary, The Mount Holly Water Company (Mount Holly), the consolidated entity referred to herein as Elizabethtown Water Company (Elizabethtown Water Company), is a wholly owned subsidiary of E'town Corporation (E'town or Corporation). E'town, a New Jersey holding company, is the parent company of Elizabethtown Water Company and E'town Properties, Inc. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include Elizabethtown and its subsidiary, Mount Holly. Significant intercompany accounts and transactions have been eliminated. Elizabethtown and Mount Holly are regulated water utilities and follow the Uniform System of Accounts, as adopted by the New Jersey Board of Regulatory Commissioners (BRC). Utility Plant and Depreciation Income is charged with the cost of labor, materials and other expenses incurred in making repairs and minor replacements and in maintaining the properties. Utility plant accounts are charged with the cost of improvements and major replacements of property. When depreciable property is retired or otherwise disposed of, the cost thereof, plus the cost of removal net of salvage, is charged to accumulated depreciation. Depreciation generally is computed on a straight-line basis at functional rates for various classes of assets. The provision for depreciation, as a percentage of average depreciable property, was 1.74% for 1993 and 1.72% for 1992 and 1991. Allowance for Funds Used During Construction Elizabethtown capitalizes, as an appropriate cost of utility plant, an Allowance for Funds Used During Construction (AFUDC), which represents the cost of financing major projects during construction. AFUDC is added to the construction cost of the project and included in rate base and then recovered in rates during the project's useful life. AFUDC is comprised of a debt component, credited to Interest Charges, and an equity component, credited to Other Income, in the Statements of Consolidated Income. (See Note 8). The equity component considers the increased reliance on equity contributions to Elizabethtown from E'town's stock sales. Such equity contributions have become an integral part of the financing of Elizabethtown's construction program. AFUDC totaled $837,234, $1,215,916 and $391,936 for 1993, 1992 and 1991, respectively. -8- APPENDIX I Revenues Revenues are recorded based on the amounts of water delivered to customers through the end of each accounting period. This includes an accrual for unbilled revenues for water delivered from the time meters were last read to the end of the respective accounting periods. Federal Income Taxes Elizabethtown Water Company files a consolidated federal tax return with E'town and E'town Properties, Inc. Deferred income taxes are provided for timing differences in the recognition of revenues and expenses for tax and financial statement purposes to the extent permitted by the BRC. Elizabethtown and Mount Holly account for prior years' investment tax credits by the deferral method, which amortizes the credits over the lives of the respective assets. Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." (See Note 3). Customer Advances for Construction and Contributions in Aid of Construction Customer Advances for Construction and Contributions in Aid of Construction represent capital provided by developers for main extensions to new real estate developments. Some portion of Customer Advances for Construction is refunded based upon the revenues that the new developments generate. Contributions in Aid of Construction are Customer Advances for Construction that are no longer subject to refund. Postretirement Benefits Effective January 1, 1993, the Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." (See Note 10). Funds Held by Trustee for Construction Expenditures Proceeds from New Jersey Economic Development Authority financings are held in trust until such time as qualified project expenditures are incurred. Income received from the investment of the trust fund assets is recorded as an offset to the related interest expense. Cash Equivalents Elizabethtown Water Company considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents for purposes of the Statements of Consolidated Cash Flows. -9- APPENDIX I Reclassification Certain prior year amounts have been reclassified to conform to the current year presentation. 3. FEDERAL INCOME TAXES The computation of federal income taxes and the reconciliation of the tax provision computed at the federal statutory rate (35% in 1993, 34% in 1992 and 1991) with the amount reported in the Statements of Consolidated Income follow: 1993 1992 1991 ---------------------- (Thousands of Dollars) Tax expense at statutory rate ....... $7,962 $6,178 $5,777 Items for which deferred taxes are not provided: Capitalized interest ............... (2) (3) 16 Difference between book and tax depreciation ...................... 81 66 50 Investment tax credits.............. (208) (210) (210) Other .............................. 84 (10) (3) ------ ------ ------ Provision for federal income taxes... $7,917 $6,021 $5,630 ====== ====== ====== The provision for federal income taxes is composed of the following: Current ............................ $5,926 $5,318 $5,070 Tax collected on main extensions ... (1,341) (1,982) (3,127) Deferred: Tax depreciation................... 3,222 2,980 2,804 Alternative minimum tax............ (412) 600 Capitalized interest............... 72 118 (65) Other.............................. 232 201 552 Investment tax credits-net.......... (194) (202) (204) ------ ------ ------ Total provision .................... $7,917 $6,021 $5,630 ====== ====== ====== Effective January 1, 1993, Elizabethtown Water Company adopted SFAS 109, "Accounting for Income Taxes." SFAS 109 establishes new accounting rules that change the manner in which income tax expense is determined for accounting purposes. SFAS 109 utilizes a liability method under which deferred taxes are provided at the enacted statutory rate for all temporary differences between financial statement earnings amounts and the tax basis of existing assets or liabilities. In connection with the adoption of SFAS 109, Elizabethtown Water Company recorded additional deferred taxes for water utility temporary -10- APPENDIX I differences not previously recognized. The increased deferred tax liability was offset by a corresponding asset representing the future revenue expected to be recovered through rates based on established regulatory practice permitting such recovery. The increased deferred tax liability totaled $25,352,412 at January 1, 1993 and $26,643,663 at December 31, 1993. In accordance with SFAS 109, deferred tax balances have been reflected at E'town's current consolidated federal income tax rate, which is 35%. The increase in the statutory tax rate, retroactive to January 1, 1993, from 34% to 35%, is the result of the Omnibus Budget Reconciliation Act of 1993, which was passed by Congress on August 2, 1993. The increase in the statutory tax rate resulted in the recognition of additional federal income tax expense of $168,798 and an additional deferred federal income tax liability of $100,744. The net deferred income tax liability as of December 31, 1993 is comprised of the following: 1993 ---------------------- (Thousands of Dollars) Deferred tax assets.......................... $ 3,804 Deferred tax liabilities..................... (59,759) -------- Net deferred income tax liabilities.......... $(55,955) ======== The tax effect of significant temporary differences representing deferred income tax assets and liabilities as of December 31, 1993 is as follows: 1993 ---------------------- (Thousands of Dollars) Water utility plant-net...................... $(49,582) Taxes recoverable............................ (9,326) Investment tax credit........................ 3,098 Pension expenditures......................... (351) Other-net.................................... 206 -------- Net deferred income tax liabilities.......... $(55,955) ======== 4. CAPITALIZATION On May 17, 1993, E'town issued 575,000 shares of common stock for net proceeds of $16,591,927. A portion of the net proceeds were used to fund equity contributions to Elizabethtown of $11,000,000 in May 1993 and $2,800,000 in September 1993. Elizabethtown used a portion of such contributions to repay $7,000,000 of short-term bank debt incurred for construction expenditures and invested the balance on a short-term basis until needed for construction expenditures. -11- APPENDIX I Cumulative Preferred Stock - Redeemable Elizabethtown's $8.75 Cumulative Preferred Stock has optional redemption privileges beginning in 1994 at $108.75 per share, which diminish annually until 2009, when redemption is at par ($100). Beginning in December 1994, sinking fund payments of $600,000 are required annually through 2018. Elizabethtown proposes to issue 120,000 shares of $100 par value Cumulative Preferred Stock in March 1994. The proceeds of the issue will be used to redeem $12,000,000 of the Company's $8.75 Cumulative Preferred Stock. The redemption premium of $1,050,000 will be paid from general Company funds. Long-term Debt Elizabethtown's long-term debt indentures restrict the amount of retained earnings available to Elizabethtown to pay cash dividends (which is the primary source of funds available to the Corporation for payment of dividends on its common stock) or acquire Elizabethtown's common stock, all of which is held by E'town. At December 31, 1993, $12,831,414 of Elizabethtown's retained earnings were restricted under the most restrictive indenture provision. Therefore, $34,155,071 of consolidated retained earnings were unrestricted. On November 9, 1993, Elizabethtown issued $50,000,000 of 7 1/4% Debentures due November 1, 2028. The proceeds of the issue were used to redeem $30,000,000 of the Company's 8 5/8% Debentures due 2007 and $20,000,000 of the Company's 10 1/8% Debentures due 2018. The aggregate redemption premiums of $2,681,000 were paid from general Company funds. On September 16, 1992, Elizabethtown issued $15,000,000 of 8% Debentures due September 1, 2022. The proceeds of this issue were used to repay short-term bank debt, of which $9,000,000 was incurred to repay Elizabethtown's 4 7/8% Debentures on their February 1, 1992 maturity date and the remainder was incurred to finance construction expenditures. 5. LINES OF CREDIT Elizabethtown has existing uncommitted lines of credit with several banks aggregating $34,000,000 for which compensating balances are -12- APPENDIX I maintained. Information relating to bank borrowings and compensating balances is as follows: 1993 1992 1991 ---------------------------- (Thousands of Dollars) Maximum amount outstanding.......... $7,000 $27,500 $23,000 Average monthly amount outstanding.. 2,062 $15,457 $16,371 Average interest rate at year end... (A) 4.1% 5.6% Compensating balances at year end... $ 195 $ 205 $ 230 Weighted average interest rate based on average daily balances.......... 3.8% 4.6% 6.8% (A) No outstanding bank borrowings at year end. Elizabethtown is negotiating a committed revolving credit agreement, which is expected to be in place by April 1994, with an agent bank and up to five additional participating banks to replace its existing uncommitted lines of credit discussed above. The agreement provides up to $60,000,000 in revolving short-term notes to provide sufficient short-term financing for the Company to fund, together with other monies, its capital program, which is estimated to be $196,451,000 through 1996. The agreement will allow the Company to borrow, repay and reborrow up to $60,000,000 for the first three years, after which time the Company may convert any outstanding balances to a five-year, fully amortizing term loan. The agreement will further provide that among other covenants, the Company must maintain a ratio of common and preferred equity to total capitalization of not less than 35% and a pre-tax interest coverage ratio of at least 1.5 to 1. 6. FINANCIAL INSTRUMENTS The carrying amounts and the estimated fair values, as of December 31, 1993 and 1992 of financial instruments issued by Elizabethtown Water Company, are as follows: 1993 1992 ---------------------- (Thousands of Dollars) Cash (1): Carrying amount................... $ 3,263 $ 2,310 Estimated fair value.............. 3,263 2,310 Cumulative preferred stock (2): Carrying amount................... $ 12,000 $ 12,000 Estimated fair value.............. 13,020 12,960 Long-term debt (2): Carrying amount................... $141,910 $142,299 Estimated fair value.............. 155,097 148,179 (1) Fair value approximates the carrying amount. (2) Estimated fair values are based upon quoted market prices for similar securities. -13- APPENDIX I 7. DEFERRED CHARGES AND CREDITS Abandonments The abandonment cost of a small filter plant has been deferred and is being amortized for ratemaking purposes over a 10-year period ending in 1995. Waste Residual Management The costs of the waste residual management programs are being amortized over three-year periods for ratemaking purposes. No return is being earned on either of the above unamortized deferred charge balances. Emergency Water Projects The 1984 assessment for Elizabethtown's proportionate share of the cost of emergency water projects is being recovered through rates and amortized over a 10-year period. Unamortized Debt Expenses Costs incurred in connection with the issuance or redemption of long-term debt have been deferred and are being amortized over the lives of the respective issues. 8. REGULATORY MATTERS Rates In August 1993, the BRC approved a stipulation (1993 Plant Stipulation) signed by the parties to the Company's petition relating to the Canal Road Water Treatment Plant (Plant). The 1993 Plant Stipulation states that the Plant is necessary and that the Company's estimates regarding the Plant's cost, at that time of $87,000,000, and construction period are reasonable. The 1993 Plant Stipulation authorizes the Company to levy a rate surcharge if the Company's pre-tax interest coverage ratio for any 12 month historical period drops below 2.0 times. The surcharge would equal 20% of the Company's gross interest expense for the prior 12 months, adjusted for revenue taxes. The surcharge would go into effect at the same time as the Company's next base rate increase after the coverage ratio falls below 2.0 times, but in no event prior to January 1, 1995. Also, the surcharge would remain in effect for 12 months and could be extended by the BRC for up to six additional months. The 1993 Plant Stipulation also provides that the rate of return on common stockholder's equity used to calculate the rate for the equity component of the AFUDC for the Plant will be 1.5% less than the rate of return on common stockholder's equity established in the Company's most recent base rate case. The authorized rate of return on common stockholder's equity is currently 11.5%. -14- APPENDIX I On January 4, 1994, Elizabethtown filed with the BRC for a Purchased Water Adjustment Clause, a procedure established by BRC Rules, which would allow Elizabethtown to recover in rates $529,291 for the increase in the cost of purchased water from the New Jersey Water Supply Authority (NJWSA) without a complete rate case. The NJWSA has given notice that effective July 1, 1994, it will increase charges for water from $220.47 to $232.65 per million gallons. The Company expects the BRC to render a decision prior to July 1994. On March 18, 1993, the BRC approved a stipulation (1993 Stipulation) for a rate increase of $5,000,000, effective as of that date. The 1993 Stipulation contains a provision allowing for the deferral of expenses, calculated under SFAS 106, for postretirement benefits accrued that are in excess of the cash benefits paid. Recovery of such deferrals will be considered in future rate cases. (See Note 10). On March 18, 1992, the BRC approved a stipulation for a rate increase of $4,050,000, effective as of that date. Main Extension Refunds In a case captioned Van Holten, et al v. Elizabethtown Water Company (Van Holten), several developers petitioned the BRC in 1984 and 1985 seeking an Order which would require Elizabethtown to refund to the developers all of their on-site and off-site customer advances for construction. For on-site mains, Elizabethtown received a final BRC decision in September 1987, requiring refunds in accordance with the BRC's suggested refund formula, which was less than the amounts requested by the developers. For the off-site mains, the developers were denied any refund. The developers appealed the BRC decision to the Appellate Division of the New Jersey Superior Court (Appellate Division), which in October 1988 upheld the decision of the BRC. Since 1986, additional petitions dealing with this issue have been filed by other developers. In these additional proceedings, all parties have agreed to abide by the final decision of the New Jersey Supreme Court in the Van Holten case. For all customer advances, Elizabethtown has and will continue to make the refunds in accordance with the BRC's suggested refund formula. In response to an appeal of the 1988 Appellate Division decision, in August 1990, the New Jersey Supreme Court (Court) rendered a decision upholding the BRC's authority to implement what the BRC had established as an appropriate refund formula in the Van Holten case. The BRC's suggested formula provides for a refund of 2 1/2 times the annual revenues for each metered connection. Although the Court ruled that the BRC has the jurisdiction to determine what is an appropriate refund formula, it remanded the case to the BRC to further develop the record on why the BRC deemed the 2 1/2 times formula to be appropriate in the Van Holten case. -15- APPENDIX I In June 1991, the BRC issued an Order on Remand reaffirming the 2 1/2 times annual revenue formula. Addressing the reasonableness of this formula, the BRC indicated in its decision that the 2 1/2 times formula fairly allocates the costs of the main extensions among the developers, Elizabethtown and the rate payers. Again, developers appealed the Order on Remand to the Appellate Division, and in December 1992, the Appellate Division remanded the matter to the BRC for more complete findings and statements of reasons in support of its decision. By Order dated January 19, 1994, the BRC again deemed the 2 1/2 times formula to be appropriate in the Van Holten case. In addition to the previous rationale it gave for employing this formula in this case, the BRC indicated that on a per-customer basis, the initial cost of the extension was, in most instances, far higher than Elizabethtown's average cost of plant invested for existing customers at the time petitions were filed in 1984. Therefore, a full refund would clearly result in a significant subsidization of the developers by Elizabethtown's existing customers. The BRC concluded that such a subsidization would be unjust and unreasonable. On February 23, 1994, the developers appealed the January 19, 1994 BRC Order on Remand to the Appelate Division. The maximum potential refund for the Van Holten case, and all subsequently filed cases, is approximately $3,000,000, which would be capitalized and, therefore, would not have a material adverse effect on earnings. Management believes the final outcome of this matter will be favorable and no additional refunds will be necessary. 9. COMMITMENTS Elizabethtown is obligated, under a contract that expires in 2013, to purchase from the NJWSA a minimum of 37 billion gallons of water annually. The Company purchases additional water from the NJWSA on an as-needed basis. Effective July 1, 1994, the annual cost under the contract will be $8,661,559. The total cost of water purchased from the NJWSA, including additional water purchased on an as-needed basis, was $8,819,212, $7,827,058 and $7,527,662 for 1993, 1992 and 1991, respectively. The following is a schedule by years of future minimum rental payments required under noncancelable operating leases with terms in excess of one year at December 31, 1993: 1993 ---------------------- (Thousands of Dollars) 1994........................................ $ 832 1995........................................ 785 1996........................................ 780 1997........................................ 720 1998........................................ -0- ------ Total....................................... $3,117 ====== -16- APPENDIX I Rent expense totaled $789,636, $719,624 and $740,801 for 1993, 1992 and 1991, respectively. Capital expenditures through 1996 are estimated to be $196,451,000 for Elizabethtown's and Mount Holly's utility plant. Elizabethtown has solicited bids from general contractors for the construction of the Plant. The estimated cost of the Plant, as of March 23, 1994, is approximately $100 million, excluding AFUDC. The Company has notified all parties to the 1993 Plant Stipulation that the estimated cost of the Plant has increased. The Company expects to execute a contract and commence construction in the spring of 1994. 10. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan), which covers most employees. Under the Company's funding policy, Elizabethtown Water Company makes contributions that meet the minimum funding requirements of the Employee Retirement Income Security Act of 1974. The components of the net pension credits are as follows: 1993 1992 1991 ----------------------- (Thousands of Dollars) Service cost-benefits earned during the year $ 899 $ 843 $ 780 Interest cost on projected benefit obligation 1,973 1,836 1,715 Return on Plan assets ....................... (1,409) (970) (5,677) Net amortization and deferral ............... (1,658) (2,235) 3,051 ------ ------ ------ Net pension credit .......................... $ (195) $ (526) $ (131) ====== ====== ====== Plan assets are invested in publicly traded debt and equity securities. The reconciliations of the funded status of the Plan to the amounts recognized in the Consolidated Balance Sheets are presented below: 1993 1992 ---------------------- (Thousands of Dollars) Market value of Plan assets ..................... $33,032 $32,710 Actuarial present value of Plan benefits: ------- ------- Vested benefits ................................. 20,708 16,929 Non-vested benefits ............................. 227 98 ------- ------- Accumulated benefit obligation .................. 20,935 17,027 Projected increases in compensation levels ...... 6,541 6,799 ------- ------- Projected benefit obligation .................... 27,476 23,826 Excess of Plan assets over projected benefit ------- ------- obligation ..................................... 5,556 8,884 Unrecognized net gain ........................... (2,403) (5,748) Unrecognized prior service cost ................. 539 627 Unrecognized transition asset ................... (2,689) (2,955) ------- ------- Prepaid pension expense.......................... $ 1,003 $ 808 ======= ======= -17- APPENDIX I The assumed rates used in determining the actuarial present value of the projected benefit obligations were as follows: 1993 1992 --------------- Discount rate ................................... 7.00% 8.50% Compensation increase ........................... 5.50% 7.50% Rate of return on Plan assets ................... 8.50% 8.50% Elizabethtown and Mount Holly provide certain health care and life insurance benefits for substantially all of their retired employees. Effective January 1, 1993, Elizabethtown Water Company adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Under SFAS 106, the costs of such benefits are accrued for each year the employee renders service, based on the expected cost of providing such benefits to the employee and the employee's beneficiaries and covered dependents rather than expensing these benefits on a pay-as-you-go basis for retired employees. Based upon an independent actuarial study, the transition obligation, which Elizabethtown Water Company has not funded, was $7,214,736 as of January 1, 1993. The transition obligation is being amortized over 20 years. The following table details the unfunded postretirement benefit obligation at December 31, 1993: 1993 ---------------------- (Thousands of Dollars) Retirees......................................... $3,133 Fully eligible plan participants................. 5,403 ------ Accumulated postretirement benefit obligation.... 8,536 Unrecognized net gain............................ (677) Unrecognized transition obligation............... (6,854) ------ Accumulated postretirement benefits.............. $1,005 ====== The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of December 31, 1993, and for 1993, was 12%. This rate decreases linearly each successive year until it reaches 5% in 2003, after which the rate remains constant. The assumed discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1993, and for 1993, was 7.0% and 8.5%, respectively. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation as of January 1, 1993, and net postretirement service cost and interest cost by approximately $924,000 and $140,000, respectively. -18- APPENDIX I Based upon an independent actuarial study, the annual postretirement cost calculated under SFAS 106 for 1993 is as follows: 1993 ---------------------- (Thousands of Dollars) Service cost - benefits earned during the year.................................. $ 249 Interest cost on accumulated postretirement benefit obligation................ 602 Amortization of transition obligation.............. 361 ------ Total............................................ 1,212 Deferred amount for regulated companies pending recovery....................... (1,005) ------ Net postretirement benefit expense................. $ 207 ====== The Company recognized as an expense (on a pay-as-you-go basis) $252,000 for both 1992 and 1991 for postretirement health care and life insurance benefits. The rate increase for the 1993 Stipulation includes as an allowable expense, only the pay-as-you-go portion of postretirement benefits. The 1993 Stipulation allows Elizabethtown to defer the amount accrued in excess of the pay-as-you-go portion, for consideration in future rate cases. In addition, in a separate proceeding, Mount Holly had petitioned the BRC for permission to defer the amount accrued in excess of the pay- as-you-go portion of its expenses calculated under SFAS 106, and consequently, has been granted such authority. Generally accepted accounting principles permit this regulatory treatment, provided deferrals are not accumulated for a period of more than five years. As of December 31, 1993, the amount that has been deferred is $1,004,556. Recovery of deferred postretirement costs will be requested in Elizabethtown's and Mount Holly's next base rate case. Management believes that Elizabethtown and Mount Holly will recover the deferred postretirement costs in future rates. 11. RELATED PARTY TRANSACTIONS The Company enters into various transactions with E'town and E'town Properties, Inc. Elizabethtown provides administrative and accounting services to these affiliates which are billed on a monthly basis. These amounts totaled $246,442, $236,839 and $227,665 for 1993, 1992 and 1991, respectively. In addition, various expenditures are made to vendors which are common to the entities. Each entity absorbs its proportionate share of the costs. The most significant of these items is rent which totaled $31,749, $33,600 and $31,608 for 1993, 1992 and 1991, respectively. -19- 12. QUARTERLY FINANCIAL DATA (Unaudited) APPENDIX I A summary of financial data for each quarter of 1993 and 1992 follows: Income Before Earnings Operating Operating Preferred Applicable to Quarter Revenues Income Stock Dividends Common Stock ------------------------------------------------------------------- (Thousands of Dollars) 1993 1st $22,136 $ 5,465 $ 2,637 $ 2,374 2nd 24,865 6,715 3,916 3,654 3rd 28,947 8,169 5,527 5,264 4th 24,048 5,442 2,753 2,491 ------- ------- ------- ------- Total $99,996 $25,791 $14,833 $13,783 ======= ======= ======= ======= 1992 1st $20,803 $ 4,958 $ 2,422 $ 2,160 2nd 22,423 5,639 3,042 2,779 3rd 23,812 6,161 3,643 3,380 4th 22,129 5,656 3,042 2,780 ------- ------- ------- ------- Total $89,167 $22,414 $12,149 $11,099 ======= ======= ======= ======= Water utility revenues are subject to a seasonal fluctuation due to normal increased consumption during the third quarter of each year. -20- EX-11 2 EARNINGS PER SHARE EXHIBIT 11 E'TOWN CORPORATION AND SUBSIDIARIES STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS 1993 1992 1991 -------- -------- -------- PRIMARY ------- EARNINGS Income Before Preferred Stock Dividends of Subsidiary 14,879,828 $11,281,012 $10,535,070 Deduct: Preferred Stock Dividends 1,050,000 1,050,000 1,050,000 ----------- ----------- ----------- Net Income $13,829,828 $10,231,012 $ 9,485,070 =========== =========== =========== SHARES Weighted Average Number of Common Shares Outstanding 5,330,641 4,624,310 4,078,233 Assuming Exercise of Options Reduced by the Number of Shares Which Could Have Been Purchased With the Proceeds From Exercise of Such Options 7,298 3,504 1,885 ----------- ----------- ----------- Weighted Average Number of Common Shares Outstanding as Adjusted 5,337,939 4,627,814 4,080,118 =========== =========== =========== Primary Earnings Per Share of Common Stock $ 2.59 $ 2.21 $ 2.32 =========== =========== =========== ASSUMING FULL DILUTION ---------------------- EARNINGS Income Before Preferred Stock Dividends of Subsidiary 14,879,828 11,281,012 10,535,070 Deduct: Preferred Stock Dividends 1,050,000 1,050,000 1,050,000 Add: After Tax Interest Expense Applicable to 6 3/4% Convertible Subordinated Debentures 550,843 577,082 593,513 ----------- ----------- ----------- Adjusted Net Income $14,380,671 $10,808,094 $10,078,583 =========== =========== =========== SHARES Weighted Average Number of Common Shares Outstanding 5,330,641 4,624,310 4,078,233 Assuming Exercise of Options Reduced by the Number of Shares Which Could Have Been Purchased With the Proceeds From Exercise of Such Options 7,298 3,504 1,885 Assuming Conversion of 6 3/4% Convertible Subordinated Debentures (a) 313,869 322,954 333,060 ----------- ----------- ----------- Weighted Average Number of Common Shares Outstanding as Adjusted 5,651,808 4,950,768 4,413,178 =========== =========== =========== Fully Diluted Earnings Per Share of Common Stock $ 2.54 $ 2.18 $ 2.28 =========== =========== =========== (a) Convertible at $40 per share. EX-12 3 EARNINGS TO FIXED CHARGES Exhibit 12(a) Elizabethtown Water Company & Subsidiary Computation of Ratio of Earnings to Fixed Charges 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- EARNINGS: Income before preferred stock dividends $7,124,469 $7,978,778 $11,361,063 $12,149,343 $14,832,519 Federal income taxes 3,343,747 3,990,799 5,630,265 6,021,464 7,916,794 Interest charges 9,207,026 10,582,686 11,016,414 10,623,801 11,437,710 ----------- ----------- ----------- ----------- ----------- Earnings available to cover fixed charges $19,675,242 $22,552,263 $28,007,742 $28,794,608 $34,187,023 =========== =========== =========== =========== =========== FIXED CHARGES: Interest on long term debt 8,769,218 9,587,723 10,585,336 10,516,521 11,527,301 Other interest 864,984 1,187,500 535,834 514,122 77,921 Amortization of debt discount - net 71,340 279,103 287,180 209,631 224,383 ----------- ----------- ----------- ----------- ----------- Total fixed charges $9,705,542 $11,054,326 $11,408,350 $11,240,274 $11,829,605 =========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges 2.03 2.04 2.46 2.56 2.89 =========== =========== =========== =========== =========== Earnings to Fixed Charges represents the sum of Income Before Preferred Stock Dividends, Federal income taxes and interest expenses (which is reduced by capitalized interest), divided by fixed charges. Fixed Charges consist of interest on long and short-term debt (which is not reduced by capitalized interest), and amortization of debt discount. Exhibit 12(b) Elizabethtown Water Company & Subsidiary Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- EARNINGS: Income before preferred stock dividends $7,124,469 $7,978,778 $11,361,063 $12,149,343 $14,832,519 Federal income taxes 3,343,747 3,990,799 5,630,265 6,021,464 7,916,794 Interest charges 9,207,026 10,582,686 11,016,414 10,623,801 11,437,710 ----------- ----------- ----------- ----------- ----------- Earnings available to cover fixed charges $19,675,242 $22,552,263 $28,007,742 $28,794,608 $34,187,023 =========== =========== =========== =========== =========== FIXED CHARGES AND PREFERRED DIVIDENDS: Interest on long term debt 8,769,218 9,587,723 10,585,336 10,516,521 11,527,301 Preferred dividend requirement (1) 1,543,097 1,575,158 1,570,446 1,570,446 1,610,429 Other interest 864,984 1,187,500 535,834 514,122 77,921 Amortization of debt discount - net 71,340 279,103 287,180 209,631 224,383 ----------- ----------- ----------- ----------- ----------- Total fixed charges $11,248,639 $12,629,484 $12,978,796 $12,810,720 $13,440,034 =========== =========== =========== =========== =========== Ratio of Earnings to Fixed Charges and Preferred Dividends 1.75 1.79 2.16 2.25 2.54 =========== =========== =========== =========== =========== (1) Preferred Dividend Requirement: Preferred dividends $1,050,232 $1,050,000 $1,050,000 $1,050,000 $1,050,000 Effective tax rate 31.94% 33.34% 33.14% 33.14% 34.80% ----------- ----------- ----------- ----------- ----------- Preferred dividend requirement $1,543,097 $1,575,158 $1,570,446 $1,570,446 $1,610,429 =========== =========== =========== =========== =========== Earnings to Fixed Charges and Preferred Dividends represents the sum of Income Before Preferred Stock Dividends, Federal income taxes and interest expenses (which is reduced by capitalized interest), divided by fixed charges. Fixed Carges and Preferred Dividends consist of interest on long and short-term debt (which is not reduced by capitalized interest), dividends on Preferred Stock on a pre-tax basis and amortization of debt discount. EX-13 4 REPORT TO SHAREHOLDERS Exhibit 13 E'TOWN CORPORATION Portion of the 1993 Annual Report to Shareholder's which is incorporated by reference into this filing on Form 10-K for the year ended December 31, 1993. INDEX Page ---- Management's Discussion and Analysis of Consolidated Financial Condition and Results of Operations 1 Consolidated Financial Statements 9 Notes to Consolidated Financial Statements 15 Independent Auditors' Report 42 Other Financial and Statistical Data 43 Stock Price and Dividend Data 44 MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL CONDITION AND RESULTS OF OPERATIONS E'town Corporation (E'town or Corporation), a New Jersey holding company, is the parent company of Elizabethtown Water Company (Elizabethtown or Company) and E'town Properties, Inc. (Properties). The Mount Holly Water Company (Mount Holly) is a wholly owned subsidiary of Elizabethtown. The assets and operating results of Elizabethtown constitute the predominant portions of E'town's assets and operating results. The following analysis sets forth significant events affecting the financial condition of E'town and Elizabethtown at December 31, 1993, and the results of operations for the years ended December 31, 1993, 1992 and 1991. LIQUIDITY AND CAPITAL RESOURCES Capital Expenditures Program Consolidated capital expenditures, primarily for water utility plant, were $32.7 million during 1993. Capital expenditures for the three-year period ending December 31, 1996, are estimated to be $196.9 million, of which $196.5 million is for Elizabethtown's utility plant and $.4 million is for real estate-related expenditures. Elizabethtown's construction program includes additional mains and storage facilities necessary to serve customers who were added during the last several years. In addition, Elizabethtown anticipates upgrading its existing surface water treatment plant by rehabilitating certain components and adding facilities designed to maximize its capacity. These projects are designed to ensure the plant's compliance with proposed water quality and other environmental regulations. Elizabethtown's estimated capital expenditures through 1996 include $100.0 million, excluding an Allowance for Funds Used During Construction (AFUDC), for construction of a new water treatment plant, the Canal Road Water Treatment Plant (Plant), near its existing plant. The Plant is scheduled to be completed in 1996. The Plant, which will have a rated production capacity of 40 million gallons per day, is necessary to meet existing and anticipated customer demands and to replace groundwater supplies withdrawn from service as a result of more restrictive water quality regulations and groundwater contamination. In August 1993, the Board of Regulatory Commissioners (BRC) approved a stipulation (1993 Plant Stipulation) signed by the parties to the Company's petition relating to the Plant. The 1993 Plant Stipulation states that the Plant is necessary and that the Company's estimate regarding the Plant's cost, at that time of $87 million, and construction period were reasonable. The 1993 Plant Stipulation authorizes the Company to levy a rate surcharge if the Company's pre-tax interest coverage ratio for any 12 month historical period drops below 2.0 times. The surcharge would equal 20% of the Company's gross -1- interest expense for the prior 12 months, adjusted for revenue taxes. The surcharge would go into effect at the same time as the Company's next base rate increase after the coverage ratio falls below 2.0 times, but in no event prior to January 1, 1995. Also, the surcharge would remain in effect for 12 months and could be extended by the BRC for up to six additional months. The 1993 Plant Stipulation also provides that the rate of return on common stockholder's equity used to calculate the rate for the equity component of the AFUDC for the Plant will be 1.5% less than the rate of return on common stockholder's equity established in the Company's most recent base rate case. The authorized rate of return on common stockholder's equity is currently 11.5%. Elizabethtown has solicited bids from general contractors for the construction of the Plant. The estimated cost of the Plant, as of March 23, 1994, is approximately $100 million, excluding AFUDC. The Company has notified all parties to the 1993 Plant Stipulation that the estimated cost of the Plant has increased. The Company expects to execute a contract and commence construction in the spring of 1994. Also included in the Company's capital program is $12.2 million for new wells, treatment facilities and transmission lines to augment Mount Holly's water supplies. Such projects are necessary for Mount Holly to comply with recent state legislation requiring Mount Holly and other water purveyors located in a particular area in southern New Jersey to obtain additional sources of water to replace portions of their existing supplies. CAPITAL RESOURCES During 1993, Elizabethtown, including Mount Holly, financed 28.2% of its capital expenditures from internally generated funds (after payment of common stock dividends). The balance was funded from (i) capital contributions from E'town from the sale of common stock, (ii) the remaining proceeds of various New Jersey Economic Development Authority (NJEDA) tax-exempt bond issues from prior years and (iii) short-term bank debt on an interim basis. For the three-year period ending December 31, 1996, Elizabethtown, including Mount Holly, estimates that 15% of its capital expenditures will be financed with internally generated funds (after the payment of common stock dividends). The balance will be financed with a combination of proceeds from the sale of E'town common stock, long-term debentures, proceeds of tax-exempt NJEDA bonds and short-term borrowings under a revolving credit agreement (see below), on an interim basis. The NJEDA has granted preliminary approval for the financing of almost all of Elizabethtown's major projects over the next three years, including the Plant. Elizabethtown expects to pursue tax-exempt financing to the extent that final allocations are granted by the NJEDA. -2- On May 17, 1993, E'town issued 575,000 shares of common stock for net proceeds of $16.6 million. The net proceeds were used to fund equity contributions to Elizabethtown of $11.0 million in May 1993 and $2.8 million in September 1993. Elizabethtown used a portion of such contributions to repay $7.0 million of short-term bank debt incurred for construction expenditures and invested the balance on a short-term basis until needed for construction expenditures. E'town used $1.0 million of the proceeds to repay short-term bank debt previously incurred for working capital. The balance of the proceeds has been invested on a short-term basis and is expected to be used to fund working capital requirements of the Corporation. During 1993, E'town raised $6.0 million from the sale of common stock issued under its Dividend Reinvestment and Stock Purchase Plan (DRP). Such proceeds were used to fund equity contributions to Elizabethtown primarily for Elizabethtown's capital expenditures. On August 24, 1993, E'town, Properties and Elizabethtown sold three parcels of land totalling 260 acres to the Somerset County Park Commission for $3.4 million. The cash generated by the sale has been invested on a short-term basis and will be used to fund a $2.2 million equity contribution to Elizabethtown when required by the Company for construction expenditures. The remainder of the proceeds will be used to fund working capital requirements of the Corporation. On November 9, 1993, Elizabethtown issued $50 million of 7 1/4% Debentures due November 1, 2028. The proceeds of the issue were used to redeem $30 million of the Company's 8 5/8% Debentures due 2007 and $20 million of the Company's 10 1/8% Debentures due 2018. The aggregate redemption premiums of $2.7 million were paid from general Company funds. During 1994, E'town Corporation expects to issue approximately 500,000 shares of common stock, through a public offering prior to June 30, 1994, to finance additional equity contributions to Elizabethtown. Proceeds from all stock issued under E'town's DRP will continue to fund additional equity contributions to Elizabethtown. Elizabethtown is negotiating a committed revolving credit agreement, which is expected to be in place by April 1994, with an agent bank and up to five additional participating banks to replace its existing uncommitted lines of credit. The agreement will provide up to $60 million in revolving short-term notes to provide sufficient short-term financing for the Company to fund, together with other monies, its $196.5 million capital program. The agreement will allow the Company to borrow, repay and reborrow up to $60 million for the first three years, after which time the Company may convert any outstanding balances to a five-year fully amortizing term loan. The agreement will further provide that among other covenants, the Company must maintain a ratio of common and preferred equity to total capitalization of not less than 35% and a pre-tax interest coverage ratio of at least 1.5 to 1. -3- December 31, 1992 and 1991 In April 1992, E'town issued 500,000 shares of common stock for net proceeds of $12.7 million. Proceeds of the issue funded an $11.0 million capital contribution to Elizabethtown, and the balance was used to repay E'town's short-term bank debt previously incurred to fund working capital. Also, E'town funded additional equity contributions of $4.2 million to Elizabethtown from E'town's DRP. During 1992, Elizabethtown issued $15 million of 8% Debentures to repay short-term bank debt, of which, $9 million was incurred to repay Elizabethtown's 4 7/8% Debentures due February 1, 1992, and the remainder was incurred to finance construction expenditures. On February 14, 1991, E'town issued 523,700 shares of common stock for net proceeds of $11.6 million. Proceeds of the issue funded an $8 million capital contribution to Elizabethtown, and the balance was used to repay E'town's short-term bank debt previously incurred to fund working capital. Also, E'town funded additional equity contributions of $1.8 million to Elizabethtown from E'town's DRP. During 1991, Elizabethtown issued $27.5 million of 8 3/4% Debentures to retire $25 million of 11 1/8% Debentures and, through the NJEDA, issued a total of $25.5 million of tax-exempt debentures with interest rates of 6.6% and 6.7% to refinance $10.5 million of tax-exempt 8.20% Debentures and $15 million of 6.20% NJEDA Notes. RESULTS OF OPERATIONS Net Income for 1993 was $13.8 million or $2.59 per share on a primary basis as compared to $10.2 million or $2.21 per share for 1992. The increase in net income resulted from higher levels of outdoor water use due to abnormally hot and dry summer weather and the gain from the land sale referred to above. Also, rate increases received in March of 1993 and 1992, enabled the Company to cover higher levels of operating and financial expenses in 1993 without adversely affecting net income. Summer water use in excess of what management believes to be normal contributed approximately $1.8 million or $.34 per share. The land sale produced an after-tax gain of $1.1 million or $.21 per share. The average number of shares outstanding in 1993 increased 15.3% over 1992. Assuming a return to normal weather patterns in 1994, the Company expects that earnings for 1994 will be less than earnings realized in 1993. Net Income for 1992 was $10.2 million or $2.21 per share on a primary basis, as compared to $9.5 million or $2.32 per share for 1991. Net income increased primarily because the Company realized $3.3 million from the rate increase granted in March 1992, which was partially offset by increased expenses. Earnings per share fell because the average number of shares outstanding increased by 13.4%. -4- Operating Revenues increased $10.8 million or 12.1% in 1993. Of this increase, $4.8 million relates to the combined effect of the rate increases of $5.0 million and $4.0 million effective March 1993 and 1992, respectively. Also, sales to retail customers increased $3.8 million and sales to other water systems increased $1.2 million due to hot, dry summer weather. Operating Revenues increased $ $3.1 million or 3.6% in 1992 primarily because of the rate increase effective March 1992. Retail water consumption dropped by $1.5 million in 1992 due to relatively wet summer weather. However, lower consumption by retail customers was partially offset by an increase in sales to other water systems of $.4 million. Operation Expenses increased by $3.5 million or 9.9% in 1993 primarily due to increases in the quantity of power and raw water purchased to meet higher than normal summer loads. Also, the unit costs of power and purchased water increased, as did labor costs and the cost of medical and other benefits. Operation Expenses increased $1.5 million or 4.4% in 1992. Increases in labor, the price of purchased water and worker's compensation premiums were partially offset by a reduction in hospitalization premiums. Maintenance Expenses increased less than $.1 million or .2% in 1993 and $.3 million or 5.7% in 1992 due to fluctuations in routine maintenance at various operating facilities. Depreciation Expense increased $.6 million or 9.5% in 1993 and $.4 million or 6.3% in 1992 due to additional depreciable plant being placed in service during those periods. Revenue Taxes increased $1.4 million or 12.8% in 1993 and $.4 million or 3.4% in 1992 due to additional taxes on the higher revenues explained above. Real Estate, Payroll and Other Taxes increased $.2 million or 9.6% in 1993 due to increased payroll taxes resulting from labor cost increases and state income taxes resulting from the adoption of SFAS 109. Real Estate, Payroll and Other Taxes increased by $.1 million in 1992. Federal Income Taxes increased $1.7 million or 31.4% in 1993 and $.3 million or 5.0% in 1992 due to the changes in the components of taxable income discussed herein. The increase in 1993 also includes $.2 million due to the change in the federal statutory tax rate from 34% to 35%. -5- Other Income increased in total by $1.2 million in 1993. Other Income increased due to a gain on the sale of land in August 1993 of $1.7 million or $1.1 million, net of federal income taxes, discussed previously. A decrease in the equity component of AFUDC of $.2 million resulted from the timing of construction expenditures. Other Income decreased because Properties adjusted the carrying values of certain investments downward to their estimated net realizable values (see "Economic Outlook - Properties"). This decrease is comprised of a downward adjustment of $.1 million to the carrying value of the Bordentown property and a similar adjustment of $.2 million to the Mansfield property. These adjustments were compared to a downward adjustment of $.2 million in 1992 to the investment in Solar Electric Generating System V (SEGS). Other increases of $.5 million resulted from various miscellaneous items. Federal income taxes, as a result of all of the above, increased $.7 million. In 1992 Other Income increased in total by $.2 million. Other Income in 1992 includes an equity component of AFUDC of $.6 million, which is offset by the $.2 million adjustment to SEGS discussed previously. Other income also decreased by $.1 million due to various other miscellaneous items. Federal income taxes, as a result of all of the above, increased $.1 million. Total Interest Charges increased $.9 million or 8.4% in 1993, due primarily to an increase in interest for long-term debt issued in September 1992 and a reduction in earnings from NJEDA trust funds due to reduced trust fund balances. These items were partially offset by lower interest on short-term debt due to reduced borrowings. Total Interest Charges decreased $.4 million or 3.9% in 1992 due to the net effect of (i) new long-term debt issued in September 1992, (ii) lower interest costs as a result of long-term debt refinancing and (iii) lower levels of short-term debt balances and their related rates. ECONOMIC OUTLOOK Consolidated earnings for E'town for the next several years will be determined primarily by Elizabethtown's ability to generate adequate earnings and, to a lesser degree, the ability of Properties and E'town to generate adequate returns on their real estate investments. -6- Elizabethtown and Subsidiary Elizabethtown believes that it has sufficient surface and well water supplies to meet its customers' needs and that it is, and will remain, in compliance with all water quality standards. Nonetheless, governmental water quality and service regulations will require Elizabethtown and Mount Holly to make significant investments in water treatment, transmission and storage facilities including, most significantly, the Plant. This capital program will require regular external financing and rate relief for the next several years. Because Elizabethtown expects its rate base to grow more quickly than pumpage over the next several years, Elizabethtown anticipates filing for a rate increase in 1994, and regularly thereafter, so that it may have the opportunity to realize satisfactory returns on equity. Adequate equity returns will enable Elizabethtown to continue to attract external capital to finance improvements necessary to maintain safe and adequate service. Future earnings of the Company will be primarily affected by weather and customer usage, the magnitude and timing of capital expenditures, the rate of growth of revenues and expenses, and the adequacy and timeliness of regulatory relief. Properties Included in non-utility property and other investments at December 31, 1993 and 1992 is $11.9 million and $13.3 million, respectively, of investments in various parcels of undeveloped land in New Jersey. The carrying value of each parcel includes the original cost plus any real estate taxes, interest and, where applicable, direct costs capitalized while rezoning or governmental approvals are or were being sought. Based upon independent appraisals received at various times prior to, and during 1993, the estimated net realizable value of each property exceeds its respective carrying value as of December 31, 1993, after the adjustments to the Mansfield and Bordentown properties discussed below. After sewer capacity became available for its parcel in Bordentown, New Jersey (which was purchased together with lands across the town line in Mansfield), Properties determined that the Bordentown parcel was ready for its intended use and has listed the parcel with a broker for sale. Effective in 1993, the carrying charges on the Bordentown parcel were, and will continue to be, expensed since this property is ready for its intended use. Such carrying charges were approximately $.2 million in 1993. -7- Properties continues to seek permits and more favorable zoning treatment for its Mansfield property and, therefore, continues to capitalize various carrying charges. During the second quarter of 1993, the carrying value of the Mansfield property held by Properties exceeded its estimated net realizable value and, as a result, carrying charges incurred after that date were, and continue to be, adjusted monthly. This is due to the fact that the Mansfield property is not yet ready for its intended use and, therefore, various carrying charges continue to be capitalized while, based upon recent appraisals, the market value of the property has remained constant. An allowance of $.2 million for the year ended December 31, 1993, to adjust the carrying value of the Mansfield property, has been reflected in the Statements of Consolidated Income and Consolidated Balance Sheets. As Properties expects to continue capitalizing carrying charges on the Mansfield property until it is ready for its intended use, further adjustments for these capitalized carrying charges, reflecting management's estimate of the net realizable value of the property, should be expected. Such carrying costs were approximately $.3 million in 1993. The Corporation will continue to monitor the relationship between the carrying and net realizable values of its properties through updated appraisals on a regular basis. -8- E'town Corporation and Subsidiaries Statements of Consolidated Income Year Ended December 31, -------------------------------------- 1993 1992 1991 ------------ ------------ ------------ Operating Revenues $99,996,120 $89,167,337 $86,086,103 ----------- ----------- ----------- Operating Expenses: Operation 39,280,920 35,744,262 34,246,828 Maintenance 5,716,157 5,704,843 5,399,139 Depreciation 7,285,309 6,654,986 6,258,302 Revenue taxes 12,501,804 11,086,349 10,717,838 Real estate, payroll and other taxes 2,706,447 2,469,066 2,322,425 Federal income taxes (Note 3) 7,170,406 5,455,022 5,193,665 ----------- ----------- ----------- Total operating expenses 74,661,043 67,114,528 64,138,197 ----------- ---------- ---------- Operating Income 25,335,077 22,052,809 21,947,906 ----------- ---------- ---------- Other Income: Gain on sale of land (Note 7) 1,685,521 Allowance for equity funds used during construction (Note 2) 445,339 599,443 Write-down of non-utility property and other investments (Note 7) (269,315) (180,000) Federal income taxes (Note 3) (790,320) (117,623) (15,404) Other--net 396,515 (73,493) 45,305 ----------- ----------- ----------- Total other income 1,467,740 228,327 29,901 ----------- ----------- ----------- Total Operating and Other Income 26,802,817 22,281,136 21,977,807 ----------- ----------- ----------- Interest Charges: Interest on long-term debt 12,374,224 11,389,341 11,488,492 Other interest expense--net 95,848 564,064 610,131 Capitalized interest (Note 2) (805,882) (1,197,328) (977,482) Amortization of debt discount--net 258,799 244,047 321,596 ----------- ----------- ----------- Total interest charges 11,922,989 11,000,124 11,442,737 ----------- ----------- ----------- Income Before Preferred Stock Dividends of Subsidiary 14,879,828 11,281,012 10,535,070 Preferred Stock Dividends 1,050,000 1,050,000 1,050,000 ----------- ----------- ----------- Net Income $13,829,828 $10,231,012 $ 9,485,070 =========== =========== =========== Earnings Per Share of Common Stock (Note 2): Primary $ 2.59 $ 2.21 $ 2.32 =========== =========== =========== Fully Diluted $ 2.54 $ 2.18 $ 2.28 Average Number of Shares Outstanding for =========== =========== =========== the Calculation of Earnings Per Share: Primary 5,337,939 4,627,814 4,080,118 =========== =========== =========== Fully Diluted 5,651,808 4,950,768 4,413,178 =========== =========== =========== Dividends Paid Per Common Share $ 2.01 $ 2.00 $ 2.00 =========== =========== =========== See Notes to Consolidated Financial Statements. -9- E'town Corporation and Subsidiaries Consolidated Balance Sheets December 31, --------------------------- Assets 1993 1992 ------------ ------------ Utility Plant--At Original Cost: Utility plant in service $438,178,824 $411,317,989 Construction work in progress 17,242,088 11,809,783 ------------ ------------ Total utility plant 455,420,912 423,127,772 Less accumulated depreciation and amortization 82,128,023 75,874,538 ------------ ------------ Utility plant--net 373,292,889 347,253,234 ------------ ------------ Non-utility Property and Other Investments (Note 7) 13,545,589 15,005,380 ------------ ------------ Funds Held by Trustee for Construction Expenditures (Note 2) 382,306 8,902,183 ------------ ------------ Current Assets: Cash and cash equivalents 7,376,472 2,408,429 Short-term investments 30,622 30,622 Customer and other accounts receivable (less reserve: 1993, $434,000; 1992, $377,000) 12,031,414 11,032,897 Unbilled revenues 7,248,322 6,559,721 Materials and supplies--at average cost 1,623,702 1,616,832 Prepaid insurance, taxes, other 1,603,955 1,606,276 ------------ ------------ Total current assets 29,914,487 23,254,777 ------------ ------------ Deferred Charges (Note 9): Prepaid pension expense (Note 12) 962,595 778,176 Abandonments 152,097 228,146 Waste residual management 587,589 561,551 Emergency water projects 113,412 230,013 Unamortized debt expenses 8,648,030 5,542,874 Taxes recoverable through future rates (Note 3) 26,643,663 Postretirement benefit expense (Note 12) 1,004,556 Other unamortized expenses 484,767 773,765 ------------ ------------ Total deferred charges 38,596,709 8,114,525 ------------ ------------ Total $455,731,980 $402,530,099 ============ ============ See Notes to Consolidated Financial Statements. -10- December 31, --------------------------- Capitalization and Liabilities 1993 1992 ------------ ------------ Capitalization (Notes 4 and 5): Common shareholders' equity $128,374,207 $102,749,893 Cumulative preferred stock--redeemable 12,000,000 12,000,000 Long-term debt--net 154,406,533 154,999,463 ------------ ------------ Total capitalization 294,780,740 269,749,356 ------------ ------------ Current Liabilities: Notes payable--banks (Note 6) 6,500,000 Long-term debt--current portion (Note 4) 42,000 42,000 Accounts payable and other liabilities 9,645,055 8,985,477 Customers' deposits 276,497 273,238 Municipal and state taxes accrued 12,569,445 11,087,926 Federal income taxes accrued 947,274 649,156 Interest accrued 3,052,160 3,550,163 Preferred stock dividends accrued 89,178 89,178 ------------ ------------ Total current liabilities 26,621,609 31,177,138 ------------ ------------ Deferred Credits: Customer advances for construction 45,149,522 45,292,966 Federal income taxes (Note 3) 58,363,510 28,403,699 State income taxes (Note 3) 151,538 Unamortized investment tax credits 8,852,487 9,046,119 Emergency water projects (Note 9) 127,704 244,304 Accumulated postretirement benefits 1,015,004 ------------ ------------ Total deferred credits 113,659,765 82,987,088 ------------ ------------ Contributions in Aid of Construction 20,669,866 18,616,517 ------------ ------------ Commitments and Contingent Liabilities (Note 11) ------------ ------------ Total $455,731,980 $402,530,099 ============ ============ See Notes to Consolidated Financial Statements. -11- E'town Corporation and Subsidiaries Statements of Consolidated Capitalization December 31, ---------------------------- 1993 1992 ------------ ------------ E'town Corporation: Common Shareholders' Equity (Notes 4 and 5): Common stock without par value, authorized, 15,000,000 shares; issued 1993, 5,661,504 shares; 1992, 4,881,576 shares $ 87,842,657 $ 64,261,763 Paid-in capital 1,315,025 1,315,025 Capital stock expense (3,357,165) (2,479,987) Retained earnings 43,207,666 40,228,199 Less cost of treasury stock; 1993, 22,032 shares; 1992, 20,356 shares (633,976) (575,107) ------------ ------------ Total common shareholders' equity 128,374,207 102,749,893 ------------ ------------ Elizabethtown Water Company: Cumulative Preferred Stock - Redeemable (Note 4): $100 par value, authorized, 200,000 shares; $8.75 series, issued and outstanding, 120,000 shares 12,000,000 12,000,000 ------------ ------------ Cumulative Preferred Stock: $25 par value, authorized, 500,000 shares; none issued Long-Term Debt (Note 4): E'town Corporation: 6 3/4% Convertible Subordinated Debentures, due 2012 12,497,000 12,700,000 Elizabethtown Water Company: 8 5/8% Debentures, due 2007 30,000,000 10 1/8% Debentures, due 2018 20,000,000 7.20% Debentures, due 2019 10,000,000 10,000,000 7 1/2% Debentures, due 2020 15,000,000 15,000,000 6.60% Debentures, due 2021 10,500,000 10,500,000 6.70% Debentures, due 2021 15,000,000 15,000,000 8 3/4% Debentures, due 2021 27,500,000 27,500,000 8% Debentures, due 2022 15,000,000 15,000,000 7 1/4% Debentures, due 2028 50,000,000 The Mount Holly Water Company: Notes Payable (due serially through 2000) 186,300 228,300 ------------ ------------ Total long-term debt 155,683,300 155,928,300 Unamortized discount--net (1,276,767) (928,837) ------------ ------------ Total long-term debt--net 154,406,533 154,999,463 ------------ ------------ Total capitalization $294,780,740 $269,749,356 ============ ============ See Notes to Consolidated Financial Statements. -12- E'town Corporation and Subsidiaries Statements of Consolidated Cash Flows Year Ended December 31, --------------------------------------- 1993 1992 1991 Cash Flows from Operating Activities: ------------ ----------- ----------- Net Income $13,829,828 $10,231,012 $ 9,485,070 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 7,285,309 6,654,986 6,258,302 Write-down of non-utility property and other investments 269,315 180,000 Gain on sale of land (1,685,521) Amortization of deferred charges 1,399,410 1,981,701 3,654,031 Increase in deferred charges (4,233,375) (1,847,202) (7,502,304) Deferred income taxes and investment tax credits--net 3,274,054 3,385,483 4,040,331 Capitalized interest and AFUDC 1,251,221) (1,796,771) (977,482) Other operating activities--net (390,231) (2,669) (499,536) Change in current assets and liabilities excluding cash, short-term investments and current portion of debt: Customer and other accounts receivable (998,517) 807,763 (880,062) Unbilled revenues (688,601) (164,241) (450,793) Accounts payable and other liabilities 662,837 (964,663) 1,780,657 Accrued/prepaid interest and taxes 1,283,955 407,304 1,961,431 Other (6,870) 3,473 (34,699) ------------ ------------ ------------ Net cash provided by operating activities 18,750,372 18,876,176 16,834,946 Cash Provided by Financing Activities: ------------ ------------ ------------ Decrease in funds held by Trustee for construction expenditures 8,519,877 12,390,518 6,650,299 Proceeds from issuance of debentures 50,000,000 15,000,000 53,000,000 Proceeds from issuance of common stock 22,644,847 17,258,786 13,499,761 Repayment of short-term notes (15,000,000) Repayment of long-term debt (50,245,000) (9,503,000) (36,007,500) Contributions and advances for construction--net 1,909,905 3,066,832 5,270,774 Net decrease in notes payable--banks (6,500,000) (13,500,000) (8,000,000) Dividends paid on common stock (10,850,361) (9,284,160) (8,282,142) ------------ ------------ ------------ Net cash provided by financing activities 15,479,268 15,428,976 11,131,192 Cash Used for Investing Activities: ------------ ------------ ----------- Utility plant expenditures (excluding AFUDC) (32,516,755) (33,292,602) (27,732,407) Development costs of land (excluding capitalized interest) (194,842) (286,885) (169,438) Proceeds from sale of land 3,450,000 ------------ ------------ ------------ Cash used for investing activities (29,261,597) (33,579,487) (27,901,845) ------------ ------------ ------------ Net Increase in Cash and Cash Equivalents 4,968,043 725,665 64,293 Cash and Cash Equivalents at Beginning of Year 2,408,429 1,682,764 1,618,471 ------------ ------------ ------------ Cash and Cash Equivalents at End of Year $ 7,376,472 $ 2,408,429 $ 1,682,764 ============ ============ ============ Supplemental Disclosures of Cash Flow Information: Cash paid during the year for: Interest (net of amount capitalized) $ 12,296,508 $ 11,332,836 $ 12,496,837 Income taxes 5,881,008 3,875,774 3,898,793 Preferred stock dividends of subsidiary $ 1,050,000 $ 1,050,000 $ 1,050,000 See Notes to Consolidated Financial Statements. -13- E'town Corporation and Subsidiaries Statements of Consolidated Shareholders' Equity Year Ended December 31, --------------------------------------- 1993 1992 1991 ------------ ----------- ---------- Common Stock: Balance at Beginning of Year $ 64,261,763 $ 45,952,195 $ 31,761,854 Public sale of common stock (1993, 575,000 shares; 1992, 500,000 shares; 1991, 523,700 shares) 17,465,625 13,437,500 12,294,631 Common stock issued under Dividend Reinvestment and Stock Purchase Plan (1993, 200,878 shares; 1992, 161,802 shares; 1991, 72,552 shares) 6,009,298 4,197,938 1,766,832 Exercise of stock options (1993, 4,050 shares; 1992, 21,900 shares; 1991, 5,250 shares) 105,971 540,356 123,878 Issuance of restricted stock (1992, 5,072 shares) 133,774 Conversion of E'town Corporation 6 3/4% Convertible Subordinated Debentures to common stock (1991, 125 shares) 5,000 ------------ ------------ ------------ Balance at End of Year 87,842,657 64,261,763 45,952,195 ------------ ------------ ------------ Paid-in Capital: 1,315,025 1,315,025 1,315,025 ------------ ------------ ------------ Capital Stock Expense: Balance at Beginning of Year (2,479,987) (1,698,001) (1,007,421) Expenses incurred for the issuance and sale of common stock (877,178) (781,986) (690,580) ------------ ------------ ------------ Balance at End of Year (3,357,165) (2,479,987) (1,698,001) ------------ ------------ ------------ Retained Earnings: Balance at Beginning of Year 40,228,199 39,281,347 38,078,419 Net income 13,829,828 10,231,012 9,485,070 Dividends on Common Stock (1993, $2.01, 1992 and 1991, $2.00) (10,850,361) (9,284,160) (8,282,142) ------------ ------------ ------------ Balance at End of Year 43,207,666 40,228,199 39,281,347 ------------ ------------ ------------ Treasury Stock: Balance at Beginning of Year (575,107) (306,311) (306,311) Cost of shares redeemed to exercise stock options (1993, 1,676 shares; 1992, 9,850 shares) (58,869) (268,796) ------------ ------------ ------------ Balance, End of Year (633,976) (575,107) (306,311) ------------ ------------ ------------ Total Common Shareholders' Equity $128,374,207 $102,749,893 $ 84,544,255 ============ ============ ============ See Notes to Consolidated Financial Statements. -14- E'TOWN CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION E'town Corporation (E'town or Corporation), a New Jersey holding company, is the parent company of Elizabethtown Water Company (Elizabethtown or Company) and E'town Properties, Inc. (Properties). The Mount Holly Water Company (Mount Holly) is a wholly owned subsidiary of Elizabethtown. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Consolidation The consolidated financial statements include E'town and its subsidiaries. Significant intercompany accounts and transactions have been eliminated. Elizabethtown and Mount Holly are regulated water utilities and follow the Uniform System of Accounts, as adopted by the New Jersey Board of Regulatory Commissioners (BRC). Utility Plant and Depreciation Income is charged with the cost of labor, materials and other expenses incurred in making repairs and minor replacements and in maintaining the properties. Utility plant accounts are charged with the cost of improvements and major replacements of property. When depreciable property is retired or otherwise disposed of, the cost thereof, plus the cost of removal net of salvage, is charged to accumulated depreciation. -15- Depreciation generally is computed on a straight-line basis at functional rates for various classes of assets. The provision for depreciation, as a percentage of average depreciable property, was 1.74% percent for 1993 and 1.72% for 1992 and 1991. Allowance for Funds Used During Construction Elizabethtown capitalizes, as an appropriate cost of utility plant, an Allowance for Funds Used During Construction (AFUDC), which represents the cost of financing major projects during construction. AFUDC is added to the construction cost of the project and included in rate base and then recovered in rates during the project's useful life. AFUDC is comprised of a debt component (credited to Interest Charges), and an equity component (credited to Other Income) in the Statements of Consolidated Income. (See Note 10). The equity component considers the increased reliance on equity contributions to Elizabethtown from E'town's stock sales. Such equity contributions have become an integral part of the financing of Elizabethtown's construction program. AFUDC totaled $837,234, $1,215,916 and $391,936 for 1993, 1992 and 1991, respectively. Non-utility Property Properties capitalizes direct costs, real estate taxes and interest costs associated with real estate properties that are being developed. These costs are expensed on properties ready for their intended use. The amount of interest capitalized for 1993, 1992 and 1991 totaled $413,987, $580,855 and $585,546, respectively. (See Note 7). -16- Revenues Revenues are recorded based on the amounts of water delivered to customers through the end of each accounting period. This includes an accrual for unbilled revenues for water delivered from the time meters were last read to the end of the respective accounting periods. Federal Income Taxes E'town files a consolidated federal tax return. Deferred income taxes are provided for timing differences in the recognition of revenues and expenses for tax and financial statement purposes for E'town and Properties. Deferred income taxes are also provided for each regulated water utility to the extent permitted by the BRC. The regulated water utilities account for prior years' investment tax credits by the deferral method, which amortizes the credits over the lives of the respective assets. The non-regulated companies utilize the flow-through method to account for investment tax credits. This method treats the credits as a reduction of federal income taxes in the year the credits arise. Effective January 1, 1993, the Corporation adopted Statement of Financial Accounting Standards (SFAS) 109, "Accounting for Income Taxes." (See Note 3). -17- Customer Advances for Construction and Contributions in Aid of Construction Customer Advances for Construction and Contributions in Aid of Construction represent capital provided by developers for main extensions to new real estate developments. Some portion of Customer Advances for Construction is refunded based upon the revenues that the new developments generate. Contributions in Aid of Construction are Customer Advances for Construction that are no longer subject to refund. Short-term Investments Short-term investments are stated at cost, which approximates market value. Earnings Per Share of Common Stock Primary earnings per share are computed on the basis of the weighted average number of shares outstanding, plus common stock equivalents, assuming all stock options are exercised. Fully diluted earnings per share assumes both the conversion of the 6 3/4% Convertible Subordinated Debentures and the common stock equivalents referred to above. -18- Postretirement Benefits Effective January 1, 1993, the Corporation adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." (See Note 12). Funds Held by Trustee for Construction Expenditures Proceeds from New Jersey Economic Development Authority financings are held in trust until such time as qualified project expenditures are incurred. Income received from the investment of the trust fund assets is recorded as an offset to the related interest expense. Cash Equivalents The Corporation considers all highly liquid debt instruments purchased with maturities of three months or less to be cash equivalents for purposes of the Statements of Consolidated Cash Flows. Reclassification Certain prior year amounts have been reclassified to conform to the current year presentation. -19- 3. FEDERAL INCOME TAXES The computation of federal income taxes and the reconciliation of the tax provision computed at the federal statutory rate (35% in 1993, 34% in 1992 and 1991) with the amount reported in the Statements of Consolidated Income follow: 1993 1992 1991 ---------------------- (Thousands of Dollars) Tax expense at statutory rate ........ $7,994 $5,730 $5,353 Items for which deferred taxes are not provided: Capitalized interest ............... (2) (3) 16 Difference between book and tax depreciation ...................... 81 66 50 Investment tax credits................ (208) (210) (210) Other ................................ 96 (10) ------ ------ ------ Provision for federal income taxes..... $7,961 $5,573 $5,209 ====== ====== ====== The provision for federal income taxes is composed of the following: Current ............................... $6,180 $4,170 $4,261 Tax collected on main extensions ...... (1,341) (1,982) (3,127) Deferred: Tax depreciation .................... 3,183 3,052 3,003 Alternative minimum tax.............. 82 600 Capitalized interest................. 217 315 134 Other ............................... (84) 38 542 Investment tax credits-net............. (194) (202) (204) ------ ------ ------ Total provision ....................... $7,961 $5,573 $5,209 ====== ====== ====== Effective January 1, 1993, the Corporation adopted SFAS 109, "Accounting for Income Taxes." SFAS 109 establishes new accounting rules that change the manner in which income tax expense is determined for accounting purposes. SFAS 109 utilizes a liability method under which deferred taxes are provided at the enacted statutory rate for all temporary differences between financial statement earnings amounts and the tax basis of existing assets or liabilities. -20- In connection with the adoption of SFAS 109, the Corporation recorded additional deferred taxes for water utility temporary differences not previously recognized. The increased deferred tax liability was offset by a corresponding asset representing the future revenue expected to be recovered through rates based on established regulatory practice permitting such recovery. The increased deferred tax liability totaled $25,352,412 at January 1, 1993 and $26,643,663 at December 31, 1993. In addition, the adoption of SFAS 109 resulted in a credit to Federal Income Tax Expense of $63,271 and a charge to Real Estate, Payroll and Other Tax Expense of $141,068 to record the changes in deferred income taxes payable by the non-regulated companies. In accordance with SFAS 109, deferred tax balances of the Corporation have been reflected at the Corporation's current federal income tax rate, which is 35%. The increase in the statutory tax rate, retroactive to January 1, 1993, from 34% to 35%, is the result of the Omnibus Budget Reconciliation Act of 1993, which was passed by Congress on August 2, 1993. The increase in the statutory tax rate resulted in the recognition of additional federal income tax expense of $176,048 and an additional deferred federal income tax liability of $94,402. -21- The net deferred income tax liability as of December 31, 1993 is comprised of the following: 1993 ---------------------- (Thousands of Dollars) Deferred tax assets $ 3,804 Deferred tax liabilities (62,168) -------- Net deferred income tax liabilities $(58,364) ======== The tax effect of significant temporary differences representing deferred income tax assets and liabilities as of December 31, 1993 is as follows: 1993 ---------------------- (Thousands of Dollars) Water utility plant--net $(49,582) Non-utility property (1,378) Other investments (1,046) Taxes recoverable (9,326) Investment tax credit 3,098 Pension expenditures (335) Other--net 205 -------- Net deferred income tax liabilities $(58,364) ======== 4. CAPITALIZATION On May 17, 1993, E'town issued 575,000 shares of common stock for net proceeds of $16,591,927. The net proceeds were used to fund equity contributions to Elizabethtown of $11,000,000 in May 1993 and $2,800,000 in September 1993. Elizabethtown used a portion of such contributions to repay $7,000,000 of short-term bank debt incurred for construction expenditures and invested the balance on a short-term basis until needed for construction expenditures. E'town used $1,000,000 of the proceeds to repay short-term bank debt previously incurred for working capital. The balance of the proceeds have been invested on a short-term basis and are expected to be used to fund working capital requirements of the Corporation. -22- During 1993, E'town issued 200,878 shares for $6,009,297 under the Company's Dividend Reinvestment and Stock Purchase Plan (DRP). The proceeds of the DRP were used to fund equity contributions to Elizabethtown primarily for capital expenditures. In January 1991, the Board of Directors of E'town adopted a Shareholders' Rights Plan (Rights Plan). Generally, under the Rights Plan, if a person or group acquires 10% or more of the Corporation's common stock or announces a tender offer for the Corporation's common stock, non-acquiring shareholders may, under certain circumstances, exercise rights (Rights) to purchase additional shares of common stock on terms which allow them to significantly increase their percentage ownership of the Corporation's common stock. Such Rights may be redeemed by the Board of Directors. Cumulative Preferred Stock - Redeemable Elizabethtown's $8.75 Cumulative Preferred Stock has optional redemption privileges beginning in 1994 at $108.75 per share, which diminish annually until 2009, when redemption is at par ($100). Beginning in December 1994, sinking fund payments of $600,000 are required annually through 2018. Elizabethtown proposes to issue 120,000 shares of $100 par value Cumulative Preferred Stock in March 1994. The proceeds of the issue will be used to redeem $12,000,000 of the Company's $8.75 Cumulative Preferred Stock. The redemption premium of $1,050,000 will be paid from general Company funds. -23- Long-term Debt Elizabethtown's long-term debt indentures restrict the amount of retained earnings available to Elizabethtown to pay cash dividends (which is the primary source of funds available to the Corporation for payment of dividends on its common stock) or acquire Elizabethtown's common stock, all of which is held by E'town. At December 31, 1993, $12,831,414 of Elizabethtown's retained earnings were restricted under the most restrictive indenture provision. Therefore, $30,376,252 of E'town's consolidated retained earnings were unrestricted. On November 9, 1993, Elizabethtown issued $50,000,000 of 7 1/4% Debentures due November 1, 2028. The proceeds of the issue were used to redeem $30,000,000 of the Company's 8 5/8% Debentures due 2007 and $20,000,000 of the Company's 10 1/8% Debentures due 2018. The aggregate redemption premiums of $2,681,000 were paid from general Company funds. On September 16, 1992, Elizabethtown issued $15,000,000 of 8% Debentures due September 1, 2022. The proceeds of this issue were used to repay short-term bank debt, of which $9,000,000 was incurred to repay Elizabethtown's 4 7/8% Debentures on their February 1, 1992 maturity date and the remainder was incurred to finance construction expenditures. E'town's 6 3/4% Convertible Subordinated Debentures are convertible to E'town common stock at $40 per share. At December 31, 1993, 312,425 shares of common stock were reserved for issuance upon exercise of the conversion rights. -24- 5. STOCK OPTION PLAN E'town has a qualified non-compensatory incentive stock option plan under which options to purchase shares of E'town's common stock have been granted to certain officers and other key employees at prices not less than the fair market value at the date of grant. The plan provides that any options granted may be exercised at any time up to an expiration date, not to exceed 10 years from the date of each grant. A summary of the details of stock option grants and outstanding balances is presented below: Year Shares Option Shares Outstanding Granted Granted Price Exercised or Expired 12/31/92 12/31/93 ------- ------- ------ -------------------- ---------- ---------- 1983 10,500 $18.42 6,000 (1986) 600 (1988) 1,500 (1991) 2,400 (1992) -0- -0- 1985 26,369 26.17 2,250 (1991) (A) 3,300 (1992) 20,819 4,050 (1993) 16,769 1987 36,000 25.67 4,050 (1989) 3,750 (1990) 3,750 (1991) 4,500 (1991) (A) 11,700 (1992) 8,250 8,250 1989 7,500 24.67 7,500 7,500 1990 7,500 26.67 7,500 7,500 ------ ------ ------ ------ Total 87,869 47,850 44,069 40,019 ====== ====== ====== ====== (A) Expired Options 6. LINES OF CREDIT E'town has existing uncommitted lines of credit with several banks aggregating $41,000,000 for which compensating balances are maintained. Information relating to bank borrowings and compensating balances is as follows: -25- 1993 1992 1991 ------------------------------- (Thousands of Dollars) Maximum amount outstanding.......... $8,000 $29,750 $26,500 Average monthly amount outstanding.. 2,514 $16,544 $16,882 Average interest rate at year end... (A) 4.1% 5.6% Compensating balances at year end... $ 195 $ 205 $ 230 Weighted average interest rate based on average daily balances.......... 3.8% 4.6% 6.5% (A) No outstanding bank borrowings at year end. Elizabethtown is negotiating a committed revolving credit agreement, which is expected to be in place by April 1994, with an agent bank and up to five additional participating banks to replace its existing uncommitted lines of credit discussed above. The agreement will provide up to $60,000,000 in revolving short-term notes to provide sufficient short-term financing for the Company to fund, together with other monies, its capital program, which is estimated to be $196,451,000 through 1996. The agreement will allow the Company to borrow, repay and reborrow up to $60,000,000 for the first three years, after which time the Company may convert any outstanding balances to a five-year, fully amortizing term loan. The agreement will further provide that among other covenants, the Company must maintain a ratio of common and preferred equity to total capitalization of not less than 35% and a pre-tax interest coverage ratio of at least 1.5 to 1. -26- 7. NON-UTILITY PROPERTY AND OTHER INVESTMENTS On August 24, 1993, E'town, Properties and Elizabethtown sold three parcels of land totalling 260 acres to the Somerset County Park Commission for $3,450,000. The sale produced an after-tax gain of approximately $1,100,000 or $.21 per share. The cash generated by the sale has been invested on a short-term basis and will be used to fund a $2,200,000 equity contribution to Elizabethtown when required by the Company for construction expenditures. The remainder of the proceeds will be used to fund working capital requirements of the Corporation. Included in Non-utility Property and Other Investments at December 31, 1993 and 1992, is an investment of $1.6 million, or $.5 million, net of related deferred taxes, in a limited partnership that owns Solar Electric Generating System V (SEGS), located in California. In 1992, E'town reduced the carrying value of the investment by $180,000 in order to present the investment at management's estimate of its approximate net realizable value. No such reduction in carrying value was made in 1993 as management believes that the net realizable value of the investment in SEGS at December 31, 1993 exceeds its carrying value. -27- Also included in Non-utility Property and Other Investments at December 31, 1993 and 1992 is $11.9 million and $13.3 million, respectively, of investments in various parcels of undeveloped land in New Jersey. The carrying value of each parcel includes the original cost plus any real estate taxes, interest and, where applicable, direct costs capitalized while rezoning or governmental approvals are, or were, being sought. Based upon independent appraisals received at various times prior to and during, 1993, the estimated net realizable value of each property exceeds its respective carrying value as of December 31, 1993, after the adjustments to the Mansfield and Bordentown properties discussed below. After sewer capacity became available for its parcel in Bordentown, New Jersey (which was purchased together with lands across the town line in Mansfield), Properties determined that the Bordentown parcel was ready for its intended use and has listed the parcel with a broker for sale. Accordingly, the original acquisition has been divided, for investment purposes, into a Bordentown parcel and a Mansfield parcel. As a result of allocating the recorded costs between the two parcels, the carrying value of the Bordentown portion exceeded its estimated -28- net realizable value by $85,526 in the first quarter of 1993. An allowance for this amount has been reflected in the Statements of Consolidated Income and Consolidated Balance Sheets as a reduction of Other Income and Non-utility Property and Other Investments, respectively. Effective in 1993, the carrying charges on the Bordentown parcel were, and will continue to be, expensed since this property is ready for its intended use. Such carrying charges were approximately $.2 million in 1993. Properties continues to seek permits and more favorable zoning treatment for its Mansfield property and, therefore, continues to capitalize various carrying charges. During the second quarter of 1993 the carrying value of the Mansfield property held by Properties exceeded its estimated net realizable value. This is due to the fact that the Mansfield property is not yet ready for its intended use and therefore, various carrying charges continue to be capitalized while, based upon recent appraisals, the market value of the property has remained constant. An allowance of $183,789 for the year ended December 31, 1993, to adjust the carrying value of the Mansfield property, has been reflected in the Statements of Consolidated Income and Consolidated Balance Sheets. As Properties expects to continue capitalizing carrying charges on the Mansfield property until it is ready for its intended use, further adjustments for these capitalized carrying charges, reflecting management's estimate of the net realizable value of the property, should be expected. Such carrying charges were approximately $.3 million in 1993. -29- The Corporation will continue to monitor the relationship between the carrying and net realizable values of its properties through updated appraisals and its investment in SEGS through cash flow analyses. 8. FINANCIAL INSTRUMENTS The carrying amounts and the estimated fair values, as of December 31, 1993 and 1992 of financial instruments issued by the Corporation, are as follows: 1993 1992 --------------------------- (Thousands of Dollars) Cash (1): Carrying amount $ 7,376 $ 2,408 Estimated fair value 7,376 2,408 Short-term investments (2): Carrying amount $ 31 $ 31 Estimated fair value 41 37 Cumulative preferred stock (2): Carrying amount $ 12,000 $ 12,000 Estimated fair value 13,020 12,960 Long-term debt (2): Carrying amount $154,407 $154,999 Estimated fair value 167,094 160,190 (1) Fair value approximates the carrying amount. (2) Estimated fair values are based upon quoted market prices for these or similar securities. -30- 9. DEFERRED CHARGES AND CREDITS Abandonments The abandonment cost of a small filter plant has been deferred and is being amortized for ratemaking purposes over a 10-year period ending in 1995. Waste Residual Management The costs of the waste residual management programs are being amortized over three-year periods for ratemaking purposes. No return is being earned on either of the above unamortized deferred charge balances. Emergency Water Projects The 1984 assessment for Elizabethtown's proportionate share of the cost of emergency water projects is being recovered through rates and amortized over a 10-year period. Unamortized Debt Expenses Costs incurred in connection with the issuance or redemption of long-term debt have been deferred and are being amortized over the lives of the respective issues. -31- 10. REGULATORY MATTERS Rates In August 1993, the BRC approved a stipulation (1993 Plant Stipulation) signed by the parties to the Company's petition relating to the Canal Road Water Treatment Plant (Plant). The 1993 Plant Stipulation states that the Plant is necessary and that the Company's estimates regarding the Plant's cost, at that time of $87,000,000, and construction period are reasonable. The 1993 Plant Stipulation authorizes the Company to levy a rate surcharge if the Company's pre-tax interest coverage ratio for any 12-month historical period drops below 2.0 times. The surcharge would equal 20% of the Company's gross interest expense for the prior 12 months, adjusted for revenue taxes. The surcharge would go into effect at the same time as the Company's next base rate increase after the coverage ratio falls below 2.0 times, but in no event prior to January 1, 1995. Also, the surcharge would remain in effect for 12 months and could be extended by the BRC for up to six additional months. The 1993 Plant Stipulation also provides that the rate of return on common stockholder's equity used to calculate the rate for the equity component of the AFUDC for the Plant will be 1.5% less than the rate of return on common stockholder's equity established in the Company's most recent base rate case. The authorized rate of return on common stockholder's equity is currently 11.5%. On January 4, 1994, Elizabethtown filed with the BRC for a Purchased Water Adjustment Clause, a procedure established by BRC Rules, which would allow Elizabethtown to recover in rates $529,291 for the increase in the cost of purchased water from the New Jersey Water -32- Supply Authority (NJWSA) without a complete rate case. The NJWSA has given notice that effective July 1, 1994, it will increase charges for water from $220.47 to $232.65 per million gallons. The Company expects the BRC to render a decision prior to July 1994. On March 18, 1993, the BRC approved a stipulation (1993 Stipulation) for a rate increase of $5,000,000, effective as of that date. The 1993 Stipulation contains a provision allowing for the deferral of expenses, calculated under SFAS 106, for postretirement benefits accrued that are in excess of the cash benefits paid. Recovery of such deferrals will be considered in future rate cases. (See Note 12). On March 18, 1992, the BRC approved a stipulation for a rate increase of $4,050,000, effective as of that date. Main Extension Refunds In a case captioned Van Holten, et al v. Elizabethtown Water Company, (Van Holten) several developers petitioned the BRC in 1984 and 1985 seeking an Order which would require Elizabethtown to refund to the developers all of their on-site and off-site customer advances for construction. For on-site mains, Elizabethtown received a final BRC decision in September 1987, requiring refunds in accordance with the BRC's suggested refund formula, which was less than the amounts requested by the developers. For the off-site mains, the developers were denied any refund. The developers appealed the BRC decision to the Appellate Division of the New Jersey Superior Court (Appellate Division), which in October 1988 upheld the decision of the BRC. -33- Since 1986, additional petitions dealing with this issue have been filed by other developers. In these additional proceedings, all parties have agreed to abide by the final decision of the New Jersey Supreme Court in the Van Holten case. For all customer advances, Elizabethtown has and will continue to make the refunds in accordance with the BRC's suggested refund formula. In response to an appeal of the 1988 Appellate Division decision, in August 1990, the New Jersey Supreme Court (Court) rendered a decision upholding the BRC's authority to implement what the BRC had established as an appropriate refund formula in the Van Holten case. The BRC's suggested formula provides for a refund of 2 1/2 times the annual revenues for each metered connection. Although the Court ruled that the BRC has the jurisdiction to determine what is an appropriate refund formula, it remanded the case to the BRC to further develop the record on why the BRC deemed the 2 1/2 times formula to be appropriate in the Van Holten case. In June 1991, the BRC issued an Order on Remand reaffirming the 2 1/2 times annual revenue formula. Addressing the reasonableness of this formula, the BRC indicated in its decision that the 2 1/2 times formula fairly allocates the costs of the main extensions among the developers, Elizabethtown and the rate payers. Again, developers appealed the Order on Remand to the Appellate Division, and in December 1992, the Appellate Division remanded the matter to the BRC for more complete findings and statements of reasons in support of its decision. -34- By Order on Remand dated January 19, 1994, the BRC again deemed the 2 1/2 times formula to be appropriate in the Van Holten case. In addition to the previous rationale it gave for employing this formula in this case, the BRC indicated that on a per-customer basis, the initial cost of the extension was, in most instances, far higher than Elizabethtown's average cost of plant invested for existing customers at the time petitions were filed in 1984. Therefore, a full refund would clearly result in a significant subsidization of the developers by Elizabethtown's existing customers. The BRC concluded that such a subsidization would be unjust and unreasonable. On February 23, 1994, the developers appealed the January 19, 1994 BRC Order on Remand to the Appellate Division. The maximum potential refund for the Van Holten case, and all subsequently filed cases, is approximately $3,000,000, which would be capitalized and, therefore, would not have a material adverse effect on earnings. Management believes the final outcome of this matter will be favorable and no additional refunds will be necessary. 11. COMMITMENTS Elizabethtown is obligated, under a contract that expires in 2013, to purchase from the NJWSA a minimum of 37 billion gallons of water annually. The Company purchases additional water from the NJWSA on an as-needed basis. Effective July 1, 1994, the annual cost under the -35- contract will be $8,661,559. The total cost of water purchased from the NJWSA, including additional water purchased on an as-needed basis, was $8,819,212, $7,827,058 and $7,527,662 for 1993, 1992 and 1991, respectively. The following is a schedule by years of future minimum rental payments required under noncancelable operating leases with terms in excess of one year at December 31, 1993: 1993 ---------------------- (Thousands of Dollars) 1994 $ 832 1995 785 1996 780 1997 720 1998 -0- ------ Total $3,117 ====== Rent expense totaled $789,636, $719,624 and $740,801 for 1993, 1992 and 1991, respectively. Capital expenditures through 1996 are estimated to be $196,850,000 of which $196,451,000 is for Elizabethtown's and Mount Holly's utility plant and $399,000 is for real estate-related expenditures. Elizabethtown has solicited bids from general contractors for the construction of the Plant. The estimated cost of the Plant, as of March 23, 1994, is approximately $100 million, excluding AFUDC. The Company has notified all parties to the 1993 Plant Stipulation that the estimated cost of the Plant has increased. The Company expects to execute a contract and commence construction in the spring of 1994. -36- The Company has recorded $6,825,354 as construction costs on the Plant as of December 31, 1993. 12. PENSION PLAN AND OTHER POSTRETIREMENT BENEFITS Elizabethtown has a trusteed, noncontributory Retirement Plan (Plan), which covers most employees. Under the Company's funding policy, the Corporation makes contributions that meet the minimum funding require- ments of the Employee Retirement Income Security Act of 1974. The components of the net pension credits are as follows: 1993 1992 1991 ----------------------- (Thousands of Dollars) Service cost-benefits earned during the year . $ 913 $ 857 $ 793 Interest cost on projected benefit obligation 1,986 1,846 1,724 Return on Plan assets ........................ (1,417) (975) (5,705) Net amortization and deferral ................ (1,666) (2,246) 3,066 ------ ------ ------ Net pension credit .................... $ (184) $ (518) $ (122) ====== ====== ====== Plan assets are invested in publicly traded debt and equity securities. The reconciliations of the funded status of the Plan to the amounts recognized in the Consolidated Balance Sheets are presented below: -37- 1993 1992 ---------------------- (Thousands of Dollars) Market value of Plan assets ..................... $33,208 $32,879 ------- ------- Actuarial present value of Plan benefits: Vested benefits ............................... 20,793 16,972 Non-vested benefits ........................... 226 104 ------- ------- Accumulated benefit obligation ................ 21,019 17,076 Projected increases in compensation levels .... 6,641 6,901 ------- ------- Projected benefit obligation .................... 27,660 23,977 ------- ------- Excess of Plan assets over projected benefit obligation ..................................... 5,548 8,902 Unrecognized net gain ........................... (2,425) (5,784) Unrecognized prior service cost ................. 541 630 Unrecognized transition asset ................... (2,701) (2,970) ------- ------- Prepaid pension expense.......................... $ 963 $ 778 ======= ======= The assumed rates used in determining the actuarial present value of the projected benefit obligations were as follows: 1993 1992 ---------------- Discount rate ................................... 7.00% 8.50% Compensation increase ........................... 5.50% 7.50% Rate of return on Plan assets ................... 8.50% 8.50% The Corporation provides certain health care and life insurance benefits for substantially all of its retired employees. Effective January 1, 1993, the Corporation adopted SFAS 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." Under SFAS 106, the costs of such benefits are accrued for each year the employee renders service, based on the expected cost of providing such benefits to the employee and the employee's -38- beneficiaries and covered dependents rather than expensing these benefits on a pay-as-you-go basis for retired employees. Based upon an independent actuarial study, the transition obligation, which the Corporation has not funded, was $7,255,745 as of January 1, 1993. The transition obligation is being amortized over 20 years. The following table details the unfunded postretirement benefit obligation at December 31, 1993: 1993 ---------------------- (Thousands of Dollars) Retirees $3,133 Fully eligible plan participants 5,458 Accumulated postretirement benefit ------ obligation 8,591 Unrecognized net gain (683) Unrecognized transition obligation (6,893) ------ Accumulated postretirement benefits $1,015 ====== The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation as of December 31, 1993, and for 1993, was 12%. This rate decreases linearly each successive year until it reaches 5% in 2003, after which the rate remains constant. The assumed discount rate used in determining the accumulated postretirement benefit obligation at December 31, 1993, and for 1993, was 7.0% and 8.5%, res- pectively. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated post- retirement benefit obligation as of January 1, 1993, and net postre- tirement service cost and interest cost by approximately $924,000 and $140,000, respectively. Based upon an independent actuarial study, the annual postretirement cost calculated under SFAS 106 for 1993 is as follows: -39- 1993 ---------------------- (Thousands of Dollars) Service cost - benefits earned during the year $ 254 Interest cost on accumulated postretirement benefit obligation 605 Amortization of transition obligation 363 ------ Total 1,222 Deferred amount for regulated companies pending recovery (1,005) ------ Net postretirement benefit expense $ 217 ====== The Corporation recognized as an expense (on a pay-as-you-go basis) $252,000 for both 1992 and 1991 for postretirement health care and life insurance benefits. The rate increase for the 1993 Stipulation includes as an allowable expense, only the pay-as-you-go portion of postretirement benefits. The 1993 Stipula- tion allows Elizabethtown to defer the amount accrued in excess of the pay-as- you-go portion, for consideration in future rate cases. In addition, in a separate proceeding, Mount Holly had petitioned the BRC for permission to defer the amount accrued in excess of the pay-as-you-go portion of its expenses calc- ulated under SFAS 106, and consequently, has been granted such authority. Generally accepted accounting principles permit this regulatory treatment, provided deferrals are not accumulated for a period of more than five years. As of December 31, 1993, the amount that has been deferred is $1,004,556. Recovery of deferred postretirement costs will be requested in Elizabethtown and Mount Holly's next base rate case. Management believes that Elizabethtown and Mount Holly will recover the deferred postretirement costs in future rates. -40- 13. QUARTERLY FINANCIAL DATA (Unaudited) A summary of financial data for each quarter of 1993 and 1992 follows: Primary Fully Diluted Operating Operating Net Earnings Per Earnings Per Quarter Revenues Income Income Share Share -------------------------------------------------------------------------- (Thousands of Dollars Except Per Share Amounts) 1993 1st $22,136 $ 5,357 $ 2,080 $ .42 $ .42 2nd 24,865 6,618 3,437 .66 .64 3rd 28,947 8,067 6,054 1.09 1.05 4th 24,048 5,293 2,259 .42 .43 ------- ------- ------- ----- ----- Total $99,996 $25,335 $13,830 $2.59 $2.54 ======= ======= ======= ===== ===== 1992 1st $20,803 $ 4,880 $ 1,967 $ .47 $ .47 2nd 22,423 5,519 2,570 .55 .54 3rd 23,812 6,091 3,236 .67 .66 4th 22,129 5,563 2,458 .52 .51 ------- ------- ------- ----- ----- Total $89,167 $22,053 $10,231 $2.21 $2.18 ======= ======= ======= ===== ===== Water utility revenues are subject to a seasonal fluctuation due to normal increased consumption during the third quarter of each year. The gain on the sale of land to the Somerset County Park Commission (see Note 7) was recorded in the third quarter of 1993. -41- INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS AND BOARD OF DIRECTORS OF E'TOWN CORPORATION: We have audited the accompanying consolidated balance sheets and statements of consolidated capitalization of E'town Corporation and its subsidiaries as of December 31, 1993 and 1992, and the related statements of consolidated income, shareholders' equity, and cash flows for each of the three years in the period ended December 31, 1993. 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, such consolidated financial statements present fairly, in all material respects, the financial position of E'town Corporation and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 3 and 12 to the consolidated financial statements, in 1993 the Company changed its method of accounting for postretirement benefit costs and income taxes to conform with Statements of Financial Accounting Standards Numbers 106 and 109, respectively. /s/ Deloitte & Touche Parsippany, New Jersey February 15, 1994, except for the subsequent events discussed in Notes 10 and 11, as to which the dates are February 23, 1994 and March 23, 1994, respectively -42- Other Financial and Statistical Data
1993 1992 1991 1990 1989 ----------------------------------------------------------- Utility Plant (Thousands) Utility Plant--net .......... $ 373,293 $ 347,253 $ 319,421 $ 297,577 $ 275,588 Construction Expenditures (excluding AFUDC)........... 32,517 33,293 27,732 27,301 38,589 Capitalization (Thousands) Shareholders' Equity ........ 128,374 102,750 84,544 69,842 68,690 Redeemable Preferred Stock .. 12,000 12,000 12,000 12,000 12,000 Debt (l) .................... 154,448 161,541 169,648 176,078 147,851 Total Capitalization ........ $ 294,822 $ 276,291 $ 266,192 $ 257,920 $ 228,541 Capitalization Ratios Common Stock ................ 44% 37% 32% 27% 30% Preferred Stock ............. 4% 4% 4% 5% 5% Debt (1) .................... 52% 59% 64% 68% 65% Common Stock Data Earnings Per Share: Primary..................... $ 2.59 $ 2.21 $ 2.32 $ 1.73 $ 1.63 Fully Diluted............... 2.54 2.18 2.28 1.73 1.63 Dividends Per Share.......... 2.01 2.00 2.00 1.98 1.95 Book Value Per Share......... $ 22.76 $ 21.14 $ 20.21 $ 19.50 $ 19.67 Average Shares Outstanding: Primary..................... 5,337,939 4,627,814 4,080,118 3,547,328 3,170,912 Fully Diluted............... 5,651,808 4,950,768 4,413,178 3,547,328 3,170,912 Number of Common Shareholders 5,240 4,832 3,965 3,491 3,480 Operating Statistics Revenues (Thousands) General Customers .......... $ 63,100 $ 55,570 $ 54,071 $ 48,267 $ 45,088 Other Water Systems ........ 17,187 15,080 14,082 12,947 11,060 Industrial Wholesale ....... 6,652 6,044 5,846 5,515 5,183 Fire Service/Miscellaneous.. 13,057 12,473 12,087 11,386 9,906 Total Revenues ............. $ 99,996 $ 89,167 $ 86,086 $ 78,115 $ 71,237 Net Income .................. $ 13,830 $ 10,231 $ 9,485 $ 6,139 $ 5,163 Water Sales - Millions of Gallons (mg) General Customers .......... 23,883 22,062 22,659 21,686 21,119 Other Water Systems ........ 15,109 14,118 13,811 14,379 14,450 Industrial Wholesale ....... 3,213 3,145 3,155 3,313 3,757 System Use and Unaccounted For 5,453 5,843 6,368 5,854 6,297 Total Water Sales .......... 47,658 45,168 45,993 45,232 45,623 System Delivery by Source - mg Surface .................... 40,742 38,558 39,222 40,343 38,937 Wells ...................... 6,776 6,480 6,658 4,805 6,587 Purchased .................. 140 130 113 84 99 Total System Delivery ...... 47,658 45,168 45,993 45,232 45,623 Millions of Gallons Pumped: Average Day ................ 131 123 126 124 125 Maximum Day ................ 191 159 169 155 148 General Information Meters in Service ........... 188,677 185,028 182,019 179,700 176,393 Miles of Main ............... 2,800 2,738 2,694 2,647 2,617 Fire Hydrants Served ........ 14,909 14,400 13,987 13,555 13,289 Total Employees ............. 385 379 374 376 360 _________________________________________________________________________________________________ (1)Includes long-term debt, notes payable and long-term debt-current portion.
-43- STOCK PRICE AND DIVIDEND DATA - E'town's Common Stock is traded on the New York Stock Exchange under the symbol ETW. 1993 Quarter 1st 2nd 3rd 4th Closing Price Low: $27.63 $29.50 $29.88 $30.25 High: $30.88 $31.13 $35.75 $34.75 Dividend Paid $.50 $.50 $.50 $.51 1992 Quarter 1st 2nd 3rd 4th Closing Price Low: $27.75 $25.63 $26.13 $26.88 High: $29.25 $27.63 $29.13 $29.00 Dividend Paid $.50 $.50 $.50 $.50 -44- EX-23 5 CONSENT Exhibit 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in E'town Corporation's Registration Statement No. 33-67992 on Form S-3 and Nos. 33-19600, 33-49812 and 33-42509 on Forms S-8 of our report dated February 15, 1994, except for the subsequent events discussed in Notes 10 and 11, as to which the dates are February 23, 1994 and March 23, 1994, respectively, and to the incorporation by reference in Elizabethtown Water Company's Registration Statement Nos. 33-51917 and 33-68578 on Forms S-3 of our report dated February 15, 1994, except for the subsequent events discussed in Notes 8 and 9, as to which the dates are February 23, 1994 and March 23, 1994, respectively, appearing in and incorporated by reference in this Annual Report on Form 10-K of E'town Corporation and Elizabethtown Water Company for the year ended December 31, 1993. /s/ Deloitte & Touche Parsippany, New Jersey March 31, 1994 EX-3 6 ARTICLES OF INCORPORATION DRAFT 3/28/94 RESTATED CERTIFICATE OF INCORPORATION OF ELIZABETHTOWN WATER COMPANY To: The Secretary of State State of New Jersey Pursuant to the provisions of Section 14A:9-5, Corporations, General, of the New Jersey Statutes, the undersigned corporation executes the following Restated Certificate of Incorporation: ARTICLE I Name and Duration of Corporation The name of the corporation is ELIZABETHTOWN WATER COMPANY (hereinafter sometimes called the Corporation). The duration of the Corporation is perpetual. ARTICLE II Registered Office and Registered Agent of the Corporation The address of the Corporation's current registered office is: 600 South Avenue, Westfield, New Jersey 07090, and the name of its current registered agent at such address upon whom process against the Corporation may be served within the State of New Jersey is Walter M. Braswell. Said office and agent may be changed from time to time as permitted by law. ARTICLE III Nature of Business, Objects, Purposes, Powers and Franchises of the Corporation All corporate powers shall be exercised by the Board of Directors, except as otherwise required by statute or by this Restated Certificate of Incorporation. The nature of the business or objects or purposes to be transacted, promoted or carried on by the Corporation and the franchises thereof shall include the following: 1. To construct, maintain and operate works, systems, conduits, conductors, lines, equipment and facilities for the collection, transmission, distribution and supplying of water and the furnishing of such service for profit to the public within the State of New Jersey, including the following municipalities: Cities of Elizabeth, Linden, Plainfield and Summit; Townships of Berkeley Heights, Clark, Cranford, Hillside, Mountainside, Scotch Plains, Springfield, Union and Winfield; Boroughs of Fanwood, Garwood, Kenilworth, New Providence, Roselle and Roselle Park; Town of Westfield in the County of Union; Townships of Edison, Piscataway; Boroughs of Dunellen, Middlesex, South Plainfield and Metuchen in the County of Middlesex; and Townships of Green Brook and Warren; Boroughs of North Plainfield and Watchung in the County of Somerset; And in such other places as may be permitted by law. 2. To construct, cause to be constructed, purchase, invest in, lease, sublease, or otherwise acquire, control, operate, maintain, repair, enlarge, improve, remove, develop, and to own, sell, mortgage, lease, sublease, hypothecate or otherwise dispose of, works, systems, plants, water tanks, stand pipes, water ways, settling basins, filtering, purifying, distilling and pumping plants, reservoirs, dams, water rights and water supplies, pipes, conduits, conductors, lines, hydrants, fire plugs, equipment and other facilities and appurtenances, as may be permitted by law. 3. To take and divert such springs, streams and other bodies of water and to survey, excavate and bore for water and to use such lands, streets, alleys, lanes, roads, highways and public places within the State of New Jersey, as the purposes of the Corporation may require. 4. To purchase or otherwise acquire personal property, goods and merchandise of every class, and to hold, own, mortgage, sell or otherwise dispose of, trade and deal in and with the same, as the purposes of the Corporation may require. 5. To purchase, take by devise or bequest, hold, invest in, lease, sublease or otherwise acquire, improved and unimproved real property and any interest of any kind therein, and to own, improve, develop, manage, mortgage, lease, sublease, sell or otherwise dispose of any real property or interest therein now owned or hereafter acquired by the Corporation, and to build, rebuild, alter, improve and remove any buildings or other structures on any real property now or hereafter owned by the Corporation, or in which the Corporation holds or shall hereafter hold any interest, as the purposes of the Corporation may require or which shall be conveyed to the Corporation by way of security or in satisfaction of debts or purchased at sales upon judgment or decree duly obtained. 6. To acquire by purchase, merger, consolidation, lease, sublease or otherwise, and to pay for in cash, stocks, bonds or other securities of the Corporation or otherwise, the whole or any part of the franchises, good will, rights, assets and property, and to undertake or assume the whole or any part of the obligations or liabilities of, any water company, or other person, firm, association, corporation, joint stock company, syndicate, trust, government or body politic or any department, agency or authority thereof, or other entity, as the purposes of the Corporation may require. 7. To purchase, invest in, lease, sublease or otherwise acquire, and to own, mortgage, lease, sublease, sell or otherwise dispose of, franchises, rights-of-way, easements, permits and other rights and privileges of every type, whether granted by the United States, the State of New Jersey, any county, any municipality, any other body politic, or any subdivision, department, agency or authority of any of the foregoing, or of any person, firm, association, corporation, joint stock company, syndicate, trust, or other entity, and to exercise, in so far as may be permitted by any general or special law of the United States, the State of New Jersey or any body politic, the right of condemnation and eminent domain, as the purposes of the Corporation may require. 8. To purchase, subscribe for, lease, sublease or otherwise acquire, and to own, hold for investment, mortgage, pledge, lease, sublease or otherwise dispose of the stocks, bonds, debentures, notes, bank acceptances and other evidences of indebtedness or other securities of any person, firm, association, corporation, joint stock company, syndicate, trust, government or body politic or any department, agency or authority thereof, or other entity, and to loan and advance money upon mortgages on real property and pledges of personal property or upon either of them, whether the objective of any of the foregoing be current income or gain in capital or principal or acquisition of interests useful in the business of the Corporation, subject, however, to the laws of the State of New Jersey, and while the owner thereof, to exercise all the rights, powers and privileges of ownership, including the right to vote thereon. 9. To promote, finance, aid or assist, financially or otherwise, in any manner, whether by loan, subsidy, guarantee or otherwise, those issuing or having power to issue, create, or be responsible for any securities referred to in the foregoing paragraph 8, or those in whose business or affairs the Corporation shall have an interest and in connection therewith to guarantee or become surety for the performance of any undertaking or obligation for the payment of dividends on stock. 10. To enter into, make, perform and carry out contracts of every kind and description and for every lawful purpose with any person, partnership, firm, association, corporation, state, county, municipality, or any department, agency or authority thereof, joint stock company, syndicate, trust, body politic or other entity. 11. To borrow or raise money from time to time without limit as to amount, and to draw, make, accept, endorse, execute and issue bonds, debentures, promissory notes, bills of exchange, drafts, warrants or other evidences of indebtedness, including bonds, debentures, promissory notes, or other evidences of indebtedness convertible into stock of any class, or bearing warrants or other evidences of optional rights to purchase or subscribe, or both, to stock of any class, for moneys borrowed or in payment of property acquired or for any other objects or purposes of the Corporation or its business, and to secure the payment of any of the foregoing and interest thereon by mortgage, pledge, deed, indenture, agreement, or other instrument of trust or by other lien upon, assignment of, or agreement with regard to, all or any part of the property, real or personal, or rights or privileges of the Corporation, wherever situated, whether now owned or hereafter to be acquired, or to draw, make, accept, endorse, execute and issue any such bonds, debentures, promissory notes, bills of exchange, drafts, warrants, or other evidences of indebtedness, without any such security, and to sell, pledge or otherwise dispose of any of the same, as the purposes of the Corporation may require. 12. To apply for, obtain, register, purchase, invest in, lease, sublease or otherwise acquire, and to own, grant licenses in respect of, mortgage, lease, sublease, sell, assign or otherwise dispose of, any trademarks, trade names, copyrights, letters patent, inventions, improvements and processes relating to or useful in connection with any business of the Corporation. 13. To purchase, lease, sublease or otherwise acquire, and to own, mortgage, pledge, lease, sublease, sell or otherwise dispose of and deal in and with, shares of its own capital stock and its bonds, debentures and other evidences of indebtedness and its other securities to the extent permitted by the laws of the State of New Jersey, provided that any thereof which carry voting rights shall not be voted upon directly or indirectly by the Corporation. 14. To conduct and carry on all or any of its operations and business in any of the states, territories, districts, possessions or dependencies of the United States and in any and all foreign countries, and to have one or more offices therein and to hold, purchase, mortgage and convey real and personal property therein without limit as to amount, subject in each case to the laws of the State of New Jersey and other applicable law. 15. In general to carry on or engage in any other lawful business in connection with the foregoing and to have and exercise all the powers conferred by Title 14A, Corporations, General and by Title 48, Public Utilities, Revised Statutes of New Jersey, and to do any and all of the things hereinbefore set forth to the same extent as any natural person might or could do, and to exercise any of the foregoing powers, directly or through one or more subsidiaries, itself or in collaboration with others. The foregoing clauses shall be construed as both objects, purposes and powers, and except as where otherwise expressed, such objects, purposes and powers shall be in no wise restricted by reference to or inference from the terms of any other clause in this Restated Certificate of Incorporation, but the objects, purposes and powers so specified shall be regarded as independent objects, purposes and powers, and it is hereby expressly provided that the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the powers of the Corporation. IN FURTHERANCE AND NOT IN LIMITATION of the powers conferred by statute, the Board of Directors of the Corporation is expressly authorized: (a) To make and alter the By-Laws of the Corporation, but the By-Laws so made by the Directors may be altered or repealed by the Directors or the stockholders; (b) To fix and determine and to vary the amount of working capital of the Corporation; to determine whether any, and if any, what part of any, surplus or net profits shall be declared and paid as dividends; to determine the date or dates for the declaration of payment of dividends; and to direct and determine the use and disposition of any surplus or net profits over and above the capital stock paid in; (c) From time to time to determine whether and to what extent and at what times and places and under what conditions and regulations the accounts and books of the Corporation (other than the stock ledger) or any of them, shall be open to the inspection of the stockholders, and no stockholder shall have any right to inspect any account or book or document of the Corporation except as conferred by statute or authorized by the Directors or by a resolution of the stockholders; (d) To authorize the payment of compensation to the Directors for services to the Corporation, including fees for attendance at meetings of the Board of Directors, of the Executive Committee and all other committees, and to determine the amount of such compensation and fees; (e) To designate by resolution passed by a majority of the whole Board, three or more of their number to constitute an Executive Committee, who to the extent provided in said resolution or in the By- Laws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business, affairs and property of the Corporation during the intervals between the meetings of the Board, including power to authorize the seal of the Corporation to be affixed to all papers which may require it, and when the seal has been so affixed pursuant to such authority, it shall be deemed to have been affixed by order of the Board of Directors; (f) To remove at any time any officer elected or appointed by the Board of Directors by such vote of the Board of Directors as may be provided for in the By-Laws. Any other officer of the Corporation may be removed at any time by a vote of the Board of Directors, or by any committee or superior officer upon whom such power of removal may be conferred by the By-Laws or by a vote of the Board of Directors; (g) To establish, amend, alter, revise, change, recall, abolish or repeal any bonus, profit sharing, stock option, stock purchase, pension, retirement, disability, unemployment, or other types of incentive, compensation, relief or welfare plans for the employees (including officers and directors) of the Corporation and any of its subsidiaries, and to fix the terms of such plans, including the creation and maintenance of one or more separate trust funds of the money, securities or other property at any time held or contributed by the Corporation or its subsidiaries, and to determine, or prescribe the method for determining, the persons to participate in any such plans and the amount of their respective participations. ARTICLE IV Directors of the Corporation The number of the current Directors of the Corporation, who shall hold office until their successors are chosen or appointed either according to law or to the By-Laws of the Corporation shall be eleven (until changed by amendment to the By-Laws), and their respective names and addresses are as follows: Names Addresses (including zip code) ----- ------------------------------ Brendan T. Byrne . . 600 South Avenue, Westfield, New Jersey 07090 Thomas J. Cawley . . 600 South Avenue, Westfield, New Jersey 07090 Anne Evans Gibbons . 600 South Avenue, Westfield, New Jersey 07090 John Kean . . . . . . 600 South Avenue, Westfield, New Jersey 07090 Robert W. Kean, III . 600 South Avenue, Westfield, New Jersey 07090 Robert W. Kean, Jr. . 600 South Avenue, Westfield, New Jersey 07090 Arthur P. Morgan . . 600 South Avenue, Westfield, New Jersey 07090 Barry T. Parker . . . 600 South Avenue, Westfield, New Jersey 07090 Henry S. Patterson, II 600 South Avenue, Westfield, New Jersey 07090 Chester A. Ring, 3rd 600 South Avenue, Westfield, New Jersey 07090 Hugo M. Pfaltz, Jr. . 600 South Avenue, Westfield, New Jersey 07090 ARTICLE V Capital Stock of the Corporation The capital stock of the Corporation shall be 10,000,000 shares of Common Stock without par value (hereinafter called Common Stock) and 500,000 shares of Junior Preferred Stock of the par value of $20 per share (hereinafter called Junior Preferred Stock), 200,000 shares of Cumulative Preferred Stock of the par value of $100 per share, (hereinafter called Cumulative Preferred Stock), and 500,000 shares of Cumulative Preferred Stock--$25 Par of the par value of $25 per share (hereinafter called Cumulative Preferred Stock--$25 Par; together with the Junior Preferred Stock and the Cumulative Preferred Stock, hereinafter collectively called Preferred Stock) all of which may be issued by the Corporation from time to time for such consideration as may be fixed from time to time by the Board of Directors thereof. 1. Common Stock At all times each holder of Common Stock of the Corporation shall be entitled to one vote for each share of such stock standing in the name of such holder on the books of the Corporation. No holder of Common Stock, as such, shall have any preemptive or other right to subscribe for, purchase or receive any part of the unissued stock of the Corporation, or any security convertible into such stock, or any part of any new or additional issue of any stock of the Corporation, whether of the same class or of any other class, or to subscribe for, purchase or receive any rights or options to purchase any such stock, or to have any other preemptive rights as now or hereafter defined by the laws of the State of New Jersey. 2. Preferred Stock The voting powers, designations, preferences, relative, participating, optional or other special rights, qualifications, limitations or restrictions of the Preferred Stock, and the power of the Board of Directors to cause the Preferred Stock to be issued in series, and the designation, description and term shall be subject to and in accordance with the provisions of this paragraph and the following paragraphs hereof. The Board of Directors is hereby empowered to cause the Preferred Stock to be issued in different series. The shares of different series may vary, as may be determined by the Board of Directors prior to the issue thereof, as to: (a) The distinctive serial designation and number of shares of such series; (b) The rate of dividends (within such limits as shall be permitted by law) payable on the shares of the particular series; (c) The prices (not less than the amount limited by law) and the terms upon which the shares of the particular series may be redeemed; (d) The amount or amounts which shall be paid to the holders on voluntary or involuntary dissolution or any distribution of assets; (e) The terms and amount of sinking fund requirements (if any) for the purchase or redemption of the shares of the particular series; and (f) The terms upon which the holders thereof may convert the same into Common Stock. The shares of all series of either Junior Preferred Stock, Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par shall in all other respects be equal. A. Junior Preferred Stock (a) Dividends. The holders of the shares of each series of Junior Preferred Stock shall be entitled to receive, in preference to the holders of Common Stock, but only when and as declared by the Board of Directors out of funds of the Corporation legally available for the payment of dividends, cumulative cash dividends, cumulative from the date on which shares of said Junior Preferred Stock are originally issued or such earlier date as the Board of Directors may determine and no more, payable quarter-yearly on dates to be fixed by the Board of Directors, to stockholders of record on the respective dates not exceeding thirty (30) days and not less than ten (10) days preceding such dividend payment dates (such days being herein called "dividend payment dates" and the quarterly periods ending on such days being herein called "dividend periods"), to be fixed by the Board of Directors. No dividends shall be declared on any series of the Junior Preferred Stock in respect of any quarter-yearly dividend period unless there shall likewise be declared on all shares of all series of Junior Preferred Stock at the time outstanding, like proportionate dividends, ratably in proportion to the respective annual dividend rates fixed there for in respect of the all quarter-yearly dividend periods terminating on the same date or earlier. The dividends on shares of all series of the Junior Preferred Stock shall be cumulative. The holders of shares of Junior Preferred Stock are not to be entitled to any dividends thereon other than the dividends referred to in this paragraph (a). So long as any shares of any series of Junior Preferred Stock shall be outstanding, the Corporation shall not declare or pay any dividend on its Common Stock or other stock ranking junior in priority as to dividends or on dissolution to the Junior Preferred Stock (the Common Stock and any such other junior ranking stock being hereinafter called "junior stock"), other than dividends payable solely in junior stock, or make any other distribution of any sort, either directly or indirectly in respect of any junior stock unless at the date of such declaration in the case of a dividend or the date of such distribution or other payment all cumulative dividends on the then outstanding shares of any series of said Junior Preferred Stock shall have been paid or declared and a sum sufficient for payment thereof set aside. Accruals of dividends shall not bear interest. (b) Voting Rights. At all times each holder of Junior Preferred Stock of the Corporation shall be entitled to one vote for each share of such stock standing in the name of such holder on the books of the Corporation, except that in the event there shall be proposed a change in the preference, relative rights or limitations of the Junior Preferred Stock which shall adversely affect the dividend rate or preference, the conversion rights or liquidation preference of the Junior Preferred Stock, then any such change shall be approved by the holders of at least two-thirds of the shares of such Junior Preferred Stock at the time outstanding, voting as a class. (c) Redemption. The Corporation at the option of the Board of Directors may at any time redeem any outstanding shares of any series of Junior Preferred Stock, either as a whole or in part from time to time, upon giving notice as hereinafter specified at the applicable redemption price, provided for such series. Notice of every such redemption of shares of the Junior Preferred Stock, in form approved by the Board of Directors, shall be given not less than 30 nor more than 60 days prior to the date fixed for redemption to each holder of record of shares so to be redeemed at his address as the same shall appear on the books of the Corporation. Notice of redemption having been so given, then, from and after the date fixed in such notice as the redemption date (unless default be made in providing funds for the payment of the redemption price and accrued and unpaid dividends to the date fixed for redemption), notwithstanding that any certificate for shares of the Junior Preferred Stock so called for redemption shall not have been surrendered for cancellation, all such shares so called for redemption shall no longer be deemed outstanding on and after such redemption date and the right to receive dividends thereon and all other rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders of such shares to receive the amount payable on the redemption thereof, without interest. In case of a redemption of part only of the outstanding shares of any series of the Junior Preferred Stock, the redemption may be either pro rata or by lot as determined by the Board of Directors. Subject to the foregoing the Board of Directors shall have full power and authority to describe the manner by which the drawings by lot or the pro rata redemption shall be conducted and the terms and conditions upon which the shares shall be redeemed from time to time. At any time if any such notice of redemption shall have been duly given or if the Corporation shall have given to the bank or trust company hereinafter referred to irrevocable written authorization promptly to give or complete such notice, the Corporation may deposit with a bank or trust company having its principal once in the State of New Jersey or in the Borough of Manhattan, City and State of New York, and having, according to its last published statement, capital, surplus and undivided profits aggregating at least $5,000,000 and which bank or trust company shall have been named in such notice as the place of redemption, funds necessary for such redemption in trust for the pro rata benefit of the holders of the shares of the Junior Preferred Stock so called for redemption, to be payable on or after the date of such deposit for redemption, and from and after the date of such deposit all such shares so called for redemption shall no longer be deemed outstanding and all right with respect to such shares shall cease and terminate, except only the right of the holders thereof to receive from such bank or trust company at any time after the date of such deposit, upon surrender of the certificates for such shares for cancellation duly endorsed to the Corporation or otherwise, as may be required, the funds so deposited, without interest, and the right to exercise, prior to the date fixed for redemption, all privileges of conversion or exchange, if any, not theretofore expired. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any funds so deposited and unclaimed at the end of six years from such redemption date shall be repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment thereof; provided that any funds so deposited which shall not be required for redemption because of the exercise of any privilege of conversion or exchange subsequent to the date of deposit shall be repaid to the Corporation forthwith. (d) Dissolution, Liquidation, or Winding-up. Upon any dissolution, liquidation, or winding-up of the Corporation, whether voluntary or involuntary, the holders of each class of the Junior Preferred Stock then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to stockholders that sum per share in respect of each series as shall have been determined for such series by the Board of Directors, plus, in the case of each share, an amount equal to the dividends accrued and unpaid thereon to the date fixed for final distribution, whether or not earned or declared, before any distribution of or out of assets of the Corporation shall, be made to the holders of any junior stock as such. If the assets distributable upon such dissolution, liquidation or winding-up of the Corporation shall be insufficient to permit the payment to holders of the Junior Preferred Stock of the full amounts to which they are entitled as aforesaid, then said assets shall be distributed ratably among the holders of such shares of the Junior Preferred Stock in proportion to the sums which would be payable on such dissolution, liquidation or winding-up if all such sums were paid in full. Neither the consolidation nor merger of the Corporation with or into any other corporation, nor any sale, lease or conveyance of all or any part of the property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding-up of the Corporation within the meaning of this subsection (d). After payment to the holders of the Junior Preferred Stock of the full amounts to which they respectively are entitled as aforesaid, such holders, as such, shall have no right or claim to any of the remaining assets of the Corporation. (e) Purchase or Other Acquisition. Nothing herein contained shall limit any legal right of the Corporation to purchase or otherwise acquire any shares of the Junior Preferred Stock. (f) No Preemptive Rights. No holder of Junior Preferred Stock, as such, shall have any preemptive or other right to subscribe for, purchase or receive any part of the unissued stock of the Corporation, or any security convertible into such stock, or any part of any new or additional issue of any stock of the Corporation, whether of the same class or of any other class, or to subscribe for, purchase or receive any rights or options to purchase any such stock, or to have any other preemptive rights as now or hereafter defined by the laws of the State of New Jersey. If the Board of Directors shall determine to offer any new or additional shares of Common Stock or any other security of the Corporation with respect to which the holders of Common Stock shall have any preemptive or other right to subscribe or purchase, then in each such case the Corporation shall give or cause to be given to each holder of Junior Preferred Stock then outstanding at his address, as the same shall appear on the books of the Corporation, notice of such preemptive or other right, not less than 20 nor more than 60 days prior to the record day fixed to establish the holders of Common Stock entitled to exercise such preemptive or other right. B. Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par (a) Dividends. The holders of the shares of each series of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be entitled to receive, in preference to the holders of Common Stock and to the holders of Junior Preferred Stock, but only when and as declared by the Board of Directors out of funds of the Corporation legally available for the payment of dividends, cumulative cash dividends, cumulative from the date on which shares of said Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par are originally issued or such other earlier date as the Board of Directors may determine and no more, payable quarter-yearly on dates to be fixed by the Board of Directors to stockholders of record on the respective dates not exceeding thirty (30) days and not less than ten (10) days preceding such dividend payment dates (such days being herein called "dividend payment dates" and the quarterly periods ending on such days being herein called "dividend periods") to be fixed by the Board of Directors. No dividends shall be declared on any series of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par in respect of any quarter-yearly dividend period unless there shall likewise be declared on all shares of all series of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par at the time outstanding, like proportionate dividends, ratably in proportion to respective annual dividend rates fixed therefor in respect of all quarter- yearly dividend periods terminating on the same date or earlier. The dividends on shares of all series of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be cumulative. The holders of shares of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par are not to be entitled to any dividends thereon other than the dividends referred to in this paragraph (a). So long as any shares of any series of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be outstanding, the Corporation shall not declare or pay any dividend on its Common Stock or Junior Preferred Stock or other stock ranking junior in priority as to dividends or on dissolution to the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par (the Common Stock, Junior Preferred Stock and any such other junior ranking stock being hereinafter called "junior stock"), other than dividends payable solely in junior stock or make any other distribution of any sort, either directly or indirectly in respect of any junior stock unless at the date of such declaration in the case of a dividend or the date of such distribution or other all cumulative dividends on the then outstanding shares of said Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall have been paid or declared and a sum sufficient for payment thereof set aside. Accruals of dividends shall not bear interest. (b) Voting Rights. No holder of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be entitled to vote at any meeting of stockholders or at any election of the Corporation or otherwise to participate in any action taken by the Corporation or the stockholders thereof, except for those purposes, if any, for which said right to vote or otherwise to participate cannot be denied or waived under the laws of the State of New Jersey and except as otherwise provided in paragraph (b) hereof. However, at any meeting of the stockholders of the Corporation at which the holders of the Cumulative Preferred Stock and the Cumulative Preferred Stock- - - - - -$25 Par shall be entitled to vote as a single class, the holders of Cumulative Preferred Stock shall be entitled to cast one vote for each share of Cumulative Preferred Stock held and the holders of Cumulative Preferred Stock--$25 Par shall be entitled to cast 1/4 vote for each share of Cumulative Preferred Stock--$25 Par held. (1) If and when dividends payable on the Cumulative Preferred Stock--$25 Par shall be in default in an amount equivalent to four (4) full quarter-yearly dividends on all shares of all series of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par at the time outstanding, and until all dividends in default on the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par shall have been paid, the holders of all shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par, voting separately as one class, shall be entitled to elect the smallest number of Directors necessary to constitute a majority of the full Board of Directors, and the holders of the Common Stock and Junior Preferred Stock, voting separately as a class, shall be entitled to elect the remaining Directors of the Corporation. The terms of office of all persons who may be Directors of the Corporation at the time shall terminate upon the election of a majority of the Board of Directors by the holders of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par, whether or not the holders of the Common Stock shall then have elected the remaining Directors of the Corporation. (2) If and when all dividends then in default on the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par at the time outstanding shall be paid, the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall thereupon be divested of any special right with respect to the election of Directors provided in sub- paragraph (1) hereof, and the voting power of the Common Stock and Junior Preferred Stock shall revert to the status existing before the occurrence of such default; but always subject to the same provisions for vesting such special rights in the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par in case of further like default or defaults in dividends thereon. Upon the termination of any such special right the terms of office of all persons who may have been elected Directors of the Corporation by vote of the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par, as a class, pursuant to such special right shall forthwith terminate. (3) In case of any vacancy in the Board of Directors occurring among the Directors elected by the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par, as a class, pursuant to sub-paragraph (1) above, the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par, then outstanding and entitled to vote may elect a successor to hold office for the unexpired term of the Director whose place shall be vacant. In case of a vacancy in the Board of Directors occurring among the Directors elected by the holders of the Common Stock and Junior Preferred Stock, as a class, pursuant to sub-paragraph (1) above, the holders of the Common Stock and Junior Preferred Stock, then outstanding and entitled to vote may elect a successor to hold office for the unexpired term of the Director whose place shall be vacant. In all other cases, any vacancy occurring among the Directors shall be filled by the vote of a majority of the remaining Directors. (4) Whenever the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par, as a class, become entitled to elect Directors of the Corporation pursuant to either sub-paragraphs (1) or (3) above, or whenever the holders of the Common Stock and Junior Preferred Stock, as a class, become entitled to elect Directors of the Corporation pursuant to either sub-paragraphs (1) or (3) above, a meeting of the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par or of the Common Stock and Junior Preferred Stock, as the case may be, shall be held at any time thereafter upon call by the holders of not less than 1,000 shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par or of the Common Stock and Junior Preferred Stock, as the case may be, or upon call by the Secretary of the Corporation at the request in writing of any stockholder addressed to him at the principal office of the Corporation. At all meetings of stockholders held for the purpose of electing directors during such times as the holders of shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall have the special right, voting separately as one class, to elect directors pursuant to either sub-paragraphs (1) or (3) above, the presence in person or by proxy of the holders of a majority of the outstanding shares of the Common Stock and Junior Preferred Stock, shall be required to constitute a quorum of such class for the election of directors, and the presence in person or by proxy of the holders of a majority of the outstanding shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par shall be required to constitute a quorum of such class for the election of directors; provided, however, that the absence of a quorum of the holders of stock of either such class shall not prevent the election at any such meeting or adjournment thereof of directors by the other such class if the necessary quorum of the holders of stock of such other class is present in person or by proxy at such meeting; and provided further that in the absence of a quorum of the holders of stock of either such class, a majority of those holders of the stock of such class who are present in person or by proxy shall have power to adjourn the election of the directors to be elected by such class from time to time without notice other than announcement at the meeting until the holders of the requisite number of shares of such class shall be present in person or by proxy. (5) Except as some mandatory provision of law may be controlling and except as otherwise provided herein, whenever shares of two or more series of the Cumulative Preferred Stock or Cumulative Preferred Stock-- $25 Par are outstanding, no particular series of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par shall be entitled to vote as a separate series on any matter and all shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par of all series shall be deemed to constitute but one class for any purpose for which a vote of the stockholders of the Corporation by classes may now or hereafter be required. (6) So long as any shares of Cumulative Preferred Stock or Cumulative Preferred -$25 Par are outstanding, the Corporation shall not, without the consent (given by a vote at a meeting called for that purpose) of the holders of at least two-thirds of the total number of shares of Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par then outstanding: (i) create or authorize any new stock ranking prior to the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par as to dividends or assets, or create or authorize any security convertible into shares of any such stock; or (ii) amend, alter or repeal any of the rights, preferences or powers of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par so as to affect adversely any such rights, preferences or powers; provided, however, that if such amendment, alteration or repeal affects adversely the rights, preferences or powers of one or more, but not all, series of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par at the time outstanding, only the consent of the holders of at least two-thirds of the total number of outstanding shares of each series so affected shall be required; and provided, further, that an amendment to increase or decrease the authorized number of shares of Cumulative Preferred Stock or to create or authorize or increase or decrease the amount of any class of stock ranking on a parity with the outstanding shares of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par as to dividends or assets shall not be deemed to affect adversely the rights, preferences or powers of the holders of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par or any series thereof. (7) So long as any shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par are outstanding, the Corporation shall not, without the consent (given by vote at a meeting called for that purpose) of the holders of a majority of the total number of shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par then outstanding: (i) issue, sell or otherwise dispose of any shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par or of any other class of stock ranking prior to, or on a parity with, the Cumulative Preferred Stock or Cumulative Preferred Stock- -$25 Par as to dividends or assets, unless the gross income of the Corporation determined, after provision for depreciation and all taxes and in accordance with generally accepted accounting principles, for a period of twelve (12) consecutive calendar months within the fifteen (15) calendar months immediately preceding the issuance, sale or disposition of such stock, to be available for the payment of interest, shall have been at least one and one-half times the sum of (x) the annual interest charges on all interest bearing indebtedness of the Corporation having a maturity at date of issuance of more than one year and (y) the annual dividend requirements on all outstanding shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par and all other classes of stock ranking prior to, or on a parity with, the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par as to dividends or assets, including the shares proposed to be issued; provided, that there shall be excluded from the foregoing computation interest charges on all indebtedness and dividends on all shares of stock which are to be retired in connection with the issue of such additional shares of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par or other class of stock ranking prior to, or on a parity with, the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par as to dividends or assets; and provided, further, that in any case where such additional shares of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par or other class of stock ranking prior to, or on a parity with, the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par as to dividends or assets, are to be issued in connection with the acquisition of new property, the net earnings of the property to be so acquired may be included on a pro forma basis in the foregoing computation, computed on the same basis as the net earnings of the Corporation; or (ii) issue, sell or otherwise dispose of any shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par or of any other class of stock ranking prior to, or on a parity with, the Cumulative Preferred Stock or Cumulative Preferred Stock- -$25 Par as to dividends or assets, unless the Junior Stock Equity of the Corporation shall be not less than the aggregate amount payable on the involuntary dissolution, liquidation or winding-up of the Corporation, in respect of all shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par and all shares of stock, if any, ranking prior thereto, or on a parity therewith, as to dividends or assets, which will be outstanding after the issue of the shares proposed to be issued; provided, that if, for the purposes of meeting the requirements of this subparagraph (ii), it becomes necessary to take into consideration any earned surplus of the Corporation, the Corporation shall not thereafter pay any dividends on shares of the Common Stock which would result in reducing the Corporation's Junior Stock Equity to an amount less than the aggregate amount payable, on dissolution, winding-up or involuntary liquidation of the Corporation, on all shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par and of any stock ranking prior to, or on a parity with, the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par as to dividends or assets, at the time outstanding. As used herein, "Junior Stock Equity of the Corporation" shall mean the aggregate of the par value, or stated capital represented by, all stock (including the Junior Preferred Stock and the Common Stock) ranking junior to the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par as to dividends and assets, all earned surplus, capital or paid-in surplus, and any premiums on any such junior stock. (c) Redemption. The Corporation, at the option of the Board of Directors, may at any time redeem any outstanding shares of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par, either as a whole or in part from time to time, upon giving notice as hereinafter specified at the applicable redemption price provided for such series. Notice of every such redemption of shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par, in form approved by the Board of Directors, shall be given not less than 30 nor more than 60 days prior to the date fixed for redemption to each holder of record of shares so to be redeemed at his address as the same shall appear on the books of the Corporation. Notice of redemption having been so given, then from and after the date fixed in such notice as the redemption date (unless default be made in providing funds for the payment of the redemption price and accrued and unpaid dividends to the date fixed for redemption), notwithstanding that any certificate for shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par so called for redemption shall not have been surrendered for cancellation, all such shares so called for redemption shall no longer be deemed outstanding on and after such redemption date and the right to receive dividends thereon and all other rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders of such shares to receive the amount payable on the redemption thereof, without interest. In case of a redemption of only part of the outstanding shares of any series of the Cumulative Preferred Stock or Cumulative Preferred Stock-- $25 Par, the redemption may be either pro rata or by lot as determined by the Board of Directors. Subject to the foregoing the Board of Directors shall have full power and authority to describe the manner by which the drawings by lot or the pro rata redemption shall be conducted and the terms and conditions upon which the shares shall be redeemed from time to time. At any time if any such notice of redemption shall have been duly given or if the Corporation shall have given to the bank or trust company hereinafter referred to irrevocable written authorization promptly to give or complete such notice, the Corporation may deposit with a bank or trust company having its principal office in the State of New Jersey or in the Borough of Manhattan, City and State of New York, and having, according to its last published statement, capital, surplus and undivided profits aggregating at least $5,000,000 and which bank or trust company shall have been named in such notice as the place of redemption, funds necessary for such redemption in trust for the pro rata benefit of the holders of the shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par so called for redemption, to be payable on or after the date of such deposit for redemption, and from and after the date of such deposit all such shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall cease and terminate, except only the right of the holders thereof to receive from such bank or trust company at any time after the date of such deposit, upon surrender of the certificates for such shares for cancellation duly endorsed to the Corporation or otherwise, as may be required the funds so deposited, without interest, and the right to exercise, prior to the date fixed for redemption, all privileges of conversion or exchange, if any, not heretofore expired. Any interest accrued on such funds shall be paid to the Corporation from time to time. Any funds so deposited and unclaimed at the end of six years from such redemption date shall be repaid to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment thereof; provided that any funds so deposited which shall not be required for redemption because of the exercise of any privilege of conversion or exchange subsequent to the date of deposit shall be repaid to the Corporation forthwith. (d) Dissolution, Liquidation, or Winding-up. Upon any dissolution, liquidation or winding-up of the Corporation, whether voluntary or involuntary, the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par then outstanding shall be entitled to receive out of the assets of the Corporation legally available for distribution to stockholders that sum per share in respect of each series as shall have been determined for such series by the Board of Directors, plus, in the case of each share, an amount equal to the dividends accrued and unpaid thereon to the date fixed for final distribution, whether or not earned or declared, before any distribution of or out of assets of the Corporation shall be made to the holders of any junior stock, as such. If the assets distributable upon such dissolution, liquidation or winding-up of the Corporation shall be insufficient to permit the payment to holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par of the full amounts to which they are entitled as aforesaid, then said assets shall be distributed ratably among the holders of such shares of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par in proportion to the sums which would be payable on such dissolution, liquidation or winding-up if all such sums were paid in full. Neither the consolidation nor merger of the Corporation with or into any other corporation, nor any sale, lease or conveyance of all or any part of the property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding-up of the Corporation within the meaning of this subsection (d). After payment to the holders of the Cumulative Preferred Stock and Cumulative Preferred Stock--$25 Par of the full amounts to which they respectively are entitled as aforesaid, such holders, as such, shall have no right or claim to any of the remaining assets of the Corporation. (e) Purchase or Other Acquisition. Nothing herein contained shall limit any legal right of the Corporation to purchase or otherwise acquire any shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par; provided, however, that the Corporation shall not purchase or otherwise acquire any shares of the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par if at the time of such purchase or other acquisition dividends payable on the Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par shall be in default in whole or in part. (f) No Preemptive Rights. No holder of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par, as such, shall have any preemptive or other right to subscribe for, purchase or receive any part of the unissued stock of the Corporation, or any security convertible into such stock, or any part of any new or additional issue of any stock of the Corporation, whether of the same class or of any other class, or to subscribe for, purchase or receive any rights or options to purchase any such stock, or to have any other preemptive rights as now or hereafter defined by the laws of the State of New Jersey. If the Board of Directors shall determine to offer any new or additional shares of Common Stock or any other security of the Corporation with respect to which the holders of Common Stock shall have any preemptive or other right to subscribe or purchase, then in each such case the Corporation shall give or cause to be given to each holder of Cumulative Preferred Stock or Cumulative Preferred Stock--$25 Par then outstanding at his address, as the same shall appear on the books of the Corporation, notice of such preemptive or other right, not less than 20 nor more than 60 days prior to the record day fixed to establish the holder of Common Stock entitled to exercise such preemptive or other right. C. Series of Preferred Stock (1) $5.90 Cumulative Preferred Stock. Without limitation of any authority conferred upon the Board of Directors in this Restated Certificate of Incorporation, there shall be a series of Cumulative Preferred Stock, $100 par value, to consist of 120,000 shares and designated as "$5.90 Cumulative Preferred Stock"; and the rights and preferences of the $5.90 Cumulative Preferred Stock in those respects in which the shares thereof may vary from the shares of other series shall be as follows: (a) Dividends. The rate of dividend on the $5.90 Cumulative Preferred Stock shall be $5.90 per annum. Dividends shall be payable on each outstanding share of such series on the first days of March, June, September and December in each year for the quarterly dividend periods immediately preceding such dividend payment dates, and dividends shall be cumulative from the first day of the quarterly dividend period in which such share is issued; provided, however, that with respect to the dividends payable on June 1, 1994, the first day of the dividend period with respect to which such dividend is paid on any share of the $5.90 Cumulative Preferred Stock originally issued during the quarterly dividend period preceding such dividend payment date shall be the day of the actual issuance of such share. (b) Redemption. (i) Optional. Shares of the $5.90 Cumulative Preferred Stock shall not be redeemable at the option of the Corporation at any time. (ii) Mandatory. The Corporation shall call for redemption and redeem out of funds legally available therefor on March 1, 2004, at a mandatory redemption price of $100 per share, plus accrued and unpaid dividends to the date fixed for redemption, all the shares of the $5.90 Cumulative Preferred Stock then outstanding; provided, however, that if on March 1, 2004 funds legally available therefor are insufficient to permit the Corporation to redeem the full number of shares of $5.90 Cumulative Preferred Stock and all other shares of the Corporation's Cumulative Preferred Stock required to be redeemed on or prior to such date, the Corporation shall redeem on such date that number of shares of $5.90 Cumulative Preferred Stock and such other shares of Cumulative Preferred Stock, pro rata, for which sufficient funds are legally available, and thereafter, promptly after the receipt by the Corporation of sufficient funds legally available to permit the redemption of all of the remaining shares of $5.90 Cumulative Preferred Stock and such other shares of Cumulative Preferred Stock, the Corporation shall call for redemption and redeem such shares out of funds legally available therefor on a date selected by the Corporation therefor at, with respect to the shares of $5.90 Cumulative Preferred Stock, a mandatory redemption price of $100 per share, plus accrued and unpaid dividends to the date fixed for redemption. Any redemption pursuant to the provisions hereof shall be made in the manner, and upon notice given, pursuant to Article V, subparagraph 2.B(c) of this Restated Certificate of Incorporation of the Corporation; provided, however, that such notice shall state that redemption is being made to satisfy the mandatory redemption requirements for the $5.90 Cumulative Preferred Stock. The Corporation may credit shares of the $5.90 Cumulative Preferred Stock purchased by or on behalf of the Corporation against its obligation to make such mandatory redemption. (c) Involuntary Liquidation, Dissolution or Winding-up. The amount payable in respect of the $5.90 Cumulative Preferred Stock in the event of involuntary liquidation, dissolution or winding-up of the Corporation shall be $100 per share, plus accrued dividends. (d) Voluntary Liquidation, Dissolution or Winding-up. The amount payable in respect of the $5.90 Cumulative Preferred Stock in event of voluntary liquidation, dissolution or winding-up of the Corporation shall be $100 per share, plus accrued dividends. Neither the merger nor consolidation of the Corporation into or with any other Corporation, nor the merger or consolidation of any other corporation into or with the Corporation, nor any sale, lease, or conveyance of all or any part of the property or business of the Corporation, shall be deemed to be a liquidation, dissolution or winding-up of the Corporation for purposes of clauses (c) and (d) above. (e) No Conversion Rights. The shares of $5.90 Cumulative Preferred Stock shall not be, by their terms, convertible or exchangeable. ARTICLE VI Directors' Meetings and Books Outside of New Jersey The Directors of the Corporation may hold meetings and keep the books of the Corporation outside of the State of New Jersey, except as otherwise provided by law. ARTICLE VII Interested Directors No material contract or other transaction between the Corporation and any other corporation shall be affected by the fact that Directors of the Corporation are interested in, or are directors or officers of, such other corporation. The Board of Directors of the Corporation in its discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders, or at any meeting of the stockholders called for the purpose of considering any such act or contract; and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the Common Stock of the Corporation which is represented in person or by proxy at such meeting (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be valid and as binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation. ARTICLE VIII Indemnification of Officers and Directors The Corporation shall indemnify any present or future director or officer of the Corporation and any present or future director, trustee or officer of any corporation serving as such at the request of the Corporation because of the Corporation's interest in such other corporation, or the legal representative of any such director, trustee or officer, against reasonable costs, expenses (exclusive of any amount paid to the Corporation in settlement) and counsel fees paid or incurred in connection with any action, suit or proceeding to which any such director, trustee or officer or his legal representative may be made a party by reason of his being or having been such director, trustee or officer, provided: (1) said action, suit or proceeding shall be prosecuted against such director, trustee or officer or against his legal representative to final determination, and it shall not be finally adjudged in said action, suit or proceeding that he had been derelict in the performance of his duties as such director, trustee or officer; or (2) said action, suit or proceeding shall be settled or otherwise terminated as against such director, trustee or officer or his legal representative without a final determination on the merits, and it shall be determined by the Board of Directors that such director, trustee or officer had not in any substantial way been derelict in the performance of his duties as charged in such action, suit or proceeding. The right of indemnification hereinabove provided shall not be deemed exclusive of any other rights to which any such person may now or hereafter be otherwise entitled and specifically, without limiting the generality of the foregoing, shall not be deemed exclusive of any rights, pursuant to statute or otherwise, of any such person in any such action, suit or proceeding, to have assessed or allowed in his favor, against the Corporation or otherwise, his costs and expenses incurred therein or in connection therewith or any part thereof. ARTICLE IX Stockholder Action Any action which, at any meeting of stockholders, requires the vote, assent or consent of two-thirds in interest of all of the stockholders, or of two-thirds in interest of each class of stockholders having voting powers, or which requires such assent or consent in writing to be filed, may be taken upon the assent of and the assent given and filed, as the case may be, by two-thirds in interest of the stockholders present and voting at such meeting in person or by proxy, but where assent by classes is required such assent shall be given by two-thirds in interest of each class so present and voting. Dated this 30th day of March, 1994. ELIZABETHTOWN WATER COMPANY By: /s/ Gail P. Brady ------------------------------ Name: Gail P. Brady Title: Vice President-Controller EX-4 7 INDENTURE ___________________________________________________________ ELIZABETHTOWN WATER COMPANY TO THE BANK OF NEW YORK, TRUSTEE ___________ INDENTURE Dated as of November 1, 1993 ______________ 7-1/4% Debentures due 2028 __________________________________________________________ TABLE OF CONTENTS* * This Table of Contents does not constitute any part of the Indenture and is not to have any bearing upon the interpretation of any of its terms or provisions. Page PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Purpose of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . 1 Form of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Compliance with legal requirements . . . . . . . . . . . . . . . . . . 6 ARTICLE ONE. Definitions. SECTION 1.01 Certain terms; other terms defined in Trust Indenture Act of 1939 or by reference therein in Securities Act of 1933, as amended, to have meanings therein assigned . . . . . . . . . . . . . . . . 6 Board of Directors . . . . . . . . . . . . . . . . . . . . . . 7 Board Resolution . . . . . . . . . . . . . . . . . . . . . . . 7 Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Debenture or Debentures . . . . . . . . . . . . . . . . . . . . 7 outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Debentureholder . . . . . . . . . . . . . . . . . . . . . . . . 7 Event of Default . . . . . . . . . . . . . . . . . . . . . . . 8 Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . 8 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . 8 Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Principal Corporate Trust Office . . . . . . . . . . . . . . . 8 Responsible Officer . . . . . . . . . . . . . . . . . . . . . . 8 Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Trust Indenture Act of 1939 . . . . . . . . . . . . . . . . . . 9 ARTICLE TWO. Description, Execution and Exchange of Debentures. SECTION 2.01 Maturity of Debentures . . . . . . . . . . . . . . . . . . 9 SECTION 2.02 Form of Debentures . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.03 Date of Debentures and denominations . . . . . . . . . . . 9 SECTION 2.04 Execution and authentication of Debentures . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.05 Exchange, registration and transfer of Debentures . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.06 Mutilated, destroyed, lost or stolen Debentures . . . . . . . . . . . . . . . . . . . . . 11 SECTION 2.07 Cancellation of surrendered Debentures . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.08 Provisions of Indenture and Debentures for sole benefit of parties and Debentureholders . . . . . . . . . . . . . 12 SECTION 2.09 CUSIP Numbers . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE THREE. Issue of Debentures. SECTION 3.01 Amount, authentication and delivery of Debentures . . . . . . . . . . . . . . . . . . . . . . 13 ARTICLE FOUR. Redemption of Debentures. SECTION 4.01. Redemption of Debentures . . . . . . . . . . . . . . . . . 14 SECTION 4.02. Redemption of part only of Debentures . . . . . . . . . . . . . . . . . . . . . . . 14 Notice of intention to redeem . . . . . . . . . . . . . . 14 SECTION 4.03. When called Debentures become due and payable . . . . . . . . . . . . . . . . . . . . . . 15 SECTION 4.04. When interest ceases on called Debentures . . . . . . . . . . . . . . . . . . . . . . . 15 ARTICLE FIVE. Particular Covenants of the Company. SECTION 5.01. Payment of principal of and interest on Debentures . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.02. Maintenance and designation of office or agency for registration of transfer, exchange and payment of Debentures . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.03. Appointment to fill vacancy in office of Trustee . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.04. Appointment of paying agent other than Trustee . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 5.05. Company not to incur debt, with certain exceptions . . . . . . . . . . . . . . . . . . . 17 Definition of "Property Additions" . . . . . . . . . . . . 19 SECTION 5.06. Company covenants it will not mortgage, pledge or permit any other lien, with certain exceptions, upon any of its property now owned or here- after acquired without securing the Debentures . . . . . . . . . . . . . . . . . . . . . . . 21 Covenants of the Company in the event of merger, consolidation or sale . . . . . . . . . . . . 21 Definition of "Excepted Property" . . . . . . . . . . . . 23 SECTION 5.07. Limitations on dividends . . . . . . . . . . . . . . . . . 24 SECTION 5.08. Special provision for retirement of Debentures . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 5.09. Company to file Compliance Certificate with Trustee annually . . . . . . . . . . . . . . . . . 26 ARTICLE SIX. Debentureholders' Lists and Reports by the Company and the Trustee. SECTION 6.01. Company to furnish Trustee information as to names and addresses of Debentureholders . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.02. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.03. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 6.04. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 ARTICLE SEVEN. Remedies of the Trustee and Debentureholders on Event of Default. SECTION 7.01. Events of Default defined . . . . . . . . . . . . . . . . 27 Acceleration of maturity upon Event of Default . . . . . . . . . . . . . . . . . . . . 28 Waiver of default and rescission of declaration of maturity . . . . . . . . . . . . . . . . 29 SECTION 7.02. Covenant of Company to pay to Trustee whole amount due on Debentures on default in payment of interest or principal . . . . . . . . . . . . . . . . . . . . . . . 29 Trustee may remove judgment for whole amount due on Debentures on failure of Company to pay . . . . . . . . . . . . . . . . . . . 30 Filing of proof of claim by Trustee in bankruptcy, reorganization, receivership, or other judicial proceedings . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 7.03. Application of moneys collected by Trustee . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 7.04. Limitation on suits by holders of Debentures . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 7.05. Delay or omission in exercise of rights not waiver of default . . . . . . . . . . . . . . 33 SECTION 7.06. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 7.07. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 7.08. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE EIGHT. Concerning the Trustee. SECTION 8.01. Duties of Trustee prior to and after Event of Default . . . . . . . . . . . . . . . . . . . . 33 SECTION 8.02. Except as otherwise provided in Section 8.01:. . . . . . . . . . . . . . . . . . . . . . 33 (a) Trustee may rely on documents believed genuine and properly signed or presented . . . . . . . . . . . . . . . . 33 (b) Sufficient evidence by certain instruments provided for . . . . . . . . . . . . . 33 (c) Trustee may act on Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . 34 (d) Trustee may require indemnity from Debentureholders . . . . . . . . . . . . . . . . . 34 (e) Trustee not liable for actions in good faith believed to be authorized . . . . . . . . . . . . . . . . . . . . 34 (f) Investigation of facts by Trustee . . . . . . . . . . 34 (g) Trustee may act through agents . . . . . . . . . . . 34 (h) Trustee not required to risk own funds . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 8.03. Trustee not liable for recitals in Indenture or in Debentures . . . . . . . . . . . . . . . 35 Trustee not accountable for use of Debentures or proceeds . . . . . . . . . . . . . . . . . 35 SECTION 8.04. Trustee, paying agent or Debenture registrar may own Debentures . . . . . . . . . . . . . . 35 SECTION 8.05. Moneys received by Trustee to be held in trust . . . . . . . . . . . . . . . . . . . . . 35 SECTION 8.06. Trustee entitled to compensation, reimbursement and indemnity . . . . . . . . . . . . . . 35 Obligations to Trustee to be secured by lien prior to Debentures . . . . . . . . . . . . . . 35 SECTION 8.07. Right of Trustee to rely on Officers' Certificate where no other evidence specifically prescribed . . . . . . . . . . . . . . . . 36 SECTION 8.08. Calculation of percentages of securities . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.09. Requirements for eligibility of Trustee . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 8.10. (a) Resignation of Trustee . . . . . . . . . . . . . . . 37 (b) Removal of Trustee by Company or by court on Debentureholder's application . . . . . . . . . . . . . . . . . . . . 37 (c) Removal of Trustee by holders of majority in principal amount of Debentures . . . . . . . . . . . . . . . . . . . . 38 (d) Time when resignation or removal of Trustee effective . . . . . . . . . . . . . . . 38 SECTION 8.11. Acceptance by successor to Trustee . . . . . . . . . . . . 38 SECTION 8.12. Successor to Trustee by merger, consolidation or succession to business . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 8.13. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 ARTICLE NINE. Concerning the Debentureholders. SECTION 9.01. Evidence of action by Debenture- holders . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 9.02. Proof of execution of instruments and holding of Debentures . . . . . . . . . . . . . . . 40 SECTION 9.03. Who may be deemed owners of Debentures . . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 9.04. Debentures owned by Company or controlled or controlling companies disregarded for certain purposes . . . . . . . . . . . . 40 SECTION 9.05. Action by Debentureholders bind future holders . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE TEN. Debentureholders' Meetings. SECTION 10.01 Purposes for which meetings may be called . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 10.02. Manner of calling meetings . . . . . . . . . . . . . . . . 41 SECTION 10.03. Call of meetings by Company or Debentureholders . . . . . . . . . . . . . . . . . . . . 42 SECTION 10.04. Who may attend and vote at meetings . . . . . . . . . . . 42 SECTION 10.05. Regulations may be made by Trustee . . . . . . . . . . . . 42 SECTION 10.06. Manner of voting at meetings and record to be kept . . . . . . . . . . . . . . . . . . . 43 SECTION 10.07. Exercise of rights of Trustee or Debentureholders may not be hindered or delayed by call of meeting of Debentureholders . . . . . . . . . . . . . . . . . . . . 44 ARTICLE ELEVEN. Supplemental Indentures. SECTION 11.01 Purposes for which supplemental indentures may be entered into with- out consent of Debentureholders . . . . . . . . . . . . 44 SECTION 11.02 Modification of Indenture with consent of holders of more than 50% in principal amount of Debentures . . . . . . . . . . . . . 45 SECTION 11.03. Effect of supplemental indentures . . . . . . . . . . . . 45 SECTION 11.04. Debentures may bear notation of changes . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 11.05. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . 46 ARTICLE TWELVE. Consolidation, Merger and Sale. SECTION 12.01. Consolidation or merger of Company and sale or conveyances of property of Company permitted . . . . . . . . . . . . . . . . . . 46 Assumption of obligations of Company by successor company or transferee . . . . . . . . . . . 47 SECTION 12.02. Rights and duties of successor corporation . . . . . . . . . . . . . . . . . . . . . . 47 Appropriate changes may be made in phraseology and form of Debentures . . . . . . . . . . . 47 Company may consolidate or merge into itself or acquire properties of other corporations . . . . . . . . . . . . . . . . . . . 47 SECTION 12.03. Opinion of Counsel . . . . . . . . . . . . . . . . . . . . 47 ARTICLE THIRTEEN. Satisfaction and Discharge of Indenture; Deposited Moneys. SECTION 13.01. Satisfaction and discharge of Indenture . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 13.02 Application by Trustee of funds deposited for payment of Debentures . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 13.03. Repayment of moneys held by paying agent . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 13.04. Payment of deposited money to Company after lapse of time . . . . . . . . . . . . . . 49 ARTICLE FOURTEEN. Immunity of Incorporators, Stockholders, Officers, Trustees and Directors. SECTION 14.01. Incorporators, stockholders, officers, trustees and directors of Company exempt from individual liability . . . . . . . . . . . . 50 ARTICLE FIFTEEN. Miscellaneous Provisions. SECTION 15.01. Successors and assigns of Company bound by Indenture . . . . . . . . . . . . . . . . . . . 50 SECTION 15.02. Acts of board, committee or officer of successor corporation valid . . . . . . . . . . . . . 51 SECTION 15.03. Surrender of powers by Company . . . . . . . . . . . . . . 51 SECTION 15.04. Required notices or demands may be served by mail . . . . . . . . . . . . . . . . . . . . . 51 SECTION 15.05. Indenture and Debentures to be construed in accordance with laws of State of New York . . . . . . . . . . . . . . . . . . 51 SECTION 15.06. Officers' Certificate and Opinion of Counsel to be furnished upon applications or demands by Company . . . . . . . . . . . 51 SECTION 15.07. Payments due on Sundays or holidays . . . . . . . . . . . 52 SECTION 15.08. Provisions required by Trust Indenture Act of 1939 to control . . . . . . . . . . . . 52 SECTION 15.09. Effect of invalidity of provisions . . . . . . . . . . . . 52 SECTION 15.10. Indenture may be executed in counter- parts . . . . . . . . . . . . . . . . . . . . . . . . . 53 ACCEPTANCE OF TRUST . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 TESTIMONIUM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 INDENTURE, dated as of November 1, 1993, between ELIZABETHTOWN WATER COMPANY, a corporation duly organized and existing under and by virtue of the laws of the State of New Jersey (hereinafter sometimes called the "Company"), party of the first part, and THE BANK OF NEW YORK, a New York banking corporation (hereinafter sometimes called the "Trustee"), party of the second part. WHEREAS, the Company is empowered to issue debentures for any of the objects and purposes of the Company; WHEREAS, for its lawful corporate purposes, the Company has duly authorized an issue of debentures designated 7-1/4% Debentures due 2028 (hereinafter referred to as the "Debentures"), in an aggregate principal amount of $50,000,000, to be issued under and pursuant to the provisions hereof; and WHEREAS, the Debentures and the Trustee's certificate of authentication to be borne by the Debentures are to be substantially in the following forms, respectively: [FORM OF DEBENTURE] [FACE] $___________________ No. _________ ELIZABETHTOWN WATER COMPANY 7-1/4% Debenture due 2028 ELIZABETHTOWN WATER COMPANY, a corporation duly organized and existing under the laws of the State of New Jersey (herein referred to as the "Company"), for value received, hereby promises to pay to ______________________, or registered assigns, on November 1, 2028 or upon the earlier redemption hereof as hereinafter provided, the principal sum of _________________ _______________________ Dollars in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest thereon at the rate per annum specified in the title of this Debenture, in like coin or currency, semi-annually on May 1 and November 1 in each year, until payment of said principal sum has been made or duly provided for, from the most recent interest payment date to which interest has been paid or duly provided for (unless the date hereof is the date to which interest on the Debentures has been paid or duly provided for in which case from the date of this Debenture) or if no interest has been paid or duly provided for on the Debentures from November 1, 1993. Principal and interest shall be paid at the principal corporate trust office of The Bank of New York, New York, New York or at the office of the Company, Westfield, New Jersey, or at the duly designated office of any duly appointed alternate or successor paying agent; provided, however, that at the option of the Company interest on this Debenture may be paid by check mailed to the registered holder thereof at such holder's address as it shall appear on the register of the Company. Reference is hereby made to the further provisions of this Debenture set forth on the reverse hereof, and such further provisions shall for all purposes have the same effect as though fully set forth at this place. This Debenture shall not be valid or become obligatory for any purpose until the certificate of authentication hereon shall have been signed by the Trustee under the Indenture. IN WITNESS WHEREOF, ELIZABETHTOWN WATER COMPANY has caused this Debenture to be signed in its corporate name by its President or one of its Vice Presidents by his signature or a facsimile thereof and by its Secretary or one of its Assistant Secretaries by his signature or a facsimile thereof, and its corporate seal, or a facsimile thereof, to be impressed or imprinted hereon. ELIZABETHTOWN WATER COMPANY By___________________________ President. By___________________________ Secretary. [FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION] Dated: _______________ This is one of the Debentures described in the within-mentioned Indenture. THE BANK OF NEW YORK, as Trustee, By_________________________________ Authorized Signatory. [REVERSE] ELIZABETHTOWN WATER COMPANY 7-1/4% Debenture due 2028 This Debenture is one of a duly authorized issue of Debentures of the Company (herein referred to as the "Debentures"), limited to the aggregate principal amount of $50,000,000, except as otherwise provided in the Indenture referred to below, all issued or to be issued under and pursuant to an indenture dated as of November 1, 1993 (herein referred to as the "Indenture"), duly executed and delivered by the Company to The Bank of New York, Trustee (herein referred to as the "Trustee"), to which Indenture and all indentures supplemental thereto reference is hereby made for a description of the rights of the holders of the Debentures, the rights, duties and immunities of the Trustee and the rights and obligations of the Company thereunder. In case an Event of Default, as defined in the Indenture, shall have occurred and be continuing, the principal of all of the Debentures may be declared, and upon such declaration shall become, due and payable, in the manner, with the effect and subject to the conditions provided in the Indenture. The Indenture contains provisions permitting the Company and the Trustee, with the consent of the holders of more than 50% in the aggregate principal amount of the Debentures at the time outstanding, evidenced as in the Indenture provided, to execute supplemental indentures adding any provisions to or changing in any manner or eliminating any of the provisions of the Indenture or of any indenture supplemental thereto or modifying in any manner the rights and obligations of the holders of the Debentures and of the Company; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Debenture, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Debentures then outstanding. It is also provided in the Indenture that prior to any declaration of the maturity of the Debentures the holders of a majority in the aggregate principal amount of the Debentures at the time outstanding may on behalf of the holders of all of the Debentures waive any past default under the Indenture and its consequences, except a default in the payment of interest on or the principal of any of the Debentures. Any such consent or waiver by the registered holder of this Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of this Debenture and of any Debenture issued in exchange herefor or in place hereof, irrespective of whether or not any notation of such consent or waiver is made upon this Debenture. No reference herein to the Indenture and no provision of this Debenture or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of and interest on this Debenture at the time and place and at the rate and in the coin or currency herein prescribed. The Debentures are issuable as registered Debentures without coupons, in denominations of $1,000 and any multiple thereof. This Debenture is transferable in the manner authorized by law. Upon due presentment of this Debenture for registration of transfer at the office or agency to be maintained by the Company in the Borough of Manhattan, City and State of New York, a new Debenture or Debentures, of authorized denominations, for a like aggregate principal amount, will be issued to the transferee as provided, and subject to the limitations, in the Indenture. No service charge will be made for any such registration of transfer, but the Company may require payment of a sum sufficient to reimburse it for any tax or other governmental charge that may be imposed in relation thereto. This Debenture may in like manner be exchanged without service charge for one or more new Debentures of other authorized denominations but of the same aggregate principal amount, all subject to the terms and conditions set forth in the Indenture. As more fully provided in the Indenture, the Debentures are not redeemable at the option of the Company prior to November 1, 1998. Thereafter, the Debentures are redeemable at the option of the Company in whole at any time, or in part from time to time, prior to maturity, by the payment of the principal amount thereof and accrued interest to the date fixed for redemption, together with a premium equal to a percentage of the principal amount thereof determined as set forth in the tabulation below under the heading "Redemption Premium": Redemption Period (12-month period ending Redemption October 31st of the year stated) Premium -------------------------------- ---------- 1999 . . . . . . . . . . 5.44% 2000 . . . . . . . . . . 5.08 2001 . . . . . . . . . . 4.72 2002 . . . . . . . . . . 4.35 2003 . . . . . . . . . . 3.99 2004 . . . . . . . . . . 3.63 2005 . . . . . . . . . . 3.27 2006 . . . . . . . . . . 2.90 2007 . . . . . . . . . . 2.54 2008 . . . . . . . . . . 2.18 2009 . . . . . . . . . . 1.82 2010 . . . . . . . . . . 1.45 2011 . . . . . . . . . . 1.09 2012 . . . . . . . . . . 0.73 2013 . . . . . . . . . . 0.37 and without premium if redeemed on or after November 1, 2013. The Indenture provides that the Debentures may be redeemed in certain circumstances through the use of Proceeds of Released Property at a special redemption price equal to the principal amount thereof and accrued interest to the date fixed for redemption; provided, however, that none of the Debentures shall be so redeemed prior to November 1, 1998. The Indenture provides that under the circumstances specified therein funds or certain securities may be deposited with the Trustee in advance of the maturity or redemption date of any of the Debentures, in trust for the payment or redemption of such Debentures, and the interest due or to become due thereon, and that thereupon all obligations of the Company in respect of such Debentures shall cease and be discharged and the holders thereof shall thereafter be restricted exclusively to such funds or securities for any and all other claims on their part under the Indenture or with respect to such Debentures. The Company, the Trustee, any paying agent and any Debenture registrar may deem and treat the registered holder hereof as the absolute owner hereof (whether or not this Debenture shall be overdue and notwithstanding any notice of ownership or writing hereon) for the purpose of receiving payment of or on account of the principal hereof and interest due hereon and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture registrar shall be affected by any notice to the contrary. No recourse shall be had for the payment of the principal of or the interest on this Debenture, or for any claim based hereon, or otherwise in respect hereof, or based on or in respect of the Indenture or any indenture supplemental thereto, against any incorporator, stockholder, officer, trustee or director, past, present or future, as such, of the Company or of any predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law or equity, or by the enforcement of any assessment or penalty or otherwise, all such liability being, by the acceptance hereof and as part of the consideration for the issue hereof, expressly waived and released by every holder hereof, as more fully provided in the Indenture. ______________________ AND WHEREAS, all acts and things necessary to make the Debentures, when executed by the Company and authenticated and delivered by the Trustee as in this Indenture provided, the valid, binding and legal obligations of the Company, and to constitute these presents a valid indenture and agreement, have been done and performed, and the execution of this Indenture and the issue hereunder of the Debentures have in all respects been duly authorized, and the Company, in the exercise of the legal right and power in it vested, executes this Indenture and proposes to make, execute, issue and deliver the Debentures; NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Debentures are and are to be authenticated, issued and delivered, and in consideration of the premises, of the purchase and acceptance of the Debentures by the holders thereof and of the sum of one dollar to it duly paid by the Trustee at the execution of these presents, the receipt whereof is hereby acknowledged, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective holders from time to time of the Debentures, as follows: ARTICLE ONE. Definitions. Section 1.01. The terms defined in this Section (except as in this Indenture otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section. All other terms used in this Indenture which are defined in the Trust Indenture Act of 1939 or which are by reference in such act defined in the Securities Act of 1933, as amended (except as herein otherwise expressly provided or unless the context otherwise requires), shall have the meanings assigned to such terms in said Trust Indenture Act and in said Securities Act as in force at the date of the execution of this Indenture. "Board of Directors" shall mean the Board of Directors of the Company or any committee thereof duly authorized by the Board of Directors to act hereunder. "Board Resolution" or "Resolution of the Board of Directors" shall mean a copy of a resolution certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification. "Company" shall mean Elizabethtown Water Company, and, subject to the provisions of Article Twelve, shall also include its successors and assigns. "Debenture" or "Debentures" shall mean any Debenture or Debentures, as the case may be, authenticated and delivered under this Indenture. The term "outstanding", when used with reference to Debentures, shall, subject to the provisions of Section 9.04 and Article Thirteen, mean, as of any particular time, all Debentures authenticated and delivered by the Trustee under this Indenture, except (a) Debentures theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Debentures or portions thereof for the payment or redemption of which moneys in the necessary amount shall have been deposited in trust with the Trustee, provided that if such Debentures or portions are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article Four provided, or provision satisfactory to the Trustee shall have been made for giving such notice; and (c) Debentures which have been paid pursuant to Section 2.06 or in lieu of or in substitution for which other Debentures shall have been authenticated and delivered pursuant to the terms of Section 2.06, unless proof satisfactory to the Trustee is presented that any such Debentures are held by holders for value without notice of any defense. "Debentureholder", "holder of Debentures", "holder", or other similar terms, shall mean the registered holder of any Debenture. The term "registered holder" shall mean the person or persons in whose name or names a particular Debenture shall be registered on the register kept for that purpose in accordance with the terms of this Indenture. "Event of Default" shall mean any event specified in Section 7.01 continued for the period of time, if any, therein designated. "Indenture" shall mean this instrument as originally executed, or, if amended or supplemented, as so amended or supplemented. "Officers' Certificate" shall mean a certificate signed by the President or a Vice President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Company. Each such certificate shall include the statements provided for in Section 15.06, if and to the extent required by the provisions thereof. "Opinion of Counsel" shall mean an opinion in writing signed by legal counsel who shall be satisfactory to the Trustee, and who may be an employee of or counsel to the Company. Each such opinion shall include the statements provided for in Section 15.06, if and to the extent required by the provisions thereof. "Person" shall mean an individual, partnership, corporation, association, joint venture, trust or unincorporated association and shall include a government or political subdivision thereof and any governmental agency or public benefit corporation. "Principal Corporate Trust Office" means the office of the Trustee in New York, New York at which any particular time its corporate trust business shall be principally administered, which office at the date hereof is located at 101 Barclay Street, 21st Floor, New York, New York 10286, Attention: Corporate Trust Trustee Administration, except that, with respect to presentation of Securities for payment or registration of transfers and exchanges and the location of the Security Registrar, such term means the office or agency of the Trustee in said city at which at any particular time its corporate agency business shall be conducted, which at the date hereof is located at 101 Barclay Street, New York, New York 10286, Attention: Corporate Trust Services Window. "Responsible Officer" when used with respect to the Trustee shall mean the chairman or vice chairman of the board of directors, the chairman of the executive committee, the president, any vice president, the secretary, the treasurer, any senior trust officer, any trust officer, any second or assistant vice president, any assistant secretary, any assistant treasurer, any assistant cashier, or any other officer or assistant officer of the Trustee customarily performing functions similar to those performed by the persons who at the time shall be such officers, respectively, or to whom any corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Trustee" shall mean the Trustee under this Indenture for the time being, whether original or successor. "Trust Indenture Act of 1939", subject to the provisions of Sections 11.01 and 11.02, shall mean the Trust Indenture Act of 1939 as in force at the date of execution of this Indenture. Certain other terms are defined in Articles Two, Five, Seven and Eight. ARTICLE TWO. Description, Execution and Exchange of Debentures. Section 2.01. The Debentures shall mature on November 1, 2028. Section 2.02. The Debentures and the Trustee's certificate of authentication to be borne by the Debentures shall be substantially of the tenor and purport as in this Indenture above recited, and may have such letters, numbers or other marks of identification and such legends or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Indenture, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any law or regulation of any stock exchange on which the Debentures may be listed, or to conform to usage. Section 2.03. The Debentures shall be issuable as registered Debentures without coupons in denominations of $1,000 and multiples thereof. Each Debenture shall be dated the date of its authentication and shall bear interest, payable semi-annually on May 1 and November 1 of each year from the most recent interest payment date to which interest has been paid or duly provided for (unless the date of such Debenture is the date to which interest on the Debentures has been paid or duly provided for, in which case from the date of such Debenture), or, if no interest has been paid or duly provided for on the Debentures, from November 1, 1993. The persons in whose names Debentures are registered at the close of business on the record date with respect to a semi-annual interest payment date shall be entitled to receive the interest payable on such interest payment date notwithstanding the cancellation of any Debenture upon any registration of transfer or exchange thereof subsequent to such record and prior to such interest payment date; provided, however, that if and to the extent the Company shall default in the payment of the interest due on such interest payment date, such defaulted interest shall be paid to the persons in whose names the Debentures are registered at the close of business on the day preceding the date such defaulted interest is paid, unless a record date shall be fixed by the Company for the payment of such defaulted interest by notice given by mail by or on behalf of the Company to the holders of Debentures not less than 15 days preceding such record date, which record date shall not be more than 15 days before the date for such payment, then to the persons in whose names outstanding Debentures are registered on such record date. The term "record date" as used with respect to a semi-annual interest payment date shall mean the close of business on April 15 or October 15, as the case may be, next preceding such interest payment date, or if such April 15 or October 15 is not a business day, the business day next preceding such April 15 or October 15, the term "business day" meaning for this purpose a day which in The City of New York is not a day on which banking institutions are authorized by law to close. Section 2.04. The Debentures shall be signed on behalf of the Company by its President or a Vice President, and by its Secretary or an Assistant Secretary, and its corporate seal, or a facsimile thereof, shall be thereon impressed or imprinted. The signature of any such President, Vice President, Secretary or Assistant Secretary may be facsimile. The Company may use the signature or facsimile signature or any person who shall be any such officer of the Company at the time of the execution of Debentures, irrespective of the date as of which the same shall be authenticated, or of any person who shall have been any such officer of the Company, notwithstanding the fact that at the time the Debentures shall be authenticated and delivered or disposed of, he shall have ceased to be such officer of the Company. The Company may deliver Debentures executed by the Company to the Trustee for authentication. The Trustee shall thereupon authenticate and make available for delivery said Debentures to or upon the written orders of the Company. Only such Debentures as shall bear thereon a certificate of authentication substantially in the form herein before recited, executed by the Trustee, shall be entitled to the benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Trustee upon any Debenture executed by the Company shall be conclusive evidence that the Debenture so authenticated has been duly authenticated and delivered hereunder and that the holder is entitled to the benefits of this Indenture. Section 2.05. The Company shall keep at the office or agency to be maintained by the Company as provided in Section 5.02 a register or registers in which, subject to such reasonable regulations as it may prescribe, it will register all Debentures, and upon due presentment for registration or transfer of any Debenture at such office or agency, the Company shall execute and register and the Trustee shall authenticate and deliver in the name of the transferee or transferees a new Debenture or Debentures for a like aggregate principal amount of Debentures of any authorized denominations, bearing numbers not contemporaneously outstanding. The several authorized denominations of Debentures shall be interchangeable in equal aggregate principal amounts. Debentures to be exchanged shall be surrendered at the office or agency to be maintained by the Company for the purpose as provided in Section 5.02 and the Company shall execute and register and the Trustee shall authenticate and deliver in exchange therefor the Debenture or Debentures which the Debenture holder making the exchange shall be entitled to receive, bearing numbers not contemporaneously outstanding. All Debentures presented or surrendered for registration of transfer, exchange, redemption or payment shall (if so required by the Company or the Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Company and the Trustee duly executed by, the registered holder or his attorney duly authorized in writing. For any exchange or registration of transfer of Debentures, the Company, at its option, may require the payment of a sum sufficient to reimburse it for any tax or other governmental charge that may be imposed in relation thereto. No service shall be made for any such transaction. The Company shall not be required to make registration of transfers or exchanges of Debentures for a period of fifteen days next preceding any selection of Debentures to be redeemed, nor shall it be required to make registration of transfers or exchange of any Debentures or portions thereof called or being called for redemption, except, in the case of any Debenture to be redeemed in part only, the portion thereof not being redeemed. Section 2.06. In case any Debenture shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may issue a new Debenture of like tenor bearing a number not contemporaneously outstanding, in exchange and substitution for the mutilated Debenture or in lieu of and substitution for the Debenture so destroyed, lost or stolen. In every case the applicant for a substituted Debenture shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them, and, if requested, any paying agents and Debenture registrars of the Company, harmless from all risk, however remote, and the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the mutilation, destruction, loss or theft of the applicant's Debenture and of the ownership thereof. The Trustee shall authenticate any such substituted Debenture and deliver the same upon the written request or authorization of any officer of the Company. Upon the issue of any substituted Debenture, the Company may require the payment of a sum sufficient to cover any stamp tax or other governmental charge that may be imposed incident thereto and any other expenses, including counsel fees and expenses, of the Company, the Trustee and any paying agent or Debenture registrar, connected therewith. In case any Debenture which has matured or is about to mature shall become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Debenture, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated Debenture) if the applicant for such payment shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and evidence to the satisfaction of the Company and the Trustee of the mutilation, destruction, loss or theft of such Debenture and of the ownership thereof. Every Debenture issued pursuant to the provisions of this Section in substitution for any Debenture which is destroyed, lost or stolen shall constitute an additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Debenture shall be found at any time, or be enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Debentures duly issued hereunder. All Debentures shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Debentures and shall preclude any and all other rights or remedies, notwithstanding any law or statute existing or hereinafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. Section 2.07. All Debentures surrendered for the purpose of payment, redemption, exchange or registration of transfer shall be delivered to the Trustee and canceled by it, and no Debentures shall be issued in lieu of any thereof except as expressly required or permitted by any of the provisions of this Indenture. With the consent of the Company, the Trustee may, but shall not be required to, destroy canceled Debentures and deliver a certificate thereof to the Company. If the Company shall acquire any of the Debentures, however, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Debentures unless and until the same are delivered to the Trustee, or surrendered to the Trustee, for cancellation. Section 2.08. Nothing in this Indenture or in the Debentures, expressed or implied, shall give or be construed to give to any person, firm or corporation, other than the parties hereto and the holders of the Debentures, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained, all of the covenants, conditions and provisions herein being for the sole benefit of the parties hereto and of the holders of the Debentures. Section 2.09. The Company in issuing the Debentures may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to holders of Debentures; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Debentures or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Debentures, and any such redemption shall not be affected by any defect in or omission of such numbers. ARTICLE THREE. Issue of Debentures. Section 3.01. Debentures not to exceed the aggregate principal amount of $50,000,000, except as provided in Section 2.06, may, upon the execution of this Indenture or from time to time thereafter, be executed by the Company and delivered to the Trustee for authentication, and the Trustee shall thereupon authenticate and deliver said Debentures to or upon the written order of the Company signed by its President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary, without further action by the Company. The Debentures are to be issued initially under a book-entry only system and, except as hereinafter provided, registered in the name of The Depository Trust Company, New York, New York ("DTC") or its nominee, which shall be considered to be the holder of all of the Debentures for all purposes of the Indenture, including, without limitation, payment by the Company of principal of and interest on such Debentures and receipt of notices and exercise of rights of holders of such Debentures. There shall be a single global security which shall be immobilized in the custody of DTC with the owners of book-entry interests in the Debentures ("Book-Entry Interests") having no right to receive Debentures in the form of physical securities or certificates. Ownership of Book-Entry Interests shall be shown by book-entry on the system maintained and operated by DTC, its participants (the "Participants") and certain persons acting through the Participants. Transfers of ownership of Book-Entry Interests are to be made only by DTC and the Participants by that book-entry system, the Company and the Trustee having no responsibility therefor so long as the Debentures are registered in the name of DTC or its nominee. DTC is to maintain records of the positions of Participants in the Debentures, and the Participants and persons acting through Participants are to maintain records of the purchasers and owners of Book-Entry Interests. If DTC or its nominee determines not to continue to act as a depository for the Debentures in connection with a book-entry only system, another depository, if available, may act instead and the single global security will be transferred into the name of such other depository or its nominee, in which case the above provisions will continue to apply but to the new depository. If the book-entry only system for the Debentures is discontinued by the Company for any reason, upon surrender and cancellation of the single global security registered in the name of the then depository or its nominee, new registered Debentures will be issued in authorized denominations to the holders of Book-Entry Interests in principal amounts coinciding with the amounts of such Book-Entry Interests shown on the book- entry system immediately prior to the discontinuance thereof. Neither the Trustee nor the Company shall be responsible for the accuracy of the interests shown on that system. ARTICLE FOUR. Redemption of Debentures. Section 4.01. The Debentures are not redeemable for any purpose prior to November 1, 1998. Thereafter, the Debentures are redeemable prior to maturity, in accordance with the provisions of this Article Four, at the principal amount thereof and accrued interest to the date fixed for redemption (but if the date fixed for redemption is a semi-annual interest payment date, the interest installment payable on such date shall be paid to the holder at the close of business on the record date for such interest payment date), together, in certain cases, with a premium, as set forth in the form of Debenture provided for herein. The Trustee, upon the request of the Company (evidenced by a copy of a Board Resolution, delivered to the Trustee at least 60 days prior to the redemption date), shall, for and on behalf of and in the name of the Company, mail or cause to be mailed a notice of redemption with respect to the principal amount of Debentures specified in such request. Section 4.02. In case of a redemption of a part only of the Debentures, the Trustee shall select the particular Debentures or parts thereof, which shall be $1,000 or multiples thereof, so to be redeemed according to such method as the Trustee shall deem proper in its discretion. Notice of redemption to the holder of any Debenture which is to be redeemed in whole or in part shall be mailed by or on behalf of the Company, not less than 30 days prior to the date fixed for redemption, to him at his last address appearing upon the registry books. Failure duly to give such notice by mailing to the holder of any Debenture designated for redemption in whole or in part shall not affect the validity of the proceedings for the redemption of any other Debenture. The notice of redemption to each holder of Debentures to be redeemed shall specify the Debentures or parts thereof held by such holder to be redeemed, which shall be $1,000 or multiples thereof, the date fixed for redemption, the CUSIP numbers (if any) of such Debentures, the redemption price at which Debentures are to be redeemed and the place where payment of the redemption price is to be made upon surrender of the Debentures, and shall state that interest accrued to the date fixed for redemption will be paid in the manner specified in said notice, that from said date interest thereon will cease to accrue, and, in the case of any Debenture which is to be redeemed in part only, that on and after the redemption date, upon surrender of such Debenture, a new Debenture or Debentures of authorized denominations in aggregate principal amount equal to the unremedied portion of such Debenture will be issued. Such notice shall also state that it is subject to the receipt of the redemption moneys by the Trustee prior to the date fixed for redemption, and that such notice, and the Company's request to the Trustee to mail such notice, shall be of no effect unless such moneys are received prior to such date. Section 4.03. Notice of redemption having been mailed, and the Trustee having prior to the date fixed for redemption specified in the notice of redemption received for the purpose an amount in cash sufficient to redeem all of the Debentures called for redemption, the Debentures called for redemption shall become due and payable on such date fixed for redemption. Section 4.04. On and after the date fixed for redemption, if the moneys for the redemption of the Debentures to be redeemed shall have been received by the Trustee, such Debentures shall cease to bear interest. All moneys on deposit with the Trustee for the redemption of Debentures shall, subject to the provisions of Section 13.04 hereof, be held in trust for account of the holders of the Debentures so to be redeemed, and shall be paid to them, respectively, upon presentation and surrender of said Debentures. If any Debenture of a denomination larger than $1,000 shall be called for redemption in part only, upon presentation of any such Debenture so called for redemption, the payment with respect to said Debenture shall be made and Debentures for the unpaid balance of the principal amount of the Debenture so presented shall be authenticated and delivered by the Trustee without charge therefor to the holder thereof. On and after the date fixed for such redemption, interest shall be payable only on the portion of such Debenture not so called for redemption and only such portion shall be deemed outstanding and continue to be entitled to the benefits of this Indenture. Anything in this Indenture contained to the contrary notwithstanding, if the giving of the notice of redemption shall have been completed as provided in Section 4.02, or if provision satisfactory to the Trustee for the giving of such notice shall have been made, and if the Company shall have deposited in trust with the Trustee funds sufficient to redeem the Debentures (or parts thereof) to be redeemed on the date fixed for redemption, together with interest accrued to the date fixed for redemption, then all obligations of the Company in respect of such Debentures (or parts thereof) shall cease and be discharged and the holders of such Debentures or parts thereof) shall thereafter be restricted exclusively to such funds for any and all claims of whatsoever nature on their part under this Indenture or in respect to such Debentures (or parts thereof). ARTICLE FIVE. Particular Covenants of the Company. The Company covenants as follows: Section 5.01. The Company will duly and punctually pay or cause to be paid the principal of and interest on each of the Debentures at the time and place and in the manner provided herein and in the Debentures. Section 5.02. As long as any of the Debentures remain outstanding, the Company will maintain an office or agency or offices or agencies in the Borough of Manhattan, City and State of New York, where the Debentures may be presented for registration of transfer and exchange as in this Indenture provided, and where notices and demands to or upon the Company in respect of the Debentures or of this Indenture may be served, and where the Debentures may be presented for payment. Until otherwise designated by the Company in a notice to the Trustee, such office or agency for all of the above purposes shall be the principal corporate trust office of the Trustee in the Borough of Manhattan, City and State of New York. Section 5.03. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, will appoint, in the manner provided in Section 8.10, a Trustee, so that there shall at all times be a Trustee hereunder. Section 5.04. (a) If the Company shall appoint a paying agent other than the Trustee, it will cause such paying agent to execute and deliver to the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section, (1) that it will hold all sums held by it as such agent for the payment of the principal of, premium, if any, or interest on the Debentures (whether such sums have been paid to it by the Company or by any other obligor on the Debentures) in trust for the benefit of the holders of the Debentures, or of the Trustee, as the case may be, (2) that it will give the Trustee notice of any failure by the Company (or by any other obligor on the Debentures) to make any payment of the principal of or interest on the Debentures when the same shall be due and payable, and (3) that at any time during the continuance of any Event of Default upon the written request of the Trustee, it will forthwith pay to the Trustee all sums so held by such paying agent. (b) If the Company shall act as its own paying agent, it will, on or before each due date of the principal of, premium, if any, or interest on, the Debentures, set aside, segregate and hold in trust for the benefit of the holders of the Debentures, a sum sufficient to pay such principal, premium, if any, or interest so becoming due and payable and will notify the Trustee of any failure (by it or any other obligor on the Debentures) to take such action. (c) Whenever the Company shall have one or more paying agents, it will, prior to each due date of the principal of, premium, if any, or interest on, the Debentures, deposit with a paying agent a sum sufficient to pay the principal, premium, if any, or interest, so becoming due, such sum to be held in trust for the benefit of the persons entitled to such principal, premium, if any, or interest, and (unless such paying agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. (d) Anything in this Section to the contrary notwithstanding, the Company may, at any time, for the purpose of obtaining a satisfaction and discharge of this Indenture, or for any other reason, pay or cause to be paid to the Trustee all sums held in trust by it, or any paying agent hereunder, as required by this Section, such sums to be held by the Trustee upon the trusts herein contained. (e) Anything in this Section to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section is subject to the provisions of Section 13.04 hereof. Section 5.05. The Company covenants that, so long as any Debentures shall be outstanding under this Indenture, it will not create, assume or incur, or in any other manner become directly or indirectly liable in respect of, any indebtedness, in addition to its 8 5/8% Debentures due 2007, its 10 1/8% Debentures due 2018, its 7.20% Debentures due 2019, its 7 1/2% Debentures due 2020, its 6.60% Debentures due 2021, its 6.70% Debentures due 2021, its 8 3/4% Debentures due 2021, its 8% Debentures due 2022 and the Debentures, except the following: (a) current operating liabilities and current or other obligations (other than for borrowed money) incurred in the ordinary course of business; (b) Current Indebtedness; (c) indebtedness (in addition to that referred to in subdivisions (a) and (b) above and (d) below) in an aggregate amount not in excess of $10,000,000 at any one time outstanding; and (d) indebtedness (in addition to that referred to in subdivisions (a), (b) and (c) above) in an aggregate amount not in excess of the sum of $20,000,000 plus 65% of the Amount of Net Property Additions at the time the Company first becomes liable in respect of any such indebtedness. The Company covenants that, so long as any Debentures shall be outstanding under this Indenture, it will not create, assume or incur, or in any manner become directly or indirectly liable in respect of, any indebtedness (in addition to its 8 5/8% Debentures due 2007, its 10 1/8% Debentures due 2018, its 7.20% Debentures due 2019, its 7 1/2% Debentures due 2020, its 6.60% Debentures due 2021, its 6.70% Debentures due 2021, its 8 3/4% Debentures due 2021, its 8% Debentures due 2022, the Debentures and that referred to in subdivisions (a), (b) and (c) above), unless the Gross Income of the Company, for a period of 12 consecutive calendar months within the 15 calendar months immediately preceding the incurring by the Company of such indebtedness, shall have been at least equal to twice the Annual Interest Charges. The term "Current Indebtedness" as used herein shall mean indebtedness in an aggregate amount not in excess of 20% of the total capitalization of the Company at the time and which is expressed to be payable on demand or to mature less than one year after the date of creation or issuance thereof. The total capitalization of the Company shall be deemed to consist of the sum of (i) the principal amount of all outstanding indebtedness of the Company represented by bonds, debentures, notes or other evidences of indebtedness (other than Current Indebtedness), (ii) the aggregate of the par or stated value represented by all issued and outstanding capital stock of all classes of the Company, including premiums received on the issue of such capital stock, and (iii) the surplus of the Company, including earned, capital, paid-in and other surplus. The term "Amount of Net Property Additions" as used herein shall mean the balance, if any, remaining after deducting the Retirements from the Amount of Property Additions, as of any particular time. The term "Amount of Property Additions" as used herein shall mean the Cost or, if less, the fair value to the Company at the time of the actual acquisition by the Company, of Property Additions. The term "Property Additions" as used herein shall mean all tangible property owned by the Company and made, constructed or otherwise acquired by it subsequent to December 31, 1975, which the Company is authorized to acquire, own and operate and which is used or useful in the business of impounding, storing, transmitting, producing, manufacturing, transporting, distribution or supplying water for any and all purposes. Permanent improvements, extensions, additions or replacements in the process or construction or erection, shall be included as Property Additions as of any particular time, insofar as actually constructed or erected after December 31, 1975, and before such particular time. There shall not be included as Property Additions (a) Excepted Property, (b) going value or good will, as such, (c) any item of property retired the retirement of which has not been credited to utility plant account, (d) any item of property acquired to replace a similar item of property whose retirement has not been credited to utility plant account, or any item of property whose cost has been charged or is properly chargeable to repairs, maintenance or other operating expense account or whose cost has been charged or is not properly chargeable to utility plant account, or (e) any property not located in the State of New Jersey or in a State contiguous thereto. The term "Retirements" as used herein shall mean the Cost of Fundable Property which, subsequent to December 31, 1975, shall have become worn out or permanently unserviceable, or shall have been lost, sold, destroyed, abandoned, surrendered on lapse of title, taken by eminent domain, purchased by any governmental or public body pursuant to any right reserved to or vested in it, or otherwise disposed of by the Company or retired from service for any reason, or shall have permanently ceased to be used or useful in the business of the Company. Accounting adjustments of utility plant accounts or reclassification of utility plant accounts or amortization of any plant account to comply with any order of any regulatory body and which do not represent or reflect the permanent retirement from a plant account subsequent to December 31, 1975 of any Fundable Property shall not be included in Retirements. The term "Fundable Property" as used herein shall mean (a) all property owned by the Company on December 31, 1975 (except such property as would not be included in Property Additions if acquired subsequent to December 31, 1975) and (b) Property Additions. The term "Cost" as used herein, when used with respect to any particular property, shall mean the cost (or, if not known, estimated cost) thereof to the person first devoting it to public service, without deducting therefrom applicable reserves for depreciation and/or retirements and/or depletion and/or obsolescence. In determining Cost in cases in which property, part of which constitutes Fundable Property and part does not, is or has been acquired for a consideration not divided between such parts, or, in cases where the consideration given for property is not allocated to the various items of property acquired, the consideration may be allocated to the various parts and items of property acquired in any reasonable manner which is in accordance with the requirements of any systems of accounting with which the Company is compelled to comply by any provision of law, or, if there be no such requirements, in accordance with good accounting practice. The term "Gross Income" as used herein shall mean gross operating revenues from all sources (whether or not subject to refund) after deducting therefrom operating expenses. In computing gross operating revenues, there shall be included net non-operating revenues, if any (including income from securities, whether of subsidiaries or not), in an amount not more than 20% of Gross Income after deducting therefrom net non-operating revenues. In computing operating expenses, there shall be included all operating expenses, including accruals for taxes (except that taxes on undistributed earnings, income and excess profits and any like taxes measured by income and charges in lieu of any thereof made because of the deferment in payment of any such tax shall be excluded from operating expenses, and any credit to income subsequently made on account of any such prior charge shall be excluded from gross operating revenues), rentals, insurance, actual charges for current repairs and maintenance and charges to expense or income to provide for depreciation, renewals, replacements, depletion or retirement of property and for property loss (but excluding interest, charges deducted in computing net non-operating revenues and charges to income for the amortization (i) of debt discount and expense and (ii) of utility plant account or amounts transferred therefrom). If any of the property owned by the Company at the time any computation of Gross Income is made shall have been acquired during or after any period for which Gross Income is to be computed, the Gross Income of such property (computed in the manner in this Section provided for the computation of the Gross Income of the Company) during such period or such part of such period as shall have preceded the acquisition thereof, to the extent that the same have not otherwise been included and can be determined, shall be included in the Gross Income of the Company for all purposes of this Indenture, and the Gross Income which can be determined of any property disposed of by the Company during or after such period shall not be treated as Gross Income of the Company. The term "Annual Interest Charges" as used herein shall mean the interest requirements for twelve months upon all indebtedness of the Company (including any indebtedness, whether or not created or assumed by the Company, on which the Company customarily pays interest charges or which is secured by a lien on any property of the Company, but excluding (a) indebtedness represented by customers' deposits, (b) current operating liabilities and current or other obligations (other than for borrowed money) incurred in the ordinary course of business, (c) indebtedness for the purchase, payment or redemption of which money in the necessary amount shall have been deposited in trust, and (d) Current Indebtedness) to be outstanding upon the incurring by the Company of the indebtedness in connection with which the computation is made. Section 5.06. The Company covenants that, so long as any Debentures shall be outstanding under the Indenture, it will not at any time mortgage or pledge, or permit any other lien (other than Excepted Encumbrances) to become a lien on, any property owned by the Company just prior to such time, to secure any other indebtedness, without making effective provision whereby the Debentures shall (so long as any such other indebtedness shall be so secured) be secured (along with any other indebtedness similarly entitled to be equally and ratably secured) by a direct lien (on all the property, other than Excepted Property, owned by the Company just prior to the time such other lien shall have become a lien on any of the property of the Company) prior to the lien or liens securing any and all such other indebtedness; provided, however, that this restriction shall not be applicable to nor prevent (a) the pledging by the Company of its assets as security for the payment of any tax, assessment or other similar charge demanded of the Company by any governmental authority or public body so long as the Company in good faith contests its liability to pay the same, or as security to be deposited with any governmental authority or public body for any purpose at any time required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege, license or right; or (b) the pledging by the Company of any assets for the purpose of securing a stay or discharge or for any other purpose in the course of any legal proceeding in which the Company is a party; or (c) making good faith deposits in connection with tenders, contracts or leases to which the Company is a party. The Company covenants that, so long as any Debentures shall be outstanding under this Indenture, if, upon any consolidation or merger of the Company with or into any other corporation, or upon any sale or conveyance of all or substantially all of the property of the Company as an entirety, or upon any acquisition by the Company of the property of another corporation substantially as an entirety or upon any merger of any other corporation into the Company, any of the property (other than Excepted Property) owned by the Company just prior thereto, would thereupon become subject to any lien (other than Excepted Encumbrances), the Company, prior to such consolidation, merger, sale, conveyance or acquisition, will take appropriate action whereby the Debentures shall (so long as such property shall be subject to such lien) be secured (along with any other indebtedness similarly entitled to be equally and ratably secured) by a direct lien on such portion of the property of the Company prior to all other liens, other than Excepted Encumbrances and other than any liens existing thereon just prior to such consolidation, merger, sale, conveyance or acquisition. Any instrument creating a lien pursuant to the requirements of this Section shall contain reasonable and customary provisions for the enforcement of such lien and for the release of, or substitution for, the property subjected to such lien. Such direct lien shall be evidenced by an appropriate instrument or instruments executed and delivered to the Trustee (or to the extent legally necessary, to another trustee as additional or separate trustee). The Trustee, subject to the provisions of Section 8.01 hereof, may receive an Opinion of Counsel as conclusive evidence that any such instrument is in customary form and complies with the foregoing provisions of this paragraph; and the Trustee shall not be under any duty or responsibility to any holder of any Debenture with respect to the form, validity or enforceability of any such instrument which it may accept in reliance in good faith upon any such opinion. If the Company shall fail to create a direct lien to secure the Debentures, as required by the foregoing provisions of this Section, an equitable lien shall exist to the same extent and on the same property as though the Company had created such direct lien. The term "Excepted Encumbrances" as used herein shall mean as of any particular time any of the following: (i) liens for taxes, assessments or governmental charges not delinquent and liens for workmen's compensation awards and similar obligations not delinquent and liens for taxes, assessments or governmental charges delinquent but the validity of which is being contested at the time by the Company in good faith by appropriate proceedings diligently conducted; (ii) any liens securing indebtedness neither assumed nor guaranteed by the Company nor on which it customarily pays interest, existing in or relating to real estate acquired by the Company for transmission, distribution or right-of-way purposes, or in connection with its usual operations; (iii) easements or reservations in any property of the Company created for the purpose of roads, railroads, railroadside tracks, electric lines, pipe lines, sewers, water and gas transmission and distribution mains, conduits, water rights of the State of New Jersey or others, building and use restrictions and defects of title to, or leases of, any parts of the property of the Company which do not in the opinion of the Company's counsel materially impair the use of the property as an entirety in the operation of the business of the Company; (iv) undetermined liens and charges incidental to current construction, including mechanics', laborers', materialmen's and similar liens not delinquent; (v) any obligations or duties affecting the property of the Company to any municipality or public authority with respect to any franchise, grant, license, permit or certificate; (vi) rights reserved to or vested in any municipality or public authority to control or regulate any property of the Company or to use such property in a manner which does not materially impair the use of such property for the purposes for which it is held by the Company; (vii) judgments in course of appeal or otherwise in contest and secured by sufficient bond or security; (viii) any irregularities in or deficiencies of title to any rights of way for mains or pipes and/or appurtenances thereto or other improvements thereon and to any real estate used or to be used primarily for right of way purposes, provided that the Company shall have obtained from the apparent owner of the lands or estates covered by any such right of way an instrument purporting by its terms to grant the use thereof for the construction, operation or maintenance of such main, pipe, appurtenance or improvement for which the same are used or are to be used, or provided that the Company has power, under eminent domain or similar statutes, to remove such irregularities or deficiencies; or (ix) any other lien on any property owned by the Company to secure any indebtedness so long as the aggregate principal amount of all such indebtedness is not in excess of $10,000,000. The term "Excepted Property" as used herein shall mean (a) cash, bonds, stocks, obligations and other securities; (b) choses in action, accounts and bills receivable, judgments and other evidences of indebtedness and contracts, leases and operating agreements; (c) stock in trade, merchandise, equipment, apparatus, materials or supplies manufactured or acquired for the purpose of sale and/or resale in the usual course of business or consumable in the operation of any of the properties of the Company or held for the purpose of repairing or replacing (in whole or in part) any rolling stock, buses, motor coaches, trucks, automobiles or other vehicles or aircraft; (d) timber, gas, oil, minerals (including developed and undeveloped natural gas reserves and natural gas in underground storage or otherwise), mineral rights and royalties; (e) materials or products generated, manufactured, produced or purchased by the Company for sale, distribution or use in the ordinary course of its business; (f) office furniture and equipment, tools, rolling stock, buses, motor coaches, trucks, automobiles and other vehicles and aircraft; and (g) the Company's franchise to be a corporation. Section 5.07. The Company covenants that, so long as any Debentures shall be outstanding under this Indenture, it will not declare or pay any dividends or make any other distribution (except dividends payable or distributions made in shares of capital stock of the Company) on or in respect of any of its Common Stock, or purchase or otherwise acquire for a consideration any shares of its Common Stock (except out of the proceeds derived from the sale of additional shares of its Common Stock subsequent to August 31, 1992), if the aggregate of such dividends and distributions and such consideration for purchase or other acquisition of shares of its Common Stock made by the Company after December 31, 1975 would exceed the sum of (a) the earned surplus of the Company accumulated after December 31, 1975 and determined without any deduction on account of such dividends, distributions or acquisitions and (b) $10,000,000. The term "consideration" as used in this Section shall mean cash or fair value if the consideration be other than cash. Charges to earned surplus with corresponding credits to utility plant acquisition adjustment account or utility plant adjustment account or any similar account or to any reserve for the purpose of ultimately disposing thereof and any provisions for amortization of any amounts included in utility plant acquisition account or utility plant adjustment account or in any similar account shall be disregarded in determining earned surplus accumulated after December 31, 1975. Section 5.08. The Company covenants that, so long as any Debentures shall be outstanding under this Indenture, if the Proceeds of Released Property in any period of 12 consecutive calendar months shall amount to $5,000,000 or more, and if, immediately subsequent to the receipt of such $5,000,000 (or the part thereof making the total thereof $5,000,000 or more), the ratio of the aggregate principal amount of all outstanding indebtedness of the Company represented by bonds, debentures, notes or other evidences of indebtedness (other than Current Indebtedness) to the net book value of the Company's utility plant accounts exceeds 60%, then the Company will use such Proceeds of Released Property to redeem Debentures or to redeem 8 5/8% Debentures due 2007 issued by the Company (herein called the "8 5/8% Debentures due 2007") or to redeem 10 1/8% Debentures due 2018 issued by the Company (herein called the "10 1/8% Debentures due 2018") or to redeem 7.20% Debentures due 2019 issued by the Company (herein called the "7.20% Debentures due 2019") or to redeem 7 1/2% Debentures due 2020 issued by the Company (herein called the "7 1/2% Debentures due 2020") or to redeem 6.60% Debentures due 2021 issued by the Company (herein called the "6.60% Debentures due 2021") or to redeem 6.70% Debentures due 2021 issued by the Company (herein called the "6.70% Debentures due 2021") or to redeem 8 3/4% Debentures due 2021 issued by the Company (herein called the "8 3/4% Debentures due 2021") or to redeem 8% Debentures due 2022 issued by the Company (herein called the "8% Debentures due 2022") or to redeem other debentures issued by the Company under indentures having a provision substantially similar to this Section 5.08 ("Subsequent Debentures") at the earliest practicable date at a redemption price equal to the principal amount thereof plus accrued interest to the date of redemption; provided, however, that the Company shall not be required so to use any part of such Proceeds of Released Property as to which the Company shall have given to the Trustee (within 30 days after such receipt) an Officers' Certificate stating that the Company intends, within a period of one year thereafter, to apply such part to the making, constructing or otherwise acquiring of Property Additions. If any such Officers' Certificate shall so state, the Company covenants so to apply such part within such one year as stated in such Officers' Certificate or, to the extent that it does not so apply such part, to use such part within such one year to redeem Debentures or to redeem 8 5/8% Debentures due 2007 or to redeem 10 1/8% Debentures due 2018 or to redeem 7.20% Debentures due 2019 or to redeem 7 1/2% Debentures due 2020 or to redeem 6.60% Debentures due 2021 or to redeem 6.70% Debentures due 2021 or to redeem 8 3/4% Debentures due 2021 or to redeem 8% Debentures due 2022 or to redeem Subsequent Debentures. Notwithstanding the foregoing, the Debentures may not be redeemed with the Proceeds of Released Property prior to November 1, 1998. In lieu of using any such Proceeds of Released Property for redemption as aforesaid, the Company may deliver to the Trustee for cancellation Debentures or may deliver for cancellation to the Trustee under the indenture pursuant to which the 8 5/8% Debentures due 2007 were issued 8 5/8% Debentures due 2007, or may deliver for cancellation to the trustee under the indenture pursuant to which the 10 1/8% Debentures due 2018 were issued 10 1/8% Debentures due 2018, or may deliver for cancellation to the trustee under the indenture pursuant to which the 7.20% Debentures due 2019 were issued 7.20% Debentures due 2019, or may deliver for cancellation to the trustee under the indenture pursuant to which the 7 1/2% Debentures due 2020 were issued 7 1/2% Debentures due 2020, or may deliver for cancellation to the trustee under the indenture pursuant to which the 6.60% Debentures due 2021 were issued 6.60% Debentures due 2021, or may deliver for cancellation to the trustee under the indenture pursuant to which the 6.70% Debentures due 2021 were issued 6.70% Debentures due 2021, or may deliver for cancellation to the trustee under the indenture pursuant to which the 8 3/4% Debentures due 2021 were issued 8 3/4% Debentures due 2021 or may deliver for cancellation to the trustee under the indenture pursuant to which the 8% Debentures due 2022 were issued 8% Debentures due 2022 or may deliver for cancellation to the trustee under the indenture pursuant to which any Subsequent Debentures were issued such Subsequent Debentures, in each case with all unmatured coupons, if any, appertaining thereto, theretofore reacquired by the Company and not theretofore so delivered, and in any such case the obligation of the Company to use such Proceeds of Released Property for redemption shall be reduced to the extent of the aggregate principal amount of Debentures or 8 5/8% Debentures due 2007 or 10 1/8% Debentures due 2018 or 7.20% Debentures due 2019 or 7 1/2% Debentures due 2020 or 6.60% Debentures due 2021 or 6.70% Debentures due 2021 or 8 3/4% Debentures due 2021 or 8% Debentures due 2022 or Subsequent Debentures so delivered. All Debentures so delivered to the Trustee shall be cancelled by the Trustee. The term "Proceeds of Released Property" as used herein and in the Debentures shall mean the aggregate amount of the consideration received or to be received by the Company on the actual sale or other actual disposition (subsequent to the execution of this Indenture) of any property included in utility plant accounts (including therein an amount equivalent to any part of such consideration consisting of other than cash at the fair value thereof to the Company at the time of such sale or other disposition, as determined in good faith by the Board of Directors of the Company, and excluding therefrom an amount equivalent to any consideration received or to be received by the Company on the sale or other disposition of any property (i) which property shall have become worn out or permanently unserviceable and the book value of which shall have been credited to utility plant accounts upon the retirement thereof or (ii) to the extent that the consideration so received or to be received shall constitute Property Additions) after deducting from such amount, to the extent paid or payable by the Company, all expenses and all taxes (including income taxes, if any) upon or in respect of any such sale or other disposition. Section 5.09. The Company will deliver to the Trustee within 120 days after the end of each fiscal year of the Company the Officers' Certificate required by Section 314(a)(4) of the Trust Indenture Act. See Section 314(a)(4) of the Trust Indenture Act. ARTICLE SIX. Debentureholders' Lists and Reports by the Company and the Trustee. Section 6.01. The Company shall deliver to the Trustee, semi- annually, not more than 15 days after each record date, the information required by Section 312(a) of the Trust Indenture Act. See Section 312 of the Trust Indenture Act. Section 6.02. See Section 312 of the Trust Indenture Act. Section 6.03. See Section 314(a) of the Trust Indenture Act. Section 6.04. On or before February 1 in each year beginning January 1, 1994, so long as any Debentures are outstanding hereunder, the Trustee shall transmit by mail to the Debentureholders the report, if any, required by Section 313(a) of the Trust Indenture Act. See Trust Indenture Act Sections 311(b) and 313. ARTICLE SEVEN. Remedies of the Trustee and Debentureholders on Event of Default. Section 7.01. In case one or more of the following Events of Default shall have occurred and be continuing, that is to say: (a) default in the due and punctual payment of any installment of interest upon any of the Debentures as and when the same shall become due and payable, and continuance of such default for a period of thirty days; or (b) default in the due and punctual payment of the principal of any of the Debentures as and when the same shall become due and payable either at maturity, by declaration as authorized by this Indenture, or otherwise; or (c) failure on the part of the Company duly to observe or perform any other of the covenants, conditions or agreements on the part of the Company in the Debentures or in this Indenture contained for a period of sixty days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Company by the Trustee, or to the Company and the Trustee by the holders of at least 25% in aggregate principal amount of the Debentures at the time outstanding; or (d) a decree or order by a court having jurisdiction in the premises shall have been entered adjudging the Company a bankrupt or insolvent, or approving a petition seeking reorganization of the Company under Title 11, United States Code or any other similar applicable Federal or State law, and such decree or order shall have continued undischarged and unstayed for a period of sixty days; or a decree or order of a court having jurisdiction in the premises for the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the Company or of all or substantially all of its property, or for the winding up or liquidation of its affairs shall have been entered, and such decree or order shall have remained in force undischarged and unstayed for a period of sixty days; or (e) the Company shall institute proceedings to be adjudicated a voluntary bankrupt, or shall consent to the filing of a bankruptcy proceeding against it, or shall file a petition or answer or consent seeking reorganization under Title 11, United States Code or any other similar applicable Federal or State law, or shall consent to the filing of any such petition, or shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of it or of all or substantially all of its property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due; or (f) an event of default, as defined in any indenture or trust agreement securing or protecting any debt of the Company now or hereafter outstanding aggregating more than $10,000,000, shall happen and be then continuing and such debt shall be or become due and payable, prior to the date on which the same would otherwise become due and payable, provided that such acceleration shall not be rescinded or annulled within ten days after written notice thereof to the Company from the Trustee or to the Company and the Trustee from the holders of not less than 25% in principal amount of the Debentures then outstanding hereunder; then and in each and every such case, so long as such Event of Default shall not have been remedied, unless the principal of all the Debentures shall have already become due and payable, either the Trustee or the holders of not less than 25% in aggregate principal amount of the Debentures then outstanding hereunder, by notice in writing to the Company (and to the Trustee if given by the Debentureholders), may declare the principal of all the Debentures then outstanding to be due and payable immediately, and upon any such declaration the same shall become and shall be immediately due payable, anything in this Indenture or in the said Debentures contained to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after the principal of the Debentures shall have been so declared due and payable, but before the Debentures shall have become due by their terms and before any judgment or decree for the payment of the monies due shall have been obtained or entered as hereinafter provided, the Company shall pay or shall deposit with the Trustee a sum sufficient to pay all matured installments of interest upon all the Debentures then outstanding and the principal of any and all Debentures then outstanding which shall have become due otherwise than by acceleration (with interest upon such principal and, to the extent that payment of such interest is enforceable under applicable law, upon overdue installments of interest, at the rate per annum expressed in the Debentures to the date of such payment or deposit) and the amount payable to the Trustee under Section 8.06, and any and all defaults under the Indenture, other than the nonpayment of principal on Debentures then outstanding which shall not have become due by their terms, shall have been remedied or provisions shall have been made therefor to the satisfaction of the Trustee -- then and in every such case the holders of a majority in aggregate principal amount of the Debentures then outstanding, by written notice to the Company and to the Trustee, may waive all defaults and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or shall affect any subsequent default, or shall impair any right consequent thereon. In case the Trustee shall have proceeded to enforce any right under this Indenture and such proceedings shall have been discontinued or abandoned because of such rescission or annulment or for any other reason or shall have been determined adversely to the Trustee, then and in every such case the Company and the Trustee shall be restored respectively to their former positions and rights hereunder, and all rights, remedies and powers of the Company and the Trustee shall continue as though no such proceedings had been taken, subject to any applicable order or ruling in a court of competent jurisdiction. Section 7.02. The Company covenants that (1) in case default shall be made in the payment of any installment of interest on any of the Debentures, as and when the same shall become due and payable, and such default shall have continued for a period of thirty days, or (2) in case default shall be made in the payment of the principal of any of the Debentures when the same shall have become due and payable, whether upon maturity of the Debentures or upon declaration as authorized by this Indenture or otherwise -- then, upon demand of the Trustee, the Company will pay to the Trustee, for the benefit of the holders of the Debentures then outstanding, the whole amount that then shall have become due and payable on all such Debentures for principal or interest, as the case may be, with interest upon the overdue principal and (to the extent that payment of such interest is enforceable under applicable law) upon overdue installments of interest at the rate per annum expressed in the Debentures; and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, and the amount payable to the Trustee under Section 8.06. In case the Company shall fail forthwith to pay such amounts upon such demand, the Trustee, in its own name and as trustee of an express trust, shall be entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceeding to judgment or final decree, and may enforce any such judgment or final decree against the Company or other obligor upon the Debentures and collect in the manner provided and to the extent permitted by law out of the property of the Company or other obligor upon the Debentures wherever situated the monies adjudged or decreed to be payable. The Trustee shall be entitled and empowered, either in its own name or as trustee of an express trust, or as attorney-in-fact for the holders of the Debentures, or in any one or more of such capacities, to file such proof of debt, amendment of proof of debt, claim, petition or other document as may be necessary or advisable in order to have the claims of the Trustee and of the holders of the Debentures allowed in any equity receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization or other judicial proceedings relative to the Company or any other obligor on the Debentures or their creditors, or affecting their property. The Trustee is hereby irrevocably appointed (and the successive respective holders of the Debentures by taking and holding the same shall be conclusively deemed to have so appointed the Trustee) the true and lawful attorney-in-fact of the respective holders of the Debentures, with authority to make and file in the respective names of the holders of the Debentures or on behalf of the holders of the Debentures as a class, subject to deduction from any such claims of the amounts of any claims filed by any of the holders of the Debentures themselves, any proof of debt, amendment of proof of debt, claim, petition or other document in any such proceedings and to receive payment of any sums becoming distributable on account thereof, and to execute any such other papers and documents and to do and perform any and all such acts and things for and on behalf of such holders of the Debentures as may be necessary or advisable in the opinion of the Trustee in order to have the respective claims of the Trustee and of the holders of the Debentures against the Company or its property allowed in any such proceeding, and to receive payment of or on account of such claims; provided, however, that nothing contained in this Indenture shall be deemed to give to the Trustee any right to accept or consent to any plan of reorganization or otherwise by action of any character in any such proceeding to waive or change in any way any right of any Debentureholder. All rights of action and of asserting claims under this Indenture, or under any of the Debentures, may be enforced by the Trustee without the possession of any of the Debentures, or the production thereof on any trial or other proceeding relative thereto, and any such suit or proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall be for the ratable benefit of the holders of the Debentures, subject to the provisions of this Indenture. In case of an Event of Default hereunder the Trustee may in its discretion proceed to protect and enforce the rights vested in it by this Indenture by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement contained in this Indenture or in aid of the exercise of any power granted in this Indenture, or to enforce any other legal or equitable right vested in the Trustee by this Indenture or by law. Section 7.03. Any monies collected by the Trustee pursuant to Section 7.02, shall be applied in the order following, at the date or dates fixed by the Trustee, upon presentation of the several Debentures, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of costs and expenses of collection and of all amounts payable to the Trustee under Section 8.06; Second: In case the principal of the outstanding Debentures shall not have become due and be unpaid, to the payment of interest on the Debentures, in the order of the maturity of the installments of such interest, with interest (so far as may be lawful and if such interest has been collected by the Trustee) upon the overdue installments of interest at the rate per annum expressed in the Debentures, such payments to be made ratably to the persons entitled thereto, without discrimination or preference; Third: In case the principal of the outstanding Debentures shall have become due, by declaration as authorized by this Indenture or otherwise, to the payment of the whole amount then owing and unpaid upon the Debentures for principal and interest, with interest on the overdue principal and (so far as may be lawful and if such interest has been collected by the Trustee) upon overdue installments of interest at the rate per annum expressed in the Debentures; and in case such monies shall be insufficient to pay in full the whole amount so due and unpaid upon the Debentures, then to the payment of such principal and interest, without preference or priority of principal over interest, or of interest over principal, or of any installment of interest over any other installment of interest, or of any Debenture over any other Debenture, ratably to the aggregate of such principal and accrued and unpaid interest; and Fourth: To the payment of the remainder, if any, to the Company, its successors or assigns, or to whomsoever may be lawfully entitled to receive the same, or as a court of competent jurisdiction may direct. Section 7.04. Except as otherwise expressly provided in this Section, no holder of any Debenture shall have any right by virtue or by availing of any provision in this Indenture or otherwise to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Indenture, for the appointment of a receiver or trustee, for the execution of any trust or power hereof, or for any other remedy hereunder, unless such holder previously shall have given to the Trustee written notice of default and of the continuance thereof, as hereinbefore provided, and unless also the holders of not less than 25% in aggregate principal amount of the Debentures then outstanding shall have made written request upon the Trustee either to proceed to exercise the powers hereinbefore granted or to institute such action, suit or proceeding in its own name as trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee within a reasonable time (which in no event shall be less than sixty days) after its receipt of such notice, request and offer of indemnity, shall have failed to proceed to exercise such powers or to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by the taker and holder of every Debenture with every other taker and holder and the Trustee, that no one or more holders of Debentures shall have any right in any manner whatever by virtue or by availing of any provision of this Indenture to affect, disturb or prejudice the rights of the holders of any other of such Debentures, or to obtain or seek to obtain priority over or preference to any other such holder, or to enforce any right under this Indenture, except in the manner herein provided and for the equal, ratable and common benefit of all holders of Debentures. For the protection and enforcement of the provisions of this Section, each and every Debentureholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Nothing herein contained shall, however, affect or impair the right, which is absolute and unconditional, of any Debentureholder to receive and to institute suit to enforce the payment of the principal of and interest on his Debentures at and after the respective due dates (including, subject to the provisions of Section 7.01, maturity by declaration pursuant to this Indenture or otherwise) of such principal or interest, or the obligation of the Company, which is also absolute and unconditional, to pay the principal of and interest on each of the Debentures to the respective holders thereof at the times and places in the Debentures expressed. Section 7.05. No delay or omission of the Trustee or of any holder of any of the Debentures to exercise any right or power accruing upon any Event of Default shall impair any such right or power or shall be construed to be a waiver of any such default or an acquiescence therein; and, subject to the provisions of Section 7.04, every power and remedy given by this Article or by law to the Trustee or to the Debentureholders may be exercised from time to time, and as often as shall be deemed expedient, by the Trustee or by the Debentureholders. Section 7.06. See Section 316(a)(1) of the Trust Indenture Act. Section 7.07. See Section 315(b) of the Trust Indenture Act. Section 7.08. See Section 315(e) of the Trust Indenture Act. ARTICLE EIGHT. Concerning the Trustee. Section 8.01. See Trust Indenture Act, including Section 315(a), (b), (c) and (d) thereof. Section 8.02. Except as otherwise provided in Section 8.01: (a) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors, or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture or other paper or document, including without limitation documents delivered to it pursuant to Section 5.10 (which documents the Trustee may rely on as not being amended or supplemented other than to the extent any amendments or supplements have been delivered to it) believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) Any request, direction, order or demand of the Company mentioned herein shall be sufficiently evidenced by an Officers' Certificate (unless other evidence in respect thereof be herein specifically prescribed); and any resolution of the Board of Directors may be evidenced to the Trustee by a copy thereof certified by the Secretary or an Assistant Secretary of the Company; (c) The Trustee may consult with counsel of its selection and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel; (d) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Indenture at the request, order or direction of any of the Debentureholders, pursuant to the provisions of this Indenture, unless such Debentureholders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; (e) The Trustee shall not be personally liable for any action taken or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture; (f) Prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture or other paper or document unless requested in writing so to do by the holders of not less than a majority in principal amount of the Debentures then outstanding; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Indenture, the Trustee may require reasonable indemnity against such expense or liability as a condition to so proceeding. The reasonable expense of every such investigation shall be paid by the Company or, if paid by the Trustee, shall be repaid by the Company upon demand; (g) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it hereunder; and (h) None of the provisions of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any personal financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 8.03. The recitals contained herein and in the Debentures (other than the certificate of authentication on the Debentures) shall be taken as the statements of the Company, and the Trustee assumes no responsibility for the correctness of the same. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Debentures. The Trustee shall not be accountable for the use or application by the Company of any of the Debentures or of the proceeds of such Debentures, or for the use or application of any moneys paid over by the Trustee in accordance with any provision of this Indenture, or for the use or application of any moneys received by any paying agent. Section 8.04. The Trustee or any paying agent or any Debenture registrar, in its individual or any other capacity, may become the owner or pledgee of Debentures with the same rights it would have if it were not Trustee, paying agent or Debenture registrar. Section 8.05. Subject to the provisions of Section 13.04, all moneys received by the Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any moneys received by it hereunder except such as it may agree in writing with the Company to pay thereon. So long as no Event of Default shall have occurred and be continuing, all interest allowed on any such moneys shall be paid from time to time upon the written order of the Company, signed by its President, a Vice President, its Treasurer or an Assistant Treasurer. Section 8.06. The Company covenants and agrees to pay to the Trustee from time to time, and the Trustee shall be entitled to, such compensation as the Company and the Trustee shall from time to time agree to in writing (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trusts hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Company will pay or reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Indenture (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ) except any such expense, disbursement or advance as may arise from its negligence or bad faith. The Company also covenants to indemnify the Trustee for, and to hold it harmless against, any and all loss, damage, claims, liability or expense incurred without negligence or bad faith on the part of the Trustee, and arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself against any claim of liability in the premises. The obligations of the Company under this Section to compensate the Trustee, to pay or reimburse the Trustee for expenses, disbursements and advances and to indemnify the Trustee shall constitute additional indebtedness hereunder. Such additional indebtedness shall be secured by a lien prior to that of the Debentures upon all property and funds held or collected by the Trustee as such, except funds held in trust for the benefit of the holders of particular Debentures. Section 8.07. Except as otherwise provided in Section 8.01, whenever in the administration of the trusts of this Indenture the Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action hereunder, such matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed to be conclusively proved and established by an Officers' Certificate, and such certificate shall be full warrant to the Trustee for any action taken, suffered or omitted by it under the provisions of this Indenture upon the faith thereof. Section 8.08. See Section 310(b) of the Trust Indenture Act. In addition, excluded from the operation of Section 310(b)(1) of the Trust Indenture Act are the following: the Indenture dated as of April 1, 1977 between the Company and Citibank, N.A., Trustee, pursuant to which the Company's 8 5/8% Debentures due 2007 are outstanding, the Indenture dated as of October 15, 1988 between the Company and Citibank, N.A., Trustee, pursuant to which the Company's 10 1/8% Debentures due 2018 are outstanding, the Indenture dated as of December 1, 1989 between the Company and Citibank, N.A., Trustee, pursuant to which the Company's 7.20% Debentures due 2019 are outstanding, the Indenture dated as of October 1, 1990 between the Company and Citibank, N.A., Trustee, pursuant to which the Company's 7 1/2% Debentures due 2020 are outstanding, the Indenture dated as of August 1, 1991 between the Company and The Bank of New York, Trustee, pursuant to which the Company's 6.60% Debentures due 2021 are outstanding, the Indenture dated as of August 1, 1991 between the Company and The Bank of New York, Trustee, pursuant to which the Company's 6.70% Debentures due 2021 are outstanding, the Indenture dated as of October 1, 1991 between the Company and The Bank of New York, Trustee, pursuant to which the Company's 8 3/4% Debentures due 2021 are outstanding and the Indenture dated as of September 1, 1992 between the Company and The Bank of New York, Trustee, pursuant to which the Company's 8% Debentures due 2022 are outstanding. Section 8.09. The Trustee hereunder shall at all times be a corporation organized and doing business under the laws of the United States or any State or Territory or of the District of Columbia authorized under such laws to exercise corporate trust powers, having a combined capital and surplus of at least $5,000,000, subject to supervision or examination by Federal, State, Territorial, or District of Columbia authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.10. Section 8.10. (a) The Trustee, or any successor hereafter appointed, may at any time resign and be discharged from the trust hereby created by mailing notice thereof to the Company and to the Debentureholders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of Section 6.02(a) hereof. Upon receiving such notice of resignation, the Company shall promptly appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. If no successor trustee shall have been so appointed and have accepted appointment within thirty days after the mailing of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee, or any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, subject to the provisions of Section 7.08, on behalf of himself and all others similarly situated, petition any such court for the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, appoint a successor trustee. (b) In case at any time any of the following shall occur-- (1) the Trustee shall fail to comply with the provisions of Section 310(b) of the Trust Indenture Act after written request therefor by the Company or by any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months, or (2) the Trustee shall cease to be eligible in accordance with the provisions of Section 8.09 and shall fail to resign after written request therefor by the Company or by any such Debentureholder, or (3) the Trustee shall become incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, the Company may remove the Trustee and appoint a successor trustee by written instrument, in duplicate, executed by order of the Board of Directors of the Company, one copy of which instrument shall be delivered to the Trustee so removed and one copy to the successor trustee, or, subject to the provisions of Section 7.08, any Debentureholder who has been a bona fide holder of a Debenture or Debentures for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. (c) The holders of a majority in aggregate principal amount of the Debentures at the time outstanding may at any time remove the Trustee and appoint a successor trustee. (d) Any resignation or removal of the Trustee and any appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.11. Section 8.11. Any successor trustee appointed as provided in Section 8.10 shall execute, acknowledge and deliver to the Company and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as trustee herein. The predecessor trustee shall, nevertheless, at the written request of the successor trustee, and upon payment of any amount then due it pursuant to Section 8.06, pay over to the successor trustee all moneys at the time held by it hereunder; and the Company and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. Any Trustee ceasing to act shall nevertheless retain a lien on all funds held or collected by such Trustee to secure any amount due it pursuant to Section 8.06. No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be qualified under the provisions of Section 8.08 and eligible under the provisions of Section 8.09. Upon acceptance of appointment by a successor trustee as provided in this Section, the Company shall mail notice of the succession of such trustee hereunder to all Debentureholders at their last addresses appearing upon the register. If the Company fails to mail such notice in the prescribed manner within 10 days after the acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Company. Section 8.12. Any corporation into which the Trustee may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be qualified under the provisions of Section 8.08 and eligible under the provisions of Section 8.09, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. In case at the time such successor to the Trustee shall succeed to the trusts created by this Indenture any of the Debentures shall have been authenticated but not delivered, any such successor to the Trustee may adopt the certificate of authentication of any predecessor trustee, and deliver such Debentures so authenticated; and in case at that time any of the Debentures shall not have been authenticated, any successor to the Trustee may authenticate such Debentures either in the name of any predecessor hereunder or in the name of the successor trustee; and in all such cases such certificates shall have the full force which it is anywhere in the Debentures or in this Indenture provided that the certificate of the Trustee shall have; provided, however, that the right to adopt the certificate of authentication of any predecessor trustee or authenticate Debentures in the name of any predecessor trustee shall apply only to its successor or successors by merger, conversion or consolidation. Section 8.13. See Section 311 of the Trust Indenture Act. ARTICLE NINE. Concerning the Debentureholders. Section 9.01. Whenever in this Indenture it is provided that the holders of a specified percentage in aggregate principal amount of the Debentures may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Debentureholders in person or by attorney or proxy appointed in writing, or (b) by the record of the holders of Debentures voting in favor thereof at any meeting of Debentureholders duly called and held in accordance with the provisions of Article Ten, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Debentureholders. Section 9.02. Subject to the provisions of Section 8.01, proof of the execution of any instrument by a Debentureholder or his attorney or proxy and proof of the holding by any person of any of the Debentures shall be sufficient for any purpose of this Indenture if made in accordance with such reasonable rules and regulations as may be prescribed by the Trustee or in such manner as shall be satisfactory to the Trustee. The ownership of Debentures shall be proved by the register of such Debentures or by a certificate of the Debenture registrar. The record of any Debentureholders' meeting shall be proved in the manner provided in Section 10.06. Section 9.03. The Company, the Trustee, any paying agent and any Debenture registrar may deem and treat the person in whose name any Debenture shall be registered upon the register as the absolute owner of such Debenture (whether or not such Debenture shall be overdue and notwithstanding any notice of ownership or writing thereon), for the purpose of receiving payment of or on account of the principal of and interest and premium, if any, on such Debenture and for all other purposes, and neither the Company nor the Trustee nor any paying agent nor any Debenture registrar shall be affected by any notice to the contrary. All such payments so made to any such registered holder, for the time being or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Debenture. Section 9.04. In determining whether the holders of the requisite aggregate principal amount of Debentures have concurred in any direction, consent or waiver under this Indenture, Debentures which are owned by the Company or any other obligor on the Debentures or by any person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any other obligor on the Debentures shall be disregarded and deemed not to be outstanding for the purpose of any such determination, except that for the purpose of determining whether the Trustee shall be protected in relying on any such direction, consent or waiver only Debentures which the Trustee knows are so owned shall be so disregarded. Debentures so owned which have been pledged in good faith may be regarded as outstanding for the purposes of this Section, if the pledgee shall establish to the satisfaction of the Trustee the pledgee's right to vote such Debentures and that the pledgee is not a person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company or any such other obligor. In case of a dispute as to such right, any decision by the Trustee taken upon the advice of counsel shall be full protection to the Trustee. Section 9.05. Any demand, request, waiver, consent or vote of the holder of any Debenture shall be conclusive and binding upon such holder and upon all future holders and owners of such Debenture, and of any Debenture issued in exchange therefor or in place thereof, irrespective of whether or not any notation in regard thereto is made upon such Debenture. Any action taken by the holders of the majority or percentage in aggregate principal amount of the Debentures specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the holders of all the Debentures. ARTICLE TEN. Debentureholders' Meetings. Section 10.01. A meeting of Debentureholders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: (1) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Debentureholders pursuant to any of the provisions of Article Seven; (2) to remove the Trustee and appoint a successor trustee pursuant to the provisions of Article Eight; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.02; or (4) to take any other action authorized to be taken by or on behalf of the holders of any specified aggregate principal amount of the Debentures under any other provision of this Indenture, or authorized or permitted by law. Section 10.02. The Trustee may at any time call a meeting of Debentureholders to take any action specified in Section 10.01, to be held at such time and at such place in the Borough of Manhattan, City and State of New York, as the Trustee shall determine. Notice of every meeting of the Debentureholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be mailed not less than fifteen days prior to the date fixed for the meeting to the Debentureholders whose names and addresses appear in the information preserved at the time by the Trustee in accordance with the provisions of Section 6.02(a) hereof or obtained in accordance with the provisions of Section 6.01 hereof. Any meeting of Debentureholders shall be valid without notice if the holders of all Debentures then outstanding are present in person or by proxy or if notice is waived before or after the meeting by the holders of all Debentures outstanding, and if the Company and the Trustee are either present by duly authorized representatives or have, before or after the meeting, waived notice. Section 10.03. In case at any time the Company, pursuant to a resolution of its Board of Directors or the holders of at least 20% in aggregate principal amount of the Debentures then outstanding, shall request the Trustee to call a meeting of Debentureholders to take any action specified in Section 10.01, by written request setting forth in reasonable detail the action proposed to be taken at the meeting and the time and place in the Borough of Manhattan, City and State of New York, for such meeting, the Trustee shall mail notice of such meeting as provided in Section 10.02 within twenty days after receipt of such request. Section 10.04. To be entitled to vote at any meeting of Debentureholders a person shall (a) be a holder of one or more Debentures or (b) be a person appointed by an instrument in writing as proxy for the holder or holders of Debentures by a holder of one or more Debentures. The only persons who shall be entitled to be present or to speak at any meeting of Debentureholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 10.05. Notwithstanding any other provision of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Debentureholders, in regard to proof of the holding of Debentures and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. Except as otherwise permitted or required by any such regulations, the holding of Debentures shall be proved in the manner specified in Section 9.02 and the appointment of any proxy shall be proved in the manner specified in Section 9.02. Pursuant to the foregoing authority the Trustee may fix, in advance, a date as a record date for determining the Debentureholders entitled to notice of, or to vote at, any meeting, such date to be not less than fifteen nor more than forty-five days prior to the date fixed for such meeting. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by request of the Company or Debentureholders as provided in Section 10.03, in which case the Company or such Debentureholders, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the holders of a majority in principal amount of the Debentures represented at the meeting and entitled to vote. Subject to the provisions of Section 9.04, at any meeting each Debentureholder or proxy shall be entitled to one vote for each $1,000 principal amount of Debentures, provided, however, that no vote shall be cast or counted at any meeting in respect of any Debentures challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Debentures held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Debentureholders. Any meeting of Debentureholders duly called pursuant to the provisions of Section 10.02 or 10.03 may be adjourned from time to time, and the meeting may be held as so adjourned without further notice. Section 10.06. The vote upon any resolution submitted to any meeting of Debentureholders shall be by written ballots on which shall be subscribed the signatures of the holders of Debentures or of their representatives by proxy. The permanent chairman of the meeting shall appoint two inspectors of votes, who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Debentureholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more person having knowledge of the facts, setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 10.02. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. Section 10.07. Nothing in this Article Ten contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Debentureholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Debentureholders under any of the provisions of this Indenture or of the Debentures. ARTICLE ELEVEN. Supplemental Indentures. Section 11.01. The Company, when authorized by a resolution of its Board of Directors, and the Trustee, subject to the conditions and restrictions of this Indenture contained, may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as then in effect) for one or more of the following purposes: (a) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article Twelve; (b) to add to the covenants and agreements of the Company in this Indenture contained such further covenants and agreements thereafter to be observed, and to surrender any right or power herein reserved to or conferred upon the Company; and (c) to cure any ambiguity, to correct or supplement any provisions herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture, provided such action or other provisions shall not adversely affect the interests of the holders of Debentures in any material respect. The Trustee is hereby authorized to join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section may be executed by the Company and the Trustee without the consent of the holders of any of the Debentures at the time outstanding, notwithstanding any of the provisions of Section 11.02. Section 11.02. With the consent (evidenced as provided in Section 9.01) of the holders (or persons entitled to vote, or to give consents respecting the same) of more than 50% in aggregate principal amount of the Debentures at the time outstanding, the Company, when authorized by a resolution of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto (which shall conform to the provisions of the Trust Indenture Act of 1939 as then in effect) for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights and obligations of the holders of the Debentures and of the Company; provided, however, that no such supplemental indenture shall (i) extend the fixed maturity of any Debenture, or reduce the principal amount thereof, or reduce the rate or extend the time of payment of interest thereon, without the consent of the holder of each Debenture so affected, or (ii) reduce the aforesaid percentage of Debentures, the holders of which are required to consent to any such supplemental indenture, without the consent of the holders of all Debentures then outstanding. Upon the request of the Company, accompanied by a copy of a resolution of its Board of Directors certified by the secretary or an assistant secretary of the Company authorizing the execution of any such supplemental indenture, and upon the filing with the Trustee of evidence of the consent of Debentureholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion but shall not be obligated to enter into such supplemental indenture. It shall not be necessary for the consent of the Debentureholders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to the provisions of this Section, the Company shall mail a notice, setting forth in general terms the substance of such supplemental indenture, to all Debentureholders at their last addresses appearing upon the register. Any failure of the Company to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. Section 11.03. Upon the execution of any supplemental indenture pursuant to the provisions of this Article, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the holders of Debentures shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. Section 11.04. Debentures authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article, or after any action taken at a Debentureholders' meeting pursuant to Article Ten, may bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture or as to any action taken at any such meeting; and, in such case, suitable notation may be made upon outstanding Debentures after proper presentation and demand. If the Company or the Trustee shall so determine, new Debentures so modified as to conform, in the opinion of the Trustee and the Board of Directors of the Company, to any modification of this Indenture contained in any such supplemental indenture, or to any action taken at any such meeting, may be prepared by the Company, authenticated by the Trustee and delivered in exchange for the Debentures then outstanding, upon demand of, and without cost to, the holders thereof, upon surrender of such Debentures. Section 11.05. The Trustee, subject to the provisions of Section 8.01, may receive an Opinion of Counsel as conclusive evidence that any supplemental indenture executed pursuant to this Article Eleven is authorized or permitted by the terms of this Indenture and that it is not inconsistent therewith. ARTICLE TWELVE. Consolidation, Merger and Sale. Section 12.01. Nothing contained in this Indenture or in any of the Debentures shall prevent any consolidation or merger of the Company with or into any other corporation or corporations (whether or not affiliated with the Company), or successive consolidations or mergers in which the Company or its successor or successors shall be a party or parties, or shall prevent any sale or conveyance (or successive sales or conveyances) of the property and assets of the Company (or of its successor or successors) as an entirety or substantially as an entirety, to any other corporation (whether or not affiliated with the Company) authorized to acquire the same; provided, however, and the Company hereby covenants and agrees that, upon any such consolidation, merger, sale or conveyance, the due and punctual payment of the principal of and interest on all the Debentures, according to their tenor, and the due and punctual performance and observance of all the terms, covenants and conditions of this Indenture to be kept or performed by the Company, shall be expressly assumed, by indenture supplemental hereto, satisfactory in form to the Trustee, executed and delivered to the Trustee by the corporation formed by such consolidation, or into which the Company shall have been merged, or by the corporation which shall have acquired such property and assets. In the event of any such sale or conveyance the predecessor Company may be dissolved, wound up and liquidated at any time thereafter. Section 12.02. In case of any such consolidation, merger, sale or conveyance and upon the execution by the successor corporation of an indenture supplemental hereto, as provided in Section 12.01, such successor corporation shall succeed to and be substituted for the Company, with the same effect as if it had been named herein as the party of the first part. Such successor corporation thereupon may issue either in its own name or in the name of the Company, with such suitable reference, if any, to such consolidation, merger, sale or conveyance as may be required by the Trustee, any or all of the Debentures issuable hereunder which theretofore shall not have been issued by the Company and delivered to the Trustee; and, upon the written order of such successor corporation, instead of the Company, and subject to all the terms, conditions and limitations in this Indenture prescribed, the Trustee shall authenticate and shall deliver any Debentures which previously shall have been executed by the Company and any Debentures which such successor corporation thereafter shall cause to be executed in accordance with the provisions of this Indenture and delivered to the Trustee for that purpose. All the Debentures so issued shall in all respects have the same legal rank and benefit under this Indenture as the Debentures theretofore or thereafter issued in accordance with the terms of this Indenture as though all of such Debentures had been issued at the date of the execution hereof. In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in the Debentures thereafter to be issued as may be appropriate). Nothing contained in this Indenture or in any of the Debentures shall prevent the Company from consolidating with, or merging into itself, or acquiring by purchase or otherwise all or any part of the property of, any other corporation (whether or not affiliated with the Company). Section 12.03. The Trustee, subject to the provisions of Section 8.01, may receive an Opinion of Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of this Article. ARTICLE THIRTEEN. Satisfaction and Discharge of Indenture; Deposited Moneys. Section 13.01. If: (1) Either (i) the Company shall deliver to the Trustee for cancellation all Debentures (other than Debentures deemed not to be outstanding under clause (c) of the definition thereof) not theretofore canceled or delivered to the Trustee for cancellation, or (ii) the Company shall have deposited in trust with the Trustee cash sufficient to pay at maturity or upon redemption (after notice of redemption has been duly given or provided for) all of the Debentures (other than Debentures deemed not to be outstanding under clause (c) of the definition thereof) not theretofore canceled or delivered to the Trustee for cancellation, including principal, premium, if any, and interest due or to become due to such date of maturity or redemption date, as the case may be, or (iii) the Company shall have deposited in trust with the Trustee direct obligations of the United States or obligations the principal of and interest on which are fully guaranteed by the United States, and which are not subject to prepayment, redemption or call prior to their stated maturity, in such amounts and maturing at such times that the proceeds of said obligations, together with the income that can be predetermined will accrue thereon by reference to the terms thereof (without consideration of any reinvestment thereof), to be received upon their respective maturities and interest payment dates will provide funds sufficient to pay the principal, premium, if any, and interest due or to become due to the date of maturity or to the redemption date, as the case may be, with respect to all of the Debentures (other than Debentures deemed not to be outstanding under clause (c) of the definition thereof) not theretofore canceled or delivered to the Trustee for cancellation, provided that the Trustee shall have been irrevocably instructed to apply the proceeds of said obligations to the payment of such principal, premium and interest with respect to such Debentures, or (iv) the Company shall have deposited in trust with the Trustee any combination of cash or obligations referred to in (ii) and (iii), (2) the Company shall pay or cause to be paid all other sums payable with respect to the Debentures, and (3) the Company shall deliver to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of the entire indebtedness on the Debentures have been complied with, then (a) this Indenture shall cease to be of further effect (except as otherwise provided herein) and on or after such maturity date or redemption date, as the case may be, the Trustee, on demand of, and at the expense of, the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture; and (b) all obligations of the Company in respect of the Debentures shall cease and be discharged and the holders of such Debentures shall thereafter be restricted exclusively to such funds for any and all claims of whatever nature on their part under this Indenture or with respect to such Debentures; provided, however, that, in no event shall the Company be discharged from (i) any payment obligation in respect of Debentures deemed not to be outstanding under clause (c) of the definition thereof if such obligations continue to be valid obligations under applicable law, (ii) any obligations under Sections 2.05 and 2.06 (except that Debentures issued upon registration of transfer or exchange or in lieu of mutilated, lost, destroyed or stolen Debentures shall not be deemed to be such obligations) or (iii) any obligations under Sections 6.01, 8.06, 13.02, 13.03 and 13.04; further provided, however, that the rights and privileges of the Trustee under this Indenture shall survive any such discharge. The Company hereby agrees to reimburse the Trustee for any costs or expenses thereafter reasonably and properly incurred by the Trustee in connection with this Indenture or the Debentures, and without bad faith or negligence. Section 13.02. All moneys deposited with the Trustee pursuant to Section 13.01 shall be held in trust and applied by it to the payment, to the holders of the particular Debentures for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due and to become due thereon for principal, premium, if any, and interest. Section 13.03. In connection with the satisfaction and discharge of this Indenture all moneys then held by any paying agent under the provisions of this Indenture shall, upon demand of the Company or Trustee, be paid to the Trustee and thereupon such paying agent shall be released from all further liability with respect to such moneys. Section 13.04. In case the holder of any Debenture entitled to payment hereunder at any time outstanding hereunder shall not, within two years after the maturity date of such Debenture or the date fixed for the redemption of any such Debenture, claim the amount on deposit with the Trustee or other depositary for the payment of such Debenture, the Trustee or other depositary shall pay over to or upon the written order of the Company the amount so deposited, upon receipt of a request signed by the President or a Vice President of the Company, and thereupon the Trustee or other depositary shall be released from any and all further liability with respect to the payment of such Debenture and the holder of said Debenture shall be entitled (subject to any applicable statute of limitations) to look only to the Company as an unsecured creditor for the payment thereof. ARTICLE FOURTEEN. Immunity of Incorporators, Stockholders, Officers, Trustees and Directors. Section 14.01. No recourse under or upon any obligation, covenant or agreement of this Indenture, or of any Debenture, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, stockholder, officer, trustee or director, as such, past, present or future, of the Company or of any predecessor or successor corporation, either directly through the Company or any such predecessor or successor corporation, whether by virtue of any constitution, statute or rule of law or equity, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, stockholders, officers, trustees or directors of the Company, as such, or of any predecessor or successor corporation, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any of the Debentures or implied therefrom; and that any and all such liability is hereby expressly waived and released by every holder of Debentures as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Debentures. ARTICLE FIFTEEN. Miscellaneous Provisions. The provisions of the Trust Indenture Act which impose duties on any person (including provisions automatically deemed included in an indenture by the Trust Indenture Act unless the indenture provides that such provisions are excluded which provision is hereby expressly excluded other than Section 316(a)(2) of the Trust Indenture Act) are a part of and govern this Indenture. If any provision hereof limits, qualifies or conflicts with any of the duties imposed by operation of the Trust Indenture Act, the Trust Indenture Act shall control. Section 15.01. All the covenants, stipulations, promises and agreements in this Indenture contained by or in behalf of the Company shall bind its successors and assigns, whether so expressed or not. Section 15.02. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful successor of the Company. Section 15.03. The Company by instruments in writing executed by authority of its Board of Directors and delivered to the Trustee may surrender any of the powers reserved to the Company and thereupon such power so surrendered shall terminate both as to the Company and as to any successor corporation. Section 15.04. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the holders of Debentures to or on the Company may be given or served by being deposited postage prepaid in a post-office letterbox addressed (until another address is filed in writing by the Company with the Trustee), as follows: Elizabethtown Water Company, 600 South Avenue, Westfield, NJ 07091- 0788. Any notice, election, request or demand by any Debentureholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made at the principal corporate trust office of the Trustee in the Borough of Manhattan, City and State of New York. Section 15.05. This Indenture and each Debenture shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said state. Section 15.06. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or opinion of an officer of the Company may be based, in so far as it relates to legal matters, upon a certificate or opinion of or representations by counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of counsel may be based (in so far as it relates to factual matters information with respect to which is in the possession of the Company) upon the certificate, statement or opinion of or representations by an officer or officers of the Company, unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel may be based, in so far as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants in the employ of the Company, unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Section 15.07. In any case where the date of maturity of interest on or principal of the Debentures or the date fixed for redemption of any Debenture shall be a Sunday or legal holiday or a date on which banking institutions in the city of payment are authorized by law to close, then payment of interest, principal or premium may be made on the next succeeding day not a Sunday or a legal holiday or a date on which banking institutions in the city of payment are authorized by law to close with the same force and effect as if made on the nominal date and no interest shall accrue for the period after such nominal date. Section 15.08. If and to the extent that any provision of this Indenture limits, qualifies or conflicts with another provision included in this Indenture which is required to be included in this Indenture by any of Sections 310 to 317, inclusive, of the Trust Indenture Act of 1939, such required provision shall control. Section 15.09. In case any one or more of the provisions contained in this Indenture or in the Debentures shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Indenture or of such Debentures, but this Indenture and such Debentures shall be construed as if such invalid or illegal or unenforceable provision had never been contained herein or therein. Section 15.10. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. The Bank of New York, the party of the second part, hereby accepts the trusts in this Indenture declared and provided, upon the terms and conditions hereinabove set forth. IN WITNESS WHEREOF, Elizabethtown Water Company, the party of the first part, has caused this Indenture to be signed in its corporate name and acknowledged by its President, or one of its Vice Presidents, and its corporate seal to be affixed hereunto, duly attested by its Secretary or an Assistant Secretary; and The Bank of New York, the party of the second part, has caused this Indenture to be signed and acknowledged by one of its Assistant Vice Presidents, and its corporate seal to be affixed hereunto, duly attested by one of its Assistant Treasurers, all as of the day and year first above written. ELIZABETHTOWN WATER COMPANY, (Seal) By /s/ Gail P. Brady ____________________________ Vice President Attest: /s/ Walter M. Braswell _______________________ Secretary THE BANK OF NEW YORK, as Trustee (Seal) By /s/ Robert F. McIntyre ______________________________ Assistant Vice President Attest: /s/ Lucille Firrincieli _______________________ Assistant Treasurer STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK) On this 2nd day of November, 1993, before me, the subscriber, a Notary Public within and for the County of New York, in the State of New York, personally appeared Gail P. Brady, to me personally known, who, being by me duly sworn, did say that she resides at 49 Howell Drive, Verona, N.J. 07044 and is a Vice President of Elizabethtown Water Company, one of the corporations described in and which executed the foregoing instrument; that she knows the corporate seal of the said corporation and that the seal affixed to said instrument is the corporate seal of said corporation; and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors and that she subscribed her name thereto by like authority; and said Walter M. Braswell, acknowledged said instrument to be the free act and deed of said corporation. My commission as Notary Public as aforesaid expires /s/ Jason D. Craven _______________________________ Notary Public, State of New York No. 31-4989968 Qualified in New York County Commission Expires December 23, 1993 STATE OF NEW YORK ) ) ss.: COUNTY OF NEW YORK) On this 9th day of November, 1993, before me, the subscriber, a Notary Public within and for the County of New York, in the State of New York, personally appeared Robert F. McIntyre, to me personally known, who, being by me duly sworn, did say that he resides at 1108 Hudson St. Hoboken, N.J. 07030, and is an Assistant Vice President of The Bank of New York, one of the corporations described in and which executed the foregoing instrument; that he knows the corporate seal of the said corporation and that the seal affixed to said instrument is the corporate seal of said corporation; and that said instrument was signed and sealed in behalf of said corporation by authority of its Board of Directors and that he subscribed his name thereto by like authority; and said Lucille firrincieli acknowledged said instrument to be the free act and deed of said corporation. My commission as Notary Public as aforesaid expires /s/ Marion Papadogonas _______________________________ Notary Public, State of New York No. 31-4842989 Qualified in New York County Commission Expires May 31, 1995 -----END PRIVACY-ENHANCED MESSAGE-----