SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993 COMMISSION FILE NUMBER 1-6659
PHILADELPHIA SUBURBAN CORPORATION
---------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Pennsylvania 23-1702594
-------------- -------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
762 Lancaster Avenue, Bryn Mawr, Pennsylvania 19010
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (215)-527-8000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------------- --------------------------
NEW YORK STOCK EXCHANGE, INC.
COMMON STOCK, PAR VALUE $.50 PER SHARE PHILADELPHIA STOCK EXCHANGE INC.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days.
Yes __X__ No ______
State the aggregate market value of the voting stock held by nonaffiliates of
the registrant as of March 1, 1994. $184,498,379
For purposes of determining this amount only, registrant has defined
affiliates as including (a) the executive officers named in Part I of this 10-K
report, (b) all directors of registrant, and (c) each shareholder that has
informed registrant by March 1, 1994, that it has sole or shared voting power of
5% or more of the outstanding common stock of registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of March 1, 1994. 11,404,928
Documents incorporated by reference
(1) Portions of registrant's 1993 Annual Report to shareholders have been
incorporated by reference into Parts I and II of this Form 10-K Report.
(2) Portions of the Proxy Statement, relative to the May 19, 1994 annual
meeting of shareholders of registrant, to be filed within 120 days after the end
of the fiscal year covered by this Form 10-K Report, have been incorporated by
reference into Part III of this Form 10-K Report.
PART I
ITEM 1. BUSINESS
Philadelphia Suburban Corporation ('PSC' or the 'Registrant'), a
Pennsylvania corporation, was incorporated in 1968. The business of PSC is
conducted almost entirely through its subsidiary Philadelphia Suburban Water
Company ('PSW'), a regulated public utility. PSC also owns a small data
processing service operation, Utility & Municipal Services, Inc. The information
appearing in 'Management's Discussion and Analysis' from the portions of PSC's
1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K Report
is incorporated by reference herein.
In the third quarter of 1990, the Board of Directors authorized the sale of
Mentor Information Systems, Inc., Digital Systems, Inc., American Tele/Response
Group, Inc., Stoner Associates, Inc., and its subsidiary Kesler Engineering,
Inc.; and during the first quarter of 1991, the Board of Directors authorized
the sale of PSC Engineers & Consultants, Inc. During 1991, all the businesses
were sold except for American Tele/Response Group, Inc. and Kesler Engineering,
Inc., which were sold in the first quarter of 1993. The results of operations of
these businesses are accounted for as discontinued operations. Unless otherwise
indicated, as used herein the 'Company' includes the continuing operations of
both PSC and its consolidated subsidiaries. The sales of the non-water service
subsidiaries were authorized in order to allow the Company to concentrate its
activities on its core water utility operations.
Consistent with that decision, in December 1993, PSW acquired the water
utility assets and franchise rights of the Borough of Malvern for $1,323,000 in
cash. The acquisition of this water system added approximately 859 customers or
.3% to PSW's customer base and one square mile of service territory or .3% to
PSW's existing service territory. PSW has made a proposal to acquire a municipal
water system serving approximately 13,000 customers in an area contiguous to
PSW's service territory for a purchase price in excess of $20,000,000, although
there can be no assurance that the proposal will be accepted or that such a
transaction will be consummated. PSW is not currently a party to any definitive
agreement with respect to any pending acquisition. In December 1992, PSW
acquired the water utility assets of the West Whiteland Township and the Uwchlan
Township Municipal Authority water systems for $9,128,257 in cash and the
issuance of $1,776,947 in debt. The December 1992 acquisitions added
approximately 6,900 customers or 2.9% to PSW's customer base and 40 square miles
of service territory or 11.8% to PSW's existing service territory.
PHILADELPHIA SUBURBAN WATER COMPANY
General. PSW is an operating public utility company, which supplies water
to approximately 247,195 residential, commercial, industrial and public
customers. PSW's contiguous service territory is approximately 380 square miles,
comprising a large portion of the suburban area west and north of the City of
Philadelphia. This territory is primarily residential in nature and is
completely metered, except for fire hydrant service.
Based on the 1990 census, PSW estimates that the total number of persons
currently served is approximately 800,000. Excluding the customers that were
added as a result of the acquisitions in December 1993 and 1992, customer
accounts have grown at an average rate of approximately .6% per annum for the
last three years.
2
Operating revenues during the twelve months ended December 31, 1993 were
derived approximately as follows:
66.5% from residential customers
20.1% from commercial customers
4.6% from industrial customers
1.0% from public customers
5.9% from fire protection services
from sales to other water utilities and miscellaneous
1.9% customers
- ---------
100.0%
- ---------
- ---------
Selected operating statistics. Set forth below is a table showing certain
selected operating statistics for PSW for the past three years.
Revenues from water sales (000's omitted)
1993 1992 1991
--------- --------- ---------
Residential............................................ $ 66,183 $ 58,738 $ 57,191
Commercial............................................. 19,970 18,755 17,764
Industrial............................................. 4,568 4,387 4,065
Public................................................. 1,027 1,003 938
Fire protection........................................ 5,912 5,330 4,561
Other.................................................. 1,095 1,057 1,255
Tax Surcharge.......................................... 706 2,281 1,292
--------- --------- ---------
Total............................................. $ 99,461 $ 91,551 $ 87,066
--------- --------- ---------
--------- --------- ---------
Water sales (million gallons)
Residential............................................ 16,729 16,034 16,436
Commercial............................................. 7,441 7,146 7,224
Industrial............................................. 1,985 1,947 1,892
Public................................................. 294 277 291
Fire protection -- metered............................. 60 56 53
Other.................................................. 401 383 487
--------- --------- ---------
Total............................................. 26,910 25,843 26,383
--------- --------- ---------
--------- --------- ---------
System delivery by source (million gallons)
Surface (including Upper Merion reservoir)............. 24,635 24,230 24,567
Wells.................................................. 5,466 4,642 4,785
Purchased.............................................. 2,446 2,392 2,466
--------- --------- ---------
Total............................................. 32,547 31,264 31,818
--------- --------- ---------
--------- --------- ---------
3
Number of metered customers (end of year)
Residential............................................ 232,684 230,740 223,635
Commercial............................................. 10,720 10,547 9,800
Industrial............................................. 832 837 820
Public................................................. 696 671 658
Fire protection........................................ 2,248 1,980 1,694
Other.................................................. 15 13 9
--------- --------- ---------
Total............................................. 247,195 244,788 236,616
--------- --------- ---------
--------- --------- ---------
Average consumption per customer in gallons............ 110,368 108,258 110,978
--------- --------- ---------
--------- --------- ---------
Water supplies and usage. PSW derives its principal supply of water from
the Schuylkill River, five rural streams which are tributaries of the Schuylkill
and Delaware Rivers, and the Upper Merion Reservoir, a former quarry now
impounding groundwater. All of these are either within or adjacent to PSW's
service territory. PSW acquired the right to remove water from these sources,
and in connection with such rights, PSW has secured the necessary regulatory
approvals. PSW has constructed five impounding reservoirs and four treatment and
pumping facilities to provide storage and purification of these surface water
supplies.
The Pennsylvania Department of Environmental Resources ('DER') has
regulatory power with respect to sources of supply and the construction,
operation and safety practices for certain dams and other water containment
structures under the Pennsylvania Dam Safety and Encroachments Act of 1979.
PSW's dams are in compliance with these requirements in all material respects.
PSW's surface supplies are supplemented by 39 wells. PSW also has
interconnections with: the Chester Water Authority, which permits PSW to
withdraw up to 6.2 million gallons per day ('mgd'); the Bucks County Water and
Sewer Authority, which provides for a supply of up to 7.0 mgd; and the West
Chester Area Municipal Authority, which provides up to a maximum of 1.0 mgd.
Agreements regarding the first two interconnections require PSW to purchase
certain minimum amounts of water. PSW believes it possesses all the necessary
permits to obtain its supply of water from the sources indicated above.
The minimum safe yield of all sources of supply described above, based on
low stream flows of record with respect to surface supplies, is as follows:
Surface supplies................................... 90.5 mgd
Upper Merion Reservoir............................. 7.2
Wells.............................................. 17.7
Purchased supplies................................. 8.1
---------
Total......................................... 123.5 mgd
---------
---------
During periods of normal precipitation, the safe yield is more than the
minimum shown above. Under normal operating conditions, PSW can deliver a
maximum of 139 mgd to its distribution system for short periods of time. The
average daily send-out for 1993, 1992 and 1991 was 89.1, 85.4, and 87.2 mgd,
respectively.
The maximum demand ever placed upon PSW's facilities for one month occurred
during June 1988, when send-out averaged 101.4 mgd. The peak day of record
occurred during July 1993 when water use reached 118.8 mgd.
Actual water usage (as measured by the water meters installed at each
service location) is less than the amount of water delivered into the system due
to leaks, PSW's operational use of water, fire hydrant usage and other similar
uses. Water consumption per customer is affected by local weather conditions
during the year. In general, during the late spring and summer, an increase in
rainfall
4
reduces water consumption, while a decrease in rainfall increases it.
Also, an increase in the average temperature generally causes an increase in
water consumption.
Energy supplies. PSW does all of its pumping using electric power
purchased from PECO Energy Company. Energy supplies have been sufficient to meet
customer demand.
Water shortages. The Delaware River Basin, which is the drainage area of
the Delaware River from New York State to Delaware, periodically experiences
water shortages during the summer months. To the extent that the reservoirs in
the upper part of the Basin are affected by a lack of precipitation, the
Delaware River Basin Commission (the 'DRBC') may impose either voluntary or
mandatory water use restrictions on portions or all of the Basin.
PSW's raw water supplies have generally been adequate to meet customer
demand for the past five years principally because of its five impounding
reservoirs. However, since PSW's service territory is within the Basin, PSW's
customers may be required to comply with DRBC water use restrictions, even if
PSW's supplies are adequate, if the availability of water
in the entire DRBC area is inadequate.
During 1988 and the two preceding years, the lower regions of the Basin
experienced hot, dry weather conditions while the upper regions of the Basin
enjoyed normal or above normal precipitation. During all three years PSW had
sufficient quantities of raw water available and no drought restrictions were
imposed by the DRBC. However, in the summer of 1988, with the record breaking
heat and the resulting high water demand created by lawn sprinkling, PSW imposed
restrictions banning nonessential water uses in order to maintain adequate
storage levels of treated water and to reduce peak demands in the distribution
system. No water use restrictions were imposed by PSW in the years subsequent to
1988. The addition of the 15 mgd Pickering Creek treatment plant in 1991 and
improvements to the distribution system in the past five years have reduced the
possibility of PSW issuing water use restrictions in the future due to demands
on its system.
Regulation by the Pennsylvania Public Utility Commission. PSW is subject
to regulation by the Pennsylvania Public Utility Commission (the 'PUC') which
has jurisdiction with respect to rates, service, accounting procedures, issuance
of securities and other matters.
Under applicable Pennsylvania statutes, PSW has rights granted under its
Articles of Incorporation and by certificates of public convenience from the PUC
authorizing it to conduct its present operations in the manner in which such
operations are now conducted and in the territory in which it now renders
service, to exercise the right of eminent domain and to maintain its mains in
the streets and highways of such territory. Such rights are generally
nonexclusive, although it has been the practice of the PUC to allow only one
water company to actually provide service to a given area. Consequently, PSW is
subject to competition only with respect to potential customers located on the
fringe of areas that it presently serves who also may have access to the service
of another water supplier.
In 1992, the PUC issued a policy statement which, under certain
circumstances, required utilities to extend service to new customers without the
benefit of a customer advance for construction. As a result of various problems
and uncertainties associated with the implementation of this policy statement,
the PUC initiated a rulemaking procedure in December 1993, intended to
facilitate the development of practical standards by which the broad policy
statement can be applied. The Company believes that when instituted, the new
standards will reflect the position that the cost of service extensions should
be justified by anticipated revenues from the extension or should be paid by the
service applicant.
Water Quality & Environmental Issues. PSW is subject to regulation of
water quality by the U.S. Environmental Protection Agency ('EPA') under the
Federal Safe Drinking Water Act (the 'SDWA') and by the Pennsylvania Department
of Environmental Resources ('DER') under the Pennsylvania Safe Drinking Water
Act. The SDWA provides for the establishment of uniform
5
minimum national water quality standards, as well as governmental authority to
specify the type of treatment process to be used for public drinking water.
PSW is presently in compliance with all standards and treatment requirements
promulgated to date.
The EPA has an ongoing directive to issue additional regulations under the
SDWA. The directive was clarified in 1986 when Congress amended the SDWA to
require, among other revisions, disinfection of all drinking water, additional
maximum contaminant level ('MCL') specifications, and filtration of all surface
water supplies. PSW has already installed the necessary equipment to provide for
the disinfection of the drinking water throughout the system and is monitoring
for the additional specified contaminants. PSW's principal surface water
supplies are currently filtered. PSW began to provide full filtration of its
supply from the Upper Merion Reservoir in November 1993 upon the completion of a
filtration facility at that location. This facility was necessary in order to
maintain PSW's compliance with the SDWA.
In addition, the 1986 SDWA Amendments require the EPA to promulgate MCLs
for many chemicals not previously regulated. EPA has to date promulgated MCLs
for numerous additional
contaminants and is required to mandate further MCLs every three years.
Promulgation of additional MCLs by the EPA in the future may require PSW to
change some of its treatment techniques, however, PSW meets all existing MCL
requirements and believes that the currently proposed MCLs will not have a
significant impact on its capital requirements or operating expenses. In 1991,
the EPA proposed regulations pertaining to radionuclides (including radon).
Recently, the Congress placed a one year moratorium on radon regulations.
Depending upon the final MCLs permitted, PSW will likely be required to take
remedial action at certain of its groundwater facilities. The remediation
options presently under evaluation include dilution, treatment, or replacement
of the supply with other groundwater or surface water supplies. Based on the MCL
initially proposed, it is anticipated that the capital costs of compliance will
range from $2.5 to $3.5 million over the next 10 years. PSW may, in the future,
have to change its method of treating drinking water at certain of its sources
of supply if additional regulations become effective.
In June, 1991, EPA promulgated final regulations for lead and copper (the
'Lead and Copper Rule'). Under the Lead and Copper Rule, large water utilities
are required to conduct corrosion control studies and to sample certain
high-risk customer homes to determine the extent of treatment techniques that
may be required. PSW conducted the two required rounds of sampling in 1992 and
did not exceed the EPA action levels for either lead or copper. Additional
sampling will be required in the future. PSW has developed a corrosion control
program for its surface sources of supply and does not foresee the need to make
any major additional treatment changes or capital expenditures as a result of
the Lead and Copper Rule.
On January 1, 1993, new federal regulations ('Phase II') became effective
for certain volatile organics, herbicides, pesticides and inorganic parameters.
Although PSW will not be required by the DER to monitor for most of these
parameters until 1995, PSW has already done substantial monitoring. In the few
cases where Phase II contaminants were detected, concentrations were below MCLs.
Future monitoring will be required, but no major treatment modifications are
anticipated as a result of these regulations.
PSW is also subject to other environmental statutes administered by the EPA
and DER. These include the Federal Clean Water Act and the Resource Conservation
and Recovery Act ('RCRA'). Under the Federal Clean Water Act, the Company must
obtain National Pollutant Discharge Elimination System ('NPDES') permits for
discharges from its treatment stations. PSW currently maintains three NPDES
permits relating to its surface water treatment plants, which are subject to
renewal every five years. During the past five years, PSW has installed the
required waste water treatment facilities and presently meets all NPDES
requirements. Although management recognizes that permit renewal may become more
difficult if more stringent guidelines are imposed, no significant obstacles to
permit renewal are presently foreseen.
6
Under RCRA, PSW is subject to specific regulations regarding the solid
waste generated from the water treatment process. The DER promulgated 'Final
Rulemaking' for solid waste (Residual Waste Management) in July 1992. PSW has
retained an engineering consultant to assist with the extensive monitoring,
record keeping and reporting required under these regulations. A preliminary
application for permitting has been filed, and formal permitting of these
facilities should be completed by 1996 in accordance with regulatory
requirements.
Where PSW is required to make certain capital investments in order to
maintain its compliance with any of the various regulations discussed above, it
is management's belief that all such expenditures would be fully recoverable in
PSW's water rates. However, the capital costs, under current law, would have to
be financed prior to their inclusion in PSW's rate structure, and the resulting
rate increases would not necessarily be timely.
UTILITY & MUNICIPAL SERVICES, INC.
Utility & Municipal Services, Inc. ('UMS') provides data processing
services to several water utilities including PSW, and to several municipal
water and sewer systems. The services provided to the utilities and
municipalities include billing services and the processing of financial reports.
EMPLOYEE RELATIONS
As of December 31, 1993, the Registrant employed a total of 523 persons, of
which 511 are employees of PSW. Hourly employees of PSW are represented by the
International Brotherhood of Firemen and Oilers, Local No. 473. The contract
with the union expires on December 1, 1994. Management considers its employee
relations to be satisfactory.
ITEM 2. PROPERTIES
The Registrant believes that the facilities used in the operation of its
various businesses are generally in excellent condition in terms of suitability,
adequacy and utilization.
The property of PSW consists of a waterworks system devoted to the
collection, storage, treatment and distribution of water in its service
territory. Management considers that its properties are maintained in good
operating condition and in accordance with current standards of good waterworks
practice. The following table summarizes the principal physical properties owned
by PSW:
NO. OF SQUARE FEET
LOCATION BUILDINGS DESCRIPTION FLOOR AREA
- --------------- ------------- ------------------------------------------ -----------------
Pennsylvania 5 Office & warehouse 151,185
Pennsylvania 14 Pumping stations and 155,116
treatment buildings
Pennsylvania 22 Well stations App. 600 ea.
Pennsylvania 17 Well stations App. 150 ea.
Pennsylvania 36 Booster stations App. 1,100 ea.
In addition, PSW also owns 45 standpipes with a combined distribution
storage capacity of 137.9 million gallons and five surface water impounding
reservoirs. The water utility also owns approximately 2,960 miles of
transmission and distribution mains, has 247,195 active metered services and
10,991 fire hydrants.
PSW's properties referred to herein, with certain minor exceptions which do
not materially interfere with their use, are owned and are subject to the lien
of an Indenture of Mortgage dated as of January 1, 1941, as supplemented. In the
case of properties acquired through the exercise of the power of eminent domain
and certain properties acquired through purchase, it has title only for water
supply purposes.
7
The Registrant's corporate offices and the facilities of UMS are leased
from PSW and located in Bryn Mawr, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings to which the Registrant or any of
its subsidiaries is a party or to which any of their properties is the subject
that present a reasonable likelihood of a material adverse impact on the
Registrant. In March of 1992, PSW received notice of an arbitration proceeding
against the New Jersey Spill Fund by a party claiming damages of approximately
$2.5 million as a result of a fire at a warehouse in Newark, New Jersey, where
hazardous substances had been stored. The Spill Fund had previously denied this
claim, but the claimant demanded an arbitration proceeding to review the claim.
If the claimant is successful in the arbitration proceeding, the Spill Fund
could commence a civil action seeking to recover the amount of its payment to
the claimant from a group of over 70 entities, including PSW, who have been
identified as having some of their material stored at the warehouse. The Company
does not believe that any assessment against the Company as a result of
the arbitration proceeding will be material to the business or financial
condition of the Company. PSW has also been advised that on February 15, 1994
the State of New Jersey and the Spill Fund instituted a separate action
against approximately 100 entities in the Superior Court of New Jersey Law
Division -- Essex County seeking to recover, among other related expenses, the
State's cost of $3.82 million in cleaning up the site of the Newark warehouse.
PSW is one of the defendants named in the Complaint, but PSW has not been
served with a Complaint as of March 24, 1994. PSC does not believe that any
assessment against PSW as a result of this action will be material to the
business or financial condition of PSC.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1993.
Information with respect to the executive officers of the Company is
contained in Item 10 hereof and is hereby incorporated by reference herein.
8
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded on the New York Stock Exchange and the
Philadelphia Stock Exchange. As of March 1, 1994, there were approximately
10,968 holders of record of the Company's common stock.
The following selected quarterly financial data of the Company is in
thousands of dollars, except for per share amounts:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL YEAR
--------- --------- --------- --------- -----------
1993
Earned revenues...................................... $ 22,726 $ 25,048 $ 27,948 $ 25,522 $ 101,244
Operating expenses................................... 10,733 11,205 12,078 11,973 45,989
Net income........................................... 2,587 3,604 4,257 3,387 13,835
Net income per share................................. .26 .33 .38 .30 1.27
Dividend paid per share.............................. .26 .27 .27 .27 1.07
Price range of common stock
-- high......................................... 18.25 18.38 20.75 20.13 20.75
-- low.......................................... 15.63 17.25 18.13 17.75 15.63
1992
Earned revenues...................................... $ 22,925 $ 23,236 $ 24,175 $ 22,971 $ 93,307
Operating expenses................................... 10,875 10,594 11,151 10,404 43,024
Income, continuing operations........................ 2,102 2,628 3,071 2,825 10,626
Income per share, continuing operations.............. .26 .32 .35 .30 1.23
Loss, discontinued operations........................ -- -- (5,500) -- (5,500)
Loss per share, discontinued operations.............. -- -- (.63) -- (.63)
Extraordinary charge................................. -- -- (784) (50) (834)
Extraordinary charge per share....................... -- -- (.09) (.01) (.10)
Net income (loss).................................... 2,102 2,628 (3,213) 2,775 4,292
Net income (loss) per share.......................... .26 .32 (.37) .29 .50
Dividend paid per share.............................. .26 .26 .26 .26 1.04
Price range of common stock
-- high......................................... 16.00 14.88 16.38 16.63 16.63
-- low.......................................... 14.38 13.75 14.25 15.63 13.75
Following is a recent history of income from continuing operations and
dividends of the Company:
INCOME PER
SHARE FROM
CASH DIVIDEND CONTINUING PAYOUT
PER SHARE OPERATIONS RATIO
--------------- ----------- -----------
1989..... $ .94 $ 1.25 75%
1990..... 1.00 1.27 79
1991..... 1.00 1.29 78
1992..... 1.04 1.23 85
1993..... 1.07 1.27 84
Dividends have averaged approximately 80% of income from continuing
operations during this period. In March 1993, the annual dividend increased by
4% to $1.08 beginning with the June 1993 dividend.
ITEM 6. SELECTED FINANCIAL DATA
The information appearing in the section captioned 'Summary of Selected
Financial Data' from the portions of the Company's 1993 Annual Report to
shareholders filed as Exhibit 13 to this Form 10-K Report is incorporated by
reference herein.
9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing in the section captioned 'Management's Discussion
and Analysis' from the portions of the Company's 1993 Annual Report to
shareholders filed as Exhibit 13 to this Form 10-K Report is incorporated by
reference herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information appearing under the captions 'Consolidated Statements of
Income', 'Consolidated Balance Sheets', 'Consolidated Cash Flow Statements' and
'Notes to Consolidated Financial Statements' from the portions of the Company's
1993 Annual Report to shareholders filed as Exhibit 13 to this Form 10-K Report
is incorporated by reference herein. Also, the information appearing in the
section captioned 'Reports on Financial Statements' from the portions of the
Company's 1993 Annual Report to shareholders filed as Exhibit 13 to this Form
10-K Report is incorporated by reference herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS OF THE REGISTRANT
The information appearing in the section captioned 'Information Regarding
Nominees and Directors' of the Proxy Statement relating to the May 19, 1994,
annual meeting of shareholders of the Company, to be filed within 120 days after
the end of the fiscal year covered by this Form 10-K Report, is incorporated by
reference herein.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table and the notes thereto set forth information with
respect to the executive officers of the Registrant, including their names,
ages, positions with the Registrant and business experience during the last five
years:
POSITION WITH THE REGISTRANT
NAME AGE AND DATE OF ELECTION (1)
- --------------------------------------------- --- ------------------------------------------------------------
Nicholas DeBenedictis 48 President and Chairman (May 1993 to present); President and
Chief Executive Officer (July 1992 to May 1993) (2)
John W. Boyer, Jr. 65 Chairman (July 1992 to May 1993); Chairman and President
(July 1981 to May 1983 and October 1983 to July 1992);
Chairman and Chief Executive Officer (May 1983 to October
1983) (3)
Robert A. Luksa 59 President, Philadelphia Suburban Water Company (October 1986
to present) (4)
Roy H. Stahl 41 Senior Vice President and General Counsel (April 1991 to
present) (5)
Michael P. Graham 45 Senior Vice President -- Finance and Treasurer (March 1993
to present) (6)
- ------------------
(1) In addition to the capacities indicated, the individuals named in the above
table hold other offices or directorships with subsidiaries of the
Registrant. Officers serve at the discretion of the Board of Directors.
(2) Mr. DeBenedictis was Secretary of the Pennsylvania Department of
Environmental Resources from 1983 to 1986. From December 1986 to April 1989,
he was President of the Greater Philadelphia Chamber of Commerce. Mr.
DeBenedictis was Senior Vice President for Corporate and Public Affairs of
Philadelphia Electric Company from April 1989 to June 1992.
(3) Mr. Boyer has served as Vice Chairman of PSW from July 1992 to May 1993, and
from June 1976 to July 1992 he was Chairman of this subsidiary. He also
served as the utility's Chief Executive Officer from June 1976 to May 1983
and from January 1986 to July 1992.
(4) Mr. Luksa was Executive Vice President of PSW from April 1982 to October
1986 and from 1971 to April 1982 he was Vice President and Chief Engineer of
this subsidiary.
(5) From January 1984 to August 1985, Mr. Stahl was Corporate Counsel, from
August 1985 to May 1988 he was Vice President - Administration and Corporate
Counsel of the Registrant, and from May 1988 to April 1991 he was Vice
President and General Counsel of the Registrant.
(6) Mr. Graham was Controller of the Company from 1984 to September 1990, and
from September 1990 to May 1991 he was Chief Financial Officer and
Treasurer. From May 1991 to March 1993, Mr. Graham was Vice President
-- Finance and Treasurer.
11
ITEM 11. MANAGEMENT REMUNERATION
The information appearing in the sections captioned 'Compensation of
Directors and Executive Officers' of the Proxy Statement relating to the May 19,
1994, annual meeting of shareholders of the Company, to be filed within 120 days
after the end of the fiscal year covered by this Form 10-K Report, is
incorporated by reference herein.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the sections captioned 'Ownership of Common
Stock' of the Proxy Statement relating to the May 19, 1994, annual meeting of
shareholders of the Company, to be filed within 120 days after the end of the
fiscal year covered by this Form 10-K Report, is incorporated by reference
herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the sections captioned 'Other Remuneration and
Certain Transactions' of the Proxy Statement relating to the May 19, 1994,
annual meeting of shareholders of the Company, to be filed within 120 days after
the end of the fiscal year covered by this Form 10-K Report, is incorporated by
reference herein.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statements. The following is a list of the consolidated
financial statements of the Company and its subsidiaries and supplementary data
incorporated by reference in Item 8 hereof:
Management's Report
Independent Auditors' Report
Consolidated Balance Sheets -- December 31, 1993 and 1992
Consolidated Statements of Income -- 1993, 1992 and 1991
Consolidated Statements of Cash Flow -- 1993, 1992, and 1991
Notes to Consolidated Financial Statements
Financial Statement Schedules. The following is a list of financial
statement schedules, or supplemental schedules, filed as part of this annual
report on Form 10-K. All other schedules are omitted because they are not
applicable or not required, or because the required information is included in
the consolidated financial statements or notes thereto.
Auditors' Report on Additional Financial Data
Schedule III -- Condensed Financial Information of Registrant
Schedule V -- Property, Plant and Equipment
Schedule VI -- Accumulated Depreciation of Property, Plant and Equipment
Schedule IX -- Short-Term Borrowings
Schedule X -- Supplementary Income Statement Information
Reports on Form 8-K. The Company filed no report on Form 8-K during the
quarter ended December 31, 1993.
Exhibits, Including Those Incorporated by Reference. The following is a
list of exhibits filed as part of this annual report on Form 10-K. Where so
indicated by footnote, exhibits which were previously filed are incorporated by
reference. For exhibits incorporated by reference, the location of the exhibit
in the previous filing is indicated in parenthesis. The page numbers listed
refer to page number where such exhibits are located using the sequential
numbering system specified by Rules 0-3 and 403.
12
EXHIBIT INDEX
EXHIBIT
NO. PAGE NO.
- ---------- -----------
3.1 Amended and Restated Articles of Incorporation, as amended (1) (Exhibit 3.1)
3.2 By-Laws, as amended (1) (Exhibit 3.2)
4.1 Indenture of Mortgage dated as of January 1, 1941 between Philadelphia Suburban Water
Company and The Pennsylvania Company for Insurance on Lives and Granting Annuities (now
First Pennsylvania Bank, N.A.),as Trustee, with supplements thereto through the Twentieth
Supplemental Indenture dated as of August 1,1983 (2) (Exhibits 4.1 through 4.16)
4.2 Revolving Credit Agreement between Philadelphia Suburban Water Company and Mellon Bank
(East) National Association dated as of February 16, 1990 (3) (Exhibit 4.3)
4.3 First Amendment to Revolving Credit Agreement between Philadelphia Suburban Water Company
and Mellon Bank N.A. dated as of September 1, 1992 (1) (Exhibit 4.3)
4.4 Preferred Stock Agreement between Philadelphia Suburban Water Company and Provident Life
and Accident Insurance Company dated as of January 1, 1991 (3) (Exhibit 4.4)
4.5 Indenture dated as of July 1, 1988 between Philadelphia Suburban Corporation and the
Philadelphia National Bank, as Trustee. (4) (Exhibit 4)
4.6 Form of Rights Agreement, dated as of February 19, 1988, between Philadelphia Suburban
Corporation and Mellon Bank (East) National Association, as amended by Amendment No. 1. (5)
(Exhibit 1)
4.7 Agreement to furnish copies of other long-term debt instruments (1) (Exhibit 4.7)
4.8 Twenty-first Supplemental Indenture dated as of August 1, 1985 (6) (Exhibit 4.2)
4.9 Twenty-second Supplemental Indenture dated as of April 1, 1986 (7) (Exhibit 4.3)
4.10 Twenty-third Supplemental Indenture dated as of April 1, 1987 (8) (Exhibit 4.4)
4.11 Twenty-fourth Supplemental Indenture dated as of June 1, 1988 (9) (Exhibit 4.5)
4.12 Twenty-fifth Supplemental Indenture dated as of January 1, 1990 (10) (Exhibit 4.6)
4.13 Twenty-sixth Supplemental Indenture dated as of November 1, 1991 (11) (Exhibit 4.12)
4.14 Twenty-seventh Supplemental Indenture dated as of June 1, 1992 (1) (Exhibit 4.14)
4.15 Twenty-eighth Supplemental Indenture dated as of April 1, 1993 22
4.16 Revolving Credit Agreement between Philadelphia Suburban Water Company and Mellon Bank, 44
N.A., PNC Bank, National Association, First Fidelity Bank, N.A. and Meridian Bank, N.A.
dated as of March 17, 1994
10.1 1982 Stock Option Plan, as amended and restated effective May 21, 1992* (1) (Exhibit 10.1)
10.2 1988 Stock Option Plan, as amended and restated effective May 21, 1992* (1) (Exhibit 10.2)
10.3 Executive Incentive Award Plan, as amended March 21, 1989 and February 6, 1990* (10)
(Exhibit 10.3)
10.4 Excess Benefit Plan for Salaried Employees, effective December 1, 1989* (10) (Exhibit 10.4)
10.5 Supplemental Executive Retirement Plan, effective December 1, 1989* (10) (Exhibit 10.5)
13
10.6 Supplemental Executive Retirement Plan, effective March 15, 1992* (1) (Exhibit 10.6)
10.7 1993 Incentive Compensation Plan* (1) (Exhibit 10.7)
10.8 Employment letter agreement with Mr. Nicholas DeBenedictis* (1) (Exhibit 10.8)
10.9 1994 Incentive Compensation Program* 94
10.10 1994 Equity Compensation Plan* 99
13. Selected portions of Annual Report to shareholders for the year ended December 31, 1993 109
incorporated by reference in Annual Report on Form 10-K for the year ended December 31,
1993
22. Subsidiaries of Philadelphia Suburban Corporation 143
24. Consent of Independent Auditors 144
25. Power of Attorney (set forth as a part of this report) 15
28. Undertakings with respect to Form S-8 registrations 144
14
NOTES
DOCUMENTS INCORPORATED BY REFERENCE
* Indicates management contract or compensatory plan or arrangement.
(1) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1992
(2) Indenture of Mortgage dated as of January 1, 1941 with supplements thereto through the Twentieth
Supplemental Indenture dated as of August 1, 1983 were filed as an Exhibit to Annual Report on Form 10-K
for the year ended December 31, 1983.
(3) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1990.
(4) Filed as Exhibit 4 to the Registration Statement on Form S-3 filed with the Securities and Exchange
Commission on June 14, 1988.
(5) Filed as Exhibit 1 to the Registration Statement on Form 8-A filed with the Securities and Exchange
Commission on March 1, 1988, with respect to the New York Stock Exchange, and on November 9, 1988, with
respect to the Philadelphia Stock Exchange.
(6) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1985.
(7) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1986.
(8) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1987.
(9) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1988.
(10) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1989.
(11) Filed as an Exhibit to Annual Report on Form 10-K for the year ended December 31, 1991.
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PHILADELPHIA SUBURBAN CORPORATION
By _____NICHOLAS DEBENEDICTIS_________
Nicholas DeBenedictis
President and
Chairman
Date: March 29, 1994
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Each person in so signing also makes, constitutes and appoints Nicholas
DeBenedictis, President and Chairman of Philadelphia Suburban Corporation,
Michael P. Graham, Senior Vice President -- Finance and Treasurer of
Philadelphia Suburban Corporation, and each of them, his or her true and lawful
attorneys-in-fact, in his or her name, place and stead to execute and cause to
be filed with the Securities and Exchange Commission any and all amendments to
this report.
CLAUDIO ELIA
John H. Austin, Jr. Claudio Elia
Director Director
JOHN W. BOYER, JR. MICHAEL P. GRAHAM
John W. Boyer, Jr. Michael P. Graham
Director Senior Vice President -- Finance and
Treasurer (principal financial and
accounting officer)
MARY C. CARROLL JOSEPH C. LADD
Mary C. Carroll Joseph C. Ladd
Director Director
NICHOLAS DEBENEDICTIS JOHN F. MCCAUGHAN
Nicholas DeBenedictis John F. McCaughan
President and Director
Chairman (principal executive
officer) and Director
G. FRED DIBONA, JR. HARVEY J. WILSON
G. Fred DiBona, Jr. Harvey J. Wilson
Director Director
16
AUDITORS' REPORT ON ADDITIONAL FINANCIAL DATA
The Board of Directors
Philadelphia Suburban Corporation
Under date of February 1, 1994, we reported on the consolidated balance sheets
of Philadelphia Suburban Corporation and subsidiaries as of December 31, 1993
and 1992 and the related consolidated statements of income and cash flows for
each of the years in the three-year period ended December 31, 1993, as contained
in the 1993 Annual Report to shareholders. These consolidated financial
statements and our report thereon are incorporated by reference in the annual
report on Form 10-K for the year 1993. In connection with our audits of the
aforementioned consolidated financial statements, we also have audited the
related additional financial data listed in Item 14. -- Financial Statement
Schedules of this report on Form 10-K. These financial statement schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement schedules based on our audits.
In our opinion, such additional financial data, 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.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
February 1, 1994
17
SCHEDULE III
PHILADELPHIA SUBURBAN CORPORATION (PARENT COMPANY)
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1993 AND 1992
1993 1992
--------- ---------
Current assets............................................................................. $ 251 $ 583
Advances to subsidiaries................................................................... 3,109 2,881
Furniture and fixtures, at cost............................................................ -- 153
Less accumulated depreciation......................................................... -- (139)
--------- ---------
Net furniture and fixtures......................................................... -- 14
--------- ---------
Investments in subsidiaries, at equity
Continuing operations*................................................................... 135,662 102,779
Discontinued operations............................................................... -- 1,256
--------- ---------
135,662 104,035
--------- ---------
Deferred charges and other assets.......................................................... 360 907
--------- ---------
$ 139,382 $ 108,420
--------- ---------
--------- ---------
Current liabilities:
Net reserves related to discontinued operations.......................................... $ 2,578 $ --
Other.................................................................................... 870 1,449
--------- ---------
Total current liabilities............................................................. 3,448 1,449
Common stockholders' equity................................................................ 135,934 106,971
--------- ---------
$ 139,382 $ 108,420
--------- ---------
--------- ---------
- ------------------
* The Company's investment in Philadelphia Suburban Water Company amounted to
$133,967 and $101,086 at December 31, 1993 and 1992, respectively, which
includes $51,000 and $47,000, respectively, of retained earnings, free of
dividend restrictions imposed by PSW's debt agreements.
See accompanying notes to the consolidated financial statements.
18
PHILADELPHIA SUBURBAN CORPORATION (PARENT COMPANY)
CONDENSED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1993 AND 1992
1993 1992 1991
--------- --------- ---------
Earned revenues.................................................................. $ -- $ -- $ --
Costs and expenses:
Operating expenses............................................................. 1,122 1,088 1,959
Depreciation and amortization............................................... 25 69 77
Interest, net............................................................... (575) 1,305 1,485
--------- --------- ---------
572 2,462 3,521
--------- --------- ---------
Loss before provision for income taxes, income from subsidiaries, and
extraordinary charge........................................................... (572) (2,462) (3,521)
Provision for income taxes....................................................... (224) (761) (1,209)
--------- --------- ---------
Loss before income from subsidiaries, and extraordinary charge................... (348) (1,701) (2,312)
--------- --------- ---------
Income (loss) from subsidiaries
Continuing operations.......................................................... 14,183 12,327 12,491
Discontinued operations*....................................................... -- (5,500) (5,290)
--------- --------- ---------
14,183 6,827 7,201
--------- --------- ---------
Income before extraordinary charge............................................... 13,835 5,126 4,889
Extraordinary charge from early retirement of debt, net of income tax benefits... -- (834) --
--------- --------- ---------
Net income....................................................................... $ 13,835 $ 4,292 $ 4,889
--------- --------- ---------
- ------------------
* Parent expenses of $510, $329 and $1,887 in 1993, 1992 and 1991, respectively,
have been charged to the reserves related to discontinued operations.
See accompanying notes to the consolidated financial statements.
19
PHILADELPHIA SUBURBAN CORPORATION (PARENT COMPANY)
CONDENSED CASH FLOW STATEMENTS
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
--------- --------- ---------
Cash flows from operating activities:
Income before extraordinary charge............................................. $ 13,835 $ 5,126 $ 4,889
Adjustment to reconcile income before extraordinary charge to net cash flows
from operating activities:
Depreciation and amortization............................................... 25 69 77
Deferred income taxes....................................................... 543 (78) (130)
Net decrease (increase) in receivables, inventory and prepayments.............. 108 133 (117)
Net increase (decrease) in payables and other accrued liabilities.............. (228) 911 70
Net decrease in accrued interest............................................... -- (1,266) (83)
Other.......................................................................... -- 3 (53)
Income from subsidiaries, net of parent expenses associated with discontinued
operations.................................................................. (14,183) (6,827) (7,201)
--------- --------- ---------
Net cash flows from operating activities....................................... 100 (1,929) (2,548)
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant and equipment...................................... -- (3) --
Net cash flows from the sales and operations of the discontinued operations.... 494 440 9,971
--------- --------- ---------
Other.......................................................................... 10 -- 10
--------- --------- ---------
Net cash flows from investing activities....................................... 504 437 9,981
--------- --------- ---------
Cash flows from financing activities:
Repayments of long-term debt including premium on early retirement............. -- (26,067) (9,995)
Proceeds from issuing common stock............................................. 27,749 25,950 3,459
Repurchase of common stock..................................................... (992) (26) --
Dividends paid................................................................. (11,629) (8,866) (7,859)
Dividends received from subsidiary............................................. 10,300 9,600 9,400
Capital contributed to subsidiary.............................................. (29,000) -- --
Net change in intercompany advances............................................ 2,777 (1,491) (1,277)
Other.......................................................................... -- -- (62)
--------- --------- ---------
Net cash flows from financing activities....................................... (795) (900) (6,334)
--------- --------- ---------
Net increase (decrease) in cash.................................................. (191) (2,392) 1,099
Cash balance beginning of year................................................... 376 2,768 1,669
--------- --------- ---------
Cash balance end of year......................................................... $ 185 $ 376 $ 2,768
--------- --------- ---------
--------- --------- ---------
See accompanying notes to the consolidated financial statements.
20
SCHEDULE V
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
BALANCE AT RETIREMENTS
BEGINNING ADDITIONS SALE AND BALANCE AT
OF YEAR AT COST OTHER RECLASSIFICATIONS END OF YEAR
----------- ----------- ----------- ---------------- -----------
1993
-------------------------------------------------------------------
Utility plant and equipment................... $ 390,138 1,323* 3,150** 34,126 $ 428,737
Construction in progress...................... 9,343 27,090 -- (34,126) 2,307
Other equipment............................... 2,395 8 (145) -- 2,258
----------- ----------- ----------- --------------- -----------
$ 401,876 28,421 3,005 -- $ 433,302
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
1992
-------------------------------------------------------------------
Utility plant and equipment................... $ 366,290 10,905* (2,130) 15,073 $ 390,138
Construction in progress...................... 2,192 22,224 -- (15,073) 9,343
Other equipment............................... 2,376 31 (12) -- 2,395
----------- ----------- ----------- --------------- -----------
$ 370,858 33,160 (2,142) -- $ 401,876
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
1991
--------------------------------------------------------------------
Utility plant and equipment................... $ 322,930 -- (1,300) 44,660 $ 366,290
Construction in progress...................... 24,814 22,038 -- (44,660) 2,192
Other equipment............................... 2,560 92 (276) -- 2,376
----------- ----------- ----------- --------------- -----------
$ 350,304 22,130 (1,576) -- $ 370,858
----------- ----------- ----------- --------------- -----------
----------- ----------- ----------- --------------- -----------
- ------------------
* Represents net assets of water systems acquired during the year.
** Includes $2,633 related to the final allocation of 1992 water system
acquisitions, and $919 related to the implementation of Statement of
Financial Accounting Standards No. 109, 'Accounting for Income Taxes'.
See accompanying notes to the consolidated financial statements.
21
SCHEDULE VI
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
BALANCE AT RETIREMENTS
BEGINNING SALE AND BALANCE AT
OF YEAR ADDITIONS OTHER END OF YEAR
----------- ----------- ----------- -----------
1993
--------------------------------------------------
Utility plant and equipment...................................... $ 54,455 9,476 (1,014) $ 64,945
Other equipment.................................................. 1,811 451 135 2,127
----------- ----------- ----------- -----------
$ 56,266 9,927 (879) $ 67,072
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1992
--------------------------------------------------
Utility plant and equipment...................................... $ 48,333 8,374 2,252 $ 54,455
Other equipment.................................................. 1,551 272 12 1,811
----------- ----------- ----------- -----------
$ 49,884 8,646 2,264 $ 56,266
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
1991
--------------------------------------------------
Utility plant and equipment...................................... $ 42,242 7,318 1,227 $ 48,333
Other equipment.................................................. 1,360 294 103 1,551
----------- ----------- ----------- -----------
$ 43,602 7,612 1,330 $ 49,884
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
See accompanying notes to the consolidated financial statements.
22
SCHEDULE IX
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
SHORT-TERM BORROWINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
MAXIMUM AVERAGE WEIGHTED
WEIGHTED AMOUNT AMOUNT AVERAGE
BALANCE AVERAGE OUTSTANDING OUTSTANDING INTEREST
AT END INTEREST RATE AT END OF DURING RATE DURING
OF YEAR AT YEAR END ANY MONTH THE YEAR THE YEAR
--------- ------------- ------------ ------------- -------------
1993
--------------------------------------------------------------------
Payable to bank (1).............................. $ 819 4.10% $ 819 $ 393 4.35%(2)
1992
--------------------------------------------------------------------
Payable to bank (1).............................. $ 959 3.99% $ 2,190 $ 686 4.90%(2)
1991
--------------------------------------------------------------------
Payable to bank (1).............................. $ 160 5.34% $ 1,110 $ 590 7.84%(2)
- ------------------
(1) Short-term line of credit with interest at prime or rates based on the
federal funds.
(2) Computed based on the varying interest rates in effect at the time the funds
were borrowed.
See accompanying notes to the consolidated financial statements.
23
SCHEDULE X
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS OF DOLLARS)
1993 1992 1991
--------- --------- ---------
Maintenance and Repairs............................................................ $ 7,586 $ 7,262 $ 7,297
--------- --------- ---------
--------- --------- ---------
Taxes, other than payroll and income taxes......................................... $ 5,475 $ 5,220 $ 4,830
--------- --------- ---------
--------- --------- ---------
See accompanying notes to the consolidated financial statements.
24
EXHIBIT 4.15
- --------------------------------------------------------------------------------
TWENTY-EIGHTH SUPPLEMENTAL
INDENTURE
DATED AS OF APRIL 1, 1993
TO
INDENTURE OF MORTGAGE
DATED AS OF JANUARY 1, 1941
------------------------
PHILADELPHIA SUBURBAN WATER COMPANY
TO
CORESTATES BANK, N.A., AS TRUSTEE
------------------------
$22,000,000 FIRST MORTGAGE BONDS, 7.15% SERIES DUE 2008
- --------------------------------------------------------------------------------
TWENTY-EIGHTH SUPPLEMENTAL INDENTURE dated as of the first day of April,
1993, by and between PHILADELPHIA SUBURBAN WATER COMPANY, a corporation duly
organized and existing under the laws of the commonwealth of Pennsylvania (the
'Company'), party of the first part, and CORESTATES BANK, N.A., a national
banking association successor to The Pennsylvania Company for Insurances on
Lives and Granting Annuities, and as The Pennsylvania Company for Banking and
Trusts, and as The First Pennsylvania Banking and Trust Company, and as First
Pennsylvania Bank N.A. (the 'Trustee') party of the second part.
WHEREAS, the Company heretofore duly executed and delivered to The
Pennsylvania company for Insurances on Lives and Granting Annuities, as Trustee,
an Indenture of Mortgage dated as of January 1, 1941 (the 'Original Indenture'),
which by reference is hereby made a part hereof, and in and by the Original
Indenture the Company conveyed and mortgaged to the Trustee certain property
therein described, to secure the payment of its bonds to be generally known as
its 'First Mortgage Bonds' and to be issued under the Original Indenture in one
or more series as therein provided; and
WHEREAS, on March 29, 1947, concurrently with a merger of Germantown Trust
Company into The Pennsylvania Company for Insurances on Lives and Granting
Annuities, the name of the surviving corporation was changed to The Pennsylvania
Company for Banking and Trusts, on September 30, 1955, concurrently with a
merger of The First National Bank of Philadelphia into The Pennsylvania Company
for Banking and Trusts, the name of the surviving corporation was changed to The
First Pennsylvania Banking and Trust Company, and on June 3, 1974, by amendment
to its Articles of Association, The First Pennsylvania Banking and Trust Company
was changed and converted into a national bank and concurrently therewith
changed its name to First Pennsylvania Bank N.A., and on October 1, 1990, First
Pennsylvania Bank N.A. merged with and into Philadelphia National Bank, which
changed its name to Corestates Bank, N.A., such mergers and changes of name not
involving any change in the title, powers, rights or duties of the Trustee, as
trustee under the Original Indenture as supplemented at the respective dates
thereof; and
WHEREAS, the company duly executed and delivered to the Trustee a First
Supplemental Indenture dated as of July 1, 1948, a Second Supplemental Indenture
dated as of July 1, 1952, a Third Supplemental Indenture dated as of November 1,
1953, a Fourth Supplemental Indenture dated as of January 1, 1956, a Fifth
Supplemental Indenture dated as of March 1, 1957, a Sixth Supplemental Indenture
dated as of May 1, 1958, a Seventh Supplemental Indenture dated as of September
1, 1959, an Eighth Supplemental Indenture dated as of May 1, 1961, a Ninth
Supplemental Indenture dated as of April 1, 1962, a Tenth Supplemental Indenture
dated as of March 1, 1964, an Eleventh Supplemental Indenture dated as of
November 1, 1966, a Twelfth Supplemental Indenture dated as of January 1, 1968,
a Thirteenth Supplemental Indenture dated as of June 15, 1970, a Fourteenth
Supplemental Indenture dated as of November 1, 1970, a Fifteenth Supplemental
Indenture dated as of December 1, 1972, a Sixteenth Supplemental Indenture dated
as of May 15, 1975, a Seventeenth Supplemental Indenture dated as of December
15, 1976, an Eighteenth Supplemental Indenture dated as of May 1, 1977, a
Nineteenth Supplemental Indenture dated as of June 1, 1980, a Twentieth
Supplemental Indenture dated as of August 1, 1983, a Twenty-First Supplemental
Indenture, dated as of August 1, 1985, a Twenty-Second Supplemental Indenture,
dated as of April 1, 1986, a Twenty-Third Supplemental Indenture, dated as of
April 1, 1987, a Twenty-Fourth Supplemental Indenture, dated as of June 1, 1988,
a Twenty-Fifth Supplemental Indenture, dated as of January 1, 1990, a
Twenty-Sixth Supplemental Indenture, dated as of November 1, 1991 and a
Twenty-Seventh Supplemental Indenture, dated as of June 1, 1992, to subject
certain additional property to the lien of the Original Indenture and to provide
for the creation of additional series of bonds; and
WHEREAS, the Company has issued under the Original Indenture, as
supplemented at the respective dates of issue, thirty-three series of First
Mortgage Bonds designated, respectively, as set forth in the following table,
the Indenture creating each series and the principal amount of bonds thereof
issued being indicated opposite the designation of such series:
1
DESIGNATION INDENTURE AMOUNT
- ------------------------------------------------ ------------------------------------------------ --------------
3 1/4% Series due 1971 Original $ 16,375,000
9 5/8% Series due 1975 Thirteenth Supplemental 10,000,000
9.15% Series due 1977 Fourteenth Supplemental 10,000,000
3% Series due 1978 First Supplemental 2,000,000
3 3/8% Series due 1982 Second Supplemental 4,000,000
3.90% Series due 1983 Third Supplemental 5,000,000
3 1/2% Series due 1986 Fourth Supplemental 6,000,000
4 1/2% Series due 1987 Fifth Supplemental 4,000,000
4 1/8% Series due 1988 Sixth Supplemental 4,000,000
5% Series due 1989 Seventh Supplemental 4,000,000
4 5/8% Series due 1991 Eighth Supplemental 3,000,000
4.70% Series due 1992 Ninth Supplemental 3,000,000
6 7/8% Series due 1993 Twelfth Supplemental 4,500,000
4.55% Series due 1994 Tenth Supplemental 4,000,000
10 1/8% Series due 1995 Sixteenth Supplemental 10,000,000
5 1/2% Series due 1996 Eleventh Supplemental 4,000,000
7 7/8% Series due 1997 Fifteenth Supplemental 5,000,000
8.44% Series due 1997 Twenty-Third Supplemental 12,000,000
9.20% Series due 2001 Seventeenth Supplemental 7,000,000
8.40% Series due 2002 Eighteenth Supplemental 10,000,000
5.95% Series due 2002 Twenty-Seventh Supplemental 4,000,000
12.45% Series due 2003 Twentieth Supplemental 10,000,000
13% Series due 2005 Twenty-First Supplemental 8,000,000
10.65% Series due 2006 Twenty-Second Supplemental 10,000,000
9.89% Series due 2008 Twenty-Fourth Supplemental 5,000,000
9.12% Series due 2010 Twenty-Fifth Supplemental 20,000,000
8 7/8% Series due 2010 Nineteenth Supplemental 8,000,000
6.50% Series due 2010 Twenty-Seventh Supplemental 3,200,000
9.17% Series due 2011 Twenty-Sixth Supplemental 5,000,000
9.93% Series due 2013 Twenty-Fourth Supplemental 5,000,000
9.97% Series due 2018 Twenty-Fourth Supplemental 5,000,000
9.17% Series due 2021 Twenty-Sixth Supplemental 8,000,000
9.29% Series due 2026 Twenty-Sixth Supplemental 12,000,000
and
WHEREAS, all of the bonds of each of said series are presently outstanding
other than the bonds listed on Schedule A attached hereto and made a part
hereof; and
2
WHEREAS, the Original Indenture and said Supplemental Indentures were duly
recorded in the Commonwealth of Pennsylvania on the dates and in the office for
the Recording of Deeds for the following counties in the Mortgage Books and at
the pages indicated in the following table:
COUNTY
BUCKS CHESTER DELAWARE MONTGOMERY
DATE OF -------------------- ---------------------------- -------------------- ---------
INDENTURE RECORDING BOOK PAGE BOOK PAGE BOOK PAGE BOOK
- --------------------------- --------- --------- --------- ----------------- --------- --------- --------- ---------
Original 2/20/41 496 1 H-13. Vol. 307 20 1034 1 1625
First Supplemental 8/26/48 632 1 F-16. Vol. 380 200 1668 169 2031
Second Supplemental 7/1/52 768 438 18. Vol. 425 186 1962 376 2360
Third Supplemental 11/25/53 895 1 18. Vol. 442 325 2052 1 2493
Fourth Supplemental 1/9/56 1089 155 Z-20. Vol. 499 1 2199 1 2722
Fifth Supplemental 3/20/57 1181 316 B-22. Vol. 536 601 2294 50 2850
Sixth Supplemental 5/9/58 1254 1 G-23 201 2380 039 2952
Seventh Supplemental 9/25/59 1332 509 B-25 109 2442 1 3090
Eighth Supplemental 5/9/61 -- -- Z-26 17 2526 312 --
Eighth Supplemental 5/10/61 1409 225 -- -- -- -- 3249
Ninth Supplemental 4/10/62 1458 372 G-28 126 2581 463 3307
Tenth Supplemental 3/19/64 1568 1 M-30 967 2976 1043 3310
Eleventh Supplemental 11/4/66 1655 695 Q-32 6682 762 223 3549
Twelfth Supplemental 1/23/68 1691 531 N-33 219 2792 708 3542
Thirteenth Supplemental 7/2/70 1763 1167 D-35 80 2850 301 3687
Fourteenth Supplemental 11/5/70 1774 331 K-35 713 2858 3113 700
Fifteenth Supplemental 12/11/72 1869 196 O-37 998 2926 550 3786
Sixteenth Supplemental 5/28/75 1979 14 E-44 77 3005 511 4010
Seventeenth Supplemental 12/18/77 2072 683 L-51 1 3072 43 5002
Eighteenth Supplemental 4/29/77 2082 567 B-52 344 3078 728 5003
Nineteenth Supplemental 6/23/80 2303 714 J-62 92 3261 293 5030
Twentieth Supplemental 8/2/83 2487 370 D-72 1 96 810 5662
Twenty-First Supplemental 8/27/85 2690 806 54 550 -- -- 5864
Twenty-First Supplemental 8/28/85 -- -- -- -- 264 159 --
Twenty-Second Supplemental 4/22/86 2774 160 263 275 326 592 5944
Twenty-Third Supplemental 4/1/87 2960 693 -- -- -- -- --
Twenty-Third Supplemental 4/2/87 -- -- 680 337 447 1807 6115
Twenty-Fourth Supplemental 7/25/88 3199 1095 1224 389 0593 0585 6324
Twenty-Fifth Supplemental 1/12/90 0136 0250 1848 205 731 1571 6538
Twenty-Sixth Supplemental 11/8/91 369 2190 2660 205 894 2241 6780
Twenty-Seventh Supplemental 6/29/92 0487 1829 3055 182 0969 2023 6918
INDENTURE PAGE
- --------------------------- ---------
Original 1
First Supplemental 257
Second Supplemental 517
Third Supplemental 1
Fourth Supplemental 425
Fifth Supplemental 335
Sixth Supplemental 289
Seventh Supplemental 249
Eighth Supplemental --
Eighth Supplemental 289
Ninth Supplemental 169
Tenth Supplemental 237
Eleventh Supplemental 129
Twelfth Supplemental 315
Thirteenth Supplemental 23
Fourteenth Supplemental 548
Fifteenth Supplemental 96
Sixteenth Supplemental 307
Seventeenth Supplemental 436
Eighteenth Supplemental 291
Nineteenth Supplemental 502
Twentieth Supplemental 1045
Twenty-First Supplemental 1347
Twenty-First Supplemental --
Twenty-Second Supplemental 360
Twenty-Third Supplemental --
Twenty-Third Supplemental 602
Twenty-Fourth Supplemental 143
Twenty-Fifth Supplemental 376
Twenty-Sixth Supplemental 891
Twenty-Seventh Supplemental 302
and;
WHEREAS, the lien of the Original Indenture as supplemented has been
perfected as a security interest under the Pennsylvania Uniform Commercial Code
by filing a financing statement in the office of the Secretary of the
Commonwealth; and
WHEREAS, the Company proposes to create under the Original Indenture as
supplemented a new series of bonds to be designated 'First Mortgage Bonds, 7.15%
Series due 2008' (the '7.15% Series
3
due 2008' or the 'Bonds') to be limited in aggregate principal amount to
$22,000,000, to be issued only as registered bonds without coupons, to be dated
as provided in the Original Indenture, to bear interest at the rate of 7.15% per
annum, and to mature on April 1, 2008; and
WHEREAS, the Company proposes to issue $22,000,000 principal amount of the
Bonds under the provisions of Article IV of the original Indenture, and will
comply with the provisions thereof as well as with other provisions of the
Original Indenture and indentures supplemental thereto in connection with the
issuance of additional bonds so that it will be entitled to procure the
authentication and delivery of the Bonds; and
WHEREAS, Article XVIII of the Original Indenture provides that the Company,
when authorized by resolution of its Board of Directors, may with the Trustee
enter into an indenture supplemental to the Original Indenture, which thereafter
shall form a part of the Original Indenture, for the purposes, inter alia, of
subjecting to the lien of the original Indenture additional property, of
defining the covenants and provisions applicable to any bonds of any series
other than the 3 1/4% Series due 1971, of adding to the covenants and agreements
of the Company contained in the Original Indenture other covenants and
agreements thereafter to be observed by the Company, of surrendering any right
or power in the Original Indenture reserved to or conferred upon the Company,
and of making such provisions in regard to matters or questions arising under
the Original Indenture as may be necessary or desirable and not inconsistent
therewith; and
WHEREAS, in addition to the property described in the Original Indenture
and the First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth,
Tenth, Eleventh, Twelfth, Thirteenth, Fourteenth, Fifteenth, Sixteenth,
Seventeenth, Eighteenth, Nineteenth, Twentieth, Twenty-First, Twenty-Second,
Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Sixth and Twenty-Seventh
Supplemental Indentures the Company has acquired certain other property and
desires to confirm the lien of the Original Indenture thereon; and
WHEREAS, the Company, by proper corporate action, has duly authorized the
creation of said new series of Bonds (to be issued in accordance with the terms
and provisions of the Original Indenture and indentures supplemental thereto,
including this Twenty-Eighth Supplemental Indenture, and to be secured by said
Original Indenture and indentures supplemental thereto, including this
Twenty-Eighth Supplemental Indenture); and has further duly authorized the
execution, delivery and recording of this Twenty-Eighth Supplemental Indenture
setting forth the terms and provisions of the Bonds insofar as said terms and
provisions are not set forth in said Original Indenture; and
WHEREAS, the Bonds and the Trustee's certificate upon said Bonds are to be
substantially in the forms following - the proper amount, names of registered
owners and numbers to be inserted therein, and such appropriate insertions,
omissions and changes to be made therein as may be required or permitted by this
Twenty-Eighth Supplemental Indenture to conform to any pertinent law or usage:
NO. R- $__________
PHILADELPHIA SUBURBAN WATER COMPANY
(INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA)
Mortgage Bond, 7.15% Series Due 2008
Private Placement Number 71803 G@0
Philadelphia Suburban Water Company, a corporation organized and existing
under the laws of the Commonwealth of Pennsylvania (hereinafter called the
'Company', which term shall include any successor corporation as defined in the
Indenture hereinafter referred to); for value received, hereby promises to pay
to _______________________ or its registered assigns, on the first day of April,
2008, at the corporate trust office of CoreStates Bank, N.A. in the City of
Philadelphia, Pennsylvania, the sum of ___________________________________ in
such coin or currency of the United States of America as at the time of payment
is legal tender for the payment of public and private debts and to
4
pay interest thereon at said office to the registered owner hereof from the
interest payment date next preceding the date of this bond (or if this bond be
dated prior to October 1, 1993, from the date hereof) until the principal hereof
shall become due and payable, at the rate of seven and 15/100ths percent (7.15%)
per annum, payable semiannually in like coin or currency on the first day of
April and the first day of October in each year and to pay interest on overdue
principal (including any overdue required or optional prepayment of principal)
and premium, if any, and, to the extent legally enforceable, on any overdue
installment of interest at a rate of 9.15% per annum after maturity whether by
acceleration or otherwise until paid.
The interest so payable will (except as otherwise provided in the
Twenty-Eighth Supplemental Indenture referred to herein) be calculated on the
basis of a 360-day year of twelve 30-day months and be paid to the person in
whose name this bond (or a bond or bonds in exchange for which this bond was
issued) is registered at the close of business on the fifteenth day of the
calendar month next preceding the month in which the interest payment date
occurs or, if such day is not a business day, on the next preceding business day
(a 'record date') and principal, premium, if any, and interest on this Bond
shall be paid in accordance with written payment instructions of the registered
owner delivered to the Trustee on or before such record date.
This bond is one of a duly authorized issue of bonds of the Company known
as its First Mortgage Bonds, issued and to be issued without limitation as to
aggregate principal amount except as set forth in the Indenture hereinafter
mentioned in one or more series and equally secured (except insofar as a sinking
fund or other similar fund established in accordance with the provisions of the
Indenture may afford additional security for the bonds of any specific series)
by an Indenture of Mortgage (herein called the 'Indenture') dated as of January
1, 1941, executed by the Company to The Pennsylvania Company for Insurances on
Lives and Granting Annuities (now CoreStates Bank, N.A.), as Trustee
(hereinafter called the 'Trustee'), to which Indenture and all indentures
supplemental thereto reference is hereby made for a description of the property
mortgaged and pledged, the nature and extent of the security, the rights of the
holders and registered owners of the bonds and of the Trustee in respect of such
security, and the terms and conditions under which the bonds are and are to be
secured and may be issued under the Indenture; but neither the foregoing
reference to the Indenture nor any provision of this bond or of the Indenture or
of any indenture supplemental thereto shall affect or impair the obligation of
the Company, which is absolute and unconditional, to pay at the stated or
accelerated maturity herein and in the Indenture provided, the principal of and
interest and premium, if any, on this bond as herein provided. As provided in
the Indenture, the bonds may be issued in series for various principal amounts,
may bear different dates and mature at different times, may bear interest at
different rates and may otherwise vary as in the Indenture provided or
permitted. This bond is one of the bonds described in an indenture supplemental
to said Indenture known as the 'Twenty-Eighth Supplemental Indenture' dated as
of April 1, 1993, and designated therein as 'First Mortgage Bonds, 7.15% Series
due 2008 (the 'bonds of the 7.15% series due 2008').
To the extent permitted by and as provided in the Indenture, modifications
or alterations of the Indenture, or of any indenture supplemental thereto, and
of the rights and obligations of the Company and of the holders and registered
owners of bonds issued and to be issued thereunder may be made with the consent
of the Company by an affirmative vote of the holders and registered owners of
not less than 75% in principal amount of bonds then outstanding under the
Indenture and entitled to vote, at a meeting of the bondholders called and held
as provided in the Indenture, and, in case one or more but less than all of the
series of bonds then outstanding under the Indenture are so affected, by an
affirmative vote of the holders and registered owners of not less than 75% in
principal amount of bonds of any series then outstanding under the Indenture and
entitled to vote on and affected by such modification or alteration, or by the
written consent of the holders and registered owners of such percentages of
bonds; provided, however, that no such modification or alteration shall be made
which shall reduce the percentage of bonds the consent of the holders or
registered owners of which is required for any such modification or alteration
or which shall affect the terms of payment of the principal of or interest on
the bonds, or permit the creation by the Company of any lien prior to or on a
parity with the lien of the Indenture with respect to any property subject to
the lien of the Indenture as a
5
first mortgage lien thereon, or which shall affect the rights of the holders or
registered owners of less than all of the bonds of any series affected thereby.
The bonds of the 7.15% series due 2008 are subject to redemption prior to
maturity in part on April 1 of each year, commencing April 1, 1998, pursuant to
the terms of a sinking fund provided in the Twenty-Eighth Supplemental Indenture
at a price equal to one hundred percent (100%) of the principal amount of the
bonds to be redeemed, together with unpaid interest accrued to the date fixed
for redemption.
The bonds of the 7.15% series due 2008 are subject to redemption at the
option of the Company, either as a whole or in part, on any date in coin or
currency of the United States of America as at the time, of payment is legal
tender for payment of public and private debts at a redemption price equal to
the principal amount of bonds of the 7.15% series due 2008 to be redeemed plus
interest thereon to the date of redemption plus a premium, as provided in the
Twenty-Eighth Supplemental Indenture.
The bonds of the 7.15% series due 2008 are subject to mandatory redemption
(i) in connection with the sale to or other acquisition by or on behalf of one
or more governments or municipal corporations or other governmental
subdivisions, bodies, authorities or agencies of all or substantially all of the
property of the Company, or (ii) in connection with any voluntary or involuntary
liquidation, dissolution or winding up of the Company, occurring in connection
with or subsequent to the acquisition of all or substantially all of the stock
of the Company ordinarily entitled to voting rights by or on behalf of one or
more governments or municipal corporations or other governmental subdivisions,
bodies, authorities or agencies. In such a mandatory redemption the bonds of the
7.15% series due 2008 are redeemable in such coin or currency of the United
States of America as at the time of payment is legal tender for the payment of
public and private debts, at one hundred per cent (100%) of the principal amount
thereof, together with interest accrued thereon to the date fixed for
redemption.
Any redemption shall be effected by notice mailed, to the registered owners
thereof, as provided in the Indenture, at least thirty (30) days before the
redemption date, all on the conditions and in the manner provided in the
Indenture.
If this bond or any portion hereof is called for redemption and payment
thereof is duly provided for as specified in the Indenture, as supplemented,
interest shall cease to accrue hereon or on such portion, as the case may be,
from and after the date fixed for redemption.
The principal hereof may be declared or may become due prior to its
maturity date on the conditions, in the manner and with the effect set forth in
the Indenture, as supplemented, upon the happening of an event of default, as in
the Indenture, as supplemented, provided; subject, however, to the right, under
certain circumstances, of the registered owners of a majority in principal
amount of bonds of the 7.15% series due 2008 outstanding to annul such
declaration.
This bond is transferable by the registered owner hereof in person or by
attorney duly authorized in writing, on books of the Company to be kept for that
purpose at the principal corporate trust office of the Trustee in the City of
Philadelphia, Pennsylvania, upon surrender hereof for cancellation at such
office and upon presentation of a written instrument of transfer duly executed,
and thereupon the Company shall issue in the name of the transferee or
transferees, and the Trustee shall authenticate and deliver, a new bond or bonds
in authorized denominations, of equal aggregate unpaid principal amount. Any
such transfer or exchange shall be subject to the terms and conditions and to
the payment of the charges specified in the Indenture.
The Company and the Trustee may deem and treat the registered owner of this
bond as the absolute owner hereof for the purpose of receiving payment of or on
account of the principal hereof and the interest hereon, and for all other
purposes, and shall not be affected by any notice to the contrary.
No recourse shall be had for the payment of the principal of or interest on
this bond or for any claim based hereon or otherwise in respect hereof or of the
Indenture or of any indenture supplemental thereto against any incorporator or
any past, present or future stockholder, officer or director of the
6
Company or of any predecessor or successor corporation, as such, either directly
or through the Company, or through any such predecessor or successor corporation
or through any receiver or trustee in bankruptcy, by virtue of any
constitutional provision, statute or rule of law or equity, or by the
enforcement of any assessment or penalty or otherwise; all such liability being,
by the acceptance hereof and as part of the consideration for the issue hereof,
expressly waived and released by every holder or registered owner hereof, as
more fully provided in the Indenture, as supplemented.
This bond shall not be entitled to any benefit under the Indenture or any
indenture supplemental thereto, or become valid or obligatory for any purpose,
until CoreStates Bank, N.A., as Trustee under the Indenture, or a successor
trustee thereunder shall have signed the certificate of authentication endorsed
hereon.
IN WITNESS WHEREOF, Philadelphia Suburban Water Company has caused this
bond to be signed by its President or a Vice President and its corporate seal to
be hereto affixed and attested by its Secretary or an Assistant Secretary, and
this bond to be dated, 1993.
Attest: PHILADELPHIA SUBURBAN WATER COMPANY
Assistant Secretary Vice President and Treasurer
Trustee's Certificate of Authentication
This bond is one of the bonds, of the series designated therein, referred
to in the within-mentioned Twenty-Eighth Supplemental Indenture.
CORESTATES BANK, N.A., TRUSTEE
By:
Dated: , 1993 Authorized Signer
and;
WHEREAS, all acts and things necessary to make the Bonds, when executed by
the Company and authenticated and delivered by the Trustee as in this
Twenty-Eighth Supplemental Indenture provided and issued by the Company, valid,
binding and legal obligations of the Company, and this Twenty-Eighth
Supplemental Indenture a valid and enforceable supplement to said Original
Indenture, have been done, performed and fulfilled, and the execution of this
Twenty-Eighth Supplemental Indenture has been in all respects duly authorized:
NOW, THEREFORE, THIS TWENTY-EIGHTH SUPPLEMENTAL INDENTURE WITNESSETH: That,
in order to secure the payment of the principal and interest of all bonds issued
under the Original Indenture and all indentures supplemental thereto, according
to their tenor and effect, and according to the terms of the Original Indenture
and of any indenture supplemental thereto, and to secure the performance of the
covenants and obligations in said bonds and in the Original Indenture and any
indenture supplemental thereto respectively contained, and to provide for the
proper issuing, conveying and confirming unto the Trustee, its successors in
said trust and its and their assigns forever, upon the trusts and for the
purposes expressed in the Original Indenture and in any indenture supplemental
thereto, all and singular the estates, property and franchises of the Company
thereby mortgaged or intended so to be, the Company, for and in consideration of
the premises and of the sum of One Dollar ($1.00) in hand paid by the Trustee to
the Company upon the execution and delivery of this Twenty-Eighth Supplemental
Indenture, receipt whereof is hereby acknowledged, and of other good and
valuable consideration, has granted, bargained, sold, aliened, enfeoffed,
released and confirmed and by these presents does grant, bargain, sell, alien,
enfeoff, release and confirm unto CoreStates Bank, N.A., as Trustee, and to its
successors in said trust and its and their assigns forever:
All and singular the premises, property, assets, rights and franchises of
the Company, whether now or hereafter owned, constructed or acquired, of
whatever character and wherever situated (except
7
as herein expressly excepted), including among other things the following, but
reference to or enumeration of any particular kinds, classes, or items of
property shall not be deemed to exclude from the operation and effect of the
Original Indenture or any indenture supplemental thereto any kind, class or item
not so referred to or enumerated:
I.
REAL ESTATE AND WATER RIGHTS.
The real estate described in the deeds from the grantors named in EXHIBIT A
hereto, dated and recorded as therein set forth, and any other real estate and
water rights acquired since the date of the Twenty-Seventh Supplemental
Indenture.
II.
BUILDINGS AND EQUIPMENT.
All mains, pipes, pipe lines, service pipes, buildings, improvements,
standpipes, reservoirs, wells, flumes, sluices, canals, basins, cribs,
machinery, conduits, hydrants, water works, plants and systems, tanks, shops,
structures, purification systems, pumping stations, fixtures, engines, boilers,
pumps, meters and equipment which are now owned or may hereafter be acquired by
the Company (except as herein expressly excepted), including all improvements,
additions and extensions appurtenant to any real or fixed property now or
hereafter subject to the lien of the Original Indenture or any indenture
supplemental thereto which are used or useful in connection with the business of
the Company as a water company or as a water utility, whether any of the
foregoing property is now owned or may hereafter be acquired by the Company.
It is hereby declared by the Company that all property of the kinds
described in the preceding paragraph, whether now owned or hereafter acquired,
has been or is or will be owned or acquired with the intention of using the same
in carrying on the business or branches of the business of the Company, and it
is hereby declared that it is the intention of the Company that all thereof
(except property hereinafter specifically excepted) shall be subject to the
first priority lien of the Original Indenture, subject to Permitted Liens.
It is agreed by the Company that so far as may be permitted by law tangible
personal property now owned or hereafter acquired by the Company, except such as
is hereafter expressly excepted from the lien hereof, shall be deemed to be and
construed as fixtures and appurtenances to the real property of the Company.
III.
FRANCHISES AND RIGHTS OF WAY.
All the corporate and other franchises of the Company, all water and
flowage rights, riparian rights, easements and rights of way, and all permits,
licenses, rights, grants, privileges and immunities, and all renewals,
extensions, additions or modifications of any of the foregoing, whether the same
or any thereof, or any renewals, extensions, additions or modifications thereof,
are now owned or may hereafter be acquired, owned, held, or enjoyed by the
Company.
IV.
AFTER ACQUIRED PROPERTY.
All real and fixed property and all other property of the character
hereinabove described which the Company may hereafter acquire.
8
TOGETHER WITH all and singular the tenements, hereditaments and
appurtenances belonging or in any way appertaining to the aforesaid property or
any part thereof, with the reversion and reversions, remainder and remainders,
tolls, rents, revenues, issues, income, product and profits thereof, and all the
estate, right, title, interest and claim whatsoever, at law as well as in
equity, which the Company now has or may hereafter acquire in and to the
aforesaid premises, property, rights and franchises and every part and parcel
thereof.
EXCEPTING AND RESERVING, HOWEVER, certain premises, not used or useful in
the supplying of water by the Company, expressly excepted and reserved from the
lien of the Original Indenture and not subject to the terms thereof.
AND ALSO SAVING AND EXCEPTING from the property hereby mortgaged and
pledged, all of the following property (whether now owned by the Company or
hereafter acquired by it): all bills, notes and accounts receivable, cash on
hand and in banks, contracts, choices in action and leases to others (as
distinct from the property leased and without limiting any rights of the Trustee
with respect thereto under any of the provisions of the Original Indenture or of
any indenture supplemental thereto), all bonds, obligations, evidences of
indebtedness, shares of stock and other securities, and certificates or
evidences of interest therein, all automobiles, motor trucks, and other like
automobile equipment and all furniture, and all equipment, materials, goods,
merchandise and supplies acquired for the purpose of sale in the ordinary course
of business or for consumption in the operation of any properties of the Company
other than any of the foregoing which may be specifically transferred or
assigned to or pledged or deposited with the Trustee hereunder or required by
the provisions of the Original Indenture or any indenture supplemental thereto
so to be; provided, however, that if, upon the happening of a completed default,
as specified in Section I of Article XI of the Original Indenture, the Trustee
or any receiver appointed hereunder shall enter upon and take possession of the
mortgaged property, the Trustee or any such receiver may, to the extent
permitted by law, at the same time likewise take possession of any and all of
the property described in this paragraph then on hand and any and all other
property of the Company then on hand, not described or referred to in the
foregoing granting clauses, which is used or useful in connection with the
business of the Company as a water company or as a water utility, and use and
administer the same to the same extent as if such property were part of the
mortgaged property, unless and until such completed default shall be remedied or
waived and possession of the mortgaged property restored to the Company, its
successors or assigns.
SUBJECT, HOWEVER, to the exceptions, reservations and matters hereinabove
and in the Original Indenture recited, to releases executed since the date of
the Original Indenture in accordance with the provisions thereof, to existing
leases, to easements and rights of way for pole lines and electric transmission
lines and other similar encumbrances and restrictions which the Company hereby
certifies, in its judgment, do not impair the use of said property by the
Company in its business, to liens existing on or claims against, and rights in
and relating to, real estate acquired for right-of-way purposes, to taxes and
assessments not delinquent, to alleys, streets and highways that may run across
or encroach upon said lands, to liens, if any, incidental to construction, and
to Permitted Liens, as defined in the Original Indenture; and, with respect to
any property which the Company may hereafter acquire, to all terms, conditions,
agreements, covenants, exceptions and reservations expressed or provided in such
deeds and other instruments, respectively, under and by virtue of which the
Company shall hereafter acquire the same and to any and all liens existing
thereon at the time of such acquisition.
TO HAVE AND TO HOLD, all and singular the property, rights, privileges and
franchises hereby conveyed, transferred or pledged or intended so to be unto the
Trustee and its successors in the trust heretofore and hereby created, and its
and their assigns forever.
IN TRUST NEVERTHELESS, for the equal pro rata benefit and security of each
and every person or corporation who may be or become the holders of bonds and
coupons secured by the Original Indenture or by any indenture supplemental
thereto, or both, without preference, priority or distinction as to lien or
otherwise of any bond or coupon over or from any other bond or coupon, so that
each and every of said bonds and coupons issued or to be issued, of whatsoever
series, shall have the same right, lien and privilege under the Original
Indenture and all indentures supplemental thereto
9
and shall be equally secured hereby and thereby, with the same effect as if said
bonds and coupons had all been made, issued and negotiated simultaneously on the
date thereof; subject, however, to the provisions with reference to extended,
transferred or pledged coupons and claims for interest contained in the Original
Indenture and subject to any sinking or improvement fund or maintenance deposit
provisions, or both, for the benefit of any particular series of bonds.
IT IS HEREBY COVENANTED, DECLARED AND AGREED, by and between the parties
hereto, that all such bonds and coupons are to be authenticated, delivered and
issued, and that all property subject or to become subject hereto is to be held
subject to the further covenants, conditions, uses and trusts hereinafter set
forth, and the Company, for itself and its successors and assigns, does hereby
covenant and agree to and with the Trustee and its successor or successors in
said trust, for the benefit of those who shall hold said bonds and coupons, or
any of them, issued under this Indenture or any indenture supplemental hereto,
or both, as follows:
ARTICLE I.
FORM, AUTHENTICATION AND DELIVERY OF THE BONDS; REDEMPTION PROVISIONS
SECTION 1. There shall be a thirty-fourth series of bonds, limited in
aggregate principal amount to $22,000,000, designated as 'Philadelphia Suburban
Water Company First Mortgage Bonds, 7.15% Series due 2008' (the 'Bonds').
Interest on the Bonds shall be payable semiannually on April 1 and October
1 of each year (each an 'interest payment date'), commencing October 1, 1993.
Each Bond shall be dated the date of its authentication and shall bear interest
from the interest payment date next preceding its date, unless authenticated on
an interest payment date, in which case it shall bear interest from such
interest payment date, or, unless authenticated prior to the first interest
payment date for the Bonds, in which case it shall bear interest from the date
of original authentication and delivery of the Bonds; provided, however, that if
at the time of authentication of any Bond interest on the predecessor Bond of
such Bond is in default, such Bond shall bear interest from the date to which
interest has been paid, or, if no interest has been paid from the date of
original authentication and delivery of the Bonds. The Bonds shall be stated to
mature (subject to the right of earlier redemption at the prices and dates and
upon the terms and conditions hereinafter set forth) and shall bear interest at
the rates set forth below:
PRINCIPAL
AMOUNT DATE OF MATURITY INTEREST RATE
- -------------- ---------------- ---------------
$22,000,000 April 1, 2008 7.15%
Principal of any Bond, premium, if any, thereon and, to the extent legally
enforceable, any installment of interest not paid when due shall bear interest
at a rate equal to the rate borne by such Bond plus two percent (2%).
The Bonds shall be issuable only as registered bonds without coupons, shall
be in the form hereinabove recited, in the denomination of Five Thousand Dollars
($5,000) or any integral multiple thereof, shall be lettered 'R', and shall bear
such numbers as the Company may reasonably require.
The principal of, and premium, if any, and interest on the Bonds shall be
payable at the corporate trust office of the Trustee in the City of
Philadelphia, Pennsylvania, in such coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and
private debts; provided, however, that each payment of principal, interest and
premium, if any, to the holders of the Bonds shall be paid by the Trustee, with
funds received from the Company, by bank wire transfer of immediately available
funds pursuant to instructions respectively incorporated in those certain
Purchase Agreements dated as of April 1, 1993, between such person and the
Company, as such instructions may be modified from time to time as provided in
said Purchase Agreements.
Notwithstanding any provisions of the Indenture to the contrary, no holder
of the Bonds shall be required to present or surrender such Bonds to the
Company, the Trustee or any other person prior to, or as a condition of,
receiving payment of any kind in respect thereof. All holders of the Bonds shall
10
deliver to the Trustee all Bonds registered in their names at the time of final
payment in full of all amounts due in respect thereof within a reasonable time
period after receipt of such final payment.
The person in whose name any Bond is registered at the close of business on
any record date (as hereinafter defined) with respect to any payment date shall
be entitled to receive the principal, premium, interest or other payment payable
on such payment date, notwithstanding the cancellation of such Bond upon any
transfer or exchange subsequent to the record date and prior to such payment
date; provided, however, that if and to the extent the Company shall default in
the payment of the interest due on an interest payment date, such defaulted
interest shall be paid to the persons in whose names outstanding Bonds are
registered at the close of business on a subsequent record date established by
notice given by mail by or on behalf of the Company to the holders of Bonds not
less than fifteen (15) days preceding such subsequent record date, such record
date to be not less than ten (10) days preceding the date of payment of such
defaulted interest. The term 'record date' as used in this Section I with
respect to any regular interest payment date shall mean the fifteenth day of the
calendar month next preceding the calendar month in which such interest payment
date occurs if such fifteenth day is a business day; if such fifteenth day is
not a business day, the record date shall be the next preceding business day.
Exchange of any Bonds shall be effected in accordance with the applicable
provisions of Sections 7, 8 and 9 of Article II of the Original Indenture.
The text of the Bonds and of the certificate of the Trustee upon such Bonds
shall be, respectively, substantially of the tenor and effect hereinbefore
recited.
SECTION 2. The Company shall establish a Sinking Fund for the benefit and
security of the Bonds and shall pay to the Trustee on or before the first day of
April (the 'Mandatory Redemption Date') in each year commencing April 1, 1998 to
and including April 1, 2007 a sum in cash sufficient to redeem on such Mandatory
Redemption Date $2,000,000 principal amount of bonds of said series, which shall
be applied on such Mandatory Redemption Date to the redemption of bonds of said
series at one hundred percent (100%) of the principal amount thereof, together
interest accrued thereon to the date fixed for redemption.
For the purposes of this Section 2, any redemption of less than all of the
Bonds pursuant to Section 3 hereof shall be applied to the scheduled principal
payments of such series in inverse chronological order.
SECTION 3. The Bonds shall be redeemable at the option of the company,
either as a whole or in part at any time at one hundred percent (100%) of the
principal amount thereof, together with interest accrued thereon to the date
fixed for redemption, plus a premium equal to the 'Make-Whole Premium'
determined five (5) business days prior to the date fixed for redemption;
provided, that the Company shall furnish notice to the Trustee and to each
holder of the Bonds by telecopy or other same day communication, on a date at
least two (2) business days prior to the date fixed for redemption of the
Make-Whole Premium, if any, applicable to such redemption and the calculations,
in reasonable detail, used to determine the amount thereof.
As used herein, the following terms have the meanings set forth:
'Make-Whole Premium' shall mean, in connection with any redemption of the
Bonds, the excess, if any, of (i) the aggregate present value as of the date of
such redemption of each dollar of principal of the Bonds being redeemed (taking
into account the application of such redemption required by Section 2 of this
Twenty-Eighth Supplemental Indenture) and the amount of interest (exclusive of
interest accrued to the date of redemption) that would have been payable in
respect of such dollar amount if such redemption had not been made, determined
by discounting such amounts at the Reinvestment Rate from the respective dates
on which they would have been payable, over (ii) 100% of the principal amount of
the outstanding Bonds being redeemed. If the Reinvestment Rate is equal to or
higher than the interest rate of the Bonds being redeemed, the Make-Whole
Premium shall be zero.
11
'Reinvestment Rate' shall mean the sum of (i) 0.5% plus (ii) the arithmetic
mean of the yields under the respective headings 'This Week' and 'Last Week'
published in the Statistical Release under the caption 'Treasury Constant
Maturities' for the maturity (rounded to the nearest month) corresponding to the
Weighted Average Life to Maturity of the principal being redeemed (taking into
account the application of such redemption required by Section 2 of this
Twenty-Eighth Supplemental Indenture). If no maturity exactly corresponds to
such Weighted Average Life to Maturity, yields for the two published maturities
most closely corresponding to such Weighted Average Life to Maturity shall be
calculated pursuant to the immediately preceding sentence and the Reinvestment
Rate shall be interpolated or extrapolated from such yields on a straight-line
basis, rounding in each of such relevant periods to the nearest month. For the
purposes of calculating the Reinvestment Rate, the most recent Statistical
Release published prior to the date of determination of the premium hereunder
shall be used.
'Statistical Release' shall mean the statistical release designated
'H.15(519)' or any successor publication which is published weekly by the
Federal Reserve System and which establishes yields on actively traded U.S.
Government Securities adjusted to constant maturities or, if such statistical
release is not published at the time of any determination hereunder, then such
other reasonably comparable index which shall be designated by the holders of
66 2/3% in aggregate principal amount of the outstanding Bonds being redeemed.
'Weighted Average Life to Maturity' of the principal amount of Bonds being
redeemed shall mean, as of the time of any determination thereof, the number of
years obtained by dividing the then Remaining Dollar-Years of the principal of
the Bonds being redeemed by the aggregate amount of such principal. The term
'Remaining Dollar-Years' of any such principal being redeemed shall mean the
amount obtained by (i) multiplying (1) the amount by which each required
repayment (including repayment at maturity) shall be reduced as a result of the
redemption of such principal being redeemed (which redemption shall be applied
as required by Section 2 of this Twenty-Eighth Supplemental Indenture) by (2)
the number of years (calculated to the nearest one-twelfth) which will elapse
between the date of determination and the date of that required repayment and
(ii) totalling the products obtained in (i).
The Bonds shall not be prepayable or redeemable at the option of the
Company prior to the stated maturity thereof other than on the terms and
conditions and in the amounts and with the premium, if any, as provided in
Sections 3 and 5 of this Article I.
SECTION 4. The Bonds shall be subject to mandatory redemption (i) in
connection with the sale to or other acquisition by or on behalf of one or more
governments or municipal corporations or other governmental subdivisions,
bodies, authorities or agencies of all or substantially all of the property of
the Company, or (ii) in connection with any voluntary or involuntary
liquidation, dissolution or winding up of the Company, occurring in connection
with or subsequent to the acquisition of all or substantially all of the stock
of the Company ordinarily entitled to voting rights by or on behalf of one or
more governments or municipal corporations or other governmental subdivisions,
bodies, authorities or agencies. The Bonds are redeemable in such coin or
currency of the United States of America as at the time of payment is legal
tender for the payment of public and private debts, at one hundred per cent
(100%) of the principal amount thereof, together with interest accrued thereon
to the date fixed for redemption.
SECTION 5. Any redemption of the Bonds shall be effected in accordance with
the provisions of Article V of the Original Indenture, provided, however, that
any partial prepayments or redemption of the Bonds shall be applied or effected
ratably in accordance with the unpaid principal amounts thereof.
SECTION 6. The Bonds in the aggregate principal amount of $22,000,000 may
be issued under the provisions of Article IV of the Original Indenture and may
forthwith be executed by the Company and delivered to the Trustee and shall be
authenticated by the Trustee and delivered to or upon the order of the Company,
upon receipt by the Trustee of the resolutions, certificates, opinions or other
instruments or all of the foregoing required to be delivered upon the issue of
bonds pursuant to the provisions of the Original Indenture.
12
ARTICLE II.
MAINTENANCE OR IMPROVEMENT DEPOSIT.
SECTION 1. The Company covenants that it will deposit with the Trustee on
or before the March 1 next occurring after the bonds of the 4.55% Series due
1994 cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 5 1/2% Series due 1996 cease to be outstanding, or on or before
the March 1 next occurring after the bonds of the 7 7/8% Series due 1997, cease
to be outstanding, or on or before the March 1 next occurring after the bonds of
the 10 1/8% Series due 1995 cease to be outstanding, or on or before the March 1
next occurring after the bonds of the 9.20% Series due 2001 cease to be
outstanding, or on or before the March 1 next occurring after the bonds of the
8.40% Series due 2002 cease to be outstanding, or on or before the March 1 next
occurring after the bonds of the 12.45% Series due 2003 cease to be outstanding,
or on or before the March 1 next occurring after the bonds of the 13% Series due
2005 cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 10.65% Series due 2006 cease to be outstanding, or on or before
the March 1 next occurring after the bonds of the 8.44% Series due 1997 cease to
be outstanding or on or before the March 1 next occurring after the bonds of the
9.89% Series due 2008, or on or before the March 1 next occurring after the
bonds of the 9.93% Series due 2013, or on or before the next March 1 next
occurring after the bonds of the 9.97% Series due 2018 cease to be outstanding,
or on or before the March 1 next occurring after the bonds of the 9.12% Series
due 2010 cease to be outstanding, or on or before the March 1 next occurring
after the bonds of the 9.29% Series due 2026 cease to be outstanding, or on or
before the March 1 next occurring after the bonds of the 9.17% Series due 2021
shall cease to be outstanding, or on or before the March 1 next occurring after
the bonds of the 6.50% Series due 2010 shall cease to be outstanding, whichever
is latest, and on or before March 1 in each year thereafter if and so long as
any of the Bonds are outstanding, an amount in cash (the 'Maintenance or
Improvement Deposit') equal to 9% of the Gross operating Revenues of the Company
during the preceding calendar year less, to the extent that the Company desires
to take such credits, the following:
(A) the amount actually expended for maintenance during such calendar
year; and
(B) the Cost or Fair Value, whichever is less, of Permanent Additions
acquired during such calendar year which at the time of taking such credit
constitute Available Permanent Additions; and
(C)sthe unapplied balance, or any part thereof, of the Cost or Fair
Value, whichever is less, of Available Permanent Additions acquired by the
Company during the five calendar years preceding such calendar year and
specified in the Officers' Certificates delivered to the Trustee pursuant
to Section 2 of this Article, but only to the extent that the Permanent
Additions with respect to which such Cost or Fair Value was determined
shall at the time of taking such credit constitute Available Permanent
Additions.
SECTION 2. The Company covenants that it will on or before March 1 in each
year, beginning with the first deposit made with the Trustee under the
provisions of Section 1 of this Article, as long as any of the Bonds are
outstanding, deliver to the Trustee the following:
(A) An Officers' Certificate, which shall state:
(i) The amount of the Gross Operating Revenues for the preceding
calendar year;
(ii) 9% of such Gross Operating Revenues;
(iii) The amount actually expended by the Company for maintenance
during such calendar year;
(iv) The amount set forth in subparagraph (xii) of each Officers'
Certificate delivered to the Trustee pursuant to the provisions of this
Section during the preceding five calendar years (specifying each such
Officers' Certificate), after deducting from each such amount the aggregate
of (a) the Cost or Fair Value, whichever is less, of all Permanent
Additions represented by such
13
amount which have ceased to be Available Permanent Additions; and (b) any
part of such amount for which the Company has previously taken credit
against any Maintenance or Improvement Deposit (specifying the Officers'
Certificate in which such credit was taken); and (c) any part of such
amount for which the Company then desires to take credit against the
Maintenance or Improvement Deposit;
(v) An amount which shall be the aggregate of all amounts set forth
pursuant to the provisions of clause (c) of the foregoing subparagraph
(iv);
(vi) The Cost or Fair Value, whichever is less, of Available Permanent
Additions acquired by the Company during the preceding calendar year;
(vii) That part of the amount set forth in subparagraph (vi) which the
Company desires to use as a credit against the Maintenance or Improvement
Deposit;
(viii) The amount of cash payable to the Trustee under the provisions
of Section 1 of this Article, which shall be the amount by which the amount
set forth in subparagraph (ii) hereof exceeds the sum of the amounts set
forth in subparagraphs (iii), (v) and (vii) hereof;
(ix) The sum of all amounts charged on the books of the Company against
any reserve for retirement or depreciation during the preceding calendar year
representing the aggregate of the Cost when acquired of any part of the
Company's plants and property of the character described in the granting clauses
hereof which has been permanently retired or abandoned;
(x) The aggregate of the amounts set forth in subparagraphs (v) and
(vii) hereof;
(xi) The amount by which the amount set forth in subparagraph (x)
exceeds the amount set forth in subparagraph (ix), being the amount
required to be deducted from the Cost or Fair Value of Available Permanent
Additions in order to determine a Net Amount of Available Permanent
Additions pursuant to the provisions of Section 9 of Article I of the
Original Indenture;
(xii) The amount set forth in subparagraph (vi) after deducting the
amount, if any, set forth in subparagraph (vii); and
(xiii) That all conditions precedent to the taking of the credit or
credits so requested by the Company have been complied with.
(B) In the event that the Officers' Certificate delivered to the Trustee
pursuant to the provisions of paragraph (A) of this Section shall state,
pursuant to the requirements of subparagraph (vi), the Cost or Fair Value of
Available Permanent Additions acquired by the Company during the preceding
calendar year, the documents specified in paragraphs 2, 3, 5, 6 and 7 of
subdivision (B) of Section 3 of Article IV of the Original Indenture, with such
modifications, additions and omissions as may be appropriate in the light of the
purpose for which they are used.
(C) An amount in cash equal to the sum set forth in subparagraph (viii) of
the Officers' Certificate provided for in paragraph (A) hereof.
SECTION 3. All cash deposited with the Trustee as part of any Maintenance
or Improvement Deposit provided for in Section 1 of this Article, may, at the
option of the Company, be applied to the purchase of bonds under the provisions
of Section 2 of Article X of the Original Indenture or to the redemption of
bonds under the provisions of Section 3 of Article X of the Original Indenture
or may be withdrawn by the Company at any time to reimburse the Company for the
cost of a Net Amount of Available Permanent Additions (excluding, however, from
any such Available Permanent Additions all Permanent Additions included in any
certificate delivered to the Trustee for the purpose of obtaining a credit
against any Maintenance or Improvement Deposit provided for in Section 1 of this
Article to the extent that such Permanent Additions have been used for any such
credit). The Trustee shall pay to or upon the written order of the Company all
or any part of such cash upon the receipt by the Trustee of:
(a) A Resolution requesting such payment; and
14
(b) The documents specified in paragraphs 2, 5, 6 and 7 of subdivision
(B) of Section 3 of Article IV of the Original Indenture, with such
modifications, additions and omissions as may be appropriate in the light
of the purposes for which they are used.
ARTICLE III.
COVENANTS OF THE COMPANY.
SECTION 1. The Company hereby covenants and agrees with the Trustee, for
the benefit of the Trustee and all the present and future holders of the Bonds,
that the Company will pay the principal of and premium, if any, and interest on
all bonds issued or to be issued as aforesaid under and secured by the Original
Indenture as hereby supplemented, as well as all bonds which may be hereafter
issued in exchange or substitution therefor, and will perform and fulfill all of
the terms, covenants and conditions of the Original Indenture and of this
Twenty-Eighth Supplemental Indenture with respect to the additional bonds to be
issued under the Original Indenture as hereby supplemented.
SECTION 2. The Company covenants and agrees that so long as any of the
Bonds are outstanding (a) the Company will not make any Stock Payment if, after
giving effect thereto, its retained earnings, computed in accordance with
generally accepted accounting principles consistently applied, will be less than
the sum of (i) Excluded Earnings, if any, since December 31, 1992, and (ii)
$20,000,000; (b) Stock Payments made more than 40 days after the commencement,
and prior to the expiration, of any Restricted Period shall not exceed 65% of
the Company's Net Income during such Restricted Period; and (c) the Company will
not authorize a Stock Payment if there has occurred and is continuing an event
of default under subsections (a) and (b) of Section 1 of Article XI of the
Original Indenture.
For the purposes of this Section 2 the following terms shall have the
following meanings:
'Stock Payment' shall mean any payment in cash or property (other than
stock of the Company) to any holder of shares of any class of capital stock of
the Company as such holder, whether by dividend or upon the purchase,
redemption, conversion or other acquisition of such shares, or otherwise.
'Excluded Earnings' shall mean 35% of the Company's Net Income during any
Restricted Period.
'Restricted Period' shall mean a period commencing on any Determination
Date on which the total Debt of the Company is, or as the result of any Stock
Payment then declared or set aside and to be made thereafter will be, more than
70% of Capitalization, and continuing until the third consecutive Determination
Date on which the total Debt of the Company does not exceed 70% of
Capitalization.
'Net Income' for any particular Restricted Period shall mean the amount of
net income properly attributable to the conduct of the business of the Company
for such Period, as determined in accordance with generally accepted accounting
principles consistently applied, after payment of or provision for taxes on
income for such Period.
'Determination Date' shall mean the last day of each calendar quarter. Any
calculation with respect to any Determination Date shall be based on the
Company's balance sheet as of such date.
'Debt' means (i) all indebtedness, whether or not represented by bonds,
debentures, notes or other securities, for the repayment of money borrowed, (ii)
all deferred indebtedness for the payment of the purchase price of property or
assets purchased (but Debt shall not be deemed to include Customer Advances for
Construction or any bonds issued under the Indenture which are not Outstanding
Bonds), (iii) leases which have been or, in accordance with generally accepted
accounting principles, should be recorded as capital leases and (iv) guarantees
of the obligations of another of the nature described in clauses (i), (ii) or
(iii) which have been or, in accordance with generally accepted accounting
principles, should be recorded as debt.
'Outstanding Bonds' shall mean bonds which are outstanding within the
meaning indicated in Section 20 of Article I of the Original Indenture except
that, in addition to the bonds referred to in
15
clauses (a), (b) and (c) of said Section 20, said term shall not include bonds
for the retirement of which sufficient funds have been deposited with the
Trustee with irrevocable instructions to apply such funds to the retirement of
such bonds at a specified time, which may be either the maturity thereof or a
specified redemption date, whether or not notice of redemption shall have been
given.
'Capitalization' shall mean the sum of (i) the aggregate principal amount
of all Debt at the time outstanding, (ii) the aggregate par or stated value of
all capital stock of the Company of all classes at the time outstanding, (iii)
premium on capital stock, (iv) capital surplus, and (v) retained earnings.
SECTION 3. The Company covenants and agrees that so long as any of the
Bonds are outstanding neither the Company nor any subsidiary of the Company
will, directly or indirectly, lend or in any manner extend its credit to, or
indemnify, or make any donation or capital contribution to, or purchase any
security of, any corporation which directly or indirectly controls the Company,
or any subsidiary or affiliate (other than an affiliate which is a subsidiary of
the Company) of any such corporation.
ARTICLE IV.
THE TRUSTEE.
The Trustee hereby accepts the trust hereby declared and provided, and
agrees to perform the same upon the terms and conditions in the original
Indenture, as supplemented by this Twenty-Eighth Supplemental Indenture, and in
this Twenty-Eighth Supplemental Indenture set forth, and upon the terms and
conditions set forth in Article V hereof.
ARTICLE V.
MISCELLANEOUS.
SECTION 1. This instrument is executed and shall be construed as an
indenture supplemental to the Original Indenture, and shall form a part thereof,
and except as hereby supplemented, the original Indenture and the First, Second,
Third, Fourth, Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh, Twelfth,
Thirteenth, Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth,
Nineteenth, Twentieth, Twenty-First, Twenty-Second, Twenty-Third, Twenty-Fourth,
Twenty-Fifth, Twenty-Sixth and Twenty-Seventh Supplemental Indentures are hereby
confirmed. All references in this Twenty-Eighth Supplemental Indenture to the
Original Indenture shall be deemed to refer to the original Indenture as
heretofore amended and supplemented, and all terms used herein shall be taken to
have the same meaning as in the Original Indenture, as so amended, except in the
cases where the context clearly indicates otherwise.
SECTION 2. All recitals in this Twenty-Eighth Supplemental Indenture are
made by the Company only and not by the Trustee; and all of the provisions
contained in the Original Indenture in respect of the rights, privileges,
immunities, powers and duties of the Trustee shall be applicable in respect
hereof as fully and with like effect as if set forth herein in full.
SECTION 3. Although this Twenty-Eighth Supplemental Indenture is dated for
convenience and for the purpose of reference as of April 1, 1993, the actual
date or dates of execution hereof by the Company and the Trustee are as
indicated by their respective acknowledgments annexed hereto.
SECTION 4. In order to facilitate the recording or filing of this
Twenty-Eighth Supplemental Indenture, the same may be simultaneously executed in
several counterparts, each of which shall be deemed to be an original and such
counterparts shall together constitute but one and the same instrument.
16
IN WITNESS WHEREOF the parties hereto have caused their corporate seals to
be hereunto affixed and their Presidents or vice-Presidents, under and by the
authority vested in them, have hereto affixed their signatures, and their
Secretaries or Assistant Secretaries have duly attested the execution hereof,
this 22nd day of April, 1993.
[CORPORATE SEAL] PHILADELPHIA SUBURBAN WATER COMPANY
Attest: Suzanne M. Falcone By: Michael P. Graham
Assistant Secretary Senior Vice President-Finance
and Treasurer
[CORPORATE SEAL] CORESTATES BANK, N.A.
Attest: By:
Authorized Officer Authorized Signer
17
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF MONTGOMERY )
On the 22nd day of April, 1993, before me, the Subscriber, a Notary
Public for the Commonwealth of Pennsylvania, personally appeared Michael P.
Graham, who acknowledged himself to be the Senior Vice President-Finance and
Treasurer of Philadelphia Suburban Water Company, a corporation, and that he as
such Senior Vice President-Finance and Treasurer, being authorized to do so,
executed the foregoing Twenty-Eighth Supplemental Indenture as and for the act
and deed of said corporation and for the uses and purposes therein mentioned, by
signing the name of the corporation by himself as such officer.
In Witness Whereof I hereunto set my hand and official seal.
[NOTARIAL SEAL]
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF PHILADELPHIA )
On the _________________ day of April, 1993, before me, the Subscriber, a
Notary Public for the Commonwealth of Pennsylvania, personally appeared,
_______________________ who acknowledged himself or herself to be a
____________________ of CoreStates Bank, N.A., Trustee, a corporation, and that
he or she as such , being authorized to do so, executed the foregoing Twenty-
Eighth Supplemental Indenture as and for the act and deed of the said
corporation and for the uses and purposes therein mentioned by signing the name
of the corporation by himself as such officer.
In Witness Whereof I hereunto set my hand and official seal.
I am not a director or officer of said CoreStates Bank, N.A.
[NOTARIAL SEAL]
IN WITNESS WHEREOF the parties hereto have caused their corporate seals to
be hereunto affixed and their Presidents or Vice-Presidents, under and by the
authority vested in them, have hereto affixed their signatures, and their
Secretaries or Assistant Secretaries have duly attested the execution hereof,
this 22nd day of April, 1993.
[CORPORATE SEAL] PHILADELPHIA SUBURBAN WATER COMPANY
Attest: By:
Secretary Senior Vice President-Finance
and Treasurer
[CORPORATE SEAL] CORESTATES BANK, N.A.
Attest: Cathy Wiedecke By: Richard Hojnowski
Authorized Officer Vice President
18
COMMONWEALTH OF PENNSYLVANIA )
) SS.:
COUNTY OF )
On the __________________ day of April, 1993, before me, the Subscriber, a
Notary Public for the Commonwealth of Pennsylvania, personally appeared Michael
P. Graham, who acknowledged himself to be the Senior Vice President-Finance and
Treasurer of Philadelphia Suburban Water Company, a corporation, and that he as
such Senior Vice President-Finance and Treasurer, being authorized to do so,
executed the foregoing Twenty-Eighth Supplemental Indenture as and for the act
and deed of said corporation and for the uses and purposes therein mentioned, by
signing the name of the corporation by himself as such officer.
In Witness Whereof I hereunto set my hand and official seal.
[NOTARIAL SEAL]
COMMONWEALTH OF PENNSYLVANIA )
) ss.:
COUNTY OF PHILADELPHIA )
On the 22nd day of April, 1993, before me, the Subscriber, a Notary Public
for the Commonwealth of Pennsylvania, personally appeared, Richard Hojnowski who
acknowledged himself or herself to be a Vice President of CoreStates Bank, N.A.,
Trustee, a corporation, and that he or she as such Vice President , being
authorized to do so, executed the foregoing Twenty-Eighth Supplemental Indenture
as and for the act and deed of the said corporation and for the uses and
purposes therein mentioned by signing the name of the corporation by himself as
such officer.
In Witness Whereof I hereunto set my hand and official seal.
I am not a director or officer of said CoreStates Bank, N.A.
[NOTARIAL SEAL] Lynne N. Collins
19
SCHEDULE A
BONDS REDEEMED OR PAID AT MATURITY
PRINCIPAL AMOUNT
PAID OR REDEEMED
(IF LESS THAN ALL DATE
SERIES BONDS OF SERIES) PAID MATURITY
- -------------------------------------------------- ----------------- ---------- ------------------------------
3 1/4% Series Due 1971 12/31/70 Redemption
9 5/8% Series Due 1975 6/15/75 Maturity
9.15% Series Due 1977 11/01/77 Maturity
3% Series Due 1978 7/01/78 Maturity
3 3/8% Series Due 1982 7/01/82 Maturity
3.90% Series Due 1983 7/01/83 Maturity
3 1/2% Series Due 1986 1/01/86 Maturity
4 1/2% Series Due 1987 1/01/87 Maturity
4 1/8% Series Due 1988 5/01/88 Maturity
5% Series Due 1989 9/01/89 Maturity
4 5/8% Series Due 1991 5/01/91 Maturity
4.70% Series Due 1992 4/01/92 Maturity
6 7/8% Series Due 1993 1/01/93 Maturity
8 7/8% Series Due 2010 6/30/92 Redemption
10 1/8% Series Due 1995 $ 5,600,000 -- Sinking Fund Redemption
9.20% Series Due 2001 $ 3,850,000 -- Sinking Fund Redemption
8.40% Series Due 2002 $ 4,500,000 -- Sinking Fund Redemption
20
EXHIBIT A
COMPANY'S
REAL ESTATE
COUNTY AND GRANTOR INDEX NO. DATE OF DEED BOOK PAGE
- --------------------------------------------------- --------------- ----------------------- ----------- ----------
Chester County/ Uwchlan Township VI-E-26 December 30, 1992 3431 181-198
Municipal Authority
(Wells 1 & 2, Bell
Tavern Well)
Chester County/Uwchlan Township VI-E-27 December 30, 1992 3431 181-198
Municipal Authority
(Wells 3 & 4,
Shoen Road Well)
Chester County/Uwchlan Township VI-E-28 December 30, 1992 3431 181-198
Municipal Authority
(Well 5, Robert
Dean Well)
Chester County/Uwchlan Township VI-E-29 December 30,1992 3431 181-198
Municipal Authority
(Well 7, Milford Well)
Chester County/Uwchlan Township VI-B-41 December 30, 1992 3431 181-198
Municipal Authority
(Tank 1, Whitford
Hills Tank)
Chester County/Uwchlan Township VI-B-42 December 30, 1992 3431 181-198
Municipal Authority
(Tank 2, Lionville Tank)
Chester County/Uwchlan Township VI-B-43 December 30, 1992 3431 181-198
Municipal Authority
(Tank 3, Marchwood Tank)
Chester County/Uwchlan Township VI-B-44 December 30, 1992 3431 181-198
Municipal Authority
(Tank 4, Valley Hill Tank)
Chester County/Uwchlan Township VI-B-45 December 30, 1992 3431 181-198
Municipal Authority
(Unused Tank Site,
Waterview)
Chester County/Uwchlan Township VIII-H-4 December 30, 1992 3431 181-198
Municipal Authority
(Office Building)
Chester County/Uwchlan Township VII-D-2 December 30, 1992 3431 181-198
Municipal Authority
(Quarry)
Chester County/Uwchlan Township VI-B-46 December 30, 1992 3431 181-198
Municipal Authority
(Tank 5, Blackhorse Tank)
Chester County/Whiteland Township VI-E-30 December 30, 1992 3433 397-404
(Well Site, Hillside Well)
Chester County/West Whiteland Township VI-B-47 December 30, 1992 3433 397-404
(Tank Site, Ship Road Tank)
21
EXHIBIT 4.16
- --------------------------------------------------------------------------------
$30,000,000 REVOLVING CREDIT FACILITY
REVOLVING CREDIT AGREEMENT
BY AND AMONG
PHILADELPHIA SUBURBAN WATER COMPANY
AND
THE BANKS PARTY HERETO
AND MELLON BANK, N.A., AS AGENT
DATED AS OF MARCH 17, 1994
- --------------------------------------------------------------------------------
1
REVOLVING CREDIT AGREEMENT
THIS REVOLVING CREDIT AGREEMENT (this 'Agreement') dated as of March 17,
1994, by and among PHILADELPHIA SUBURBAN WATER COMPANY, a Pennsylvania
corporation ('Borrower'), the Banks (as hereinafter defined) and MELLON BANK,
N.A., in its capacity as agent for the Banks hereunder (hereinafter referred to
in such capacity as the 'Agent').
BACKGROUND
The Agent, the Banks and the Borrower desire to set forth the terms and
conditions under which the Banks will make available to the Borrower certain
credit facilities to be used for the purposes specified in this Agreement.
Accordingly, the Agent, the Banks and the Borrower, each intending to be legally
bound hereby, agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
Section 1.01. Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural and to the masculine and feminine
forms of the terms defined):
'Agent' shall mean Mellon Bank, N.A. and its successors.
'Agreement' means this agreement, together with all exhibits, amendments,
modifications, schedules and supplements hereto as may be in effect from time to
time.
'As-Offered Rate' and 'As-Offered Rate Alternative' are defined in Section
4.02(e) hereof.
'As-Offered Rate Interest Period' is defined in Section 4.03 hereof.
'As-Offered Rate Portion' of any Revolving Credit Loan shall mean at any
time the portion, including the whole, of such Revolving Credit Loan bearing
interest at such time under the As-Offered Rate Alternative. If no Revolving
Credit Loan is specified, 'As-Offered Rate Portion' shall refer to the
As-Offered Rate Portion of all Revolving Credit Loans outstanding at such time.
'As-Offered Utilization Fee' shall have the meaning set forth in Section
2.02(b) hereof.
'Assessment Rate' is defined in Section 4.02(c) hereof.
'Banks' shall mean the financial institutions named on Schedule 1.01(a)
hereto and their respective successors and assigns as permitted hereunder, each
of which is referred to herein as a 'Bank'.
'Bank Indebtedness' means any liability, direct or indirect, liquidated or
contingent, to any bank or other financial institution, for or on account of
money borrowed, guaranties of money borrowed and letters of credit, having a
final maturity less than five (5) years from the date of creation of such
liability.
'Borrowing Date' shall mean, with respect to any Revolving Credit Loan, the
date for the making thereof or the renewal or conversion thereof to the same or
a different Rate Alternative, which shall be a Business Day.
'Business Day' means a day other than a Saturday, Sunday or other day on
which banks are authorized or required to close under the laws of the
Commonwealth of Pennsylvania.
'CD Rate' and 'CD Rate Alternative' are defined in Section 4.02(c) hereof.
'CD Rate Interest Period' is defined in Section 4.03 hereof.
'CD Rate Portion' of any Revolving Credit Loan shall mean at any time the
portion, including the whole, of such Revolving Credit Loan bearing interest at
such time under the CD Rate Alternative.
2
If no Revolving Credit Loan is specified, 'CD Rate Portion' shall refer to the
CD Rate Portion of all Revolving Credit Loans outstanding at such time.
'Closing Date' shall mean the date of the first Revolving Credit Loan
hereunder.
'Code' means the Internal Revenue Code of 1986, as amended from time to
time, together with the rules and regulations promulgated in connection
therewith.
'Commitment' means as to any Bank the aggregate of its Revolving Credit
Commitment, and Commitments shall mean the aggregate of the Revolving Credit
Commitments of all the Banks.
'Commitment Fee' is defined in Section 2.02 hereof.
'Consolidated' refers to the consolidation of the accounts of Borrower and
Subsidiaries in accordance with GAAP, including principles of consolidation,
applied in a manner consistent with the application of such principles in the
preparation of the audited financial statements mentioned in Section 5.05
hereof.
'Controlled Group Member' means each trade or business (whether or not
incorporated) which together with the Borrower is treated as a single employer
under Section 4001(b)(1) of ERISA or Sections 414(b), (c), (m) or (o) of the
Code.
'Corresponding Source of Funds' means:
(i) in the case of the Federal Funds Rate Portion, the proceeds of
hypothetical borrowings by the applicable Bank of overnight Federal funds
in an aggregate amount approximately equal to the Federal Funds Rate
Portion;
(ii) in the case of any Funding Segment of the CD Rate Portion, the
proceeds of hypothetical issuances by the applicable Bank of one or more of
its certificates of deposit at the beginning of the CD Rate Interest Period
corresponding to such Funding Segment, having maturities approximately
equal to such CD Rate Interest Period and in an aggregate amount
approximately equal to such Funding Segment; and
(iii) in the case of any Funding Segment of the Euro-Rate Portion, the
proceeds of hypothetical receipts by the applicable Bank of one or more
Dollar deposits in the interbank eurodollar market at the beginning of the
Euro-Rate Interest Period corresponding to such Funding Segment, having
maturities approximately equal to such Euro-Rate Interest Period and in an
aggregate amount approximately equal to such Funding Segment.
'Credit Obligation' means any obligation for the payment of borrowed money
or the installment purchase price of property, and includes any obligation under
a lease which has been or, in accordance with GAAP, should be recorded as a
capital lease.
'Dollar', 'Dollars' and the symbol '$' mean lawful money of the United
States of America.
'Environmental Laws' means the Federal Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. sectionsection 9601, et
seq., the Federal Resource Conservation and Recovery Act, 42 U.S.C.
sectionsection 6901 et seq., the Hazardous Materials Transportation Act, 49
U.S.C. sectionsection 1801, et seq., the Pennsylvania Hazardous Sites Cleanup
Act, (35 P.S. 6020.101 et seq.), all other federal, state and local
environmental or health laws applicable to the Borrower or its business,
operations or assets now or hereafter enacted, and all rules, regulations,
orders and publications adopted or promulgated pursuant thereto from time to
time.
'ERISA' means the Employee Retirement Income Security Act of 1974, as
amended, together with all rules and regulations promulgated in connection
therewith.
'Euro-Rate' and 'Euro-Rate Alternative' are defined in Section 4.02(d)
hereof.
'Euro-Rate Interest Period' is defined in Section 4.03 hereof.
3
'Euro-Rate Portion' of any Revolving Credit Loan shall mean at any time the
portion, including the whole, of such Revolving Credit Loan bearing interest at
such time under the Euro-Rate Alternative. If no Revolving Credit Loan is
specified, 'Euro-Rate Portion' shall refer to the Euro-Rate Portion of all
Revolving Credit Loans outstanding at such time.
'Event of Default' is defined in Article VII hereof.
'Federal Funds Alternative' is defined in Section 4.02(b) hereof.
'Federal Funds Effective Rate' is defined in Section 4.02(b) hereof.
'Federal Funds Rate Portion' of any Revolving Credit Loan shall mean at any
time the portion, including the whole, of such Revolving Credit Loan bearing
interest at such time under the Federal Funds Rate Alternative. If no Revolving
Credit Loan is specified, 'Federal Funds Rate Portion' shall refer to the
Federal Funds Rate Portion of all Revolving Credit Loans outstanding at such
time.
'Funding Segment' of the CD Rate Portion, the Euro-Rate Portion, or the
As-Offered Rate Portion, as the case may be, at any time shall mean the entire
principal amount of such Portion to which at such time there is applicable a
particular Interest Period beginning on a particular day and ending on another
particular day. (By definition, each such Portion is at all times composed of an
integral number of discrete Funding Segments and the sum of the principal
amounts of all Funding Segments of any such Portion at any time equals the
principal amount of such Portion at such time.)
'GAAP' means generally accepted accounting principles as applied to the
public utility industry, as such principles shall be in effect at the time of
the computation or determination or as of the date of the relevant financial
statements, as the case may be (the 'Relevant Date'), subject to Section 1.02
hereof.
'Hazardous Materials' means those materials, as may be specified by
quantity and/or concentrations, that are defined as 'hazardous wastes' and
'hazardous substances' by the Environmental Laws due to their characteristics of
being flammable, explosive, toxic, radioactive or otherwise hazardous.
'Indenture' means the Indenture of Mortgage dated as of January 1, 1941
between Borrower and the Pennsylvania Company for Insurances on Lives and
Granting Annuities (now known as CoreStates Bank, N.A.), as Trustee or its
successor, as amended and supplemented.
'Interest Expense' means, for any fiscal period, all interest accrued
(whether or not actually paid) during such period on Credit Obligations.
'Interest Periods' is defined in Section 4.03 hereof.
'Law' means any law (including common law), constitution, statute, treaty,
regulation, rule, ordinance, order, injunction, writ, decree or award of any
Official Body including any Environmental Laws as defined herein.
'Loan Documents' shall mean this Agreement, the Notes and Letter of Credit
Agreements, if any existing with any of the Banks and all amendments,
certificates, schedules, reports, notices and exhibits now or hereafter executed
or delivered in connection with any of the foregoing as may be in effect from
time to time.
'London Business Day' means a day for dealing in deposits in Dollars by and
among banks in the London interbank market which is also a Business Day.
'Long Term Funded Debt' means any Credit Obligations with a maturity of one
(1) year or more.
'Majority Banks' shall mean (i) at least 66 2/3% of the total principal
amount of the Revolving Credit Loans outstanding hereunder, or (ii) if there are
no Revolving Credit Loans outstanding, Banks whose Commitments aggregate at
least 66 2/3% of the Commitments of all of the Banks, provided,
4
however, in instances where only one Bank has outstanding Revolving Credit
Loans, the Majority Banks shall mean Banks whose Commitments aggregate at least
66 2/3%.
'Material Litigation' means any suit, action, arbitration, administrative
proceeding, criminal prosecution or governmental investigation in which the
amount in controversy is at least $500,000, singularly, and which presents a
reasonable likelihood of material adverse effect on Borrower.
'month', with respect to a Euro-Rate Interest Period, means the interval
between the Fixed Dates in consecutive calendar months as to such Euro-Rate
Interest Period. The 'Fixed Date' in a calendar month as to any Euro-Rate
Interest Period shall mean the day in such calendar month numerically
corresponding to the first day of such Euro-Rate Interest Period, except (i) if
there is no such numerically corresponding day in a calendar month, the 'Fixed
Date' for such calendar month shall mean the last London Business Day of such
calendar month, (ii) if the first day of such Euro-Rate Interest Period is the
last day of a calendar month, the 'Fixed Date' for any calendar month shall mean
the last London Business Day of such calendar month and (iii) otherwise, if a
numerically corresponding day in a given calendar month is not a London Business
Day, the 'Fixed Date' for such calendar month shall mean the next following day
that is a London Business Day but not later than the last London Business Day of
such calendar month.
'Multiemployer Plan' means any employee benefit plan which is a
'multiemployer plan' within the meaning of Section 4001(a)(3) of ERISA and to
which the Borrower or any Controlled Group Member has or, at any time after July
1, 1981, had an obligation to contribute.
'Net Income' means net income (after taxes) including extraordinary gains
and/or losses.
'Notes' means the Revolving Credit Notes.
'Official Body' means any government or political subdivision or any
agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator, in
each case whether foreign or domestic.
'PBGC' means the Pension Benefit Guaranty Corporation established under
Title IV Of ERISA or any other governmental agency, department or
instrumentality succeeding to the functions of said corporation.
'Person' means any individual, corporation, partnership, association,
joint-stock company, trust, unincorporated organization, joint venture, court or
governmental or political subdivision or agency thereof.
'Plan' means any employee pension benefit plan (other than a Multiemployer
Plan) to which Section 4021 of ERISA applies and (i) which is maintained for
employees of the Borrower or any Controlled Group Member; or (ii) to which the
Borrower or any Controlled Group Member made, or was required to make,
contributions at any time within the preceding five (5) years.
'Portion' means the Prime Rate Portion, the Federal Funds Rate Portion, the
CD Rate Portion, As-Offered Rate Portion and the Euro-Rate Portion, as the case
may be.
'Prime Rate' and 'Prime Rate Alternative' are defined in Section 4.02(a)
hereof.
'Prime Rate Portion' of any Revolving Credit Loan shall mean at any time
the portion, including the whole, of such Revolving Credit Loan bearing interest
at such time under the Prime Rate Alternative other than in accordance with the
first sentence of Section 4.07(a) hereof. If no Revolving Credit Loan is
specified, 'Prime Rate Portion' shall refer to the Prime Rate Portion of all
Revolving Credit Loans outstanding at such time.
'Ratable Share' shall mean the proportion that a Bank's Revolving Credit
Commitment bears to the Revolving Credit Commitments of all of the Banks,
respectively.
'Rate Alternative' means the Prime Rate Alternative, the Federal Funds
Alternative, the CD Rate Alternative, the Euro-Rate Alternative, and the
As-Offered Rate Alternative, as the case may be.
5
'Relevant Date' is defined in the definition of 'GAAP' above.
'Reportable Event' means (i) a reportable event described in Section 4043
of ERISA (other than any such event the thirty (30) day notice requirement for
which has been waived by regulation), (ii) a withdrawal by a substantial
employer from a Plan to which more than one employer contributes, as referred to
in Section 4063(b) of ERISA, (iii) a cessation of operations at a facility
causing more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4068(f) of ERISA or (iv) a failure to make
a required installment or other payment with respect to a Plan when due in
accordance with Section 412 of the Code or Section 302 of ERISA which causes the
total unpaid balance of missed installments and payments (including unpaid
interest) to exceed $750,000.
'Revolving Credit Commitment' means as to any Bank at any time, the amount
initially set forth opposite its name on Schedule 1.01(a) hereto in the column
labeled, 'Amount of Commitment for Revolving Credit Loans,' and 'Revolving
Credit Commitments' means the aggregate Revolving Credit Commitments of all of
the Banks.
'Revolving Credit Commitment Termination Date' means the earlier of (A)
March 1, 1998, (B) the date on which the Revolving Credit Commitments are
terminated in whole pursuant to Section 2.03(a) hereof or (C) the date the
Revolving Credit Commitments are terminated pursuant to Article VIII hereof.
'Revolving Credit Loans' means separately a 'Revolving Credit Loan' and
means collectively all Revolving Credit Loans or any Revolving Credit Loan made
by the Banks or one of the Banks to the Borrower pursuant to Section 2.01
hereof.
'Revolving Credit Notes' means separately a 'Revolving Credit Note' and
means collectively all of the Revolving Credit Notes of the Borrower in the form
of Exhibit A hereto evidencing Revolving Credit Loans, together with all
amendments, extensions, renewals, replacements, refinancings or refundings
thereof in whole or in part.
'Short Term Funded Debt' means Credit Obligations with a maturity under one
(1) year and shall include all current maturities of Credit Obligations, all as
determined in accordance with GAAP.
'Standard Notice' shall mean an irrevocable written notice provided to the
Agent on a Business Day which is
(i) the same Business Day of the requested advance, in the case of
selection of, conversion to or renewal of the Prime Rate Alternative or the
Federal Funds Rate Alternative or prepayment of any Prime Rate Portion or
any Federal Funds Rate Portion;
(ii) at least two Business Days in advance in the case of selection
of, conversion to or renewal of the CD Rate Alternative or prepayment of
any CD Rate Portion;
(iii) at least three London Business Days in advance in case of the
selection of, conversion to or renewal of the Euro-Rate Alternative or
prepayment of any Euro-Rate Portion; and
(iv) at least one Business Day in advance in the case of selection of,
conversion to or renewal of the As-Offered Rate Alternative or prepayment
of any As-Offered Rate Portion.
Standard Notice must be provided to the Agent no later than 10:00 a.m.,
Philadelphia time, on the last day permitted for such notice.
'Subsidiary' means any corporation or other business entity of which
Borrower owns more than 50 percent of the voting shares or more than 50% of
other ownership interest.
'Supplemental Indenture' means the Twenty-Eighth Supplemental Indenture
dated as of April 1, 1993 to that certain Indenture of Mortgage dated as of
January 1, 1941 by Philadelphia Suburban Water Company to CoreStates Bank, N.A.
as Trustee.
6
'Tangible Net Worth' means, without duplication, the sum of the par or
stated value of the capital stock (common and preferred) of the Borrower and its
Subsidiaries at the time outstanding, plus the total amount of (or less the
amount of any net deficits in) the contributed or capital surplus and the earned
surplus of the Borrower and its Subsidiaries, less all intangible assets, all as
shown on a Consolidated balance sheet of the Borrower and its Subsidiaries
prepared on a Consolidated basis, after due allowance for minority interests, in
accordance with GAAP.
Section 1.02. Accounting Terms, (a) All accounting terms not specifically
defined herein shall be construed, and all financial data submitted pursuant to
this Agreement shall be prepared, in accordance with GAAP applied in a manner
consistent with the application of such principles in the preparation of the
audited financial statements mentioned in Section 5.05 hereof. (b) If any change
in GAAP or any regulatory financial accounting change or directive (which does
not affect cash flow) after the date of this Agreement shall be required to be
applied to transactions then or thereafter in existence, and a violation of one
or more provisions of this Agreement shall have occurred or in the opinion of
the Borrower would likely occur which would not have occurred or be likely to
occur if no change in accounting principles had taken place,
(i) The Borrower and the Banks agree that such violation shall not be
considered to constitute an Event of Default for a period of thirty (30)
days from the date the Borrower notifies the Agent and Banks of the
application of this subsection 1.02(b);
(ii) The Borrower and the Banks agree in such event to negotiate in
good faith an amendment of this Agreement which shall approximate to the
extent possible the economic effect of the original financial covenants
after taking into account such change in GAAP; and
(iii) If the Borrower and the Banks are unable to negotiate such an
amendment within ten (10) days, the Borrower shall have the option of (A)
prepaying the Revolving Credit Loan (pursuant to applicable provisions
hereof) or (B) submitting the drafting of such an amendment within five (5)
Business Days to a firm of independent certified public accountants of
nationally recognized standing acceptable to the parties, which shall
complete its draft of such amendment within 90 days of submission; if the
Borrower and the Agent cannot agree upon the firm, it shall be selected by
binding arbitration in the City of Philadelphia, Pennsylvania, in
accordance with the rules then obtaining of the American Arbitration
Association. If the Borrower does not exercise either such option within
said period, then as used in this Agreement, 'GAAP' shall mean GAAP in
effect at the Relevant Date. The Borrower and the Banks agree that if the
Borrower elects the option in clause (B) above, until such firm has been
selected and completes drafting such amendment, no such violation shall
constitute an Event of Default.
(c) If any change in GAAP after the date of this Agreement shall be
required to be applied to transactions or conditions then or thereafter in
existence, and the Banks shall assert that the effect of such change is or shall
likely be to distort materially the effect of any of the definitions of
financial terms in Article I hereof or any of the covenants of the Borrower in
Article VI hereof (the 'Financial Provisions'), so that the intended economic
effect of any of the Financial Provisions will not in fact be accomplished,
(i) The Agent shall notify the Borrower of such assertion, specifying
the applicable change in GAAP and until otherwise determined as provided
below, the specified change in GAAP shall not be made by the Borrower in
its financial statements for the purpose of applying the Financial
Provisions; and
(ii) The Borrower and the Banks shall follow the procedures set forth
in paragraph (ii) and the first sentence of paragraph (iii) of subsection
(b) of this Section 1.02. If the Borrower and the Banks are unable to agree
on an amendment as provided in said paragraph (ii) and if the Borrower does
not exercise either option set forth in the first sentence of said
paragraph (iii) within the specified period, then as used in this Agreement
'GAAP' shall mean GAAP in effect at the Relevant Date, except that the
applicable change in GAAP shall not be made in applying the Financial
Provisions. The parties agree that if the Borrower elects the option in
clause (B) of the
7
first sentence of said paragraph (iii), until such independent firm has
been selected and completes drafting such amendment, the specified change
in GAAP shall not be made in applying the Financial Provisions.
(d) all expenses of compliance with this Section 1.02 shall be paid for by
the Borrower.
ARTICLE II
THE REVOLVING CREDIT COMMITMENT
Section 2.01. The Revolving Credit Commitment. The maximum aggregate
amount the Banks shall be obligated to lend to the Borrower at any given time
under this Agreement shall be Thirty Million Dollars ($30,000,000), as such
amount may have been reduced under Section 2.03 hereof (the 'Revolving Credit
Commitment').
Section 2.02. Fees. (a) The Borrower agrees to pay to the Agent for the
account of each Bank, as consideration for such Bank's Revolving Credit
Commitment hereunder, a commitment fee (the 'Commitment Fee') equal to 1/8 of 1%
per annum (based on a year of 360 days and actual days elapsed) on the average
daily unborrowed amount of such Bank's Revolving Credit Commitment as the same
may be constituted from time to time. All Commitment Fees shall be payable
quarterly in arrears as billed by the Agent on the first Business Day of the
calendar month immediately following each calendar quarter.
(b) The Borrower agrees to pay to the Agent for its account as
consideration for the utilization of the As-Offered Rate, an As-Offered
Utilization Fee equal to $100 each time an As-Offered Rate is requested by the
Borrower. The As-Offered Utilization Fee shall be payable as billed by the
Agent.
Section 2.03. Termination or Reduction of the Revolving Credit
Commitment. (a) Borrower shall have the right at any time and from time to
time, upon thirty (30) Business Days' prior written notice to Agent, to
terminate the Revolving Credit Commitments in whole, or in part, without premium
or penalty, provided that the Revolving Credit Commitments may not be reduced to
an amount which is less than the unpaid principal balance of the Revolving
Credit Loans then outstanding plus the principal amount of all Revolving Credit
Loans not yet made as to which notice has been given by the Borrower under
Section 3.02 hereof, and provided further that if the Revolving Credit
Commitments are terminated in their entirety, payment of the outstanding
principal balance and all other obligations under this Agreement shall be due
and payable in full at the time of such termination. Any partial reduction of
the Revolving Credit Commitments shall be in a minimum amount of $1,000,000.
After the date of any reduction of the Revolving Credit Commitments the
Commitment Fee shall be calculated upon the Revolving Credit Commitments as so
reduced.
(b) Any termination or reduction of the Revolving Credit Commitments shall
be permanent and shall reduce the Commitments pro rata. The Revolving Credit
Commitments cannot thereafter be restored or increased unless otherwise agreed
to by the parties hereto in writing.
ARTICLE III
REVOLVING CREDIT LOANS
Section 3.01. The Bank's Obligation to Make Revolving Loans. Subject to
the terms and conditions of this Agreement, and relying upon the representations
and warranties herein set forth, each Bank severally agrees to make revolving
credit loans ('Revolving Credit Loans') to the Borrower at any time or from time
to time on or after the date hereof to, but not including, the Revolving Credit
Commitment Termination Date in an aggregate principal amount not to exceed at
any one time such Bank's Revolving Credit Commitment. Within such limits of time
and amount and subject to the other provisions of this Agreement, the Borrower
may borrow, repay and reborrow pursuant to this Section 3.01; provided, however,
that each Revolving Credit Loan shall be in the minimum amount of (i) $100,000,
with respect to any Revolving Credit Loan bearing interest at the Federal Funds
Alternative
8
or the Prime Rate Alternative, (ii) $500,000, with respect to any Revolving
Credit Loan bearing interest at the CD Rate Alternative or Euro-Rate Alternative
and (iii) $2,000,000, with respect to any Revolving Credit Loan bearing interest
at the As-Offered Rate Alternative. All Revolving Credit Loans shall be
evidenced by the Revolving Credit Notes.
Section 3.02. Nature of Banks' Obligations with Respect to Revolving Credit
Loans. (a) Each Bank shall be obligated to participate in each request for
Revolving Credit Loans pursuant to Section 3.03 hereof in accordance with its
Ratable Share. The aggregate of each Bank's Revolving Credit Loans outstanding
hereunder to the Borrower at any time shall never exceed its Revolving Credit
Commitment as the same may be amended from time to time. The obligations of each
Bank hereunder are several and not joint. The failure of any Bank to perform its
obligations hereunder shall not affect the obligations of the Borrower to any
other party nor shall any other party be liable for the failure of such Bank to
perform its obligations hereunder. The Banks shall have no obligation to make
Revolving Credit Loans hereunder on or after the Revolving Credit Commitment
Termination Date.
(b) In the event any Bank is unable to fund all or a portion of its Ratable
Share of a Revolving Credit Loan due to it exceeding its Commitment and such
failure to fund was a result of it being awarded an As-Offered Rate Revolving
Credit Loan (which was funded) then the remaining unfunded portion of such
Revolving Credit Loan shall be funded by the remaining Banks that have unused
Commitments hereunder based on a calculation which reflects a gross-up of each
remaining Banks respective Commitment in relative proportion to their respective
percentages of Commitments at such time. Such calculation by Agent shall be
conclusive and binding upon each Bank absent manifest error.
Section 3.03. Making the Loans. (a) Subject to Section 3.03(b) below,
whenever the Borrower desires that the Banks make a Revolving Credit Loan, the
Borrower will provide Standard Notice to the Agent setting forth the following
information:
(i) The proposed Borrowing Date;
(ii) The total principal amount of such Revolving Credit Loan, which
shall be the sum of the principal amounts selected pursuant to subsection
(a) (iii) of this Section 3.03;
(iii) The Rate Alternative or Alternatives selected in accordance with
Section 4.02 hereof and the principal amounts selected in accordance with
Section 3.01 hereof of the Prime Rate Portion, the Federal Funds Rate
Portion, As-Offered Rate Portion and each Funding Segment of the CD Rate
Portion, the Euro-Rate Portion, and the As-Offered Rate Portion, as the
case may be, of such Revolving Credit Loan; and
(iv) With respect to each such Funding Segment, the Interest Period
selected in accordance with Section 4.03 hereof to apply to such Funding
Segment.
Not later than 3:00 p.m. (Philadelphia time) on the Borrowing Date specified in
such Standard Notice, Agent will make the proceeds of such borrowing available
to Borrower by wire transfer to an account designated by Borrower.
(b) Whenever the Borrower desires that a Bank or the Banks make a Revolving
Credit Loan bearing interest at the As-Offered Rate, the Borrower will provide
Standard Notice to the Agent's Loan Administration Department, Attention: Ms.
Flossie Bowers setting forth the information described in Section 3.03(a) above.
Upon receipt of such Standard Notice the Agent's Loan Administration Department
will solicit bids prior to 12:00 p.m. from the Banks and will notify the
Borrower of the As-Offered Rate of each Bank. If the As-Offered Rate Alternative
is selected by the Borrower, Borrower agrees to accept all bids in the order of
ascending rates until the amount of Borrower's funding needs are satisfied. In
no case shall requests for Revolving Credit Loans bearing interest at an
As-Offered Rate be less than $2,000,000. Upon acceptance by the Borrower of a
Bank's or Banks' bid, as the case may be, and funding by the Bank or Banks, as
the case may be, such Revolving Credit Loan shall be deemed to be made by such
Bank or Banks and not by the Banks pro rata.
3.04. Making Revolving Credit Loans. The Agent shall promptly after
receipt by it of a Notice of Borrowing Request pursuant to Section 3.03, notify
the Banks of its receipt of such Notice of
9
Borrowing specifying: (i) the proposed Borrowing Date and the time and method of
disbursement of such Revolving Credit Loan; (ii) the amount and type of such
Revolving Credit Loan and the applicable CD Rate Interest Period, Euro-Rate
Interest Period or As-Offered Rate Interest Period (if any); and (iii) the
apportionment among the Banks of the Revolving Credit Loans as determined by the
Agent in accordance with Section 3.02 hereof. Each Bank shall remit the
principal amount of each Revolving Credit Loan to the Agent such that the Agent
is able to, and the Agent shall, to the extent the Banks have made funds
available to it for such purpose, fund such Revolving Credit Loan to the
Borrower in U.S. Dollars and immediately available funds at the Agent's Office
prior to 2:00 p.m. (Philadelphia time) on the Borrowing Date, provided, that, if
any Bank fails to remit such funds to the Agent in a timely manner the Agent may
elect in its sole discretion to fund with its own funds the Revolving Credit
Loan of such Bank on the Borrowing Date.
Section 3.05. Revolving Credit Notes. Concurrently with the execution of
this Agreement, the Borrower shall execute and deliver to the Banks the
Revolving Credit Notes in the principal amount equal to the amount of each such
Bank's Revolving Credit Commitment.
Section 3.06. Payment and Prepayment of Revolving Loans.
(a) Interest. Accrued interest on each Revolving Credit Loan bearing
interest at the Prime Rate Alternative, the Federal Funds Rate Alternative or
the As-Offered Rate Alternative shall be payable monthly within five (5)
Business Days after receipt of a written statement from the Agent setting forth
the interest calculation. Accrued interest on each Revolving Credit Loan bearing
interest at the CD Rate Alternative or the Euro-Rate Alternative shall be
payable at the expiration of each Interest Period (or if such Interest Period is
for six (6) months, at each quarterly anniversary of the commencement of the
Interest Period) within five (5) Business Days after receipt of a written
statement from the Agent setting forth the interest calculation.
(b) Principal. The outstanding balance of the Revolving Credit Loans and
all other obligations hereunder shall be due and payable in full on the
Revolving Credit Commitment Termination Date.
Borrower may from time to time prepay the outstanding balance of the
Revolving Credit Loans in whole or in part without penalty or premium subject to
the terms of this Section 3.06 and Sections 3.07 and 3.08 hereof. Any prepayment
shall be in the minimum amount of (i) $100,000 with respect to Revolving Credit
Loans bearing interest at the Prime Rate Alternative and Federal Funds Rate
Alternative, (ii) $500,000 with respect to Revolving Credit Loans bearing
interest at the CD Rate Alternative and Euro-Rate Alternative and (iii)
$2,000,000 with respect to Revolving Credit Loans bearing interest at the
As-Offered Rate Alternative. Interest on any prepayment shall be payable within
five (5) Business Days after receipt of a written statement from Agent setting
forth the interest calculation.
(c) Late Payments. Any payment of principal not paid when due (whether by
acceleration or otherwise) shall bear interest at a floating per annum rate
equal to the Prime Rate plus one percent (1%).
All payments shall be made to the Agent at Mellon Bank, N.A., Mellon
Independence Center, Attn: Loan Administration, Flossie Bowers, 199-5220, 701
Market Street, Philadelphia, PA 19106, in funds immediately available to Agent
or at such other office or offices of the Agent or branch, subsidiary or
affiliate thereof as may be designated in writing from time to time by the Agent
to the Borrower.
Section 3.07. Application of Payments and Prepayments. All payments and
prepayments of the outstanding balance of the Revolving Credit Loans shall be
applied to the Revolving Credit Loans in such order and to such extent as shall
be specified by Borrower, by notice to the Agent at the time of such payment or
prepayment. If no such notice is received by the Agent, the payment or
prepayment shall be applied to the Revolving Credit Loans in such order and to
such extent as the Agent shall determine, provided that in making such
determination the Banks shall use its best efforts to minimize the costs and
expense for which the Banks may be entitled to compensation under Section 3.08
hereof.
10
Section 3.08. Compensation for Certain Losses, Costs and Expenses. (a)
Increased Costs or Reduced Return Resulting From Taxes, Reserves, Capital
Adequacy Requirements, Expenses, Etc. If any Law or guideline or interpretation
or application thereof by any Official Body charged with the interpretation or
administration thereof or compliance with any request or directive of any
Official Body (whether or not having the force of law) now existing or hereafter
adopted:
(i) subjects any Bank to any tax or changes the basis of taxation with
respect to this Agreement, the Notes, the Revolving Credit Loans or
payments by the Borrower of principal, interest, Commitment Fee, As-Offered
Utilization Fee or other amounts due from the Borrower hereunder or under
the Notes (except for taxes on the overall net income of any such Bank
imposed by any Official Body),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits or commitments to extend
credit extended by, assets (funded or contingent) of, deposits with or for
the account of, or other acquisition of funds by, any Bank (other than
requirements expressly included herein in the determination of the CD Rate
or the Euro-Rate, as the case may be, hereunder),
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (a) against assets (funded or contingent) of, or
credits or commitments to extend credit extended by, any Bank, or (b)
otherwise applicable to the obligations of any Bank under this Agreement,
or
(iv) imposes upon any Bank any other condition or expense with respect
to this Agreement, the Notes or its making, maintenance or funding of any
part of the Revolving Credit Loans,
and the result after the date hereof of any of the foregoing is to increase the
cost to, reduce the income receivable by, or impose any expense (including loss
of margin) upon any Bank with respect to this Agreement, the Notes or the
making, maintenance or funding of any part of the Revolving Credit Loans (or, in
the case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on any Bank's capital, taking into consideration
such Bank's policies with respect to capital adequacy) by an amount which such
Bank deems to be material (such Bank being deemed for this purpose to have made,
maintained or funded the Federal Funds Rate Portion and As-Offered Rate Portion
and each Funding Segment of the CD Rate Portion and the Euro-Rate Portion from a
Corresponding Source of Funds), such Bank shall from time to time notify the
Borrower of the amount determined in good faith (using any averaging and
attribution methods) by such Bank to be necessary to compensate such Bank for
such increase, reduction or imposition provided that if any of the foregoing
results in retroactive treatment the Borrower shall only be obligated to
compensate such Bank for such increase, reduction or imposition retroactively up
to one year. Such amount shall be due and payable by the Borrower to such Bank
sixty (60) Business Days after such notice is given. Such Bank agrees that it
will notify the Borrower of the occurrence of any event that would give rise to
a payment under this Section 3.08(a).
(b) Indemnity. In addition to the compensation required by subsection (a)
of this Section 3.08, the Borrower shall indemnify each Bank against any loss or
expense (including loss of margin) which each Bank has sustained or incurred as
a consequence of any
(i) payment, prepayment or conversion of any part of any Funding
Segment of the CD Rate Portion, the Euro-Rate Portion or the As-Offered
Rate Portion on a day other than the last day of the corresponding Interest
Period (whether or not such payment, prepayment or conversion is mandatory
or automatic and whether or not such payment or prepayment is then due),
(ii) attempt by the Borrower to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice stated
herein to be irrevocable (any Bank having in its sole discretion the
options (a) to give effect to such attempted revocation and obtain
indemnity under this Section 3.08(b) or (b) to treat such attempted
revocation as having no force or effect, as if never made), or
(iii) default by the Borrower in the performance or observance of any
covenant or condition contained in this Agreement or the Notes, including
without limitation any failure of the Borrower
11
to pay when due (by acceleration or otherwise) any principal, interest,
Commitment Fee or any other amount due hereunder or under the Notes.
If any Bank sustains or incurs any such loss or expense it shall from time to
time notify the Borrower of the amount determined in good faith by such Bank to
be necessary to indemnify such Bank for such loss or expense (such Bank being
deemed for this purpose to have made, maintained or funded the Federal Funds
Rate Portion and As-Offered Rate Portion and each Funding Segment of the CD Rate
Portion and the Euro-Rate Portion from a Corresponding Source of Funds). Such
amount shall be due and payable by the Borrower to such Bank ten Business Days
after such notice is given.
(c) In the event the Borrower is required to make payment under Section
3.08(a) hereof, the Borrower in its sole discretion may require that such
Bank(s) and its respective Revolving Credit Commitment be replaced in its
entirety; first, by the remaining Banks hereunder (if such remaining Banks so
agree) and second, to any other bank or financial institution reasonably
acceptable to each of the other Banks.
Section 3.09. Effect of Payments or Prepayments. Any payment or prepayment
of the outstanding balance of the Revolving Credit Loans as provided in Section
3.06 hereof prior to the Revolving Credit Commitment Termination Date shall
restore the availability of the Revolving Credit Commitment to the extent of
such payment or prepayment, unless the Revolving Credit Commitments have been
terminated by the Borrower pursuant to Section 2.03 or by any Bank pursuant to
Section 8.01 on or before the date of such payment or prepayment.
Section 3.10. Form of Notice. Any notice from the Borrower to the Agent or
from the Agent to the Borrower required or permitted by this Article III shall
be sent by telephone confirmed by first class mail or fax (which shall be
effective when telephoned), by fax (which shall be effective when received) or
by first-class or first-class express mail (which shall be effective two
Business Days after such notice is deposited), in all cases with charges
prepaid.
Section 3.11. Funding by Euro-Rate Funding Office. Each Bank shall have
the right from time to time, prospectively or retrospectively, without notice to
the Borrower, to deem any branch, subsidiary or affiliate of such Bank to have
made, maintained or funded any Euro-Rate Portion at any time. Any branch,
subsidiary or affiliate so deemed shall be known as a 'Euro-Rate Funding
Office.' Each Bank shall deem any Euro-Rate Portion or the funding therefor to
have been transferred to a different Euro-Rate Funding Office if such transfer
would lessen compensation payable by the Borrower under Section 3.08(a) hereof,
and if such Bank determines in its sole discretion that such transfer would be
practicable and would not have a material adverse effect on such Revolving
Credit Loan, such Bank or any Euro-Rate Funding Office (it being assumed for
purposes of such determination that each Euro-Rate Portion is actually made or
maintained by or funded through the corresponding Euro-Rate Funding Office).
ARTICLE IV
INTEREST
Section 4.01. Accrual of Interest on Revolving Loans. Each Revolving
Credit Loan shall accrue interest at the Rate Alternative applicable to such
Revolving Credit Loan in accordance with this Article IV. Interest on each
Revolving Credit Loan bearing interest at the Prime Rate Alternative or the
Federal Funds Rate Alternative shall accrue interest subject to the provisions
of this Article IV, during the time such Revolving Credit Loan is outstanding.
Interest on each Revolving Credit Loan bearing interest at the CD Rate
Alternative, the Euro-Rate Alternative or the As-Offered Rate Alternative shall
accrue during the Interest Period applicable to such Revolving Credit Loan in
accordance with this Article IV.
Section 4.02. Rate Alternatives. The unpaid principal amount of the
Revolving Credit Loans shall bear interest for each day until due on one or more
bases selected by the Borrower from among the Rate Alternatives set forth below,
it being understood that subject to the provisions of this
12
Agreement, the Borrower may select different Rate Alternatives to apply
simultaneously to different parts of the Revolving Credit Loans and may select
different Funding Segments to apply simultaneously to different parts of the CD
Rate Portion, the Euro-Rate Portion or the As-Offered Rate Portion:
(a) Prime Rate Alternative: A rate per annum for each day equal to the
Prime Rate for such day, such interest rate to change automatically and be
effective from time to time, effective as of the effective date of each change
in the Prime Rate without notice to the Borrower. 'Prime Rate', as used herein,
means the interest rate per annum announced by the Agent from time to time as
its prime rate, and is used by the Agent as a reference rate with respect to
different interest rates charged to borrowers. The determination and statement
of the 'Prime Rate' shall not in any way preclude the Agent from making loans to
other borrowers at rates which are higher or lower than the Prime Rate.
(b) Federal Funds Rate Alternative: A rate per annum for each day equal to
the Federal Funds Effective Rate for such day plus .75%, such interest rate to
change automatically and be effective from time to time, effective as of the
date of each change in the Federal Funds Effective Rate without notice to the
Borrower. 'Federal Funds Effective Rate' for any day, as used herein, shall mean
the rate per annum (rounded upward to the nearest 1/100 of 1%) announced by the
Federal Reserve Bank of New York (or any successor) on such day as being the
weighted average of the rates on overnight Federal funds transactions arranged
by Federal funds brokers on the previous trading day, as computed and announced
by such Federal Reserve Bank (or any successor) in substantially the same manner
as such Federal Reserve Bank computes and announces the weighted average it
refers to as the 'Federal Funds Effective Rate' as of the date of this
Agreement; provided, if such Federal Reserve Bank (or its successor) does not
announce such rate on any day, the 'Federal Funds Effective Rate' for such day
shall be the Federal Funds Effective Rate for the last day on which such rate
was announced.
(c) CD Rate Alternative: A rate per annum for each day equal to the CD
Rate for such day plus .375%. 'CD Rate' for any day, as used herein, shall mean
for each Funding Segment of the CD Rate Portion corresponding to a proposed or
existing CD Rate Interest Period the rate per annum determined by the Agent by
adding
(i) the rate per annum obtained by dividing (the resulting quotient to
be rounded upward to the nearest 1/100 of 1%) (a) the rate of interest
(which shall be the same for each day in such CD Rate Interest Period)
determined in good faith by the Agent in accordance with its usual
procedures to be the average of the secondary market bid rates at or about
11:00 o'clock a.m., Eastern Time, on the first day of such CD Rate Interest
Period by dealers of recognized standing in negotiable certificates of
deposit for the purchase at face value of negotiable certificates of
deposit of major money center banks for delivery on such day in amounts
comparable to such Funding Segment and having maturities comparable to such
CD Rate Interest Period by (b) a number equal to 1.00 minus the CD Rate
Reserve Percentage and
(ii) the Assessment Rate.
The 'CD Rate' may also be expressed by the following formula:
[average of the secondary market ]
[bid rates determined by the Agent ]
CD Rate = [per Subsection (i)(a) ] + Assessment Rate
[1.00 - CD Rate Reserve Percentage ]
The 'CD Rate Reserve Percentage' for any day is the maximum effective
percentage (expressed as a decimal, rounded upward to the nearest 1/100 of 1%),
as determined in good faith by the Agent, which is in effect on such day as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including without
limitation supplemental, marginal and emergency reserve requirements) for a
member bank of such System in respect of nonpersonal time deposits in Dollars in
the United States. The CD Rate shall be adjusted automatically and effective as
of the effective date of each change in the CD Rate Reserve Percentage without
notice to the Borrower.
13
The 'Assessment Rate' for any day is the rate per annum (rounded upward to
the nearest 1/100 of 1%) determined in good faith by the Agent in accordance
with its usual procedures to be the maximum effective assessment rate per annum
payable by a bank insured by the Federal Deposit Insurance Corporation (or any
successor) for such day for insurance on Dollar time deposits, exclusive of any
credit allowed against such annual assessment on account of assessment payments
made or to be made by such bank. The CD Rate shall be adjusted automatically and
effective as of the effective date of each change in the Assessment Rate without
notice to the Borrower.
The Agent shall give prompt notice to the Borrower of the CD Rate so
determined or adjusted.
(d) Euro-Rate Alternative: A rate per annum for each day equal to the
Euro-Rate for such day plus .25%. 'Euro-Rate' for any day, as used herein, shall
mean for each Funding Segment of the Euro-Rate Portion corresponding to a
proposed or existing Euro-Rate Interest Period the rate per annum determined by
the Agent by dividing (the resulting quotient to be rounded upward to the
nearest 1/100 of 1%) (i) the rate of interest (which shall be the same for each
day in such Euro-Rate Interest Period) determined in good faith by the Agent in
accordance with its usual procedures to be the average of the rates per annum
for deposits in Dollars offered to major money center banks in the London
interbank market at approximately 11:00 o'clock a.m., London time, two London
Business Days prior to the first day of such Euro-Rate Interest Period for
delivery on the first day of such Euro-Rate Interest Period in amounts
comparable to such Funding Segment and having maturities comparable to such
Euro-Rate Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate
Reserve Percentage.
The 'Euro-Rate' may also be expressed by the following formula:
[average of the rates offered to major money ]
[center banks in the London interbank market ]
Euro-Rate [determined by the Agent per subsection (i) ]
[1.00 - Euro-Rate Reserve Percentage ]
The 'Euro-Rate Reserve Percentage' for any day is the maximum effective
percentage (expressed as a decimal fraction, rounded upward to the nearest 1/100
of 1%), as determined in good faith by the Agent, which is in effect on such day
as prescribed by the Board of Governors of the Federal Reserve System (or any
successor) for determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as 'Eurocurrency
liabilities') of a member bank in such System. The Euro-Rate shall be adjusted
automatically and be effective as of the effective date of each change in the
Euro-Rate Reserve Percentage without notice to the Borrower.
The Agent shall give prompt notice to the Borrower of the Euro-Rate so
determined or adjusted.
(e) As-Offered Rate Alternative: A rate per annum for each day equal to the
As-Offered Rate for such day. As-Offered Rate for any day, as used herein, shall
mean for each Funding Segment of the As-Offered Interest Period the rate per
annum quoted by such Bank as its as-offered rate for such period.
The Agent's Loan Administration Department upon Borrower's request shall
solicit bids from each Bank. Borrower shall accept bids in order of ascending
rates until Borrower's funding needs are satisfied, as more particularly
described in Sections 3.03(b) and 4.04(b).
Section 4.03. Interest Periods. At any time when the Borrower shall
select, convert to or renew the CD Rate Alternative, the Euro-Rate Alternative
or the As-Offered Rate Alternative to apply to any
14
part of the Revolving Credit Loans, it shall fix one or more periods during
which each such Rate Alternative shall apply, such periods (the 'Interest
Periods') being set forth in the chart below:
RATE ALTERNATIVE AVAILABLE INTEREST PERIODS
- ------------------------------------------ ---------------------------------------------------------------------
CD Rate Alternative 30, 60, 90 or 180 days ('CD Rate Interest Period');
Euro-Rate Alternative One, two, three or six months ('Euro-Rate Interest Period');
As-Offered Rate Alternative One through thirty days ('As-Offered Rate Interest Period');
provided, that:
(a) Each CD Rate Interest Period which would otherwise end on a day
which is not a Business Day shall be extended to the next succeeding
Business Day;
(b) Each Euro-Rate Interest Period shall begin on a London Business
Day, and the duration of each Euro-Rate Interest Period shall be determined
in accordance with the definition of the term 'month' herein; and
(c) The Borrower may not fix an Interest Period that would end after
the Revolving Credit Commitment Termination Date.
Section 4.04. Conversion or Renewal of Rate Alternatives.
(a) Conversion or Renewal. Subject to Section 4.04(b) hereof and provided
no default or Event of Default exists at such time the Borrower may convert any
part of the Revolving Credit Loans from any Rate Alternative or Alternatives to
one or more different Rate Alternatives and may renew the CD Rate Alternative,
the Euro-Rate Alternative or the As-Offered Rate Alternative as to any Funding
Segment of the CD Rate Portion, the Euro-Rate Portion or the As-Offered Rate
Portion:
(i) at any time with respect to conversion from the Prime Rate
Alternative or the Federal Funds Rate Alternative,
(ii) at the expiration of any Interest Period with respect to
conversions from or renewals of the CD Rate Alternative, the Euro-Rate
Alternative or the As-Offered Rate Alternative, as the case may be, as to
the Funding Segment corresponding to such expiring Interest Period, or
(iii) on the date specified in a notice by the Agent pursuant to
Section 4.07(b) hereof with respect to conversions from the CD Rate
Alternative, the Euro-Rate Alternative or the As-Offered Rate Alternative,
as the case may be.
Whenever the Borrower desires to convert or renew any Rate Alternative or
Alternatives the Borrower shall provide to the Agent Standard Notice setting
forth the following information:
(A) The Borrowing Date on which the proposed conversion or renewal is
to be made;
(B) The principal amounts selected in accordance with Section 3.01
hereof of the Prime Rate Portion, the Federal Funds Rate Portion and each
Funding Segment of the CD Rate Portion, the Euro-Rate Portion and the
As-Offered Rate Portion, as the case may be, to be converted from or
renewed;
(C) In the case of conversions, the Rate Alternative or Alternatives
selected in accordance with Section 4.02 hereof and the principal amounts
selected in accordance with Section 3.01 of the Prime Rate Portion, the
Federal Funds Rate Portion and each Funding Segment of the CD Rate Portion,
the Euro-Rate Portion and the As-Offered Rate Portion, as the case may be,
to be converted to; and
(D) With respect to each Funding Segment to be converted to or
renewed, the Interest Period selected in accordance with Section 4.03
hereof to apply to such Funding Segment.
15
Standard Notice having been so provided, after the date specified in such
Standard Notice interest shall be calculated upon the principal amount of the
Revolving Credit Loans as so converted or renewed.
(b) As-Offered Rate. Whenever the Borrower desires to convert to an
As-Offered Rate Alternative or renew a Revolving Credit Loan bearing interest at
an As-Offered Rate Alternative, the Borrower will provide Standard Notice to the
Agent's Loan Administration Department, Attention: Ms. Flossie Bowers, setting
forth the information described in Section 4.04(a) above. Upon receipt of such
Standard Notice, the Agent's Loan Administration Department will solicit bids
from the Banks and will notify the Borrower of the As-Offered Rate of each Bank.
If the As-Offered Rate Alternative is selected by the Borrower, Borrower agrees
to accept all bids in the order of ascending rates until the amount of
Borrower's funding needs are satisfied. In no event shall requests for Revolving
Credit Loans bearing interest at the As-Offered Rate be less than $2,000,000.
Upon acceptance by the Borrower of a Bank's or Banks' bid, as the case may be,
and the funding by the Bank or Banks such Revolving Credit Loan shall be deemed
to be made by such Bank or Banks and not by the Banks pro rata.
(c) Failure to Convert or Renew. Absent due notice from the Borrower of
conversion or renewal in the circumstances described in Section 4.04(a)(ii)
hereof, any part of the CD Rate Portion, Euro-Rate Portion or As-Offered Rate
Portion for which such notice is not received shall be converted automatically
to the Prime Rate Alternative on the last day of the expiring Interest Period.
Section 4.05. Calculation of Accrued Interest. The accrual of interest
under this Article IV shall be computed for the actual number of days elapsed,
and on the basis of a year of 360 days (on a 365/360 day basis except that in a
leap year the computation shall be on a 366/360 days basis).
Section 4.06. Payment of Interest. Interest on each Revolving Credit Loan
accrued in accordance with this Article IV shall be due and payable in
accordance with Article III hereof.
Section 4.07. Unavailability of Certain Loans. (a) Federal Funds Effective
Rate Unascertainable; Impracticability. If at any time the Banks shall have
determined in good faith that:
(i) the Federal Reserve Bank of New York (or its successor) shall not
have announced a Federal Funds Effective Rate on any day other than a
Saturday, Sunday, public holiday or other day on which no Federal Funds
Effective Rate would normally be announced under the practices of such
Federal Reserve Bank as of the date hereof, at the time when the Federal
Funds Effective Rate on such day would normally be announced under the
practices of such Federal Reserve Bank as of the date hereof,
(ii) the effective cost to any Bank of funding any proposed or
existing Federal Funds Rate Portion of the Revolving Credit Loans from a
Corresponding Source of Funds shall exceed the Federal Funds Effective
Rate, or
(iii) the making, maintenance or funding of any part of the Federal
Funds Rate Portion of the Revolving Credit Loans has been made impractical
or unlawful by compliance with any Bank in good faith with any Law or
guideline or interpretation or administration thereof by any Official Body
charged with the interpretation or administration thereof or with any
request or directive of any such Official Body (whether or not having the
force of law);
then, and in any such event, interest on the Federal Funds Rate Portion of the
Revolving Credit Loans shall be at the Prime Rate Alternative until such Bank
shall have later determined in good faith that the circumstances giving rise to
such previous determination no longer exist. If and when the Banks shall make
such a later determination, interest on the Federal Funds Rate Portion of the
Revolving Credit Loans shall again be at the Federal Funds Rate Alternative.
The Banks shall notify the Agent (and the Agent shall notify the Borrower)
forthwith of any determination under this Section 4.07(a). The Borrower may
convert any part of the Federal Funds Rate Portion of the Revolving Credit Loans
to another Alternative or Alternatives in accordance with the provisions of this
Agreement during the continuance of any condition described in this Section
4.07(a). The Borrower may select or convert any part of the Revolving Credit
Loans to the Federal
16
Funds Rate Alternative in accordance with the provisions of this Agreement
during the continuance of any condition described in this Section 4.07(a),
although during the continuance of such condition interest on such part of the
Revolving Credit Loans shall be at the Prime Rate Alternative in accordance with
this Section 4.07(a).
(b) CD Rate or Euro-Rate Unascertainable; Impracticability. If,
(i) on any date on which a CD Rate or a Euro-Rate would otherwise be set
any Bank shall have in good faith determined that:
(A) adequate and reasonable means do not exist for ascertaining
such CD Rate or Euro-Rate,
(B) a contingency has occurred which materially and adversely
affects the ability of any Bank to obtain funds in the secondary market
for negotiable certificates of deposit maintained by dealers of
recognized standing or the interbank eurodollar market, as the case may
be, or
(C) the effective cost to any Bank of funding a proposed Funding
Segment of the CD Rate Portion or the Euro-Rate Portion from a
Corresponding Source of Funds shall exceed the CD Rate or the Euro-Rate,
as the case may be, applicable to such Funding Segment, or
(ii) at any time any Bank shall have determined in good faith that the
making, maintenance or funding of any part of the CD Rate Portion or the
Euro-Rate Portion has been made impracticable or unlawful by compliance by
any Bank in good faith with any Law or guideline or interpretation or
administration thereof by any Official Body charged with the interpretation
or administration thereof or with any request or directive of any such
Official Body (whether or not having the force of law);
then, and in any such event, the Agent shall notify the Borrower of such
determination. Upon such date as shall be specified in such notice (which shall
not be earlier than the date such notice is given) the obligation of the Banks
to allow the Borrower to select, convert to or renew the CD Rate Alternative or
the Euro-Rate Alternative, as the case may be, shall be suspended until such
Bank shall have later notified the Borrower of the Bank's determination in good
faith that the circumstances giving rise to such previous determination no
longer exist.
If any Bank notifies the Borrower of a determination under subsection (ii)
of this Section 4.07(b) the Borrower shall, as to the CD Rate Portion or the
Euro-Rate Portion, as the case may be, on the date specified in such notice
either convert such Portion to another Rate Alternative or Alternatives in
accordance with Section 4.02 hereof or prepay such Portion in accordance with
Section 3.06(b) hereof. Absent due notice from the Borrower of conversion or
prepayment the CD Rate Portion or the Euro-Rate Portion, as the case may be,
automatically shall be converted to the Prime Rate Alternative upon such
specified date.
If at the time any Bank makes a determination under subsection (i) or (ii)
of this Section 4.07(b) and the Borrower has previously notified the Agent that
it wishes to select, convert to or renew the CD Rate Alternative or the
Euro-Rate Alternative, as the case may be, but such Alternative has not yet gone
into effect, such notification shall be deemed to provide for selection of,
conversion to or renewal of the Prime Rate Alternative instead of the CD Rate
Alternative or the Euro-Rate Alternative, as the case may be.
(c) In the event the Borrower is required to make payment under Sections
4.07(a) and 4.07(b) hereof, the Borrower in its sole discretion may require that
such Bank(s) and its respective Revolving Credit Commitment be replaced in its
entirety; first, by the remaining Banks hereunder (if such remaining Banks so
agree) and second, to any other bank or financial institution, reasonably
acceptable to each of the other Banks.
17
Section 4.08. Maximum Interest. No provision of this Agreement or any
Revolving Loan Note shall require the payment or permit the collection of
interest in excess of the highest rate permitted by applicable law.
Section 4.09. Form of Notice. Any notice from the Borrower to the Agent or
from the Agent to the Borrower required or permitted by this Article IV shall be
sent by telephone confirmed by first class mail or fax (which shall be effective
when telephoned), by fax (which shall be effective when received) or by
first-class or first-class express mail (which shall be effective two Business
Days after such notice is deposited), in all cases with charges prepaid.
Section 4.10. Pro-Rata Treatment of Banks; Payments. (a) Each borrowing,
and each selection of, conversion to or renewal of any Rate Alternative and each
payment or prepayment by the Borrower with respect to principal, interest,
Commitment Fee, or other fees or amounts due from Borrower hereunder to the
Banks with respect to the Revolving Credit Loans, shall (except as provided in
Sections 3.02(b), 3.03(b) and 4.04(b), Section 4.07 [Unavailability CD Rate or
Euro-Rate Unascertainable] or Section 2.02(b) [Fees], hereof) be made in
proportion to Revolving Credit Loans outstanding from each Bank and if no such
Revolving Credit Loans are then outstanding, in proportion to the Ratable Share
of each Bank.
In instances where a Revolving Credit Loan is funded pursuant to Section
3.02(b) hereof, any payments and/or prepayments shall be applied in the
proportions in which such Revolving Credit Loan was originally funded.
(b) All payments and prepayments received by Agent in respect of principal,
interest, Commitment Fees, or other fees or amounts due from the Borrower to the
Banks hereunder shall be promptly distributed by the Agent to the Banks in
immediately available funds; provided, that, in the event payments are received
by 11:00 a.m. (Philadelphia time) by the Agent with respect to the Loans and
such payments are not distributed to the Banks on the same day received by the
Agent, the Agent shall pay the Banks the Federal Funds Effective Rate with
respect to the amount of such payments for each day held by the Agent and not
distributed to the Banks.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Agent and each Bank as of the
date hereof as follows:
Section 5.01. Existence. The Borrower is a corporation duly incorporated,
validly existing and in good standing under the laws of the Commonwealth of
Pennsylvania and is duly qualified as a foreign corporation and authorized to do
business in all other jurisdictions wherein the nature of its business or
property makes such qualifications necessary. The Borrower has all requisite
power and authority, corporate and otherwise, to conduct its business and to own
its properties.
Section 5.02. Authorization, Execution and Delivery. The execution,
delivery and performance by the Borrower of this Agreement, the Revolving Credit
Notes issued or to be issued and all other Loan Documents have been duly
authorized by all necessary corporate action, and do not and will not violate
any provision of Law or of the articles of incorporation or by-laws of the
Borrower or result in a breach of or constitute a default under any agreement,
indenture or instrument to which the Borrower is a party or by which it or its
properties may be bound or affected.
Section 5.03. Compliance with Laws and Other Agreements. To the best of
its knowledge, the Borrower is in compliance with all Laws and agreements which
affect in any material way the Borrower, its assets or the operation of its
business and has not received, and has no knowledge of such material
non-compliance.
Section 5.04. Validity of Agreement and Notes. This Agreement, the
Revolving Credit Notes issued or to be issued, and each of the other Loan
Documents have, or when delivered will be, duly
18
executed and delivered by the Borrower and constitute, valid and legally binding
obligations of the Borrower, enforceable in accordance with their respective
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws or equitable principles affecting
creditors' rights generally. Each officer of the Borrower executing this
Agreement, the Revolving Credit Notes, and each of the other Loan Documents is
duly and properly in office and fully authorized to execute the same.
Section 5.05. Financial Information. (a) The balance sheet at December 31,
1992, and the statement of income and cash flow of the Borrower for the fiscal
year ending on such date, certified by KPMG Peat Marwick, and the balance sheet
at September 30, 1993 and the statement of income and cash flow of the Borrower
and Philadelphia Suburban Corporation (the Borrower's parent corporation) for
the nine month period ended September 30, 1993, included in the quarterly report
on Form 10-Q for Philadelphia Suburban Corporation as filed with the Securities
and Exchange Commission, copies of all of which have been furnished to Banks,
are, including in each case any related schedules and notes appended thereto,
complete and correct, and fairly present the financial condition of the Borrower
and of Philadelphia Suburban Corporation, and the results of operations, as the
case may be, at such dates and for the periods covered thereby, all in
accordance with GAAP consistently applied (the 'Financial Statements'). As of
the date hereof, there have been no material adverse changes in the Borrower's
business, operations, properties or financial condition since September 30,
1993. The Borrower does not know of any fact (other than matters of a general
economic or political nature) which materially adversely affects, or, so far as
the Borrower can now reasonably foresee, will materially adversely affect, the
business, operations, properties or financial position of the Borrower or the
performance by the Borrower of its obligations under this Agreement and the
other Loan Documents.
(b) The Borrower has no Bank Indebtedness other than as shown in the
Financial Statements and except as shown on Schedule 5.05(b) hereof.
(c) The Borrower has no 'investments' (as such term is defined under GAAP),
whether by stock purchase, capital contribution, loan, advance, purchase of
property or otherwise, in any Person, other than as shown in the Financial
Statements.
Section 5.06. The Indenture. The Borrower has made a true, correct and
complete copy of the Indenture available for the Banks' inspection.
Section 5.07. Litigation. Except as disclosed in Schedule 5.07 attached
hereto, there is no Material Litigation pending or, to the knowledge of the
Borrower, threatened against the Borrower or any of its properties before any
Official Body with respect to which either the Borrower has not provided notice
of to its insurance carriers or, if so reported, such insurance carriers have
denied coverage or have reserved rights as to coverage.
Section 5.08. Contingent Liabilities. There are no suretyship agreements,
guarantees or other contingent liabilities of the Borrower exceeding $500,000 in
the aggregate (as of the date hereof and, for the purposes of Section 9.02
hereof, as of the date of delivery to the Bank of each update to Schedule 5.08
as contemplated hereby) that are not disclosed by the Financial Statements
mentioned in Section 5.05 or by Schedule 5.08 attached hereto (as updated from
time to time).
Section 5.09 Taxes. The Borrower has filed or caused to be filed all
Federal, state, and local tax returns required by Law to have been filed, has
paid or caused to be paid all Federal, state, and local taxes, assessments and
other governmental charges that are due and payable (unless the same are being
contested in good faith), and has reserved funds or made adequate provision for
the payment of all Federal, state and local taxes, assessments and other
governmental charges accrued but not yet due and payable (or being contested in
good faith). The Borrower has no knowledge of any material deficiency or
assessment in connection with any Federal, state, or local taxes, assessments or
governmental charges not provided for on its books in accordance with GAAP.
Section 5.10. Encumbrances. The property and assets of the Borrower are
not subject to any lien, encumbrance or security interest that has arisen other
than in the normal course of business,
19
except for the liens of the Indenture, liens disclosed by Schedule 5.10 attached
hereto and liens permitted in Section 6.05 hereof.
Section 5.11. Consents. No authorization, consent, approval, license,
exemption by or filing or registration with any Official Body is or will be
necessary to the valid execution, delivery or performance by Borrower of this
Agreement, the Notes, or the other Loan Documents except those that have been
obtained prior to the date hereof.
Section 5.12. ERISA. A copy of the most recent Annual Report (5500 Series
Form) including all attachments thereto as filed with the Internal Revenue
Service for each Plan has been provided to the Agent and fairly presents the
funding status of each Plan. There has been no material deterioration in any
Plan's funding status since the date of such Annual Report. The Borrower has
provided the Agent with a list of all Plans and Multiemployer Plans and, at the
request of the Agent, all available information with respect to its or any
Controlled Group Member's direct, indirect, or potential withdrawal liability to
any Multiemployer Plan. Except as specifically disclosed to the Agent, Borrower
has no material liability for, and none of Borrower's assets are encumbered in
connection with, (A) the failure to satisfy the minimum funding requirements
under ERISA or the Code with respect to a Plan (including, without limitation,
joint and several liability with a Controlled Group Member for the minimum
funding requirement and the excise tax for failure to meet such requirement, any
lien for contributions with respect to a Plan which are due and unpaid by the
Borrower or a Controlled Group Member, and any security posted by the Borrower
to obtain a waiver of the minimum funding requirement), (B) any amendment to a
Plan for which security is required to be provided to the Plan pursuant to
Section 307 of ERISA, (C) any PBGC premiums with respect to a Plan which are due
and unpaid by the Borrower or a Controlled Group Member, or (D) the termination
of a Plan or withdrawal by the Borrower or a Controlled Group Member from any
Multiemployer Plan. The PBGC premiums and contributions required to meet the
minimum funding requirements of ERISA and the Code for all Plans for the last
five plan years prior to the date hereof have not exceeded $2,500,000 on an
annual basis. The amount by which the accumulated benefit obligation exceeds the
fair value of the Plan assets, as certified to by the Plan's actuary, for any
Plan for the last plan year ended prior to the date hereof for which an
actuarial report containing such a calculation has been completed did not exceed
$10,000 and for all Plans for such plan year did not exceed $20,000. The
Borrower agrees not to terminate any Plan without the prior written consent of
the Majority Banks.
Section 5.13. Environmental Matters.
Except as may be disclosed on Schedule 5.13, to the best of the Borrower's
knowledge:
(a) The Borrower has performed all of its obligations under, has obtained
all necessary approvals, permits, authorizations and other consents required by,
and is not in material violation of, any Environmental Laws.
(b) The Borrower has not received any notice, citation, summons, directive,
order or other communication, written or oral, from, and the Borrower has no
knowledge of the filing or giving of any such notice, citation, summons,
directive, order or other communication by, any governmental or
quasi-governmental authority or agency or any other Person concerning any
material non-compliance with any Environmental Law, including those that relate
to the presence, generation, treatment, storage, transportation, transfer,
disposal, release or other handling of any Hazardous Materials within, on, from,
related to, or affecting any real property owned or occupied by the Borrower.
(c) The Borrower has not disposed of any Hazardous Material on any of the
Borrower's property in violation of any Environmental Laws.
(d) There are no Hazardous Materials within, on or under any real property
owned or occupied by the Borrower that would be material in the sense of
non-compliance with any Environmental Laws or liability of the Borrower.
Section 5.14. Margin Securities. The assets of the Borrower do not include
any 'margin securities' within the meaning of Regulations G or U of the Board of
Governors of the Federal
20
Reserve System (12 C.F.R. 207, 221), and the Borrower does not have any present
intention of acquiring any margin security.
Section 5.15. No Untrue Statements. To the best of the Borrower's
knowledge, the Loan Documents nor any other document, certificate or statement
furnished or to be furnished by the Borrower or by any other party to the Banks
in connection herewith contains, or at the time of delivery will contain, any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained herein and therein not
misleading.
ARTICLE VI
COVENANTS OF BORROWER
The Borrower agrees as follows so long as the Revolving Credit Notes shall
remain unpaid or the Banks shall have any remaining obligation under the
Revolving Credit Commitments, unless the Banks shall otherwise consent in
writing:
Section 6.01. Use of Proceeds. None of the proceeds of any Revolving
Credit Loan will be used in violation of any applicable law or regulation
(including without limitation, Section [7] of the Securities Exchange Act of
1934, as amended, or Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System). The Borrower shall use the proceeds of all Revolving
Credit Loans hereunder only for general business purposes, including without
limitation, capital expenditures, acquisitions, and other general corporate
purposes.
Section 6.02. Financial Information.
(a) The Borrower will furnish to each Bank (i) within 45 days after the end
of each of the first three fiscal quarters of each fiscal year a Consolidated
balance sheet of the Borrower and Subsidiaries as of the end of each such fiscal
quarter and statements of income for the period from the beginning of such
fiscal year to the end of such fiscal quarter, and (ii) within 90 days after the
end of each fiscal year a Consolidated balance sheet of the Borrower and
Subsidiaries as of the end of each fiscal year and statements of income,
statements of retained earnings and cash flow for such fiscal year. All
financial statements will be prepared in accordance with GAAP consistently
applied. Annual statements will be certified by KPMG Peat Marwick, or other
independent public accountants reasonably acceptable to the Agent, and all other
data will be certified by a financial officer of the Borrower. Each quarterly
and annual financial statement will be accompanied by a financial covenant
checksheet and a certificate of the chief financial officer of the Borrower in
the form of Schedule 6.02(a) (i) setting forth as at the end of such quarterly
period or fiscal year, as the case may be, the calculations establishing whether
or not the Borrower was in compliance with the covenants contained in Section
6.15 and 6.18 hereof, and (ii) stating that no default occurred or is continuing
since the date hereof or since the date the last such certificate was delivered
pursuant to this Section 6.02 whichever date is later or, if such an event has
occurred, disclosing each such event and its nature, when it occurred, whether
it is continuing, and the remedial steps being taken by the Borrower with
respect to such event.
(b) The Borrower shall cause to be delivered to each Bank (i) within
forty-five (45) days after the end of each of the first three fiscal quarters of
each fiscal year a Consolidated balance sheet of Philadelphia Suburban
Corporation as of the end of each such fiscal quarter and Consolidated
statements of income for the period from the beginning of such fiscal year to
the end of such fiscal quarter, and (ii) within 90 days after the end of each
fiscal year a Consolidated balance sheet of Philadelphia Suburban Corporation as
of the end of each fiscal year and Consolidated statements of income,
Consolidated statements of retained earnings and cash flow for such fiscal year.
All financial statements will be prepared in accordance with GAAP consistently
applied. Annual statements will be certified by KPMG Peat Marwick, or other
independent public accountants reasonably acceptable to the Agent.
(c) The Borrower agrees to furnish to each Bank on or prior to February 15
of each fiscal year, a budgeted balance sheet, income statement and statement of
cash flow for the current fiscal year.
21
(d) The Borrower agrees to cause Philadelphia Suburban Corporation to
furnish to each Bank on or prior to February 15 of each fiscal year, a budget
for the current fiscal year.
(e) The Borrower agrees to furnish and agrees to cause Philadelphia
Suburban Corporation to furnish to each Bank within ten days of the filing
thereof, copies of all filings made with the Security and Exchange Commission,
including, without limitation, copies of all proxy statements, 10-K's, 10-Q's,
and 8-K's certified by the chief financial officers of the Borrower and
Philadelphia Suburban Corporation.
(f) If the Borrower fails to furnish the Banks with any of the financial
information and certificates with the time limits set forth in this Section
6.02, the Banks shall promptly notify the Borrower, and the Borrower shall
provide the information within ten (10) days after it receives the Banks'
notice.
Section 6.03. Insurance. The Borrower will maintain insurance with
responsible insurance carriers against fire (with extended coverage), liability
and other hazards and risks in amounts at least equal to those set forth in
Schedule 6.03 attached hereto and made a part hereof and, upon request of the
Agent, furnish evidence of such insurance.
Section 6.04. Taxes. The Borrower will pay when due all taxes, assessments
and governmental charges imposed upon it or any of its properties or that it is
required to withhold and pay over, except where contested in good faith and
where adequate reserves have been set aside to the extent required under GAAP.
Section 6.05. Encumbrances. The Borrower will not create, incur, assume or
suffer to exist any mortgage, pledge, lien or other encumbrance of any kind
upon, or any security interest in, any of its property or assets, whether now
owned or hereafter acquired, except (A) the lien of the Indenture, (B) liens for
taxes, assessments and other governmental charges not yet due and payable and
liens for such claims being contested in good faith and by appropriate
proceedings, (C) liens in connection with workers' compensation, unemployment
insurance or other social security obligations, (D) deposits or pledges to
secure bids, tenders, contracts (other than contracts for the payment of money),
statutory obligations, surety or appeal bonds, and other obligations of like
nature arising in the ordinary course of business, (E) mechanic's, workman's,
materialman's, landlord's, carrier's or other similar liens arising in the
ordinary course of business with respect to obligations that are not due or that
are being contested in good faith, (F) the encumbrances mentioned in Section
5.10 hereof, (G) purchase money encumbrances on newly-acquired real or personal
property, provided that such lien attaches to such property concurrently with or
within 90 days after the acquisition thereof, (H) liens existing on properties
prior to the time they are acquired by the Borrower, (I) liens represented by
interests in property created under leases by the Borrower as lessee, (J) any
liens in connection with the issuance of industrial revenue bonds or pollution
control bonds, as such liens are permitted under the Indenture and (K) liens of
record as of the date hereof in any jurisdiction.
Section 6.06. Covenants of the Indenture. The Borrower will comply at all
times with the covenants contained in the Supplemental Indenture, as such
Supplemental Indenture supplements the Indenture, without regard to any
amendment of or supplement to the Indenture occurring after April 1, 1993.
Section 6.07. Corporate Existences; Compliance with Laws. The Borrower
shall do all things necessary to maintain, preserve and keep in full force and
effect in each jurisdiction in which it conducts business the business
existence, licenses, permits, rights, patents, tradenames and franchises of the
Borrower. The Borrower will comply, in all material respects, with all Laws and
regulations applicable to the operation of its business, noncompliance with
which would present a reasonable likelihood of a material adverse effect on the
Borrower or its property or operations, and except as contested in good faith.
Section 6.08. Material Litigation. The Borrower will promptly notify the
Banks of the institution of any Material Litigation against the Borrower, which
the Borrower has not reported to its insurance carriers, or, if so reported,
with respect to which the Borrower's insurance carriers have denied coverage or
have reserved rights as to coverage and will promptly advise the Bank of
22
significant developments of record in any Material Litigation previously
reported to the Bank except that no notification is required with respect to any
Material Litigation which is being contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books in accordance with GAAP.
Section 6.09. Maintenance of Property. The Borrower will maintain, and
will cause each Subsidiary to maintain, all of its property in good condition
and repair, ordinary wear and tear excepted.
Section 6.10. Inspection by Bank. The Borrower will permit representatives
of the Agent and the Banks to inspect its property and its books and records,
and those of each Subsidiary, and to make extracts therefrom at all reasonable
times. The Agent and the Banks each agree to keep confidential all information
obtained from the Borrower pursuant to this Section which is nonpublic and
confidential or proprietary in nature (including any information the Borrower
specifically designates as confidential), except as provided below and to use
such information only in connection with their respective capacities under this
Agreement and for the purposes contemplated hereby. The Agent and the Banks
shall be permitted to disclose such information (i) to outside legal counsel,
accountants and other professional advisors who need to know such information in
connection with the administration and enforcement of this Agreement, subject to
agreement of such persons to maintain the confidentiality, (ii) assignees and
participants as contemplated by Section 11.08, (iii) to the extent requested by
any bank regulatory authority or, with notice to the Borrower, as otherwise
required by applicable Law or by any subpoena or similar legal process, or in
connection with any investigation or proceeding arising out of the transactions
contemplated by this Agreement, (iv) if it becomes publicly available other than
as a result of a breach of this Agreement or becomes available from a source not
subject to confidentiality restrictions, or (v) the Borrower shall have
consented to such disclosure.
Section 6.11. Notice of Events of Default. In the event that any officer
of the Borrower becomes aware of any event which constitutes an Event of Default
hereunder or would constitute such an Event of Default with notice or passage of
time or both, the Borrower shall promptly provide the Banks with a statement by
the chief financial officer of the Borrower describing such event and the
remedial steps being taken by the Borrower.
Section 6.12. Compliance with ERISA. Promptly after the Borrower, any
Controlled Group Member, or any administrator of a Plan:
(a) receives the notification referred to in subsections (a), (d), or
(g) of Section 7.07 hereof,
(b) has knowledge of (i) the occurrence of a Reportable Event with
respect to a Plan, and within 7 days thereafter if the Reportable Event is
a failure to meet the minimum funding requirement with respect to a Plan,
including failure to pay any contribution when due, and the total unpaid
balance of contributions due to such Plan exceeds $1,000,000; (ii) any
event which has occurred or any action which has been taken to amend or
terminate a Plan as referred to in subsections (b) and (f) of Section 7.07
hereof; (iii) any event which has occurred or any action which has been
taken which would constitute a complete withdrawal, partial withdrawal, or
result in secondary liability for withdrawal liability payments with
respect to a Multiemployer Plan as referred to in subsection (g) of Section
7.07 hereof; (iv) any action which has been taken in furtherance of, any
agreement which has been entered into for, or any petition which has been
filed with a United States district court for, the appointment of a trustee
for a Plan as referred to in subsection (c) of Section 7.07 hereof; (v) any
action to amend a Plan which requires security to be provided to the Plan
pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA or (vi)
any failure to pay the PBGC premium with respect to a Plan within thirty
days of when due, or
(c) files a notice of intent to terminate a Plan with the Internal
Revenue Service or the PBGC; or files with the Internal Revenue Service a
request pursuant to Section 412(d) or 412(e) of the Code for a variance
from the minimum funding standard or an extension of the period for
amortizing unfunded liabilities, respectively, for a Plan; or files a
return with the Internal Revenue
23
Service with respect to the tax imposed under Section 4971(a) of the Code
for failure to meet the minimum funding standards established under Section
412 of the Code for a Plan,
the Borrower will furnish to the Agent a copy of any notice received, request or
petition filed, and agreement entered into; the most recent Annual Report (Form
5500 Series) and attachments thereto for the Plan; the most recent actuarial
report for the Plan; any notice, return, or materials required to be filed with
the Internal Revenue Service, the PBGC or Plan participants and beneficiaries in
connection with the event, action, or filing; and a written statement of the
President, Treasurer, or chief financial officer of the Borrower describing the
event or the action taken and the reasons therefor.
Section 6.13. Indebtedness. The Borrower will pay or cause to be paid when
due (or within applicable grace periods) all Credit Obligations of the Borrower
and notify the Agent promptly if any default or event of default occurs and
continues unremedied under any indenture, mortgage, loan agreement, or evidence
of Credit Obligations to which the Borrower or any Subsidiary is a party or on
which any of them or any of their properties is bound. The Borrower shall not,
and shall not permit any Subsidiary to, at any time create, incur, assume or
suffer to exist any Bank Indebtedness, except the following: (A) Bank
Indebtedness under this Agreement or the Notes; (B) Bank Indebtedness existing
on the date hereof and listed in Schedule 6.13 attached hereto; and (C) Bank
Indebtedness secured by liens or encumbrances permitted under Section 6.05.
Section 6.14. Judgment, Attachment. The Borrower will promptly notify the
Banks if any of the Borrower's or Subsidiaries' assets become subject to any
final judgment, attachment or levy in excess of $500,000 which has not been
discharged within thirty (30) days from the date such judgment has been entered.
Section 6.15. Minimum Equity to Capital Ratio. The Borrower shall at all
times maintain a Minimum Equity to Capital Ratio of at least thirty-eight
percent (38%). Such Ratio shall be tested on a quarterly basis. For purposes
hereof 'Minimum Equity to Capital Ratio' shall be defined as the sum of (a)
Preferred Stock, Common Stock, Capital Surplus and Retained Earnings (hereafter
referred to as 'Proprietary Equity'); divided by the sum of (b) Short Term
Funded Debt, Long Term Funded Debt and Proprietary Equity, as determined in
accordance with GAAP.
Section 6.16. Notice of Certain Contingent Liabilities. The Borrower
shall, prior to the date of any disbursement to the Borrower hereunder (other
than the first disbursement), provide written notice to the Banks of any
suretyship agreements, guarantees or other contingent liabilities of the
Borrower exceeding $250,000 in a single instance which are not disclosed by the
Financial Statements mentioned in Section 5.05 hereof or delivered pursuant to
Section 6.02 hereof or disclosed by Schedule 5.08 hereto (as updated prior to
such disbursement). Such notice from the Borrower to the Banks shall be
considered to update said Schedule 5.08. In addition to the foregoing, the
Borrower shall furnish to the Banks, within 90 days after the end of each fiscal
year of the Borrower, an update to Schedule 5.08 hereto disclosing suretyship
agreements, guarantees or other contingent liabilities of the Borrower or its
Subsidiaries exceeding $500,000 in the aggregate as of the end of such fiscal
year that are not disclosed by the financial statements mentioned in Section
5.05 hereof or delivered pursuant to Section 6.02 hereof.
Section 6.17. Investments. The Borrower shall not, and shall not permit
any Subsidiary to, at any time purchase, acquire or own any stock, bonds, notes
or securities of, or any partnership interest (whether general or limited) in,
or any other interest in, or make any capital contribution to, any other person
or entity, or purchase, acquire or own (other than in the ordinary course of
business) any asset, tangible or intangible, or agree, become or remain liable
to do any of the foregoing, except:
(a) assets existing on the date hereof;
(b) the capital stock of a Subsidiary owned on the date hereof;
(c) other investments made and assets acquired after the date hereof
in an amount not exceeding $35,000,000 at any one time, provided, that, no
Event of Default (and no event which with the giving of notice or passage
of time or both would become an Event of Default) has
24
occurred at the time of the acquisition unless the Borrower has obtained
the Banks written consent which consent shall not be unreasonably withheld.
Section 6.18. Minimum Interest Coverage Ratio. The Borrower shall not
permit the Minimum Interest Coverage Ratio to be less than 1.80 to 1.00. For
purposes herein, 'Minimum Interest Coverage Ratio' shall mean the ratio of (a)
Net Income (before preferred dividends) plus Gross Interest Expense (before
reduction for Allowance for Funds Used During Construction) plus Income Taxes to
(b) Gross Interest Expense, all as determined in accordance with GAAP for any
four consecutive quarterly fiscal periods of the Borrower (treated as one
accounting period). Such Minimum Interest Coverage Ratio shall be tested on a
quarterly basis.
Section 6.19. Compliance with Environmental Laws. The Borrower shall
comply, in all material respects, with the Environmental Laws and the Borrower
shall not use any property which it owns or occupies to generate, treat, store,
transport, transfer, dispose of, release or otherwise handle any Hazardous
Material, except in compliance with all Environmental Laws.
Section 6.20. Fundamental Corporate Changes.
(a) The Borrower shall not enter into or effect any merger, consolidation,
share exchange, division, conversion, reclassification, recapitalization,
reorganization or other transaction of like effect, or dissolve; except that if
after giving effect thereto no Event of Default would exist, this Section 6.20
shall not apply to any merger or consolidation of the Borrower with any one or
more Persons, provided that the Borrower shall be the surviving and continuing
Person and provided further that the Banks shall have received thirty (30) days
prior written notice thereof;
(b) Sell, transfer, lease or otherwise dispose of all or (except in the
ordinary course of business) any material part of its assets or common stock.
Section 6.21. Change in Business. The Borrower shall not discontinue any
substantial part, or change the nature of, the business of the Borrower, or
enter into any new business materially unrelated to the present business
conducted by the Borrower.
Section 6.22 Loans, Advances, Etc. The Borrower shall not make any loans,
advances, or any extensions of credit directly or indirectly, or investments to
Philadelphia Suburban Corporation, any Affiliate or Person, in an amount not to
exceed $1,000,000 without first obtaining the prior written approval of the
Majority Banks, other than Subsidiaries of the Borrower; provided that such
Subsidiary or Subsidiaries joins in this Agreement as a borrower jointly and
severally liable hereunder.
ARTICLE VII
DEFAULT
Each of the following is an Event of Default:
Section 7.01. Payment of Principal. If the Borrower shall fail to pay any
principal of any Revolving Credit Loans as and when due (whether at maturity, by
reason of acceleration or notice of prepayment or otherwise).
Section 7.02. Payment of other Obligations. If Borrower shall fail to pay
Interest, any Commitment Fee or any other amount due hereunder as and when due
and such failure shall have continued for a period of five (5) Business Days
after receipt by the Borrower of either oral or written notice of such default
from the Agent.
Section 7.03. Performance Obligations. f the Borrower defaults in the
observance or performance of:
(i) any term, covenant, condition or agreement contained in Sections
6.01, 6.02, 6.05, 6.07 (insofar as such Section relates to the preservation
of the business existence of the Borrower), 6.11, 6.13, 6.15, 6.16, 6.17,
6.18, 6.20 and 6.21; or
25
(ii) any term, covenant, condition or agreement or any other
obligation to be performed under the Revolving Credit Notes or this
Agreement, including, without limitation, the Borrower's covenants under
Article VI hereof (other than a term, covenant, condition or agreement a
default in the performance or observance of which is specifically dealt
with elsewhere in this Article), and such failure continues for thirty (30)
days after receipt of written notice thereof from the Agent.
Section 7.04. Representations and Warranties. If any financial statement
or any representation or warranty of the Borrower in this Agreement, any other
Loan Documents, or in any document, instrument or statement delivered to the
Agent and the Banks in connection with this Agreement shall at the time made be
false or incorrect, in any material respect.
Section 7.05. Bankruptcy and Insolvency. If any proceeding under the
Bankruptcy Code or any Law of the United States or of any state relating to
insolvency, receivership, reorganization or debt adjustment is instituted by the
Borrower or any Subsidiary as debtor or if such a proceeding is instituted
against the Borrower or any Subsidiary as debtor and is consented to by the
respondent or remains undismissed for thirty (30) days, or if the Borrower or
any Subsidiary is adjudicated a bankruptcy, or a trustee or receiver is
appointed for any substantial part of its property, or if the Borrower or any
Subsidiary makes an assignment for the benefit of creditors or becomes unable
generally to pay, or admits in writing its inability to pay, its debts as they
mature.
Section 7.06. Failure to Pay Any Credit Obligation. If the Borrower shall
fail to pay when due any Credit Obligation, and such failure shall continue
beyond any applicable grace period, or the Borrower shall suffer to exist any
default or event of default in the performance or observance, subject to any
applicable grace period, of any agreement, term, condition or covenant with
respect to any other Credit Obligation, and in either case such default results
in the borrowings thereunder becoming due and payable prior to the date on which
they would otherwise be due and payable; provided, however, that if such failure
or default shall be cured and waived in writing by the holders of such Credit
Obligations or by the holders of a specified percentage thereof entitled to so
waive, and the acceleration of the maturity of such Credit Obligations shall be
rescinded, then the default hereunder by reason thereof shall be deemed to have
been cured and waived.
Section 7.07. Certain Employee Plan Liability. One or more of the events
set forth in subsections (a) through (i) below shall have occurred and the
liabilities resulting therefrom, individually or in the aggregate, would cause a
material decline in the business operations or financial condition of the
Borrower:
(a) The PBGC notifies a Plan pursuant to Section 4042 of ERISA by
service of a complaint, threat of filing a law suit, or otherwise of its
determination that an event described in Section 4042(a) of ERISA has
occurred, a Plan should be terminated, or a trustee should be appointed for
a Plan; or
(b) Any action is taken to terminate a Plan pursuant to its provisions
or the plan administrator files with the PBGC a notice of intent to
terminate a Plan in accordance with Section 4041 of ERISA; or
(c) Any action is taken by a plan administrator to have a trustee
appointed for a Plan pursuant to Section 4042 of ERISA; or
(d) A return is filed with the Internal Revenue Service, or a Plan is
notified by the Secretary of the Treasury that a notice of deficiency under
Section 6212 of the Code has been mailed, with respect to the tax imposed
under Section 4971(a) of the Code for failure to meet the minimum funding
standards established under Section 412 of the Code; or
(e) A Reportable Event occurs with respect to a Plan; or
(f) Any action is taken to amend a Plan to become an employee benefit
plan described in Section 4021(b)(1) of ERISA, causing a Plan termination
under Section 4041(e) of ERISA; or
26
(g) The Borrower or any Controlled Group Member receives a notice of
liability or demand for payment on account of complete withdrawal under
Section 4203 of ERISA, partial withdrawal under Section 4205 of ERISA or on
account of becoming secondarily liable for withdrawal liability payments
under Section 4204 of ERISA (sale of assets);
(h) The assets of the Borrower or any Controlled Group Member are
encumbered as a result of security provided to a Plan pursuant to Section
412 of the Code or Section 306 of ERISA in connection with a request for a
minimum funding waiver or extension of the amortization period, or pursuant
to Section 401(a)(29) of the Code or Section 307 of ERISA as a result of a
Plan amendment; or
(i) The Borrower or a Controlled Group Member fails to pay the PBGC
premium with respect to a Plan when due and it remains unpaid for more than
30 days thereafter.
Section 7.08. Judgments. A final judgment or judgments is entered, or an
order or orders of any judicial authority or governmental entity is issued
against the Borrower (such judgment(s) and order(s) hereinafter collectively
referred to as 'Judgment') (i) for payment of money, which Judgment, in the
aggregate, exceeds Five Hundred Thousand Dollars ($500,000.00) outstanding at
any one time and which judgment shall continue undischarged for thirty (30)
days; or (ii) for injunctive or declaratory relief which would have a material
adverse effect on the ability of the Borrower to conduct its business, and such
Judgment is not discharged or execution thereon or enforcement thereof stayed
pending appeal, within thirty (30) days after entry or issuance thereof, or, in
the event of such a stay, such Judgment is not discharged within thirty (30)
days after such stay expires.
Section 7.09. Agreements Invalid. The validity, binding nature of, or
enforceability of any material term or provision of any of the Loan Documents is
disputed by, on behalf of, or in the right or name of the Borrower or any
material term or provision of any such Loan Document is found or declared to be
invalid, avoidable, or non-enforceable by any court of competent jurisdiction.
ARTICLE VIII
REMEDIES OF THE BANK
Section 8.01. Termination, of Commitment; Acceleration.
(a) If an Event of Default specified under Sections 7.01 through 7.04 and
Sections 7.06 through 7.09 hereof shall occur and be continuing, the Banks shall
be under no further obligation to make Revolving Credit Loans hereunder and the
Agent may, and upon the request of the Majority Banks, shall by written notice
to the Borrower, declare the unpaid principal amount of the Revolving Credit
Notes then outstanding and all interest accrued thereon, any unpaid fees and all
other indebtedness of the Borrower to the Banks hereunder and thereunder to be
forthwith due and payable, and the same shall thereupon become and be
immediately due and payable to the Agent for the benefit of each Bank without
presentment, demand, protest or any other notice of any kind, all of which are
hereby expressly waived; and
(b) If an Event of Default specified under Section 7.05 hereof shall occur
the Banks shall be under no further obligations to make Revolving Credit Loans
hereunder and the unpaid principal amount of the Revolving Credit Notes then
outstanding and all interest accrued thereon, any unpaid fees and all other
indebtedness of the Borrower to the Banks hereunder and thereunder shall
automatically be immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived; and
(c) If an Event of Default shall occur and be continuing, any Bank to whom
any obligation is owed by the Borrower hereunder or under any other Loan
Document or any participant of such Bank which has agreed in writing to be bound
by the provisions of Section 10.13 hereof and any branch, subsidiary or
affiliate of such Bank or participant anywhere in the world shall have the
right, in addition to all other rights and remedies available to it, without
notice to the Borrower, to set-off against and apply to the then unpaid balance
of all the Revolving Credit Loans and all other obligations
27
of the Borrower hereunder or under any other Loan Document any debt owing to,
and any other funds held in any manner for the account of, the Borrower by such
Bank or participant or by such branch, subsidiary or affiliate, including,
without limitation, all funds in all deposit accounts (whether time or demand,
general or special, provisionally credited or finally credited, or otherwise)
now or hereafter maintained by the Borrower for its own account (but not
including funds held in custodian or trust accounts) with such Bank or
participant or such branch, subsidiary or affiliate. Such right shall exist
whether or not any Bank or the Agent shall have made any demand under this
Agreement or any other Loan Document, whether or not such debt owing to or funds
held for the account of the Borrower is or are matured or unmatured and
regardless of the existence or adequacy of security, right or remedy available
to any Bank or the Agent; and
(d) If an Event of Default shall occur and be continuing, and whether or
not the Agent shall have accelerated the maturity of Revolving Credit Loans of
the Borrower pursuant to any of the foregoing provisions of this Section 8.01,
the Agent or any Bank, if owed any amount with respect to the Revolving Credit
Notes, may proceed to protect and enforce its rights by suit in equity, action
at law and/or other appropriate proceeding, whether for the specific performance
of any covenants or agreement contained in this Agreement or the Revolving
Credit Notes; and
(e) From and after the date on which the Agent has taken any action
pursuant to this Section 8.01 and until all obligations of the Borrower have
been paid in full, any and all proceeds received by the Agent, shall be applied
as follows:
(i) first, to reimburse the Agent and the Banks for reasonable
out-of-pocket costs, expenses and disbursements, including without
limitation reasonable attorneys' fees and legal expenses, incurred by the
Agent or the Banks in connection with collection of any obligations of the
Borrower under any of the Loan Documents; and
(ii) second, to the repayment of all Indebtedness then due and unpaid
of the Borrower to the Agent and the Banks incurred under this Agreement or
any of the Loan Documents, in the following order of priority: first: for
the payment of all accrued interest, second: for the payment of all
outstanding principal; and third: for the payment of all other fees,
expenses and other similar expenditures.
ARTICLE IX
CONDITIONS OF LENDING
Section 9.01. Conditions Precedent to the First Disbursement. The
obligation of the Banks to make the first disbursement hereunder is subject to
receipt by the Agent of the following, all of which shall be in form and
substance satisfactory to the Agent and the Banks:
(a) All Loan Documents duly executed and delivered by the Borrower and
payment of any applicable fees.
(b) A certificate in form and substance satisfactory to the Agent and the
Banks, dated the Closing Date and signed on behalf of the Borrower by the
Secretary or an Assistant Secretary of the Borrower, certifying as to (i) true
copies of the articles of incorporation and bylaws of the Borrower as in effect
on such date, (ii) true copies of all corporate action taken by the Borrower
relative to this Agreement, the Notes, and the other Loan Documents, including
but not limited to that described in Section 5.02 hereof, and (iii) the names,
true signatures and incumbency of the officer or officers of the Borrower
authorized to execute and deliver this Agreement, the Notes, and the other Loan
Documents. The Agent and the Banks may conclusively rely on such certificate
unless and until a later certificate revising the prior certificate has been
furnished to the Agent and the Banks.
(c) A favorable opinion of counsel for the Borrower as to the due
execution, delivery, validity and enforceability of this Agreement, the Notes,
and the other Loan Documents and such other matters as the Agent and the Banks
may reasonably request.
28
(d) A copy of the Supplemental Indenture which is certified by the Borrower
to be a true, correct and complete copy.
(e) A copy of each and every authorization, permit, consent, and approval
of and other action by, and notice to and filing with, every governmental
authority and regulatory body which is required to be obtained or made by the
Borrower for the due execution, delivery and performance of this Agreement and
the other Loan Documents, including without limitation, proof of registration by
the Pennsylvania Public Utility Commission of a securities certificate relating
to the transactions contemplated by this Agreement and the Notes.
Section 9.02. Conditions Precedent to All Disbursements. The obligation of
the Banks to make any disbursement hereunder (including the first disbursement)
is subject to the further conditions precedent that:
(a) The representations and warranties contained in Article V hereof shall
be correct and accurate on and as of the date of any such disbursement as though
made on and as of that date except to the extent that any such representation or
warranty expressly relates to facts or circumstances prevailing on a fixed date
(including the date hereof).
(b) No Event of Default shall have occurred and be continuing or will
result from the making of such disbursement, and no event shall have occurred
and be continuing, or condition exist, or result from the making of such
disbursement, which with notice or lapse of time or both would,
if unremedied, be an Event of Default.
ARTICLE X
THE AGENT
Section 10.01. Appointment. Each Bank hereby irrevocably designates,
appoints and authorizes Mellon Bank, N.A. to act as Agent for such Bank under
this Agreement and to execute and deliver or accept on behalf of each of the
Banks the other Loan Documents. Each Bank hereby irrevocably authorizes, and
each holder of any Revolving Credit Note by the acceptance of a Revolving Credit
Note shall be deemed irrevocably to authorize, the Agent to take such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and any other instruments and agreements referred to herein, and to exercise
such powers and to perform such duties hereunder and thereunder as are
specifically delegated to or required of the Agent by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto or the
accomplishment thereof. Mellon Bank, N.A. agrees to act as the Agent on behalf
of the Banks to the extent provided in this Agreement.
Section 10.02. Delegation of Duties. The Agent may perform any of its
duties hereunder by or through agents or employees (provided such delegation
does not constitute a relinquishment of its duties as Agent) and, subject to
Sections 10.05 and 10.06 hereof, shall be entitled to engage and pay for the
advice or services of any attorneys, accountants or other experts selected by it
concerning all matters pertaining to its duties hereunder and to rely upon any
advice so obtained.
Section 10.03. Nature of Duties; Independent Credit Investigation. The
Agent shall have no duties or responsibilities except those expressly set forth
in this Agreement and no implied covenants, functions, responsibilities, duties,
obligations, or liabilities shall be read into this Agreement or otherwise
exist. The duties of the Agent shall be mechanical and administrative in nature;
the Agent shall not have by reason of this Agreement a fiduciary or trust
relationship in respect of any Bank; and nothing in this Agreement, expressed or
implied, is intended to or shall be so construed as to impose upon the Agent any
obligations in respect of this Agreement except as expressly set forth herein.
Each Bank expressly acknowledges (i) that the Agent has not made any
representations or warranties to it and that no act by the Agent hereafter
taken, including any review of the affairs of the Borrower, shall be deemed to
constitute any representation or warranty by the Agent to any Bank; (ii) that it
has made and will continue to make, without reliance upon the Agent, its own
independent investigation and appraisal of the financial condition and affair
and the creditworthiness of the Borrower in connection
29
with this Agreement and the making and continuance of the Revolving Credit Loans
hereunder; and (iii) except as expressly provided herein, that the Agent shall
have no duty or responsibility, either initially or on a continuing basis, to
provide any Bank with any credit or other information with respect thereto,
whether coming into its possession before the making of any Revolving Credit
Loan or at any time or times thereafter.
Section 10.04. Actions in Discretion of Agent; Instructions from the
Banks. The Agent agrees, upon the written request of the Majority Banks, to
take or refrain from taking any action of the type specified as being within the
Agent's rights, powers or discretion herein, provided that the Agent shall not
be required to take any action which exposes the Agent to personal liability or
which is contrary to this Agreement or any other Loan Document or applicable
Law. In the absence of a request by the Majority Banks, the Agent shall have
authority, in its sole discretion, to take or not to take any such action,
unless this Agreement specifically requires the consent of the Majority Banks or
all of the Banks. Any act or failure to act pursuant to such instructions or
discretion shall be binding on the Banks, subject to Section 10.06 hereof.
Subject to the provisions of Section 10.06, no Bank shall have any right of
action whatsoever against the Agent as a result of the Agent acting or failing
to act hereunder in accordance with the instructions of the Majority Banks, or
in the absence of such instructions, in the absolute discretion of the Agent.
Section 10.05. Reimbursement and Indemnification of Agent by the
Borrower. The Borrower agrees to pay to or reimburse the Agent and save the
Agent harmless against (a) liability for the payment of all reasonable
out-of-pocket costs, expenses and disbursements, including but not limited to
fees and expenses of counsel, appraisers and environmental consultants, incurred
by the Agent (i) in connection with the development, negotiation, preparation,
printing, execution, administration, syndication, interpretation and performance
of this Agreement, and the Loan Documents subject to written agreements with the
Agent, (ii) relating to any requested amendments, waivers or consents pursuant
to the provisions hereof, (iii) in connection with the enforcement of this
Agreement or any other Loan Document or collection of amounts due hereunder or
thereunder or the proof and allowability of any claim arising under this
Agreement or any other Loan Document, whether in bankruptcy or receivership
proceedings or otherwise, and (iv) in any workout, restructuring or in
connection with the protection, preservation, exercise or enforcement of any of
the terms hereof or of any rights hereunder or under any other Loan Document or
in connection with any foreclosure, collection or bankruptcy proceedings, and
(b) all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against the Agent,
in its capacity as such, in any way relating to or arising out of this Agreement
or any other Loan Documents or any action taken or omitted by the Agent
hereunder or thereunder, provided that the Borrower shall not be liable for any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements if the same results from the
Agent's gross negligence or willful misconduct, or if Borrower was not given
notice of the subject claim and the opportunity to participate in the defense
thereof, at their expense, or if the same results from a compromise or
settlement agreement entered into without the consent of the Borrower. In
addition, the Borrower agrees to reimburse and pay all reasonable out-of-pocket
expenses of the Agent's regular employees and agents engaged periodically to
perform audits of the Borrower's books, records and business properties.
Section 10.06. Exculpatory Provisions. Neither the Agent nor any of its
directors, officers, employees, agents, attorneys or affiliates shall (a) be
liable to any Bank for any act or failure to act by it or them hereunder, or in
connection herewith including without limitation pursuant to any Loan Document,
unless caused by its or their own gross negligence or willful misconduct, (b) be
responsible in any manner to any of the Banks for the effectiveness,
enforceability, genuineness, validity or the due execution of this Agreement or
any other Loan Documents or for any recital, representation, warranty, document,
certificate, report or statement herein or made or furnished under or in
connection with this Agreement or any other Loan Documents or (c) be under any
obligation to any of the Banks to ascertain or to inquire as to the performance
or observance of any of the terms, covenants or conditions hereof or thereof on
the part of Borrower, or the financial condition of the Borrower, or the
existence
30
or possible existence of any Event of Default. Neither the Agent nor any Bank
nor any of their respective directors, officers, employees, agents, attorneys or
affiliates shall be liable to the Borrower for consequential damages resulting
from any breach of contract, tort or other wrong in connection with the
negotiation, documentation, administration or collection of the Revolving Credit
Loans or any of the Loan Documents.
Section 10.07. Reimbursement and Indemnification of Agent by Banks. Each
Bank agrees to reimburse and indemnify the Agent (to the extent not reimbursed
by the Borrower and without limiting the obligation of the Borrower to do so) in
proportion to its Ratable Share from and against all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against the Agent, in its capacity as such, in any way relating
to or arising out of this Agreement or any other Loan Documents or any action
taken or omitted by the Agent hereunder or thereunder, provided that no Bank
shall be liable for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs expenses or disbursements
(a) if the same results from the Agent's gross negligence or willful misconduct,
or (b) if such Bank was not given notice of the subject claim and the
opportunity to participate in the defense thereof, at its expense, or (c) if the
same results from a compromise and settlement agreement entered into without the
consent of such Bank. In addition, each Bank agrees promptly upon demand to
reimburse the Agent (to the extent not reimbursed by the Borrower and without
limiting the obligation of the Borrower to do so) in proportion to its Ratable
Share for all amounts due and payable by the Borrower to the Agent in connection
with the Agent's periodic audit of each Borrower's books, records and business
properties.
Section 10.08. Reliance by Agent. The Agent shall be entitled to rely upon
any writing, telegram, telex or teletype message, resolution, notice, consent,
certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and correct
and to have been signed, sent or made by the proper person or persons, and upon
the advice and opinions of counsel and other professional advisers selected by
the Agent. The Agent shall be fully justified in failing or refusing to take any
action hereunder unless it shall first be indemnified to its satisfaction by the
Banks against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action.
Section 10.09. Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Event of Default unless it has
actual knowledge thereof or the Agent has received written notice from a Bank or
the Borrower referring to this Agreement, describing such Event of Default and
stating that such notice is a 'notice of default.'
Section 10.10. Notices. The Agent shall send to each Bank a copy of all
notices received from the Borrower pursuant to the provisions of this Agreement
or the other Loan Documents promptly upon receipt thereof.
Section 10.11. Banks in Their Individual Capacities. With respect to its
Revolving Credit Commitments and the Revolving Credit Loans made by it, the
Agent shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not the Agent, and the term 'Banks' shall,
unless the context otherwise indicates, include the Agent in its individual
capacity. Mellon Bank, N.A. and its affiliates and each of the Banks and their
respective affiliates may, without liability, except as prohibited herein, make
Revolving Credit Loans to, accept deposits from, discount drafts for, act as
trustee under indentures of, and generally engage in any kind of banking or
trust business with, the Borrower and its affiliates, in the case of the Agent,
as though it were not acting as Agent hereunder and in the case of each Bank as
though such Bank were not a Bank hereunder.
Section 10.12. Holders of Revolving Credit Notes. The Agent may deem and
treat any payee of any Revolving Credit Note as the owner thereof for all
purposes hereof unless and until written notice of the assignment or transfer
thereof shall have been filed with the Agent. Any request, authority or consent
of any Person who at the time of making such request or giving such authority or
consent is the holder of any Revolving Credit Note shall be conclusive and
binding on any subsequent holder,
31
transferee or assignee of such Revolving Credit Note or of any Revolving Credit
Note or Revolving Credit Notes issued in exchange therefor.
Section 10.13. Equalization of Banks. The Banks and the holders of any
participations in any Revolving Credit Notes agree among themselves that, with
respect to all amounts received by any Bank or any such holder for application
on any obligation hereunder or under any Revolving Credit Note or under any
other Loan Document or under any such participation, whether received by
voluntary payment, by realization upon security, by the exercise of the right of
set-off or banker's lien, by counterclaim or by any other non-pro rata source,
equitable adjustment will be made in the manner stated in the following sentence
so that, in effect, all such excess amounts will be shared ratably among the
Banks and such holders in proportion to their interests in payments under the
Revolving Credit Notes, except as otherwise provided in Sections 4.04 or 4.07
hereof. The Banks or any such holder receiving any such amount shall purchase
for cash from each of the other Banks an interest in such Bank's Revolving
Credit Loans in such amount as shall result in a ratable participation by the
Banks and each such holder in the aggregate unpaid amount under the Revolving
Credit Notes, provided that if all or any portion of such excess amount is
thereafter recovered from the Bank or the holder making such purchase, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, together with interest or other amounts, if any, required by Law
(including court order) to be paid by the Bank or the holder making such
purchase.
Section 10.14. Successor Agent. The Agent may resign at any time as Agent
by giving written notice to the Borrower and the Banks, not less than thirty
(30) days prior to the effective date of such resignation. If the Agent shall
resign under this Agreement, then either (a) the Majority Banks shall appoint
from among the Banks a successor agent for the Banks within the thirty (30) day
period following the Agent's notice to the Banks of its resignation, or (b) the
Agent shall appoint, with the consent of the Borrower, such consent not to be
unreasonably withheld, a successor agent who shall serve as Agent until such
time as the Majority Banks appoint, a successor agent. Upon its appointment
pursuant to either clause (a) or (b) above, such successor agent shall succeed
to the rights, powers and duties of the Agent and the term 'Agent' shall mean
such successor agent, effective upon its appointment, and the former Agent's
rights, powers and duties as Agent shall be terminated without any other or
further act or deed on the part of such former Agent or any of the parties to
this Agreement. After the resignation of any Agent hereunder, the provisions of
this Article X shall inure to the benefit of such former Agent and such former
Agent shall not by reason of such resignation be deemed to be released from
liability for any actions taken or not taken by it while it was an Agent under
this Agreement.
Section 10.15. Availability of Funds. Unless the Agent shall have been
notified by a Bank prior to the date upon which a Loan is to be made that such
Bank does not intend to make available to the Agent such Bank's portion of such
Loan, the Agent may assume that such Bank has made or will make such proceeds
available to the Agent on such date and the Agent may, in reliance upon such
assumption (but shall not be obligated to), make available to the Borrower a
corresponding amount. If such corresponding amount is not in fact made available
to the Agent by such Bank, the Agent shall be entitled to recover such amount on
demand from such Bank (or, if such Bank fails to pay such amount forthwith upon
such demand from the Borrower) together with interest thereon, in respect of
each day during the period commencing on the date such amount was made available
to the Borrower and ending on the date the Agent recovers such amount, at a rate
per annum equal to the applicable interest rate in respect of the Loan.
Section 10.16. Calculations. In the absence of gross negligence or willful
misconduct, the Agent shall not be liable for any error in computing the amount
payable to any Bank whether in respect of the Loans, fees or any other amounts
due to the Banks under this Agreement. In the event an error in computing any
amount payable to any Bank is made, the Agent, the Borrower and each affected
Bank shall, forthwith upon discovery of such error, make such adjustments as
shall be required to correct such error, and any compensation thereof will be
calculated at the Federal Funds Effective Rate.
32
Section 10.17. Beneficiaries. The provisions of this Article X are for the
benefit of the Agent and the Banks, and except as expressly provided herein, the
Borrower shall not have any rights to rely on or enforce any of the provisions
hereof. In performing its functions and duties under this Agreement, the Agent
shall act solely as agent of the Banks and does not assume and shall not be
deemed to have assumed any obligation toward or relationship of agency or trust
with or for the Borrower.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Modifications, Amendments or Waivers. With the written
consent of the Majority Banks, the Agent, acting on behalf of all the Banks, and
the Borrower may from time to time enter into written agreements amending or
changing any provision of this Agreement or any other Loan Document or the
rights of the Banks or the Borrower hereunder or thereunder, or may grant
written waivers or consents to a departure from the due performance of the
obligations of the Borrower hereunder or thereunder. Any such agreement, waiver
or consent made with such written consent shall be effective to bind all the
Banks; provided, that, without the written consent of all the Banks, no such
agreement, waiver or consent may be made which will:
(a) Reduce the amount of the Commitment Fee or any other fees payable to
any Bank hereunder, extend the Revolving Credit Commitment Termination Date,
increase the Commitment amount with respect to any Bank, or amend Sections [4.10
(Pro Rata Treatment of Banks)], [10.06] (Exculpatory provisions) and [10.13]
(Equalization of Banks) hereof;
(b) Whether or not any Revolving Credit Loans are outstanding, extend the
time for payment of principal or interest of any Revolving Credit Loan, or
reduce the principal amount of or the rate of interest borne by any Revolving
Credit Loan, or otherwise affect the terms of payment of the principal of or
interest of any Loan;
(c) Amend this Section 11.01, change the definition of Majority Banks or
change any requirement providing for the Banks or the Majority Banks to
authorize the taking of any action hereunder; or
(d) Except for sales of assets permitted herein, release any collateral or
other security (if any), for the Borrower's obligations hereunder.
Section 11.02. No Waiver; Cumulative Remedies. No failure or delay on the
part of the Agent or any Bank in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
Law.
Section 11.03. Costs, Expenses and Attorneys' Fees. If the transactions
contemplated by this Agreement and the other Loan Documents are not fully
consummated due to the fault of the Borrower, the Borrower shall promptly pay
(or reimburse, as the Agent may elect) all reasonable costs and expenses which
the Agent has incurred or may hereafter incur in connection with the
negotiation, preparation, reproduction, interpretation and enforcement of this
Agreement and the other Loan Documents, the collection of all amounts due
hereunder and thereunder, and any amendment, modification, consent or waiver
which may be hereafter requested by the Borrower or otherwise required. Such
costs and expenses shall include the reasonable fees and disbursements of
counsel to the Agent, the costs of appraisal fees, searches of public records,
costs of filing and recording documents with public offices, and similar costs
and expenses incurred by the Agent. Upon the occurrence of an Event of Default,
such costs shall also include the reasonable fees of any accountants,
consultants or other professionals retained by the Agent and the Banks directly
related hereto. The Borrower's reimbursement obligations under this Section
shall survive any termination of this Agreement.
33
Section 11.04. Governing Law. This Agreement and the Notes shall be
governed in all respects by the law of the Commonwealth of Pennsylvania and for
all purposes shall be construed in accordance with such law.
Section 11.05. Headings. Article and Section headings used in this
Agreement are for convenience only and shall not affect the construction of this
Agreement.
Section 11.06. Exhibits. All exhibits attached hereto are hereby made a
part hereof.
Section 11.07. Amendments and Waivers. The Banks and the Borrower may from
time to time enter into agreements amending, modifying or supplementing this
Agreement or the Notes or any other documents or instruments pursuant to or in
connection herewith or changing the rights of the Banks or of the Borrower
hereunder or thereunder, and the Banks may from time to time grant waivers or
consents to a departure from the due performance of the obligations of the
Borrower hereunder or thereunder. Any such agreement, waiver or consent must be
in writing and shall be effective only to the extent specifically set forth in
such writing. In the case of any such waiver or consent relating to any
provision hereof, any Event of Default so waived or consented to shall be deemed
to be cured and not continuing, but no such waiver or consent shall extend to
any other or subsequent Event of Default or impair any right consequent thereto.
Section 11.08. Successors and Assigns; Participations. This Agreement
shall be binding upon and inure to the benefit of the Banks, the Borrower and
their respective successors and assigns, except that the Borrower may not assign
or transfer any of its rights hereunder without the prior written consent of the
Agent and Banks. Each Bank may, at its own cost, make assignments of or sell
participations in all or any part of its Revolving Credit Commitment and the
Loans made by it to one or more banks or other entities, subject to the consent
of the Borrower and the Agent with respect to any assignees, such consent not to
be unreasonably withheld, and provided that no assignment or participation shall
be made in amounts less than $5,000,000 and further provided that with respect
to any assignment each assigning Bank agrees to pay to Agent a servicing fee of
$2,000 payment on or prior to the date of assignment. In the case of an
assignment, upon receipt by the Agent of the Assignment and Assumption Agreement
in the form set forth in Exhibit 11.08 hereof and the $2,000 service fee, the
assignee shall have, to the extent of such assignment (unless otherwise provided
therein), the same rights, benefits and obligations as it would have if it had
been a signatory Bank hereunder, the Commitments in Section 2.01 and Schedule
1.01(a) shall be adjusted accordingly, and upon surrender of any Note subject to
such assignment, the Borrower shall execute and deliver a new Note to the
assignee in an amount equal to the amount of the Revolving Credit Commitment
assumed by it and a new Revolving Credit Note to the assigning Bank in an amount
equal to the Revolving Credit Commitment retained by it hereunder. In the case
of a participation, the participant shall only have the rights specified in
Section 8.01(C) (the participant's rights against such Bank in respect of such
participation to be those set forth in the agreement executed by such Bank in
favor of the participant relating to changes of the type referenced in clauses
(A), (B), or (C) under Section 11.01 hereof), all of such Bank's obligations
under this Agreement or any other Loan Document shall remain unchanged and all
amounts payable by the Borrower hereunder or thereunder shall be determined as
if such Bank had not sold such participation.
Section 11.09. Records. The unpaid principal amount of the Notes, the
unpaid interest accrued thereon, the interest rate or rates applicable to such
unpaid principal amount, the duration of such applicability, the Revolving
Credit Commitments and the accrued and unpaid Commitment Fee shall at all times
be ascertained from the records of the Agent, which shall be conclusive absent
manifest error.
Section 11.10. Judicial Proceedings. Each party to this Agreement agrees
that any suit, action or proceeding, whether claim or counterclaim, brought or
instituted by any party hereto or any successor or assign of any party, on or
with respect to this Agreement or any of the other Loan Documents or the
dealings of the parties with respect hereto, or thereto, shall be tried only by
a court and not by a jury. EACH PARTY HEREBY KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. Further, except as otherwise provided herein, each party waives any
right it may have to claim or recover, in
34
any such suit, action or proceeding, any special, exemplary, punitive or
consequential damages or any damages other than, or in addition to, actual
damages. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS SECTION IS A SPECIFIC
AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT THE BANKS WOULD NOT EXTEND CREDIT
TO THE BORROWER IF THE WAIVERS SET FORTH IN THIS SECTION WERE NOT A PART OF THIS
AGREEMENT.
Section 11.11. Consent to Jurisdiction and Service of Process. The
Borrower irrevocably appoints each and every financial or executive officer of
the Borrower as its attorneys upon whom may be served, by regular or certified
mail at the address set forth in Section [11.12] hereof, any notice, process or
pleading in any action or proceeding against it arising out of or in connection
with this Agreement or any of the other Loan Documents; and the Borrower hereby
consents that any action or proceeding against it be commenced and maintained in
any court within the Commonwealth of Pennsylvania or in the United States
District Court for the Eastern District of Pennsylvania by service of process on
any such officer; and the Borrower agrees that the courts of the Commonwealth of
Pennsylvania and the United States District Court for the Eastern District of
Pennsylvania shall have jurisdiction with respect to the subject matter hereof
and the person of the Borrower and the collateral, if any. Notwithstanding the
foregoing, the Agent and the Banks, in their absolute discretion may also
initiate proceedings in the courts of any other jurisdiction in which the
Borrower may be found or in which any of its properties may be located.
Section 11.12. Notices. All notices, requests, demands, directions and
other communications (collectively, 'notices') given to or made upon any party
hereto under the provisions of this Agreement shall be by telephone or in
writing (including telex or facsimile communication) unless otherwise expressly
permitted hereunder and shall be delivered or sent by telex or facsimile to the
respective parties at the addresses and numbers set forth under their respective
names on the signature pages hereof or in accordance with any subsequent
unrevoked written direction from any party to the others. All notices shall,
except as otherwise expressly herein provided, be effective (a) in the case of
telex or facsimile, when received, (b) in the case of hand-delivered notice,
when hand delivered, (c) in the case of telephone, when telephoned, provided,
however, that in order to be effective, telephonic notices must be confirmed in
writing no later than the next day by letter, facsimile or telex, (d) if given
by mail, four (4) days after such communication is deposited in the mails with
first class postage prepaid, return receipt requested, and (e) if given by any
other means (including by air courier), when delivered; provided, that notices
to the Agent shall not be effective until received. Any Bank giving any notice
to the Borrower shall simultaneously send a copy thereof to the Agent, and the
Agent shall promptly notify the other Banks of the receipt by it of any such
notice.
Section 11.13. Severability. The provisions of this Agreement are intended
to be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
35
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed, or caused it to be executed by their duly authorized officers in
several counterparts, all as of the date first above written.
ATTEST: PHILADELPHIA SUBURBAN WATER COMPANY
By: Patricia M. Mycek By: Michael P. Graham
Name: Patricia M. Mycek Name: Michael P. Graham
Title: Corporate Secretary Title: Senior Vice President --
Finance & Treasurer
Address: 762 Lancaster Avenue
Bryn Mawr, PA 19010
Tel. No: (610) 645-1087
Telecopy: 610) 645-1061
MELLON BANK, N.A.
By: Frank P. Mohapp
Name: Frank P. Mohapp
Title: Vice President
Address: Plymouth Meeting Executive Campus
610 West Germantown Pike,
Suite 200
Plymouth Meeting, PA 19462
Tel. No: (610) 941-4188
Telecopy: (610) 941-4136
PNC BANK, NATIONAL ASSOCIATION
By: Orlando Esposito
Name: Orlando Esposito
Title: Vice President
Address: Valley Forge Regional
Banking Center
Suite 200
1000 Westlakes Drive
Berwyn, PA 19312
Tel. No: (610) 640-4900
Telecopy: (610) 640-4914
36
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
By: Thomas J. Saunders
Name: Thomas J. Saunders
Title: Vice President
Address: 123 South Broad Street
PMB010
Philadelphia, PA 19109-1199
Tel. No: (215) 985-3575
Telecopy: (215) 985-3719
MERIDIAN BANK
By: Patrick B. Trainor
Name: Patrick B. Trainor
Title: Assistant Vice President
Address: Corporate Banking Department
One Liberty Place
Suite 3600
Philadelphia, PA 19103
Mailing Address: Corporate Banking Department
OL3620
P.O. Box 7588
Philadelphia, PA 19103
Tel. No: (215) 854-3778
Telecopy: (215) 854-3774
37
SCHEDULE 1.01(A)
AMOUNT OF COMMITMENT
FOR REVOLVING CREDIT
NAME AND ADDRESS OF BANK LOANS PERCENTAGES
------------------------------------------------------------------ ------------------------- ---------------
1. Mellon Bank, N.A. $ 19,000,000 63 1/3%
Plymouth Meeting Executive Campus
610 West Germantown Pike
Suite 200
Plymouth Meeting, PA 19462
Attn: Mr. Frank P. Mohapp Vice President
Tel: (610) 941-4188
Fax: (610) 941-4136
Mellon Bank, N.A.
Attn: Loan Administration,
Flossie Bowers
Mellon Independence Center
199-5220
701 Market Street
Philadelphia, PA 19106
Tel: (215) 553-3414
Fax: (215) 553-4789 or
(215) 553-1016
2. PNC Bank, National Association $ 4,000,000 13 1/3%
Valley Forge Regional Banking Center
Suite 200
1000 Westlakes Drive
Berwyn, PA 19312
3. First Fidelity Bank, National Association $ 4,000,000 13 1/3%
123 South Broad Street
PMB010
Philadelphia, PA 19101-1199
4. Meridian Bank $ 3,000,000 10%
Corporate Banking Department
OL3620
P.O. Box 7588
Philadelphia, PA 19101
------------------------- -----
TOTAL REVOLVING CREDIT COMMITMENTS: $ 30,000,000 100%
------------------------- -----
------------------------- -----
38
SCHEDULE 5.05 (B)
ADDITIONAL EXISTING BANK INDEBTEDNESS
A. $1,000,000 discretionary line of credit facility between Mellon Bank,
N.A. and Philadelphia Suburban Water Company. Loan balance at February 28, 1994
is $120,000.
B. Also, see Schedule 5.08.
39
SCHEDULE 5.07
MATERIAL LITIGATION
A. Such litigation which is being contested in good faith by appropriate
proceedings and for which adequate reserves shall have been set aside on the
appropriate books in accordance with GAAP.
B. See the description of two cases involving a warehouse fire in Newark,
New Jersey described on Schedule 5.13(C) and (D). Notice of the Frigid case was
provided to PSWC's insurance carrier and the carrier has indicated an intention
to reserve its rights with respect to coverage for this claim.
40
SCHEDULE 5.08
CONTINGENT LIABILITIES
A. Operating lease between LMV Leasing, Inc. and Philadelphia Suburban
Water Company for automobiles and other equipment through 1997. During the next
four years, $1,191,000 of future minimum lease payments are due: $768,000 in
1994, $314,000 in 1995, $108,000 in 1996, and $1,000 in 1997.
B. Suretyship agreements in the amount of $4,137,461.00 as of March 17,
1994. The major portion of this amount, $3,352,961, arises from the bonding
requirements under the Pennsylvania Residual Waste Regulations relating to the
future closure of landfills used to dispose of water treatment plant sludge. The
balance of the surety bonds support various licenses, permits and condemnations.
C. Agreements for the purchase of water are maintained with Chester Water
Authority and Bucks County Water and Sewer Authority. The agreements stipulate
purchases of minimum quantities of water to the year 2017. As of December 31,
1993, the estimated annual commitments related to such purchases total
approximately $2,637,000 through 1998.
D. In the normal course of business, after PSWC performs excavation work in
various highways in order to access water mains and other underground
facilities, PSWC is required by township and state permits to restore the
excavated area.
41
SCHEDULE 5.10
ENCUMBRANCES
None.
42
SCHEDULE 5.13
ENVIRONMENTAL MATTERS
A. In its water treatment process, PSWC uses chemicals, including chlorine,
caustic soda and sodium chlorite, which are listed as hazardous substances.
These chemicals are, in all material respects, stored and used at PSWC's plants
and facilities in accordance with the Environmental Laws.
B. PSWC operates a central laboratory at its Bryn Mawr facility for
analysis of drinking water samples. To perform required analyses, PSWC maintains
small quantities of solvents, reagents and chemical standards, some of which are
listed as hazardous substances. These materials, in all material respects, are
stored and used in compliance with the Environmental Laws.
C. By letter dated March 4, 1992, the New Jersey Department of
Environmental Protection and Energy ('DEPE') advised PSWC and over 70 other
entities of a pending arbitration proceeding involving a company named 'Frigid,
Inc.' and the New Jersey Spill Compensation Fund (the 'Spill Fund'). The
arbitration involves Frigid's claim to recover damages totaling $2,500,000
allegedly resulting from a fire on April 11, 1983 in a warehouse near Frigid's
facility. During the fire, hazardous substances were allegedly discharged from
the burning warehouse. DEPE has informed PSWC that it believes that some
materials from PSWC may have been transported to and stored at the warehouse
where the fire occurred. DEPE has identified PSWC and the other 70 entities as
potentially responsible parties. Under New Jersey law, a party who is in any
way responsible for a hazardous substance discharge may be strictly liable and
jointly and severally liable for the cost of clean-up. The arbitration will not
address PSWC's liability, but only whether Frigid can recover from the Spill
Fund. The arbitration is scheduled for March, 1994 and the DEPE and certain of
the potentially responsible parties are expected to contest the amount and
validity of Frigid's claim. If Frigid is successful in its claim, the DEPE
would likely seek to recover from the potentially responsible parties the
amount paid from the Spill Fund. Frigid, Inc./Enertron Industries, Inc.
Arbitration.
D. During the week of March 6, 1994, PSWC was advised by an outside party
that the State of New Jersey had instituted a separate action in the Superior
Court of Essex County seeking reimbursement of the costs incurred by the State
as a result of warehouse fire mentioned in the Frigid summary above. PSWC was
advised, but has not been able to confirm, that the State of New Jersey is
seeking reimbursement for approximately $3.5 million dollars. PSWC believes that
it has been named as a defendant along with approximately 100 other entities. As
of March 15, 1994, PSWC had not been served with this Complaint. State of New
Jersey, Department of Environmental Protection and Energy v. Signo Trading
International.
Note: A general description of Environmental Matters is included as a portion of
the Annual Report on Form 10-K prepared each year for Philadelphia Suburban
Corporation.
43
SCHEDULE 6.03
INSURANCE
AMOUNT COVERAGE
- --------------------------------------- ---------------------------------------
GENERAL LIABILITY $1,000,000
combined single limit
UMBRELLA LIABILITY $12,500,000
combined single limit
PROPERTY $10,000,000
44
SCHEDULE 6.13
BANK INDEBTEDNESS PERMITTED
A. $1,000,000 discretionary line of credit facility between Mellon Bank,
N.A. and Philadelphia Suburban Water Company.
B. Credit Facility with Mellon Bank, N.A. for up to $3,000,000 in Letters
of Credit.
C. $15,000,000 of short term debt (for a period not to exceed 180 days)
provided that such short term debt is offered in writing first to the Agent and
the Banks in proportion to their Ratable Share of the Revolving Credit Loans
hereunder.
45
REVOLVING CREDIT NOTE
$19,000,000 Philadelphia, PA
March 17, 1994
FOR VALUE RECEIVED, the undersigned, PHILADELPHIA SUBURBAN WATER COMPANY
(the 'Borrower'), promises to pay to the order of MELLON BANK, N.A. (the 'Bank')
on or before March 1, 1998 the lesser of (i) the principal sum of NINETEEN
MILLION DOLLARS ($19,000,000) or (ii) the aggregate unpaid principal amount of
all Revolving Credit Loans disbursed by the Bank to the Borrower pursuant to the
Agreement.
The Borrower further promises to pay to the order of the Bank interest on
the unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to Section 4.02 of, or as otherwise provided
in, the Agreement payable on the dates set forth in Section 3.06 of, or as
otherwise provided in, the Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes referred to
in, and is entitled to the benefits of, the Revolving Credit Agreement dated as
of March 17, 1994, by and among inter alia, the Borrower, the Agent and the Bank
(as the same may be amended, modified or supplemented from time to time, the
'Agreement'). Terms defined in the Agreement have the same meanings herein.
Except as expressly provided in the Agreement, the Borrower hereby
expressly waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Credit Note and the Agreement, and any action for
amounts due hereunder or thereunder shall immediately accrue.
This Revolving Credit Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned hereby executes this Note the day first
above written.
PHILADELPHIA SUBURBAN WATER COMPANY
Attest: Patricia M. Mycek By Michael P. Graham
Title: Sr. Vice President -- Finance
46
REVOLVING CREDIT NOTE
$4,000,000 Philadelphia, PA
March 17, 1994
FOR VALUE RECEIVED, the undersigned, PHILADELPHIA SUBURBAN WATER COMPANY
(the 'Borrower'), promises to pay to the order of FIRST FIDELITY BANK, NATIONAL
ASSOCIATION (the 'Bank') on or before March 1, 1998 the lesser of (i) the
principal sum of FOUR MILLION DOLLARS ($4,000,000) or (ii) the aggregate unpaid
principal amount of all Revolving Credit Loans disbursed by the Bank to the
Borrower pursuant to the Agreement.
The Borrower further promises to pay to the order of the Bank interest on
the unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to Section 4.02 of, or as otherwise provided
in, the Agreement payable on the dates set forth in Section 3.06 of, or as
otherwise provided in, the Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes referred to
in, and is entitled to the benefits of, the Revolving Credit Agreement dated as
of March 17, 1994, by and among inter alia, the Borrower, the Agent and the Bank
(as the same may be amended, modified or supplemented from time to time, the
'Agreement'). Terms defined in the Agreement have the same meanings herein.
Except as expressly provided in the Agreement, the Borrower hereby
expressly waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Credit Note and the Agreement, and any action for
amounts due hereunder or thereunder shall immediately accrue.
This Revolving Credit Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned hereby executes this Note the day first
above written.
PHILADELPHIA SUBURBAN WATER COMPANY
Attest: Patricia M. Mycek By Michael P. Graham
Title: Sr. Vice President -- Finance
47
REVOLVING CREDIT NOTE
$3,000,000 Philadelphia, PA
March 17, 1994
FOR VALUE RECEIVED, the undersigned, PHILADELPHIA SUBURBAN WATER COMPANY
(the 'Borrower'), promises to pay to the order of MERIDIAN BANK (the 'Bank') on
or before March 1, 1998 the lesser of (i) the principal sum of THREE MILLION
DOLLARS ($3,000,000) or (ii) the aggregate unpaid principal amount of all
Revolving Credit Loans disbursed by the Bank to the Borrower pursuant to the
Agreement.
The Borrower further promises to pay to the order of the Bank interest on
the unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to Section 4.02 of, or as otherwise provided
in, the Agreement payable on the dates set forth in Section 3.06 of, or as
otherwise provided in, the Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes referred to
in, and is entitled to the benefits of, the Revolving Credit Agreement dated as
of March 17, 1994, by and among inter alia, the Borrower, the Agent and the Bank
(as the same may be amended, modified or supplemented from time to time, the
'Agreement'). Terms defined in the Agreement have the same meanings herein.
Except as expressly provided in the Agreement, the Borrower hereby
expressly waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Credit Note and the Agreement, and any action for
amounts due hereunder or thereunder shall immediately accrue.
This Revolving Credit Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned hereby executes this Note the day first
above written.
PHILADELPHIA SUBURBAN WATER COMPANY
Attest: Patricia M. Mycek By Michael P. Graham
Title: Sr. Vice President -- Finance
48
REVOLVING CREDIT NOTE
$4,000,000 Philadelphia, PA
March 17, 1994
FOR VALUE RECEIVED, the undersigned, PHILADELPHIA SUBURBAN WATER COMPANY
(the 'Borrower'), promises to pay to the order of PNC BANK, NATIONAL ASSOCIATION
(the 'Bank') on or before March 1, 1998 the lesser of (i) the principal sum of
FOUR MILLION DOLLARS ($4,000,000) or (ii) the aggregate unpaid principal amount
of all Revolving Credit Loans disbursed by the Bank to the Borrower pursuant to
the Agreement.
The Borrower further promises to pay to the order of the Bank interest on
the unpaid principal amount hereof from time to time outstanding at the rate or
rates per annum determined pursuant to Section 4.02 of, or as otherwise provided
in, the Agreement payable on the dates set forth in Section 3.06 of, or as
otherwise provided in, the Agreement.
This Revolving Credit Note is one of the Revolving Credit Notes referred to
in, and is entitled to the benefits of, the Revolving Credit Agreement dated as
of March 17, 1994, by and among inter alia, the Borrower, the Agent and the Bank
(as the same may be amended, modified or supplemented from time to time, the
'Agreement'). Terms defined in the Agreement have the same meanings herein.
Except as expressly provided in the Agreement, the Borrower hereby
expressly waives presentment, demand, notice, protest and all other demands and
notices in connection with the delivery, acceptance, performance, default or
enforcement of this Revolving Credit Note and the Agreement, and any action for
amounts due hereunder or thereunder shall immediately accrue.
This Revolving Credit Note shall be governed by, construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
IN WITNESS WHEREOF, the undersigned hereby executes this Note the day first
above written.
PHILADELPHIA SUBURBAN WATER COMPANY
Attest: Patricia M. Mycek By Michael P. Graham
Title: Sr. Vice President -- Finance
49
EXHIBIT 11.08
ASSIGNMENT AND ASSUMPTION AGREEMENT
Reference is hereby made to the Revolving Credit Agreement dated as of
March 17, 1994 (as amended, supplemented or modified from time to time, the
'Credit Agreement') among PHILADELPHIA SUBURBAN WATER COMPANY, a Pennsylvania
corporation, (the 'Borrower'), the Banks listed in Schedule 1.01(a) to the
Credit Agreement (the 'Banks') and MELLON BANK, N.A., a national banking
association (the 'Agent') as Agent for the Banks. Unless otherwise define
herein, terms defined in the Credit Agreement are used herein with the same
meanings.
___________________________ (the 'Assignor') and _________
___________________________ (the 'Assignee'), intending to be legally bound
hereby, make this Assignment and Assumption Agreement this ___ day of
_______________, 199___ and hereby agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the
Assignee hereby purchases and assumes from the Assignor, WITHOUT RECOURSE,
REPRESENTATION OR WARRANTY (except as expressly set forth herein), to the
Assignor, a _____ percent (___%) interest in and to all of the Assignor's
rights and obligations under the Credit Agreement as of the Effective Date
(as defined below), including without limitation, such percentage interest
in the Assignor's Revolving Credit Commitment as in effect on the Effective
Date, the Loans owing to the Assignor on the Effective Date and the Notes
evidencing the outstanding Loans held by the Assignor.
2. The Assignor (i) represents and warrants that, as of the date
hereof, its Revolving Credit Commitment is $______________, the unpaid
principal amount of the Revolving Credit Loans owing to the Assignor is
$_________________, (ii) represents and warrants that it is the legal and
beneficial owner of the interest being assigned by it hereunder and that
such interest is free and clear of any adverse claim; (iii) makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
the Credit Agreement or any of the Loan Documents or the execution,
legality, validity, enforceability, genuineness, sufficiency or value of
the Credit Agreement or any of the Loan Documents or any other instrument
or document furnished pursuant thereto; (iv) makes no representation or
warranty and assumes no responsibility with respect to the financial
condition of Borrower or the performance or observance by Borrower of any
of its respective obligations under the Credit Agreement or any of the Loan
Documents or any other instrument or document furnished pursuant thereto;
and (v) attaches the Notes referred to in paragraph 1 above and requests
that the Agent exchange such Notes for new Notes as follows:
_______________________________________________________
_______________________________________________________
_______________________________________________________
3. The Assignee (i) confirms that it has received a copy of the Credit
Agreement, together with copies of the financial statements (if any)
referred to in Sections 6.02 and 5.05 of the Credit Agreement and such
other documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and
Assumption Agreement; (ii) agrees that it will, independently and without
reliance upon the Agent, the Assignor or any other Bank, and based on such
documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action
under the Credit Agreement; (iii) appoints and authorizes the Agent to take
such actions on its behalf and to exercise such powers under the Loan
Documents as are delegated to the Agent by the terms thereof; (iv) agrees
that it will become a party to and be bound by the Credit Agreement on the
Effective Date (including, without limitation, the provisions of Section
10.11) as if it were an original Bank thereunder and will have the rights
and obligations of a Bank thereunder and will
50
perform in accordance with their terms all of the obligations which by the
terms of the Credit Agreement are required to be performed by it as a Bank;
and (v) specifies as its address for notices the office set forth beneath
its name on the signature pages hereof.
4. The effective date of this Assignment and Assumption Agreement
shall be ______________________, 199__ (the 'Effective Date'). Following
the execution of this Assignment and Assumption Agreement, it will be
delivered to the Agent for acceptance and recording by the Agent.
5. Upon such acceptance and recording, as of the Effective Date, (i)
the Assignee shall be a party to the Credit Agreement and, to the extent
provided in this Assignment and Assumption Agreement, have the rights and
obligations of a Bank thereunder and under the Loan Documents and (ii) the
Assignor shall, to the extent provided in this Assignment and Assumption
Agreement, relinquish its rights and be released from its obligations under
the Credit Agreement, and the Revolving Credit Commitments of the Assignor
and the Assignee shall be as set forth in Schedule I hereto.
6. Upon such acceptance and recording, from and after the Effective
Date, the Agent shall make all payments under the Credit Agreement and the
Notes in respect of the interest assigned hereby (including, without
limitation, all payments of principal, interest, Commitment Fees and other
fees with respect thereto) to the Assignor and the Assignee as their
interests appear on Schedule I hereto. The Assignor and Assignee shall make
all appropriate adjustments in payments under the Credit Agreement and the
Notes for periods prior to the Effective Date directly between themselves.
7. The Assignor makes this assignment to the Assignee in consideration
of the payment by the Assignee to the Assignor of $______________, receipt
of which is hereby acknowledged by the Assignor.
8. This Assignment and Assumption Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania.
[NAME OF ASSIGNOR]
By
Name:
Title:
[NAME OF ASSIGNEE]
By
Name:
Title:
Notice Address For Assignee:
Telephone No.:
51
Telecopier No.:
Attention:
CONSENTED TO THIS
day of ______________, 199___.
[BORROWER]
By:
Title:
MELLON BANK, N.A., as Agent
By:
Title:
52
SCHEDULE I
AMOUNT OF
REVOLVING CREDIT AMOUNT OF THE
COMMITMENT FOR REVOLVING CREDIT
THE REVOLVING CREDIT LOANS HELD
LOANS AS OF THE AS OF THE
EFFECTIVE DATE EFFECTIVE DATE
---------------------- --------------------
[Assignor] $ $
---------------------- --------------------
[Assignee] $ $
---------------------- --------------------
53
SCHEDULE 6.02(a)
Company Letterhead
Addressed to Banks
The Compliance Certificate ('Compliance Certificate') is executed and
delivered by Philadelphia Suburban Water Company (the 'Company') to Mellon Bank,
N.A. (the 'Agent') and Mellon Bank, N.A. and PNC Bank, National Association,
First Fidelity Bank, National Association, and Meridian Bank (individually a
'Bank' and collectively the 'Banks') pursuant to Section 6.02(a) of the
Revolving Credit Agreement dated March 17, 1994 by and among the Company, the
Agent and the Banks (the 'Credit Agreement'). Any term used herein and not
defined herein shall have the meanings defined in the Credit Agreement. This
Compliance Certificate covers the Company's:
Fiscal quarter ended
The attachments set forth calculations in compliance with obligations
pursuant to Section 6.15 and 6.18 of the Credit Agreement, as of the end of the
fiscal period set forth in paragraph 1 hereof:
The undersigned has reviewed the terms of the Credit Agreement and has
made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of the Company during the fiscal period
covered by this Compliance Certificate. The undersigned does not (either as a
result of such review or otherwise) have any knowledge of the existence as of
the date of this Compliance Certificate of any condition or event that
constitutes an Event of Default.
As of the date hereof (a) to the best of the undersigned's knowledge the
representations and warranties of the Borrower contained in the Credit Agreement
are true and correct in all material respects, (b) to the best of the
undersigned's knowledge the Borrower is in full compliance with all covenants
contained in the Credit Agreement and (c) to the best of undersigned's
knowledge, no event has occurred and is continuing which constitutes an Event of
Default or an event which, with the giving of notice or lapse of time or both,
would constitute such an Event of Default.
All terms not defined herein but used as defined terms herein shall have
the meaning ascribed to them in the Credit Agreement.
This Compliance Certificate is executed on by the
Chief Financial Officer. The undersigned hereby certifies that each and every
matter contained herein is derived from the Company's books and records and is,
to the best of the undersigned, true and correct.
Philadelphia Suburban Water Company
By: __________________________________
Title: _______________________________
54
EXHIBIT 10.9
PHILADELPHIA SUBURBAN CORPORATION
1994 INCENTIVE COMPENSATION PROGRAM
BACKGROUND
o During the first quarter of 1989, the Company and its compensation consultant
conducted a feasibility study to determine whether the Company should
implement an incentive compensation plan. The study was prompted by the
positive experience of other investor-owned water companies and PSC's
experience with incentive compensation.
o The study included interviews with PSWC and PSC executives and an analysis of
competitive compensation levels. Based on the results, the compensation
consultant recommended that the Company's objectives and competitive practice
supported the adoption of an annual incentive plan.
o The program has two components -- a Management Incentive Plan and an Employee
Recognition Plan.
o After three years of experience with the Incentive Compensation Program,
management has recommended certain changes to the Program to ensure the
Program provides the appropriate incentive to the officers and managers of the
Company. The 1994 Management Incentive Plan will cover all officers and
managers of Philadelphia Suburban Corporation, and its subsidiaries, except
Utility & Municipal Services, Inc., which is covered by a separate incentive
bonus arrangement based on the profitability of that subsidiary.
MANAGEMENT INCENTIVE PLAN
o Performance Measures
-- PSC's actual after-tax net income from continuing operations relative to
the annual budget will be the primary measure. Each year a 'Target Net
Income' level will be established. For purposes of the Plan, the Target Net
Income may differ from the budgeted net income level. For 1994, the Target
Net Income will exclude the impact of FAS 106, the effect of any unbudgeted
extraordinary gains or losses, changes in accounting principles, changes in
tax rates and any gains or losses related to the discontinued operations.
-- Based on a review of historic performance, the minimum or threshold level
of performance is set at 90 percent of the Target Net Income. That is, no
bonus awards will be made if actual net income is less than 90 percent of
the Target Net Income for the year. No additional bonus will be earned for
results exceeding 120 percent of the Target Net Income.
-- Each individual's performance and achievement of his or her objectives will
also be evaluated and factored into the bonus calculation.
o Participation
-- Participation in the Plan will be determined each year. Each participant
will be assigned a 'Target Bonus Percentage' ranging from 5 to 40 percent
of salary depending on duties and responsibilities.
-- Actual bonuses may range from 0, if the Company's financial results fall
below threshold or the participant's performance rating is Below
Expectations, to 225 percent if performance -- both company and individual
-- is rated at 150 percent.
-- Exhibit 1 shows the recommended participants and the Target Bonus
Percentages for the current year.
1
o Company Performance
-- Company performance will be measured on the following schedule:
PERCENT OF COMPANY
1993 PLAN RATING
------------- -------------
Threshold................................................. 90% 50%
92 65
95 80
96 85
97 90
98 94
99 97
Plan...................................................... 100 100
105 110
110 120
115 135
>120 150
-- Exhibit 2 shows the recommended Company Performance Schedule for the
current year.
-- Regardless of the Company rating resulting from this Schedule, the
Executive Development and Compensation Committee retains the authority to
determine the final Company Rating for purposes of this Plan.
o Individual Performance
--Individual performance will be measured on the following scale:
INDIVIDUAL
RATING
----------------
Below Expectations........................................................ 0
At Expectations (-)....................................................... 70- 90%
At Expectations........................................................... 90-110%
At Expectations (+) (Superior)............................................ 110-130%
Exceeds Expectations (Outstanding)........................................ 130-150%
o Estimated Cost
-- Exhibit 3 shows the estimated cost of the 1994 plan year assuming a 100
percent Company Rating and all individuals receive a 100 percent Individual
Rating.
SAMPLE CALCULATIONS
o Example 1
Salary $70,000
Target Bonus 10 percent ($7,000)
Company Rating 100 percent
Individual Rating 90 percent
Calculation:
COMPANY INDIVIDUAL
TARGEST BONUS X RATING X RATE = BONUS EARNED
- ---------------- ------------- --------------- -------------
$7,000 x 100% x 90% = $ 6,300
-------------
-------------
2
o Example 2
-- Using the same salary and target bonus, but assuming Company performance
was less than 90 percent of Target Net Income, there would be no bonus
earned.
Calculation:
$7,000 x 0 x 90% = 0
o Example 3
-- Similarly, if individual Performance is rated Below Expectations, no bonus
would be earned regardless of the Company Rating.
Calculation:
$7,000 x 100% x 0 = 0
EMPLOYEE RECOGNITION PLAN
o In addition to the Management Incentive Plan, Company maintains an Individual
Recognition Plan to reward employees not eligible for the management plan for
superior performance or a special action or project that positively impacts
the financial results or image of the Company.
o Awards will be made from an annual pool, not to exceed $50,000, established at
the beginning of the year. Unused funds would not be carried over to the next
year.
o Awards will be made throughout the year with payment as close to the timing of
the event being rewarded as possible.
o Department Heads may nominate individuals in their unit to the President or
applicable Senior Vice President and document the reasons for the
recommendations. The applicable unit President or Senior Vice President will
review the nominations and forward their recommendations to the Chief
Executive Officer.
o The Chief Executive Officer will determine the individuals to actually receive
a bonus and the amount.
3
EXHIBIT 1
PHILADELPHIA SUBURBAN CORPORATION
RECOMMENDED 1994 PARTICIPANTS
TARGET BONUS
NAME TITLE PERCENTAGE
- ------------------------- ------------------------------------------------------------ -----------------
OFFICERS
N. DeBenedictis Chief Executive Officer 40
R. Luksa President & COO-PSW 30
R. Riegler Sr. V.P. Operations 25
R. Stahl Sr. V.P. Law & Administration 25
M. Graham V.P. Finance and Treasurer 25
M. Coulter V.P. Production 20
H. Coleman V.P. Customer Service 20
R. Hugus V.P. Corporate Development 25
W. McIntyre V.P. Maintenance & Construction 15
D. Smeltzer V.P. Rates/Regulatory Affairs 15
M. Mooney Controller 15
P. Mycek Corporate Secretary 5
MANAGERS
L. Doyle Mgr. Meter Operations 5
J. Delzingaro AMR Project Manger 5
G. Harmon Mgr., Customer Service 5
R. Griffin Mgr., Rates & Revenues 5
R. Dollfus Mgr., Great Valley Division 5
D. Mahoney Mgr., Drafting/Records 5
A. Fernandes Mgr., Eng. Design/Construction 5
S. Draper Mgr., MIS 5
S. Broussard Mgr., Human Resources 5
R. Rubin Finance Manager 5
G. Smith Mgr., Facilities 5
D. Bruce Mgr., Transportation 5
R. Harlan Mgr., IS Customer Service 5
W. Barrett Mgr., IS Technical Services 5
C. Hertz Mgr., Laboratory Tech. Services 10
J. Grantland Mgr., Distribution 10
J. Dennin Mgr., Eastern Division 10
D. Gorbey Mgr., Southern & Western Division 10
R. Germon Mgr., Mech./Elect. 10
P. Luitweiler Mgr., Res./Env. Affairs/Grndwater 10
J. Ritter Mgr., Treatment/Quality Control 10
T. Kiely Chief Engineer 10
T. Yohe Sr. Mgr., Water Quality Group 10
R. Robinson Sr. Mgr., Special Services 10
M. Kropilak Corporate Counsel 10
R. Linneman Sr. Mgr., Information Services 10
C. Franklin Mgr., Corporate and Public Affairs 10
4
EXHIBIT 2
PHILADELPHIA SUBURBAN CORPORATION
RECOMMENDED 1994 COMPANY PERFORMANCE SCHEDULE
AFTER TAX PERCENT OF COMPANY
NET INCOME 1994 PLAN RATING
-------------- ------------- -------------
Threshold............................................ $ 13,329,000 90% 50%
13,625,200 92 65
14,069,500 95 80
14,217,600 96 85
14,365,700 97 90
14,513,800 98 94
14,661,900 99 97
Plan................................................. 14,810,000 100 100
15,550,500 105 110
16,291,000 110 120
17,031,500 115 135
>17,772,000 120 150
1993 Actual Net Income = $13,835,000
1993 Adjusted Net Income = $13,951,000
1994 Budgeted Net Income = $14,810,000
Note: Payment of any bonus is always subject to the discretion of the Executive
Compensation and Employee Benefits Committee and the Board of Directors.
For purposes this Plan, the calculation of after tax net income shall
exclude the impact of FAS 106, the effect of unbudgeted extraordinary
gains or losses, changes in accounting principles, changes in tax rates
and any gains or losses related to the discontinued operations.
5
EXHIBIT 3
PHILADELPHIA SUBURBAN CORPORATION
ESTIMATED TARGET COSTS FOR 1994 PLAN
TARGET
-----------
Officers.................................................................. $ 382,311
-----------
Managers.................................................................. 129,259
-----------
TOTAL..................................................................... $ 511,570
-----------
-----------
6
EXHIBIT 10.10
PHILADELPHIA SUBURBAN CORPORATION
1994 EQUITY COMPENSATION PLAN
1. PURPOSE
The purpose of this plan (the 'Plan') is to provide an incentive, in the
form of a proprietary interest in Philadelphia Suburban Corporation (the
'Corporation'), to officers and other key employees of the Corporation and its
subsidiaries and key consultants who are in a position to contribute materially
to the successful operation of the business of the Corporation, to increase
their interest in the Corporation's welfare, and to provide a means through
which the Corporation can attract and retain officers and other key employees
and key consultants of significant abilities.
2. ADMINISTRATION
This Plan shall be administered by a Committee (the 'Committee') of the
Board of Directors of the Corporation. The Committee shall consist of three or
more of those members of the Board of Directors who are not eligible, and for at
least one year prior to their appointment were not eligible, to receive grants
under the Plan or any other plan of the Corporation or any of its affiliates
entitling the participants therein to acquire stock, stock options, stock
appreciation rights or dividend equivalents of the Corporation or any of its
affiliates.
From time to time the Committee or the Board of Directors may make grants,
subject to the terms of the Plan, with respect to such number of shares of
Common Stock of the Corporation as the Committee or the Board of Directors, each
acting in its sole discretion, may determine. All references to the Committee
hereunder shall also mean the Board of Directors when acting pursuant to its
authority to make grants under the Plan.
Subject to the provisions of the Plan, the Committee shall be authorized to
interpret the Plan and the grants made under the Plan, to establish, amend and
rescind any rules and regulations relating to the Plan, to determine the terms
and provisions of the agreement related to grants described in Section 9 hereof,
and to make all other determinations, including factual determinations,
necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission and reconcile any inconsistency in the
Plan or in any option or grant in the manner and to the extent it shall be
deemed desirable to carry it into effect. The determinations of the Committee in
the administration of the Plan, as described herein, shall be final and
conclusive. The Committee may adopt such rules and regulations as it deems
necessary for governing its affairs.
3. GRANTS
Pursuant to the terms of the Plan, the Committee shall have the authority
to grant stock options to officers and other key employees and key consultants
and restricted stock and dividend equivalents to officers and other key
employees (hereinafter collectively referred to as the 'Grants'). All Grants
shall be subject to the terms and conditions set forth herein and to those other
terms and conditions consistent with this Plan as the Committee deems
appropriate and as are specified in writing by the Committee in the agreement
described in Section 9 of the Plan (the 'Agreement'). Grants under a particular
Section of the Plan need not be uniform as among the employees or consultants
and Grants under two or more Sections of the Plan may be combined in one
instrument.
4. SHARES SUBJECT TO THE PLAN
Subject to adjustment as provided in Section 15, the maximum aggregate
number of shares of the Common Stock of the Corporation that may be issued or
transferred under the Plan shall be 450,000 shares. The maximum number of shares
of Common Stock that may be issued or transferred under the Plan subject to
restricted stock grants is 25,000 shares of Common Stock. Shares deliverable
under the
1
Plan may be authorized and unissued shares or treasury shares, as the
Committee may from time to time determine. Shares of Common Stock related to the
unexercised or undistributed portion of any terminated, expired or forfeited
Grant for which no material benefit was received by a grantee also may be made
available for distribution in connection with future Grants under the Plan.
5. ELIGIBILITY
Only officers, key employees and key consultants of the Corporation and its
subsidiaries (excluding any director who is not a salaried employee) shall be
eligible for Grants under the Plan. The term 'subsidiaries' shall mean any
corporation in an unbroken chain of corporations beginning with the Corporation,
if at the time of the Grant, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other corporations
in such chain.
6. GRANTING OF OPTIONS
The Committee may, from time to time, grant stock options to eligible
officers and other key employees and shall designate options at the time of
grant as either 'incentive stock options' intended to qualify as such under
section 422 of the Internal Revenue Code of 1986, as from time to time amended
or any successor statute of similar purpose (the 'Code'), or 'nonqualified stock
options', which options are not intended to so qualify. The Committee may, from
time to time, grant nonqualified stock options to key consultants. Except as
hereinafter provided, options granted pursuant to the Plan shall be subject to
the following terms and conditions:
(a) Price
The purchase price per share of stock deliverable upon the exercise of each
option shall be not less than 100% of the fair market value of the Corporation's
Common Stock on the date the option is granted. The fair market value shall be
the mean of the high and low sale prices of the Corporation's Common Stock on
the New York Stock Exchange composite tape or other recognized market source, as
determined by the Committee, on the date the option is granted, or if there is
no sale on such date, then the mean of such high and low sale prices on the last
previous day on which a sale is reported. In any event, in case of the grant of
an incentive stock option, the fair market value shall be determined in a manner
consistent with section 422 of the Code.
Shares may be purchased only by delivering a notice of exercise to the
Committee with accompanying payment of the purchase price therefor in full. Such
notice may instruct the Corporation to deliver shares of Common Stock due upon
the exercise of the option to any registered broker or dealer in lieu of
delivery to the grantee. Such instructions must designate the account into which
the shares are to be deposited. The grantee may tender this notice of exercise,
which has been properly executed by the grantee, and the aforementioned delivery
instructions to any broker or dealer. With the consent of the Committee, payment
of the purchase price may be made, in whole or in part, through the surrender of
shares of the Common Stock of the Corporation (including without limitation
shares of Common Stock acquired pursuant to the option then being exercised) at
the fair market value of such shares determined as of the last trading day prior
to the date on which the option is exercised, in the same manner set forth in
the above paragraph.
(b) Terms of Options
The term during which each incentive stock option may be exercised shall be
determined by the Committee, but in no event shall an incentive stock option be
exercisable in whole or in part more than 10 years from the date it is granted
and in no event shall a nonqualified stock option be exercisable in whole or in
part more than 10 years and one day from the date it is granted. All rights to
purchase pursuant to an option shall, unless sooner terminated, expire at the
date designated by the Committee.
The Committee shall determine the date on which each option shall become
exercisable and may provide that an option shall become exercisable in
installments. The shares comprising each installment may be purchased in whole
or in part at any time after such installment becomes
2
exercisable. The Committee may, in its sole discretion, accelerate the time at
which any option may be exercised in whole or in part. Notwithstanding any
determinations by the Committee regarding the exercise period of any option,
all outstanding options shall become immediately exercisable upon a Change of
Control of the Corporation (as defined herein).
(c) Termination of Employment
Upon the termination of a grantee's employment for any reason (except as a
result of retirement, disability or death), the options held by such grantee
shall terminate. Notwithstanding the fact that, in all cases, a grantee's
employment shall be deemed to have terminated upon the sale of a subsidiary of
the Corporation that employs such grantee, the Committee, in its sole
discretion, may extend the period during which any option held by such a grantee
may be exercised after such sale to the earliest of (i) a date which is not more
than three years from the date of the sale of the subsidiary, (ii) the date of
the grantee's termination of employment with the subsidiary (or successor
employer) following such sale for reasons other than retirement, disability or
death, (iii) the date which is one year from the date of the grantee's
termination of employment with the subsidiary on account of the grantee's total
disability (as defined in section 22(e)(3) of the Code), or three months from
the date of such termination if on account of retirement or a disability other
than a total disability, or (iv) the expiration of the original term of the
option as established at the time of grant. The Committee, in its sole
discretion, may similarly extend the period of exercise of any option held by a
grantee employed by the Corporation whose employment with the Corporation is
terminated in connection with the sale of a subsidiary of the Corporation.
Upon termination of a grantee's employment as a result of retirement,
disability or death, the period during which the options may be exercised shall
not exceed: (i) one year from the date of such termination of employment in the
case of death and (ii) two years from the date of such termination in the case
of permanent and total disability (within the meaning of section 22(e)(3) of the
Code) or retirement; and (iii) three months from the date of such termination of
employment in the case of other disability; provided, however, that in no event
shall the period extend beyond the expiration of the option term.
Subject to the foregoing, in the event of death, such options may be
exercised by a grantee's legal representative or beneficiary, but only to the
extent that installments had accrued as of the date of death. Notwithstanding
the foregoing, the Committee, in its sole discretion, may determine that
installments that have not accrued as of the date of the grantee's death,
termination of employment on account of permanent and total disability (within
the meaning of section 22(e)(3) of the Code) or other termination of employment
may also be exercised by a grantee, or in the case of death, a grantee's legal
representative or beneficiary. Transfer from the Corporation to a subsidiary,
from a subsidiary to the Corporation, or from one subsidiary to another, shall
not be deemed to be a termination of employment. All references in this Section
6(c) to the termination of a grantee's employment shall include the termination
of a consultant's relationship with the Corporation or any subsidiary.
(d) Limits on Incentive Stock Options.
Each Grant of an incentive stock option shall provide that it (i) is not
transferable by the grantee otherwise than by will or the laws of descent and
distribution or, if permitted under Rule 16b-3 of the Securities Exchange Act of
1934 (the 'Exchange Act') and if permitted in any specific case by the Committee
in its sole discretion, pursuant to a qualified domestic relations order as
defined under the Code or Title I of the Employee Retirement Income Security Act
of 1974, as amended ('ERISA') or the rules thereunder, and (ii) is exercisable,
during the grantee's lifetime, only by the grantee and that the aggregate fair
market value of the Common Stock on the date of the Grant with respect to which
incentive stock options are exercisable for the first time by a grantee during
any calendar year under the Plan and under any other stock option plan of the
Corporation shall not exceed the limitation set forth in section 422(d) of the
Code. An incentive stock option shall not be granted to any grantee who, at the
time of grant, owns stock possessing more than 10 percent of the total combined
voting power of all classes of stock of the Corporation or subsidiary of the
Corporation, unless the exercise price of the incentive stock option is no less
than 110% of the fair market value per share on the date of grant and
3
the term of the incentive stock option is not more than five years. Unless a
grantee could otherwise transfer Common Stock issued pursuant to an incentive
stock option granted hereunder without incurring liability under section 16(b)
of the Exchange Act, at least six months must elapse from the date of
acquisition of an incentive stock option to the date of disposition of the
Common Stock issued upon exercise of such option.
7. RESTRICTED STOCK GRANTS
The Committee may issue or transfer shares of Common Stock of the
Corporation to an eligible officer or other key employee subject to the maximum
number of shares of Common Stock reserved for issuance in connection with
restricted stock grants described in Section 4 of the Plan. The following
provisions are applicable to restricted stock grants:
(a) General Requirements. Shares of Common Stock of the Corporation
issued pursuant to restricted stock grants may be issued for consideration
or for no consideration. Subject to any other restrictions by the Committee
as provided pursuant to Section 7(e), restrictions on the transfer of
shares of Common Stock set forth in Section 7(c) shall lapse on such date
or dates as the Committee may approve until the restrictions have lapsed on
100% of the shares; provided, however, that upon a Change of Control of the
Corporation, all restrictions on the transfer of the shares which have not,
prior to such date, been forfeited shall immediately lapse. The period of
years during which the restricted stock grant will remain subject to
restrictions will be designated in the Agreement (the 'Restriction
Period'). Prior to the lapse of the Restriction Period the shares of Common
Stock granted to any grantee shall be held by the Corporation.
(b) Number of Shares. The Committee shall grant to each grantee a
number of shares of Common Stock of the Corporation determined in its sole
discretion.
(c) Requirement of Employment. If the grantee's employment terminates
during the Restriction Period, the restricted stock grant terminates as to
all shares covered by the Grant as to which restrictions on transfer have
not lapsed, and those shares of Common Stock must be immediately returned
to the Corporation. The Committee may, however, provide for complete or
partial exceptions to this requirement as it deems equitable.
(d) Restrictions on Transfer and Legend on Stock Certificate. During
the Restriction Period, a grantee may not sell, assign, transfer, pledge,
or otherwise dispose of the shares of Common Stock to which such
Restriction Period applies except to a Successor Grantee (as defined in
Section 10 of the Plan). Each certificate for a share issued or transferred
under a restricted stock grant shall contain a legend giving appropriate
notice of the restrictions in the Grant. The grantee shall be entitled to
have the legend removed from the stock certificate or certificates covering
any of the shares subject to restrictions when all restrictions on such
shares have lapsed.
(e) Lapse of Restrictions. All restrictions imposed under the
restricted stock grant shall lapse upon the expiration of the applicable
Restriction Period; provided, however, that upon a Change of Control of the
Corporation, all restrictions on the transfer of shares which have not,
prior to such date, been forfeited shall immediately lapse. In addition,
the Committee may determine as to any or all restricted stock grants, that
all the restrictions shall lapse, without regard to any Restriction Period,
under such circumstances as it deems equitable.
8. DIVIDEND EQUIVALENTS
The Committee may grant dividend equivalents to eligible officers and other
key employees either alone or in conjunction with all or part of any option
granted under the Plan. A dividend equivalent shall be equal to the dividend
payable on a share of Common Stock of the Corporation. The amount of dividend
equivalents for any grantee (the 'Dividend Equivalent Amount') is determined by
multiplying the number of dividend equivalents subject to the Grant by the
per-share cash dividend, or the per-share fair market value (as determined by
the Committee) of any dividend in other than cash,
4
paid by the Corporation on each record date for the payment of a dividend
during the period described in Section 8(a).
(a) Amount of Dividend Equivalent Credited.
The Corporation shall credit to an account for each grantee maintained by
the Corporation in its books and records on each record date, from the date of
grant until the earlier of the date of (i) the end of the applicable
accumulation period designated by the Committee at the time of grant, (ii) the
date of the termination of employment for any reason (including retirement),
other than total disability (as defined in section 22(e)(3) of the Code) or
death of the grantee, or as otherwise determined by the Committee, in its sole
discretion, at the time of a grantee's termination of employment or (iii) the
end of a period of four years from the date of grant, that portion of the
Dividend Equivalent Amount for each such grantee attributable to each record
date. The Corporation shall maintain in its books and records separate accounts
which identify each Grantee's Dividend Equivalent Amount. Except as set forth in
Section 8(e) below, no interest shall be credited to any such account.
(b) Payment of Credited Dividend Equivalents.
The Committee, at the time of grant, shall designate the percentage of each
grantee's Dividend Equivalent Amount that shall be paid to the grantee at the
end of an applicable performance period (the 'Performance Period') of four years
from the date of grant (the Committee, in its sole discretion, shall retain the
right to designate a longer or shorter Performance Period at the time of grant);
provided, however, that such Performance Period shall be:
(i) reduced by one year for each calendar year during the applicable
Performance Period ending after the date of grant in which the measurable
performance criteria established by the Committee at the time of grant for
the applicable Performance Period exceeds the targets for such criteria
established by the Committee at the time of grant.
(ii) increased by one year for each calendar year during the
applicable Performance Period ending after the date of grant in which the
measurable performance criteria established by the Committee at the time of
grant for the applicable Performance Period is less than the targets for
such criteria established by the Committee at the time of grant.
(iii) In no event shall the Performance Period be reduced to less than
two years or increased to more than eight years from the date of grant.
(iv) In the event that the Performance Period is shorter than the
period described in Section 8(a), a grantee shall receive the payment of
the amount credited to his account at the end of the applicable Performance
Period and any portion of the Dividend Equivalent Amount not yet so
credited to his account shall be paid on the Corporation's normal dividend
payment dates until the grantee's Dividend Equivalent Amount for the period
described in Section 8(a) is fully paid to the grantee.
(c) Timing of Payment of Dividend Equivalents.
Except as otherwise determined by the Committee in the event of a grantee's
termination from employment prior to the end of the applicable Performance
Period, no payments of the Dividend Equivalent Amount shall be made until the
end of the applicable Performance Period and no payments shall be made to any
grantee whose employment by the Corporation or a subsidiary terminates prior to
the end of the applicable Performance Period for any reason other than
retirement under the Corporation's or a subsidiary's retirement plan, death or
total disability (as defined in section 22(e)(3) of the Code). Subject to
Section 8(b)(iv), as soon as practicable after the end of such Performance
Period, unless a grantee shall have made an election under Section 8(f) to defer
receipt of any portion of such amount, a grantee shall receive 100% of the
Dividend Equivalent Amount payable to him. Notwithstanding the foregoing, upon a
Change of Control of the Corporation, any Dividend Equivalent Amount or portion
thereof, which has not, prior to such date, been paid to the grantee or
forfeited shall immediately become payable to the grantee without regard to
whether the applicable Performance Period has ended.
5
(d) Form of Payment. The Committee shall have the sole discretion to
determine whether the Corporation's obligation in respect of the payment of a
Dividend Equivalent Amount shall be paid solely in credits to be applied toward
payment of the option price under then exercisable options, solely in cash or
partly in such credits and partly in cash.
(e) Interest on Dividend Equivalents. From a date which is 45 days after
the end of the applicable Performance Period until the date that the Dividend
Equivalent Amount payable to the grantee is paid to such grantee, the account
maintained by the Corporation in its books and records with respect to such
dividend equivalents shall be credited with interest at a market rate determined
by the Committee.
(f) Deferral of Dividend Equivalents. A grantee shall have the right to
defer receipt of any Dividend Equivalent Amount payments if he shall elect to do
so on or prior to December 31 of the year preceding the beginning of the last
full year of the applicable Performance Period (or such other time as the
Committee shall determine is appropriate to make such deferral effective under
the applicable requirements of federal tax laws). The terms and conditions of
any such deferral (including the period of time thereof and any earnings on the
deferral) shall be subject to approval by the Committee and all deferrals shall
be made on a form provided a grantee for this purpose.
9. AGREEMENT WITH GRANTEES
Each grantee who receives a Grant under the Plan shall enter into an
agreement with the Corporation which shall contain such provisions, consistent
with the provisions of the Plan, as may be established from time to time by the
Committee.
10. TRANSFERABILITY OF GRANTS
Only a grantee or his or her authorized legal representative may exercise
rights under a Grant. Such persons may not transfer those rights except by will
or by the laws of descent and distribution or, if permitted under Rule 16b-3 of
the Exchange Act and if permitted in any specific case by the Committee in their
sole discretion, pursuant to a qualified domestic relations order as defined
under the Code or Title I of ERISA or the rules thereunder. When a grantee dies,
the personal representative or other person entitled to succeed to the rights of
the grantee ('Successor Grantee') may exercise such rights. A Successor Grantee
must furnish proof satisfactory to the Corporation of his or her right to
receive the Grant under the grantee's will or under the applicable laws of
descent and distribution.
11. FUNDING OF THE PLAN
This Plan shall be unfunded. The Corporation shall not be required to
establish any special or separate fund or to make any other segregation of
assets to assure the payment of any Grants under this Plan. Subject to Section
8(e), in no event shall interest be paid or accrued on any Grant, including
unpaid installments of Grants.
12. RIGHTS OF GRANTEES
Nothing in this Plan shall entitle any grantee or other person to any claim
or right to receive a Grant under this Plan. Neither this Plan nor any action
taken hereunder shall be construed as giving any grantee any rights to be
retained in the employ of the Corporation or to be retained as a consultant by
the Corporation.
13. WITHHOLDING OF TAXES
The Corporation shall have the right to deduct from all Grants paid in cash
any federal, state or local taxes required by law to be withheld with respect to
such cash awards. The grantee or other person receiving such shares shall be
required to pay to the Corporation the amount of any such taxes which the
Corporation is required to withhold with respect to such Grants. With respect to
Grants of restricted stock or nonqualified stock options, the Corporation shall
have the right to require that the grantee make such provision, or furnish the
Corporation such authorization as may be necessary or
6
desirable so that the Corporation may satisfy its obligation, under applicable
income tax laws, to withhold for income or other taxes due upon or incident to
such restricted stock or the exercise of such nonqualified stock options.
The Committee may adopt such rules, forms and procedures as it considers
necessary or desirable to implement such withholding procedures, which rules,
forms and procedures shall be binding upon all grantees, and which shall be
applied uniformly to all grantees similarly situated.
14. LISTING AND REGISTRATION
Each Grant shall be subject to the requirement that, if at any time the
Committee shall determine in its discretion that the listing, registration or
qualification of the Grant or the shares subject to the Grant upon any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, such Grant or the issue or purchase of
shares thereunder, no such Grant may be exercised in whole or in part unless
such listing, registration, qualification, consent or approval shall have been
effected or obtained free of any conditions not acceptable to the Committee.
15. ADJUSTMENT OF AND CHANGES IN COMMON STOCK OF THE CORPORATION.
In the event of a reorganization, recapitalization, change of shares, stock
split, spin-off, stock dividend, reclassification, subdivision or combination of
shares, merger, consolidation, rights offering, or any other change in the
corporate structure or shares of the Corporation, the Committee shall make such
adjustment as it deems appropriate in the number and kind of shares authorized
by the Plan, in the number and kind of shares covered by Grants made under the
Plan, in the purchase prices of outstanding options or the terms and conditions
applicable to dividend equivalents.
16. RIGHTS OF GRANTEES
Neither the grantee nor any personal representative shall be, or have any
of the rights and privileges of, a shareholder of the Corporation in respect of
any shares related to any Grant or purchasable upon the exercise of any option,
in whole or in part, unless and until certificates for such shares have been
issued. Notwithstanding the foregoing, a grantee who receives a grant of
restricted stock shall have all rights of a shareholder, except as set forth in
Section 7(d), during the Restriction Period, including the right to vote and
receive dividends.
17. CHANGE OF CONTROL OF THE CORPORATION
As used herein, a 'Change of Control' shall be deemed to have taken place
if (i) any Person (including any individual, firm, corporation, partnership or
other entity except the Corporation or any employee benefit plan of the
Corporation or of any Affiliate or Associate, both as defined in Rule 12b-2 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended, any Person or entity organized, appointed or established by the
Corporation for or pursuant to the terms of any such employee benefit plan),
together with all Affiliates and Associates of such Person, shall become the
beneficial owner in the aggregate of 20% or more of the Common Stock of the
Corporation then outstanding or (ii) during any twenty-four month period,
individuals who at the beginning of such period constituted the Board of
Directors cease for any reason to constitute a majority thereof, unless the
election, or the nomination for election by the Corporation's shareholders,
of at least seventy-five percent of the directors who were not directors at
the beginning of such period was approved by a vote of at least seventy-five
percent of the directors in office at the time of such election or nomination
who were directors at the beginning of such period. Notwithstanding the
foregoing, a Change in Control shall not be deemed to have taken place under
clause (i) of the immediately preceding sentence if (a) such Person becomes
the beneficial owner in the aggregate of 20% or more of the Common Stock of
the Corporation then outstanding as a result of an inadvertent acquisition by
such Person if such Person, as soon as practicable, divests itself of a
sufficient amount of its Common Stock so that it no longer owns 20% or more
of the Common Stock then outstanding, as determined by the Board of
7
Directors of the Corporation, or (ii) the shares of Common Stock required to
be counted in order to meet the 20% minimum threshold described under such
clause (i) include any of the shares described in subsections (i) through (vi)
of section 2543(b) of the Pennsylvania Business Corporation Law of 1988
(15 Pa.C.S.A. section 2543(b)) as in effect on the date of adoption of the Plan.
18. AMENDMENT AND TERMINATION
(a) The Plan may be amended by the Board of Directors of the Corporation as
it shall deem advisable to ensure such qualification and conform to any change
in the law or regulations applicable thereto, including such new regulations as
may be enacted pertaining to the tax treatment of incentive stock options to be
granted under this Plan, or in any other respect that the Board may deem to be
in the best interest of the Corporation; provided, however, that the Board may
not, without the authorization and approval of the shareholders of this
Corporation (i) materially increase the benefits accruing to participants under
the Plan, (ii) increase the number of shares which may be issued under the Plan,
except pursuant to Section 15 hereof, or (iii) materially modify the
requirements as to eligibility for participation in the Plan.
The Board of Directors shall not amend the Plan if the amendment would
cause the Plan or any Grant, or the exercise of any right under the Plan to fail
to comply with the requirements of Rule 16b-3 under the Securities Exchange Act
of 1934, as amended, or if such amendment would cause the Plan or the Grant or
exercise of an incentive stock option under the Plan to fail to comply with the
requirements of section 422 of the Code including, without limitation, a
reduction of the option price set forth in Section 6(a) or an extension of the
period during which an incentive stock option may be exercised as set forth in
Section 6(b).
(b) The Board of Directors of the Corporation may, in its discretion,
terminate, or fix a date for the termination of, the Plan. Unless previously
terminated, the Plan shall terminate on May 19, 2004 and no Grants shall be made
under the Plan after such date.
(c) A termination or amendment of the Plan that occurs after a Grant is
made shall not result in the termination or amendment of the Grant unless the
grantee consents or unless the Committee acts under Section 19. The termination
of the Plan shall not impair the power and authority of the Committee with
respect to an outstanding Grant. Whether or not the Plan has terminated, an
outstanding Grant may be terminated or amended under this Section 18 or may be
amended by agreement of the Corporation and the grantee consistent with the
Plan.
19. COMPLIANCE WITH LAW.
The Plan, the exercise of Grants and the obligations of the Corporation to
issue or transfer shares of Common Stock under Grants shall be subject to all
applicable laws, including any applicable federal or Pennsylvania state law, and
to approvals by a governmental or regulatory agency as may be required. With
respect to persons subject to section 16 of the Exchange Act, it is the intent
of the Corporation that the Plan and all transactions under the Plan comply
with all applicable conditions of Rule 16b-3 or its successors under the
Exchange Act. The Committee may revoke any Grant if it is contrary to law or
modify a Grant to bring it into compliance with any valid and mandatory
government regulation. The Committee may also adopt rules regarding the
withholding of taxes on payments to grantees. The Committee may, in its sole
discretion, agree to limit its authority under this Section.
20. EFFECTIVE DATE OF THE PLAN
The Plan shall be effective as of April 1, 1994, subject to the approval by
a majority of the Corporation's shareholders within twelve months of such
effective date. No Grant shall be made pursuant to the Plan on or after the
tenth anniversary of the date of shareholder approval, but Grants made prior to
such tenth anniversary may extend beyond that date.
8
EXHIBIT 13
SELECTED PORTIONS OF ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1993
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
----------- --------- ---------
Earned revenues.............................................................. $ 101,244 $ 93,307 $ 88,648
Costs and expenses:
Operating expenses......................................................... 45,989 43,024 42,663
Depreciation............................................................... 9,927 8,646 7,612
Amortization............................................................... 1,008 800 641
Taxes other than income taxes.............................................. 6,890 6,500 6,095
----------- --------- ---------
63,814 58,970 57,011
Operating income from continuing operations.................................. 37,430 34,337 31,637
Interest and debt expenses................................................... 13,108 15,068 14,781
Dividends on preferred stock................................................. 866 866 790
Allowance for funds used during construction................................. (805) (258) (1,194)
----------- --------- ---------
Income from continuing operations before income taxes........................ 24,261 18,661 17,260
Provision for income taxes................................................... 10,426 8,035 7,081
----------- --------- ---------
Income from continuing operations............................................ 13,835 10,626 10,179
Loss on disposition of discontinued operations, including provision in 1992
and 1991 of $2,120 and $2,280 for operating losses since the measurement
dates, net of income tax benefits of $2,950 and $1,250..................... -- (5,500) (5,000)
Loss from operations of discontinued operations prior to measurement dates,
net of income tax benefits of $146......................................... -- -- (290)
Extraordinary charge from early retirement of debt, net of income tax
benefits of $429........................................................... -- (834) --
----------- --------- ---------
Net Income................................................................... $ 13,835 $ 4,292 $ 4,889
----------- --------- ---------
----------- --------- ---------
Net income (loss) per share
Continuing operations...................................................... $ 1.27 $ 1.23 $ 1.29
Discontinued operations.................................................... -- (.63) (.67)
Extraordinary charge....................................................... -- (.10) --
----------- --------- ---------
Total................................................................... $ 1.27 $ .50 $ .62
----------- --------- ---------
----------- --------- ---------
Average common and common equivalent shares outstanding during the period.... 10,858 8,635 7,910
----------- --------- ---------
----------- --------- ---------
See accompanying notes to consolidated financial statements.
1
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS)
DECEMBER 31, 1993 AND 1992
1993 1992
----------- -----------
ASSETS
Property, plant and equipment, at cost.................................................. $ 433,302 $ 401,876
Less accumulated depreciation........................................................... 67,072 56,266
----------- -----------
Net property, plant and equipment..................................................... 366,230 345,610
----------- -----------
Current assets:
Cash.................................................................................. (868) (712)
Accounts receivable, net.............................................................. 18,131 16,460
Inventory, materials and supplies..................................................... 1,721 1,628
Prepayments and other current assets.................................................. 532 807
----------- -----------
Total current assets.................................................................. 19,516 18,183
----------- -----------
Regulatory assets....................................................................... 51,229 --
Deferred charges and other assets, net.................................................. 2,704 2,156
----------- -----------
$ 439,679 $ 365,949
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Common stockholders' equity:
Common stock at par value net of $1,257 and $265 of Treasury shares in 1993 and
1992............................................................................... $ 4,526 $ 4,693
Capital in excess of par value........................................................ 95,918 68,994
Retained earnings..................................................................... 35,490 33,284
----------- -----------
Total common stockholders' equity..................................................... 135,934 106,971
----------- -----------
Preferred stock of subsidiary with mandatory redemption................................. 10,000 10,000
Long-term debt, excluding current portion............................................... 145,292 153,508
Commitments............................................................................. -- --
Current liabilities:
Current portion of long-term debt..................................................... 4,884 8,581
Loans payable......................................................................... 819 959
Accounts payable...................................................................... 3,381 4,274
Accrued interest...................................................................... 3,439 3,597
Other accrued liabilities............................................................. 9,269 7,647
Net reserves related to discontinued operations....................................... 2,578 1,642
----------- -----------
Total current liabilities............................................................. 24,370 26,700
----------- -----------
Deferred credits and other liabilities:
Deferred income taxes and investment credits.......................................... 69,137 15,695
Customers' advances for construction.................................................. 24,379 25,536
Other................................................................................. 8,926 6,634
Total deferred credits and other liabilities.......................................... 102,442 47,865
----------- -----------
Contributions in aid of construction.................................................... 21,641 20,905
----------- -----------
$ 439,679 $ 365,949
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
2
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
CONSOLIDATED CASH FLOW STATEMENTS
(IN THOUSANDS OF DOLLARS)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
--------- --------- ---------
Cash flows from operating activities:
Income from continuing operations............................................ $ 13,835 $ 10,626 $ 10,179
Adjustments to reconcile income from continuing operations to net cash flows
from operating activities:
Depreciation and amortization............................................. 10,935 9,446 8,253
Deferred taxes, net of taxes on customers' advances....................... 3,061 399 2,111
Net decrease (increase) in receivables, inventory and prepayments......... (1,438) 1,584 (1,466)
Net increase in payables and other accrued liabilities.................... 1,245 2,019 669
Net increase (decrease) in accrued interest............................... (158) (927) 163
Other..................................................................... (540) (509) (788)
--------- --------- ---------
Net cash flows from operating activities....................................... 26,940 22,638 19,121
--------- --------- ---------
Cash flows from investing activities:
Property, plant and equipment additions, including allowance for funds used
during construction of $805, $258 and $1,194.............................. (27,958) (21,719) (22,335)
Acquisitions of water systems................................................ (1,323) (9,128) --
Sale of businesses and related assets........................................ 1,665 976 13,352
Other........................................................................ (40) 190 156
--------- --------- ---------
Net cash flows from investing activities....................................... (27,656) (29,681) (8,827)
--------- --------- ---------
Cash flows from financing activities:
Customers' advances and contributions in aid of construction, net of income
tax payments.............................................................. 2,483 3,248 2,635
Repayments of customers' advances............................................ (2,904) (2,398) (1,832)
Net proceeds (repayments) of short-term debt................................. (140) 799 (840)
Proceeds from long-term debt................................................. 21,839 24,174 24,862
Repayments of long-term debt including premium on early retirement........... (34,559) (38,008) (39,129)
Proceeds from issuing common stock........................................... 27,749 25,950 3,459
Repurchase of common stock................................................... (992) (26) --
Proceeds from issuing preferred stock of subsidiary.......................... -- -- 9,865
Dividends paid............................................................... (11,629) (8,866) (7,859)
Other........................................................................ (104) -- (62)
--------- --------- ---------
Net cash flows from financing activities....................................... 1,743 4,873 (8,901)
--------- --------- ---------
Net cash flows from discontinued operations.................................... (1,183) (1,537) 300
--------- --------- ---------
Net increase (decrease) in cash................................................ (156) (3,707) 1,693
Cash balance (deficit) beginning of year....................................... (712) 2,995 1,302
--------- --------- ---------
Cash balance (deficit) end of year............................................. $ (868) $ (712) $ 2,995
--------- --------- ---------
--------- --------- ---------
See accompanying notes to consolidated financial statements.
3
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries, all of which are wholly-owned. The business of
Philadelphia Suburban Corporation ('PSC' or the 'Company') is conducted almost
entirely through its subsidiary, Philadelphia Suburban Water Company, a
regulated public utility. All material intercompany accounts and transactions
have been eliminated.
Recognition of Revenues
Utility revenues include amounts billed to customers on a cycle basis and
unbilled amounts based on estimated usage from the latest billing to the end of
the accounting period.
Nonutility revenues include amounts billed to customers and amounts
accruable under contract terms.
Property, Plant and Equipment and Depreciation
Property, plant and equipment consist primarily of utility plant. The cost
of additions includes contracted cost, direct labor and fringe benefits,
materials, allowable overheads and, for certain utility plant, allowance for
funds used during construction. Utility expenditures for maintenance and
repairs, including minor renewals and betterments, are charged to operating
expenses in accordance with the Uniform System of Accounts prescribed by the
Pennsylvania Public Utility Commission ('PUC'). The cost of new units of
property and betterments are capitalized. When units of utility property are
replaced, retired or abandoned, the recorded value thereof is credited to the
asset account and such value, together with the net cost of removal, is charged
to accumulated depreciation.
The straight-line remaining life method is used to compute depreciation on
utility plant. The straight-line method is used with respect to transportation
and mechanical equipment and nonutility plant and equipment.
Allowance for Funds Used During Construction
The allowance for funds used during construction ('AFUDC') represents the
estimated cost of funds used to finance the construction of utility plant. AFUDC
is applied to construction projects requiring more than one month to complete.
No AFUDC is applied to projects funded by customer advances for construction or
contributions in aid of construction. AFUDC includes the net cost of borrowed
funds and a rate of return on other funds when used, and is recovered through
water rates as the utility plant is depreciated. The amount of AFUDC related to
equity funds was $338, $147 and $730 in 1993, 1992 and 1991, respectively.
Deferred Charges
Deferred bond and preferred stock issuance expenses are amortized by the
straight-line method over the life of the related issues.
Call premiums related to the early redemption of long-term debt of the
utility, along with the unamortized balance of the related issuance expense, are
deferred and amortized over the life of the long-term debt used to fund the
redemption.
The cost of purchased software that is used within the Company is amortized
using the straight-line method over five years.
4
Expenses associated with filing for rate increases are deferred and
amortized over the estimated period the rates will be in effect, approximately
one year.
Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, 'Accounting for Income Taxes' ('SFAS 109'). SFAS
109 requires a change from the deferred method of accounting for income taxes of
Accounting Principles Board Opinion ('APB') 11 to the asset and liability method
of accounting for income taxes. The asset and liability method requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences attributable to differences between financial statement carrying
amounts of existing assets and liabilities and their tax carrying values.
Deferred taxes were not previously provided under APB 11 for those
temporary differences for which the tax effects were flowed through to the
ratepayer. The cumulative effect of the change in accounting for income taxes
resulted in a significant increase in deferred tax liabilities for the water
utility. However it did not have a material effect on net income since the
increase in deferred taxes was offset by increases to a regulatory asset and
utility plant.
Customers' Advances for Construction
Advances are received from customers, real estate developers and builders
principally for construction of water main extensions and are refundable as
operating revenues are earned or as new customers are connected after the
completion of construction. After all refunds are made, any remaining balance is
transferred to contributions in aid of construction.
Contributions in Aid of Construction
Contributions in aid of construction include direct contributions and the
portion of customers' advances for construction which become nonrefundable.
Inventories, Materials and Supplies
Inventories are stated at average cost, not in excess of market value.
Acquisitions
In December 1993, the water utility acquired the franchise rights and the
water utility assets of the Borough of Malvern for $1,323 in cash. This water
supply system serves approximately 859 metered customers in a one square mile
area surrounded by the water utility's existing service territory. Assets
acquired consist primarily of utility plant in service and have been classified
in the accompanying consolidated financial statements on a net basis as
property, plant and equipment pending final allocation. Revenues in 1993 of the
acquired water supply system amounted to approximately $250.
In November 1993, the water utility submitted a proposal to purchase the
water utility assets of a municipally-owned water system for a purchase price in
excess of $20,000. The municipality is presently evaluating the water utility's
proposal, versus one other that it has received, and expects to select the
successful bidder sometime in 1994. The municipal water system serves
approximately 13,000 customers over a 23-square-mile service area contiguous to
the water utility's service territory. Annual revenues from this system
approximate $4,500.
In December 1992, the water utility acquired the franchise rights and the
water utility assets of the West Whiteland Township and the Uwchlan Township
Municipal Authority water systems for $9,128
5
in cash and issuance of a $1,777 9% installment note. These water supply
systems serve approximately 6,900 metered customers in a 40-square-mile area
contiguous to the water utility's service territory. Assets acquired consist
primarily of utility plant in service. Revenues included in the consolidated
financial statements related to the acquired water supply systems amounted to
approximately $2,052 in 1993.
Discontinued Operations
The Board of Directors authorized the sale of substantially all of the
Company's nonregulated businesses. The decision to sell Mentor Information
Systems, Inc., Digital Systems, Inc., Stoner Associates, Inc., Kesler
Engineering, Inc. and American Tele/Response Group, Inc. occurred in September
1990 and the decision to sell PSC Engineers & Consultants, Inc. occurred in
March 1991 (the measurement dates). During 1991, all these businesses were sold
except for American Tele/Response Group, Inc. and Kesler Engineering, Inc.,
which were sold in the first quarter of 1993. The sale of the two companies in
1993 had no impact on the results of operations in 1993.
As a result of deterioration in the operating results and backlog of future
work at the remaining businesses for sale during 1992, and a substantial
reduction in the estimated net proceeds from the ultimate disposition of the
businesses, a charge of $5,500 was taken in the third quarter of 1992 to reflect
the Company's revised estimate of the ultimate loss on the disposition of these
businesses. In the third quarter of 1991, a similar charge of $5,000 was taken
to reflect the then current estimate as to the ultimate outcome of the Company's
divestiture effort. Both charges were based on estimates which considered the
facts and circumstances known at the time the charges were taken, and included
projections of operating results through the expected disposition dates and
estimates of the net proceeds from the dispositions. Delays in finding suitable
buyers, further deterioration in operating performance and the resulting decline
in the estimated net proceeds from the disposition were the most significant
variations from the Company's previous projections as to the ultimate results of
the divestiture efforts. The timing and the net proceeds from the disposition of
the remaining two businesses and the operating losses during the period they
were owned by the Company were within the estimated reserves established in the
third quarter of 1992 and the Company does not foresee the need for any further
charges to income related to discontinued operations.
Reserves related to discontinued operations cover future costs associated
with these operations, including administrative, legal and tax services,
contingent legal and lease obligations and certain employee costs. The notes to
the consolidated financial statements relate to continuing operations, except
where otherwise indicated.
Financial information on the discontinued operations is as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Revenues.................................................................... $ 654 $ 10,693 $ 35,181
Operating expenses.......................................................... 1,783 13,163 38,839
--------- --------- ---------
Operating loss before income taxes.......................................... (1,129) (2,470) (3,658)
Income tax benefits......................................................... (378) (771) (1,203)
--------- --------- ---------
Operating loss.............................................................. (751) (1,699) (2,455)
Provision for loss on disposal.............................................. 751 (3,801) (2,835)
--------- --------- ---------
Loss from discontinued operations........................................... $ -- $ (5,500) $ (5,290)
--------- --------- ---------
--------- --------- ---------
6
Due to the sales of the companies during 1993 and 1991, the operating
results of the discontinued operations are not comparable for the three years
presented, since the operating results of the businesses sold are included only
for the periods prior to their sale.
Operating expenses of the discontinued operations reflect allocated
interest charges of $271 and $1,162 in 1992 and 1991, and other costs of $773,
$228 and $1,697, which were specifically associated with these operations in
1993, 1992 and 1991, respectively. The effective tax rates of the discontinued
operations differ from statutory rates primarily because of the nondeductibility
of goodwill amortization in computing the taxable loss.
Income Taxes
As noted in the Summary of Significant Accounting Policies footnote, the
Company adopted SFAS 109 as of January 1, 1993. Adoption of this standard
resulted in a net increase in deferred tax liabilities as of January 1, 1993 of
$47,399 which reflects deferred taxes that had previously not been recorded by
the water utility. Offsetting the net increase in deferred tax liabilities is a
regulatory asset of $46,480 and an increase in utility plant of $919. The
regulatory asset represents the expected recovery through future water rates of
the reversal of deferred taxes and investment tax credits. The increase in
utility plant reflects the interest component of AFUDC that was previously
accounted for net of tax. Consequently, there is no cumulative effect of this
change in the Consolidated Statement of Income for the year ended December 31,
1993. Prior years' financial statements have not been restated.
Total income tax expense for the year ended December 31, 1993 is allocated
as follows:
Income from continuing operations......................................................... $10,426
Common stockholders' equity related to stock option activity which reduces taxable
income.................................................................................. (65)
---------
$10,361
---------
---------
Income tax expense attributable to income from continuing operations
consists of:
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Current:
Federal......................................................... $ 4,538 $ 5,273 $ 4,312
State........................................................... 2,879 2,401 1,959
--------- --------- ---------
7,417 7,674 6,271
--------- --------- ---------
Deferred:
Federal......................................................... 3,377 500 1,203
State........................................................... (368) (139) (393)
--------- --------- ---------
3,009 361 810
--------- --------- ---------
Total tax expense................................................. $ 10,426 $ 8,035 $ 7,081
--------- --------- ---------
--------- --------- ---------
7
The significant components of deferred income tax expense are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Excess of tax over financial statement depreciation................................ $ 2,112 $ 2,009 $ 1,705
Amortization of deferred investment tax credits.................................... (152) (151) (149)
Current year investment tax credits deferred....................................... 93 133 121
Differences in basis of fixed assets due to variations in tax and book accounting
methods that reverse through depreciation........................................ 889 466 595
Customers' advances for construction, net.......................................... (934) (678) (846)
Effect of change in tax accounting method.......................................... -- (866) --
Adjustment to deferred tax assets and liabilities for enacted changes in the
Federal tax rate................................................................. 2,120 -- --
Adjustment to recognize future rate recovery....................................... (2,116) -- --
Other, net......................................................................... 997 (552) (616)
--------- --------- ---------
Total deferred income tax expense.................................................. $ 3,009 $ 361 $ 810
--------- --------- ---------
--------- --------- ---------
The reasons for the differences between amounts computed by applying the
statutory Federal income tax rate to income before Federal tax and the actual
Federal tax expense are as follows:
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Computed Federal tax expense at statutory rate..................................... $ 7,613 $ 5,576 $ 5,336
Increase (decrease) in tax expense for items to be recovered in future rates:
Depreciation expense............................................................. 151 126 (135)
Losses on asset disposals........................................................ (49) (67) (63)
Costs capitalized for book, expensed for tax, net................................ -- -- 389
Amortization of deferred investment tax credits.................................... (153) (151) (149)
Preferred stock dividend........................................................... 303 294 268
Adjustment to deferred tax assets and liabilities for enacted changes in the
Federal tax rate................................................................. 2,120 -- --
Adjustment to recognize future rate recovery....................................... (2,116) -- --
Other, net......................................................................... 46 (5) (131)
--------- --------- ---------
Actual Federal tax expense......................................................... $ 7,915 $ 5,773 $ 5,515
--------- --------- ---------
--------- --------- ---------
During 1992, the Company filed an application with the Internal Revenue
Service ('IRS') to change its tax accounting method with respect to interest and
overhead costs capitalized on utility plant construction. This application,
which was approved by the IRS, was made in order to place the Company in full
compliance with the uniform capitalization rules of the Internal Revenue Code,
which rules were enacted as part of the Tax Reform Act of 1986. As a result of
this change, the Company amended its 1991 tax returns to incorporate this change
for all utility plant constructed since 1986 and increased its taxable income
for 1991 by $2,548, the cumulative impact of the change on all prior years.
While the result of this change increased current tax expense by $1,073 in 1992,
the Federal tax portion was offset by a deferred tax benefit of $866. Since the
PUC does not allow the recovery of deferred state income taxes through rates,
$312 of additional state income taxes were recorded, which increased the
Company's effective tax rate in 1992 by 1.2%.
8
The tax effects of temporary differences between book and tax accounting
that give rise to the deferred tax assets and deferred tax liabilities at
December 31, 1993 are as follows:
Deferred tax assets:
Customers' advances for construction................................................................. $8,851
Costs expensed for book not deducted for tax, principally accrued expenses and bad debt reserves..... 845
Other................................................................................................ 386
---------
Total gross deferred tax assets...................................................................... 10,082
Less valuation allowance............................................................................. --
Net deferred tax assets................................................................................ 10,082
---------
Deferred tax liabilities:
Utility Plant, principally due to depreciation and differences in the basis of fixed assets due to
variation in tax and book accounting.............................................................. 54,269
Deferred taxes associated with the gross-up of revenues necessary to recover, in rates, the effect of
temporary differences............................................................................. 19,864
Deferred investment tax credit....................................................................... 4,500
Other................................................................................................ 586
---------
Total gross deferred tax liabilities................................................................... 79,219
---------
Net deferred tax liability............................................................................. $69,137
---------
---------
At December 31, 1992 and 1991, the Company's deferred tax liabilities were
$15,695 and $15,464, respectively.
The Company made income tax payments, which include amounts related to
discontinued operations, of $7,786, $5,134 and $5,335 in 1993, 1992 and 1991,
respectively. The Company's Federal income tax returns for all years through
1987 have been closed.
Accounts Receivable
DECEMBER 31,
--------------------
1993 1992
--------- ---------
Billed water revenue............................................................ $ 7,299 $ 7,315
Unbilled water revenue.......................................................... 10,531 9,227
Nonutility revenue.............................................................. 501 118
--------- ---------
18,331 16,660
Less allowance for doubtful accounts............................................ 200 200
--------- ---------
Net accounts receivable......................................................... $ 18,131 $ 16,460
--------- ---------
--------- ---------
All of the Company's customers are located in southeastern Pennsylvania. No
single customer accounted for more than five percent of the Company's sales in
1993 or 1992 and no account receivable from any customer exceeded five percent
of the Company's total stockholders' equity.
9
Property, Plant and Equipment
DECEMBER 31,
------------------------
1993 1992
----------- -----------
Utility plant and equipment............................................... $ 428,737 $ 390,138
Utility construction in progress.......................................... 2,307 9,343
Nonutility plant and equipment............................................ 2,258 2,395
----------- -----------
Total property, plant and equipment....................................... $ 433,302 $ 401,876
----------- -----------
----------- -----------
Depreciation is computed based on estimated useful lives of 5 to 110 years
for utility plant and 3 to 10 years for both utility transportation and
mechanical equipment, and all nonutility plant and equipment.
Utility plant and equipment at December 31, 1993 includes the net assets of
the water system acquired in December 1993.
Regulatory Asset
A regulatory asset was established in 1993 in recognition of the expected
recovery through future water rates of the additional liabilities associated
with the adoption of Statement of Financial Accounting Standards No. 106
'Employers' Accounting for Postretirement Benefits Other Than Pensions' ('SFAS
106') and SFAS 109 'Accounting for Income Taxes'. The components of the
regulatory assets as of December 31, 1993 are as follows:
Income Taxes..................................................................... $49,533
Postretirement Benefits other than Pensions...................................... 1,696
---------
$51,229
---------
---------
Commitments
The water utility maintains agreements with the Chester Water Authority and
the Bucks County Water and Sewer Authority for the purchase of water in order to
supplement its water supply, particularly during periods of peak demand. The
agreements stipulate purchases of minimum quantities of water to the year 2017.
The estimated annual commitments related to such purchases total
approximately $2,637 through 1998. The water utility purchased approximately
$2,922 $2,649 and $3,006 of water under these agreements during the years ended
December 31, 1993, 1992 and 1991, respectively.
The water utility leases motor vehicles and other equipment under operating
leases which are noncancellable and expire on various dates through 1997. During
the next five years, $1,191 of future minimum lease payments are due: $768 in
1994, $314 in 1995, $108 in 1996, and $1 in 1997. Rent expense was $1,134 $1,019
and $927 for the years ended December 31, 1993, 1992 and 1991, respectively.
10
Long-term Debt and Loans Payable
DECEMBER 31,
------------------------
1993 1992
----------- -----------
First Mortgage Bonds secured by utility plant:
6.875% Series, due 1993 (a)....................................................... $ -- $ 4,500
4.550% Series, due 1994 (a)....................................................... 4,000 4,000
10.125% Series, due 1995 (b)....................................................... -- 4,400
5.500% Series, due 1996 (a)....................................................... 4,000 4,000
7.875% Series, due 1997 (a)....................................................... 5,000 5,000
8.440% Series, due 1997 (c)....................................................... 12,000 12,000
9.200% Series, due 2001 (b)....................................................... -- 3,150
8.400% Series, due 2002 (b)....................................................... 5,050 5,500
5.950% Series, due 2002 (b)....................................................... 3,600 4,000
12.450% Series, due 2003 (b)....................................................... -- 10,000
13.000% Series, due 2005 (b)....................................................... 8,000 8,000
10.650% Series, due 2006 (b)....................................................... 10,000 10,000
9.890% Series, due 2008 (c)....................................................... 5,000 5,000
7.150% Series, due 2008 (b)....................................................... 22,000 --
9.120% Series, due 2010 (c)....................................................... 20,000 20,000
6.500% Series, due 2010 (b)....................................................... 3,200 3,200
9.170% Series, due 2011 (c)....................................................... 5,000 5,000
9.930% Series, due 2013 (c)....................................................... 5,000 5,000
9.970% Series, due 2018 (c)....................................................... 5,000 5,000
9.170% Series, due 2021 (b)....................................................... 8,000 8,000
9.290% Series, due 2026 (c)....................................................... 12,000 12,000
----------- -----------
Total First Mortgage Bonds........................................................... 136,850 137,750
Note payable to bank under revolving credit agreement, due February 1994............. 11,580 20,062
Revenue note, 9.5%, due December 1993................................................ -- 2,500
Installment note payable, 9%, due in equal annual payments through December 2013..... 1,746 1,777
----------- -----------
150,176 162,089
Current portion of long-term debt.................................................... 4,884 8,581
----------- -----------
Long-term debt, excluding current portion............................................ $ 145,292 $ 153,508
----------- -----------
----------- -----------
Proforma weighted cost of long-term debt at December 31,............................. 8.4% 8.6%
----------- -----------
----------- -----------
- ------------------
(a) Provisions of the water utility's trust indenture and supplements thereto
relating to these First Mortgage Bonds require sinking fund payments
amounting to 1/2 of 1% of the maximum aggregate principal amount of these
bonds outstanding. These sinking fund payments may be deferred until final
maturity by certification to the Trustee of the net amount of available
permanent additions to utility plant. All prior sinking fund requirements
have been deferred by such certification and it is expected that they will
be deferred in the same manner for the next five years.
(b) The supplemental trust indentures relating to these First Mortgage Bonds
require annual sinking fund payments.
(c) The supplemental trust indentures relating to these First Mortgage Bonds
require no annual sinking fund payments.
11
The supplemental indentures with respect to certain issues of the Bonds
restrict the ability of the water utility to declare dividends, in cash or
property, or repurchase or otherwise acquire the water utility's stock. As of
December 31, 1993, approximately $51,000 of retained earnings were free of these
restrictions. Certain supplemental indentures also prohibit the water utility
from making loans to or purchasing the stock of the Company.
Except for the amounts due under the water utility's revolving credit
agreement, the Company's sinking fund payments and debt maturities for the next
five years are as follows:
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
Sinking fund payments, net of expected deferrals.............. $ 850 $ 850 $ 1,650 $ 2,650 $ 4,650
Maturities.................................................... 4,034 37 4,040 17,044 48
--------- --------- --------- --------- ---------
Total......................................................... $ 4,884 $ 887 $ 5,690 $ 19,694 $ 4,698
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
In April 1993, the water utility issued $22,000 First Mortgage Bonds 7.15%
Series due 2008. Proceeds from this issue were used to fund the 1993 retirement
of the First Mortgage Bonds noted below and to repay amounts outstanding under
the water utility's revolving credit agreement. In June 1992, the water utility
issued $7,200 of First Mortgage Bonds in two series: $4,000 5.95%, due 2002 and
$3,200 6.5%, due 2010. The proceeds from these bonds were used to retire $7,200
First Mortgage Bonds 8.875% Series due 2010, at a premium of 2% or $144. The
unamortized bond issuance expenses related to the 1992 retirements were $90.
In May 1993, the water utility retired $4,400 First Mortgage Bonds 10.125%
Series due 1995 and $3,150 First Mortgage Bonds 9.2% Series due 2001 at premiums
of .447% or $20 and 3.07% or $97, respectively. In August 1993, the water
utility retired $10,000 First Mortgage Bonds 12.45% Series due 2003 at a premium
of 5.12% or $512. The unamortized bond issuance expenses related to the 1993
retirements were $28. The premiums paid on the early retirement of debt, along
with the related unamortized bond issuance expense, were capitalized and are
being amortized, in accordance with the Uniform System of Accounts prescribed by
the PUC, over the life of the long-term debt used to fund the redemption.
The water utility has a $22,000 revolving credit agreement due February
1994. The agreement had been amended to temporarily increase the available
borrowings under this facility by $10,000 from August 1992 to April 1993 when
proceeds were received from the issuance of bonds. Interest under this facility
is based, at the water utility's option, on the prime rate, an adjusted federal
funds rate, an adjusted certificate of deposit rate corresponding to the
interest period selected or an adjusted Euro-Rate corresponding to the interest
period selected. A commitment fee of 1/4 of 1% is charged on the unused portion
of the loan. The average cost of borrowing under this facility was 4.0 and 4.2%,
and the average borrowing was $11,723 and $9,011 during 1993 and 1992,
respectively.
In February 1994, the water utility replaced its expiring revolving credit
facility with a $30,000 revolving credit agreement due March 1998. The terms of
the new facility and the interest rate selection are substantially the same as
the expiring facility. This agreement restricts the total amount of short-term
borrowings of the water utility. A commitment fee of 1/8 of 1% is charged on the
unused portion of the loan. The note payable to banks under the existing
revolving credit agreement has been classified as long-term debt since funds
under this new facility will be used to repay amounts outstanding under the
existing facility.
In 1992, a 9% installment note payable for $1,777 was issued in connection
with the acquisition of the water utility assets of the Uwchlan Township
Municipal Authority. This note requires annual payments of $191 which consist of
both principal and interest.
12
During 1992, the Company retired $25,000 of the 10.125% Debentures due July
1998 at a premium of 4.27% or $1,068. The premium, plus the write-off of the
associated bond issuance expense of $195, net of income tax benefits of $429,
have been classified as an extraordinary charge in the Company's Consolidated
Statements of Income.
At December 31, 1993 and 1992, the Company and the water utility had
short-term lines of credit totaling $4,000. Funds borrowed under these lines are
classified as loans payable and are used to provide working capital. The average
borrowing under the lines was $393 and $686 during 1993 and 1992, respectively.
The maximum amount outstanding at the end of any one month
was $819 in 1993 and $2,190 in 1992. Borrowings are at the lesser of the prime
rate or an adjusted federal funds rate. In 1993 and 1992, a commitment fee of
1/4 of 1% was charged on the unused portion of the lines of credit. The average
cost of borrowings under all lines during 1993 and 1992 was 4.4% and 4.9%,
respectively.
The total amount of interest paid on all borrowings, net of amounts
capitalized, was $13,327, $16,876 and $15,184 in 1993, 1992 and 1991,
respectively.
Fair Value of Financial Instruments
The carrying amount of current assets and liabilities which are considered
financial instruments approximates their fair value as of the dates presented.
The carrying amounts and estimated fair values of the Company's long-term
financial liabilities as of December 31, 1993 are as follows:
CARRYING ESTIMATED
AMOUNT FAIR VALUE
----------- -----------
Long-term debt............................................................ $ 150,176 $ 177,562
Preferred stock of subsidiary with mandatory redemption................... 10,000 11,126
The fair value of long-term debt and preferred stock has been determined by
discounting their future cash flows using current market interest or dividend
rates for similar financial instruments of the same duration. The Company's
customers' advances for construction and related tax deposits have carrying
values of $24,379 and $6,179, respectively at December 31, 1993. Their relative
fair values cannot be accurately estimated since future refund payments depend
on several variables, including new customer connections, customer consumption
levels and future rate increases. Portions of these non-interest-bearing
instruments are payable annually through 2014, and amounts not paid by the
contract expiration dates become non-refundable. The fair value of these amounts
would, however, be less than their carrying value due to the non-interest
bearing feature.
Preferred Stock of Subsidiary with Mandatory Redemption
In February 1991, the water utility issued 100,000 shares of 8.66% Series 1
Cumulative Preferred Stock, at par value of $100 per share in a private
placement. Dividends of this issuance are payable quarterly and are cumulative.
These shares are subject to mandatory redemption through an annual sinking fund
equal to the par value of 14,285 shares plus accrued dividends starting in 1995
and ending in 2001. The sinking fund requirements may be met by a direct
redemption of outstanding shares at par value plus any accrued dividends. The
water utility has the right to redeem all or a portion of the preferred stock at
a price above par beginning in 1995. Under the terms of the Stock Purchase
Agreement, the water utility may not pay dividends on its common stock unless
provision has been made for payment of the preferred dividends. As of December
31, 1993, all preferred dividends have been provided for. The water utility is
authorized to issue up to 1,000,000 shares of preferred stock, with stated par
value, in one or more series.
13
Net Income per Share and Equity per Common Share
Net income per share is based on the weighted average number of common and
dilutive common equivalent shares outstanding during the year. Common equivalent
shares arise from stock options.
Equity per common share was $11.89 and $10.88 at December 31, 1993 and
1992, respectively. These amounts were computed by dividing common
stock-holders' equity by the number of shares of common stock outstanding at the
end of each year.
Common Stockholders' Equity
At December 31, 1993, the Company had 20,000,000 shares of common stock
authorized; par value $.50. Shares outstanding at December 31, 1993, 1992 and
1991 were 11,429,968, 9,831,824 and 8,034,496, respectively. Treasury shares
held at December 31, 1993, 1992 and 1991 were 135,472, 83,837 and 82,154,
respectively.
At December 31, 1993, the Company had 1,770,819 shares of authorized but
unissued Series Preferred Stock, $1.00 par value.
CAPITAL
IN
COMMON TREASURY EXCESS OF RETAINED
STOCK STOCK PAR VALUE EARNINGS TOTAL
----------- --------- --------- --------- -----------
Balance at December 31, 1990........................... $ 3,931 $ (177) $ 40,874 $ 40,828 $ 85,456
Net income............................................. -- -- -- 4,889 4,889
Dividends.............................................. -- -- -- (7,859) (7,859)
Sale of stock.......................................... 121 -- 3,196 -- 3,317
Executive Incentive Award Plan......................... -- (62) (262) -- (324)
Exercise of stock options.............................. 6 -- 136 -- 142
----------- --------- --------- --------- -----------
Balance at December 31, 1991........................... 4,058 (239) 43,944 37,858 85,621
----------- --------- --------- --------- -----------
Net income............................................. -- -- -- 4,292 4,292
Dividends.............................................. -- -- -- (8,866) (8,866)
Sale of stock.......................................... 869 -- 24,322 -- 25,191
Repurchase of stock.................................... -- (26) -- -- (26)
Exercise of stock options.............................. 31 -- 728 -- 759
----------- --------- --------- --------- -----------
Balance at December 31, 1992........................... 4,958 (265) 68,994 33,284 106,971
----------- --------- --------- --------- -----------
Net income............................................. -- -- -- 13,835 13,835
Dividends.............................................. -- -- -- (11,629) (11,629)
Sale of stock.......................................... 759 -- 25,111 -- 25,870
Repurchase of stock.................................... -- (992) -- -- (992)
Exercise of stock options.............................. 66 -- 1,813 -- 1,879
----------- --------- --------- --------- -----------
Balance at December 31, 1993........................... $ 5,783 $ (1,257) $ 95,918 $ 35,490 $ 135,934
----------- --------- --------- --------- -----------
----------- --------- --------- --------- -----------
In April 1993, the Company issued 1,100,000 shares of its common stock
through a public offering, resulting in proceeds of $18,331, net of expenses.
The proceeds of the offering and the stock plans described below were used by
the Company to fund $29,000 of equity investments in the water utility during
1993.
The Company has a Customer Stock Purchase Plan for the water utility's
customers, and a Dividend Reinvestment and Optional Stock Purchase Plan for
existing shareholders. Shares of common stock are sold at a five percent
discount from the current market value under the Dividend Reinvestment Plan.
Under these plans, 417,501, 1,737,461 and 243,019 shares of common stock were
sold providing the
14
Company with $7,539, $25,191 and $3,317 of additional
capital, after expenses, during 1993, 1992 and 1991, respectively.
In August 1993, the Board of Directors approved a resolution authorizing the
Company to purchase, from time to time, up to 250,000 shares of its common stock
in the open market or through privately
negotiated transactions. The number of shares purchased by the Company, if any,
is limited to the number of shares sold under its Employee Stock Option Plans,
Customer Stock Purchase Plan or Dividend Reinvestment and Optional Stock
Purchase Plan. The purchase of shares has been authorized in order to offset the
dilutive effect on earnings per share of issuances of additional shares under
these plans. Funding for any stock purchases is not expected to have a material
impact on the Company's financial position. During 1993, 51,635 shares have been
purchased at a net cost of $992.
Shareholder Rights Plan
The Company has a Shareholder Rights Plan designed to protect the Company's
shareholders in the event of an unsolicited unfair offer to acquire the Company.
Each outstanding common share is entitled to one Right which is evidenced by the
common share certificate. In the event that any person
acquires 25% or more of the outstanding common shares or commences a tender or
exchange offer which, if consummated, would result in a person or corporation
owning at least 30% of the outstanding common shares of the Company, the Rights
will begin to trade independently from the common shares and, if certain
circumstances occur, including the acquisition by a person of 25% or more of the
outstanding common shares, each Right would then entitle its holder to purchase
a number of common shares of the Company at a substantial discount. If the
Company is involved in a merger or other business combination at any time after
the Rights become exercisable, the Rights will entitle the holder to acquire a
certain number of shares of common stock of the acquiring company at a
substantial discount. The Rights are redeemable by the Company at a redemption
price of $.02 per Right at any time before the Rights become exercisable. The
Rights will expire on March 1, 1998, unless previously redeemed.
Employee Stock Plans
The 1982 Stock Option Plan, which was terminated effective March 1988, was,
and the 1988 Stock Option Plan is intended to provide officers and other key
employees of the Company and its subsidiaries with an incentive in the form of a
proprietary interest in the Company. These plans provide for the granting of
qualified and nonqualified options to purchase the Company's common stock at not
less than 100% of the market price on the day of grant. No additional grants may
be made from the 1982 plan; 425,000 shares were reserved for grants under the
1988 plan. Generally, options are exercisable in installments of 20% annually
starting one year from the date of the grant and expire 10 years from the date
of the grant.
The following table summarizes stock option transactions for both the 1982
and 1988 Plans:
YEARS ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- ---------- ----------
Options granted............................................. 128,000 130,000 26,000
Options terminated.......................................... (95,100) (2,500) (183,800)
Options exercised........................................... (136,800) (61,550) (11,500)
---------- ---------- ----------
Net change.................................................. (103,900) 65,950 (169,300)
---------- ---------- ----------
---------- ---------- ----------
Balance of shares under option.............................. 384,300 488,200 422,250
---------- ---------- ----------
---------- ---------- ----------
15
Options exercised during 1993 ranged in price from $11.46 per share to
$15.63 per share. The shares under option at December 31, 1993 are exercisable
at prices ranging from $12.88 to $17.13 per share. At December 31, 1993, 122,740
shares were exercisable, and 500 options were available for grant.
The Executive Incentive Award Plan, as amended, awarded key executives and
senior managers incentive bonuses by allowing them to purchase a specified
number of shares of common stock at par value. Awards under the plan are subject
to vesting restrictions, generally five years from the date of issue. The plan
expired by its terms on December 31, 1991, but one previous grant remains
outstanding. At December 31, 1993 and 1992, 10,000 shares of stock were subject
to vesting restrictions.
Pension Plans and Other Postretirement and Postemployment Benefits
The Company has defined benefit pension plans which cover the majority of
all full-time employees. Retirement benefits under the plans are generally based
on the employee's total years of service and compensation during the last five
years of employment. The Company's policy is to fund these plans annually at a
level which is deductible for income tax purposes and which provides assets
sufficient to meet its pension obligations. As a result of certain limitations
imposed by the Internal Revenue Code with respect to payments under qualified
plans, the Company, in 1989, adopted a nonqualified Excess Benefit Plan for
Salaried Employees in order to prevent certain employees from being penalized by
these limitations. The Company also has a Supplemental Executive Retirement Plan
for two employees. The net pension costs and obligations of these plans are
included in the tables which follow.
The Company's pension expense includes the following components:
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
Benefits earned during the year.................................... $ 1,062 $ 897 $ 1,193
Interest cost on projected benefit obligation...................... 3,026 2,758 2,838
Actual return on plan assets....................................... (4,989) (2,571) (9,094)
Net amortization and deferral...................................... 1,643 (764) 6,223
Capitalized costs.................................................. (69) -- (228)
Rate-regulated adjustment.......................................... (375) (320) 465
--------- --------- ---------
Net pension cost................................................... $ 298 $ -- $ 1,397
--------- --------- ---------
--------- --------- ---------
The rate-regulated adjustment set forth above is required in order to
reflect pension expense for the water utility in accordance with the method used
in establishing the current water rates.
16
The assets and obligations of the plans are as follows:
DECEMBER 31,
--------------------
1993 1992
--------- ---------
Accumulated benefit obligation:
Vested.......................................................... $ 32,869 $ 27,192
Nonvested....................................................... 1,892 1,608
--------- ---------
Total........................................................... $ 34,761 $ 28,800
--------- ---------
--------- ---------
Projected benefit obligation...................................... $ 43,551 $ 36,628
Plan assets at fair value, primarily equity and fixed income
commingled funds................................................ 41,744 38,031
--------- ---------
Plan assets in excess of (less than) projected benefit
obligation...................................................... (1,807) 1,403
Unrecognized net loss (gain) from past experience different from
that assumed and effects of changes in assumptions.............. 948 (1,385)
Unrecognized prior service cost................................... 533 477
Rate-regulated adjustment......................................... (328) (1,144)
Unrecognized net obligation....................................... 718 837
--------- ---------
Prepaid pension costs included in other current assets............ $ 64 $ 188
--------- ---------
--------- ---------
The accumulated benefit obligation represents the actuarial present value
of benefits based on historical compensation and historical years of service.
The projected benefit obligation represents the actuarial present value of
benefits based on future projected compensation levels and historical years of
service. The unrecognized net obligation is being amortized over 15 years
starting January 1986 and the unrecognized prior service cost is being amortized
over 14 years starting January 1990.
The accumulated and projected benefit obligations were calculated using the
projected unit credit method, and reflect the following assumptions: discount
rates of 7.00% for 1993, 8.00% for 1992 and 8.25% for 1991; increase in future
compensation levels of 5.5% for 1993 and 6.5% for 1992 and 1991; and long-term
rate of return on assets of 10% for 1993, 1992 and 1991.
In addition to providing pension benefits the water utility offers certain
Postretirement Benefits other than Pensions ('PBOPs') to employees retiring with
at least 15 years of service. These PBOPs include continuation of medical and
prescription drug benefits for all eligible retirees and a life insurance policy
for eligible union retirees.
In 1993, the water utility amended its postretirement medical and
prescription drug benefits for non-union employees adopting a graduated
eligibility schedule applicable to employees who had not met the eligibility
requirements of 15 years of service and at least 55 years of age to participate
in the plan as of December 31, 1993. Additionally, the 1993 amendments shift the
burden of excessive future medical inflation to such non-eligible employees as
the water utility's contribution toward the benefits is limited to a medical
inflation rate of no more than 5% per year.
In January 1993, the Company adopted SFAS 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions'. Under SFAS 106, the cost of PBOPs
is recognized on an accrual basis as employees perform services for the Company.
Prior to 1993, the costs for these benefits were recognized on a cash, or
'pay-as-you-go' basis.
As of January 1, 1994, the Company's Accumulated Postretirement Benefit
Obligation ('APBO') related to SFAS 106 was approximately $15,580. The annual
1993 PBOP costs computed
17
under SFAS 106 are $2,260, which include a 20-year
amortization of the Company's APBO and $564 of 'pay-as-you-go' costs. The
Company's 1992 and 1991 PBOP costs computed under the 'pay-as-you-go' method
were $511 and $446, respectively. Costs computed under SFAS 106 for 1993
included the following components:
1993
---------
Benefits earned during the period................................................. $ 325
Interest cost..................................................................... 1,192
Amortization of APBO.............................................................. 743
---------
Gross PBOP cost................................................................... 2,260
Adjustment to recognize future rate recovery...................................... (1,696)
---------
Net PBOP cost..................................................................... $ 564
---------
---------
The water utility's current water rates include recovery of PBOP costs on
the 'pay-as-you-go' basis. In November, 1993, the PUC approved deferral of the
water utility's incremental SFAS 106 costs until such time as they are included
in the Company's base rates. In granting this approval, the PUC declared the
regulatory asset recorded pursuant to their decision allowable for ratemaking
purposes in Pennsylvania and concluded that the water utility was allowed to
make a claim to recover in rates both the annual SFAS 106 costs and the
regulatory asset. These acknowledgements, coupled with the PUC's 1993 actions to
approve SFAS 106 costs in other utility rate proceedings, provide sufficient
basis for the establishment of a regulatory asset in accordance with Statement
of Financial Accounting Standards No. 71, 'Accounting for the Effects of Certain
Types of Regulation' and the Financial Accounting Standards Board's ('FASB')
Emerging Issues Task Force consensus position. Accordingly, a regulatory asset
has been established for such deferrals. As a result, the adoption of SFAS 106
has had no effect on the Company's results of operations for 1993 and the
Company does not expect the adoption of this standard to have a significant
impact on future period operating results. In December 1993, the water utility
initiated a base rate filing with the PUC requesting, among other things,
recovery through water rates of its PBOP costs computed under SFAS 106,
including a five-year amortization of the SFAS 106 costs it has recorded as a
regulatory asset. The Pennsylvania Office
of Consumer Advocate has appealed other utility rate decisions to the
Commonwealth Court, when the PUC allowed rate recovery of the utility's
incremental SFAS 106 costs. If the Court should reverse the PUC decision, the
Company's 1994 SFAS 106 expense and all amounts previously
deferred would likely be charged to expense, reducing 1994 net income by
approximately $1,900.
The APBO and the 1993 PBOP costs are calculated utilizing the following
assumptions: discount rate of 7%; medical inflation rates of 12%, reducing to 5%
in 1994 for those employees not eligible by December 31, 1993, and to 4.5% by
2002 for all others; and no return on plan assets. The effect of a 1% increase
in the assumed medical inflation rates would be to increase the APBO and the
1993 PBOP costs by $1,940 and $196, respectively.
The Company has not begun funding its SFAS 106 liability and expects to do
so in conjunction with the inclusion of these costs in water rates, anticipated
in the third quarter of 1994.
In November 1992, FASB issued Statement of Financial Accounting Standards
No. 112 'Employers' Accounting for Postemployment Benefits' ('SFAS 112'). Under
SFAS 112, the cost of postemployment benefits must be recognized on an accrual
basis as employees perform services for the Company. The costs for these
benefits are currently recognized at the time they are paid. Many of the
provisions and concepts of SFAS 112 are similar to current standards on
accounting for pensions and postretirement benefits. Historically, the Company
has experienced minimal postemployment medical costs and the Company has already
established adequate reserves for other costs which are accruable
74
under this standard. Consequently, the implementation of SFAS 112 in the first
quarter of 1994 is expected to have little or no impact on the results of
operations or financial position of the Company.
Water Rates
The water utility filed an application with the PUC on December 3, 1993
requesting a $14,000 or 14% increase in annual revenues. This application is
currently pending before the PUC and a final determination is anticipated before
September 1994.
The water utility has been granted rate increases of 7.4% and 7.7%
effective June 1, 1993 and October 18, 1991, respectively. These increases were
calculated to provide annual revenues of approximately $6,750 and $6,530,
respectively. In addition to the general rate increases, the water utility, in
August 1991, was permitted to add a surcharge to its bills in order to recover
costs associated with Pennsylvania tax rate increases. The surcharge generated
additional revenue of $706, $2,281 and $1,292 in 1993, 1992 and 1991,
respectively. Effective June 1, 1993, the Company no longer added the surcharge
to its bills as the appropriate costs were included in the water rates which
took effect on that date.
Selected Quarterly Financial Data (Unaudited)
1993
-------------------------------------------------------
TOTAL
FIRST SECOND THIRD FOURTH YEAR
--------- --------- --------- --------- -----------
Earned revenues...................................... $ 22,726 $ 25,048 $ 27,948 $ 25,522 $ 101,244
Operating expenses................................... 10,733 11,205 12,078 11,973 45,989
Net income........................................... 2,587 3,604 4,257 3,387 13,835
Net income per share................................. .26 .33 .38 .30 1.27
Dividend paid per share.............................. .26 .27 .27 .27 1.07
Price range of common stock
- high............................................. 18.25 18.38 20.75 20.13 20.75
- low.............................................. 15.63 17.25 18.13 17.75 15.63
1992
-------------------------------------------------------
Earned revenues...................................... $ 22,925 $ 23,236 $ 24,175 $ 22,971 $ 93,307
Operating expenses................................... 10,875 10,594 11,151 10,404 43,024
Income, continuing operations........................ 2,102 2,628 3,071 2,825 10,626
Income per share, continuing operations.............. .26 .32 .35 .30 1.23
Loss, discontinued operations........................ -- -- (5,500) -- (5,500)
Loss per share, discontinued operations.............. -- -- (.63) -- (.63)
Extraordinary charge................................. -- -- (784) (50) (834)
Extraordinary charge per share....................... -- -- (.09) (.01) (.10)
Net income (loss).................................... 2,102 2,628 (3,213) 2,775 4,292
Net income (loss) per share.......................... .26 .32 (.37) .29 .50
Dividend paid per share.............................. .26 .26 .26 .26 1.04
Price range of common stock
- high............................................. 16.00 14.88 16.38 16.63 16.63
- low.............................................. 14.38 13.75 14.25 15.63 13.75
High and low prices of the Company's common stock are as traded on the New
York Stock Exchange.
18
MANAGEMENT'S REPORT
The consolidated financial statements and related information for the years
ended December 31, 1993, 1992 and 1991 were prepared by management in accordance
with generally accepted accounting principles and include management's best
estimates and judgments, as required. Financial information included in other
sections of this annual report is consistent with that in the consolidated
financial statements.
The Company has an internal accounting control structure designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly authorized and recorded in accordance with established policies and
procedures. The internal control structure is supported by the selection and
training of qualified personnel, the delegation of management authority and
responsibility and dissemination of policies and procedures.
The Company's independent auditors, KPMG Peat Marwick, provide an
independent review of management's reporting of results of operations and
financial condition. KPMG Peat Marwick has audited the financial statements by
conducting tests as they deemed appropriate and their report follows.
The Board of Directors through the Audit Committee selects the Company's
independent auditors and reviews the scope and results of their audits. The
Audit Committee also reviews the adequacy of the Company's internal control
structure and other significant matters. The Audit Committee is composed of
three outside Directors who meet periodically with management and the
independent auditors. The Audit Committee held two meetings in 1993.
Nicholas DeBenedictis Michael P. Graham
Chairman and President Senior Vice President -- Finance
and Treasurer
19
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Philadelphia Suburban Corporation:
We have audited the accompanying consolidated balance sheets of
Philadelphia Suburban Corporation and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, and cash flows for each
of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Philadelphia
Suburban Corporation and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in the notes to the consolidated financial statements, the
Company changed its method of accounting for income taxes and postretirement
benefits other than pensions to adopt the provisions of Financial Accounting
Standards Board Statements of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' and No. 106, 'Employers' Accounting for
Postretirement Benefits Other Than Pensions'.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
February 1, 1994
20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
General Information
Philadelphia Suburban Corporation ('PSC' or the 'Company') is composed of
two businesses, a regulated water utility (Philadelphia Suburban Water Company
or 'PSW'), and a nonregulated data processing service bureau (Utility &
Municipal Services, Inc.). The service bureau operations are not significant to
the financial results of the Company and, therefore, are not discussed
separately. In 1990, the Board of Directors authorized the sale of Mentor
Information Systems, Inc., Digital Systems, Inc., American Tele/Response Group,
Inc., Stoner Associates, Inc., and its subsidiary Kesler Engineering, Inc.; and
in the first quarter of 1991, the Board of Directors authorized the sale of PSC
Engineers & Consultants, Inc. In 1991, the Company sold all of these businesses
with the exception of American Tele/Response Group, Inc. and Kesler Engineering,
Inc., which were both sold in early 1993. The results of operations of these
businesses during the period they were owned by the Company are accounted for as
discontinued operations. See Results of Operations - Discontinued Operations.
Results of Operations
Following are selected five-year financial statistics for the Company:
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1993 1992 1991 1990 1989
----------- --------- --------- --------- ---------
Earned revenues...................................... $ 101,244 $ 93,307 $ 88,648 $ 82,267 $ 75,993
----------- --------- --------- --------- ---------
Income from continuing operations before income
taxes.............................................. $ 24,261 $ 18,661 $ 17,260 $ 15,569 $ 14,776
----------- --------- --------- --------- ---------
Operating Statistics
Earned revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Operating expenses................................. 45.4 46.1 48.1 51.2 51.0
Depreciation and amortization...................... 10.8 10.1 9.3 9.6 9.4
Taxes other than income taxes...................... 6.8 7.0 6.9 5.5 5.1
Interest and debt expenses*........................ 13.8 17.1 17.5 17.4 16.4
Allowance for funds used during construction....... (0.8) (0.3) (1.3) (2.6) (1.3)
----------- --------- --------- --------- ---------
Total costs and expenses............................. 76.0 80.0 80.5 81.1 80.6
----------- --------- --------- --------- ---------
Income from continuing operations before income
taxes.............................................. 24.0% 20.0% 19.5% 18.9% 19.4%
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Effective tax rates.................................. 43.0% 43.1% 41.0% 37.5% 37.2%
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
Income from continuing operations as a percentage of
average common stockholders' equity................ 11.4% 11.0% 11.9% 11.4% 11.1%
----------- --------- --------- --------- ---------
----------- --------- --------- --------- ---------
- ------------------
* Includes dividends on preferred stock of subsidiary with mandatory redemption.
21
Following are selected five-year operating and sales statistics for PSW:
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
Daily sendout (Million gallons per day)
Maximum....................................... 120.7 101.3 109.5 103.4 96.4
Average....................................... 89.1 85.4 87.2 88.4 87.9
----------- ----------- ----------- ----------- -----------
Metered customers
Residential................................... 232,684 230,740 223,635 222,660 221,524
Commercial.................................... 10,720 10,547 9,800 9,763 9,634
Industrial.................................... 832 837 820 831 836
Other......................................... 2,959 2,664 2,361 2,206 2,036
----------- ----------- ----------- ----------- -----------
Total...................................... 247,195 244,788 236,616 235,460 234,030
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Consumption per customer in gallons
Average....................................... 110,368 108,258 110,978 110,281 111,948
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Revenues from water sales
Residential................................... $ 66,656 $ 60,239 $ 58,053 $ 53,702 $ 48,591
Commercial.................................... 20,112 19,235 18,031 16,712 15,082
Industrial.................................... 4,601 4,500 4,126 4,083 3,861
Other......................................... 8,092 7,577 6,856 6,205 5,581
----------- ----------- ----------- ----------- -----------
Total...................................... $ 99,461 $ 91,551 $ 87,066 $ 80,702 $ 73,115
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Income from continuing operations of the Company has grown at an annual
compound rate of approximately 8.4% during the five-year period ended December
31, 1993. During this same period, revenues and total expenses, other than
income taxes, have grown at compound rates of 6.7% and 5.7%, respectively.
Earned Revenues
Water revenues have accounted for approximately 98% of the Company's earned
revenues from continuing operations during the five-year period covered above.
The balance of the revenue from continuing operations is primarily associated
with data processing services that have remained relatively constant.
The growth in water revenues over the past five years is primarily a result
of increases in rates and, to a lesser extent, an increase in customer base.
Revenues in 1993 also increased as a result of the December 1992 acquisitions of
two municipal water systems which provided water revenues of $2,052. Excluding
the 7,748 customers that were added as a result of the acquisitions in December
1992 and 1993, the customer base increased at a five-year annual compound rate
of .6%. This increase represents normal expansion within the water utility's
established 339-square-mile service territory. Water rates have increased by 32%
since 1989, reflecting an annual compound growth rate of 5.6% over the five-year
period.
Rates charged by PSW for water service are subject to the approval of the
Pennsylvania Public Utility Commission ('PUC'). PSW continuously reviews the
necessity of filing applications with the PUC for increases in rates charged for
water service. Among the factors considered by management in determining the
need to apply for increased rates are: changes in the cost of capital and the
capital structure of PSW; increases in operating expenses (including wages,
fringe benefits, electric and chemical expenses), depreciation and taxes
experienced since the previous rate decision; and the amount of utility plant
additions and replacements made since the previous rate decision. Based on these
assessments, PSW will periodically file a request with the PUC to increase its
rates. Typically, the PUC will suspend the rate request for up to nine months
during which time hearings on the merits of the request are held. During these
hearings, the views of PSW as well as the PUC staff, the Consumer Advocate and
other interested parties are presented and evaluated.
22
The return allowed on PSW's common equity is a major factor in the
determination of rates and is also evaluated before applying for a rate
increase. The return on common equity allowed by the PUC has declined in recent
years from 13.7% allowed in the 1988 increase. The 1991 rate increase, in which
a 12% return on common equity was allowed, was the most recent request that the
PUC specified a return on common equity for PSW. The rate increases which were
effective in June 1993 and September 1990 resulted from settlements, with PUC
approval, between the Company and the opposing parties and, as such, no
determination of the rate of return on common equity was made by the PUC.
Over the past 10 years, PSW had applied for, and received the following
rate increases from the PUC:
RATE RATE RETURN ON RETURN ON
INCREASE INCREASE EQUITY EQUITY
DATE FILED EFFECTIVE DATE REQUESTED ALLOWED REQUESTED ALLOWED
- --------------------------- --------------------------- ----------- ----------- ------------- -------------
March 1984 December 1984 12.2% 6.9% 16.5% 16.5%
July 1985 April 1986 16.9% 9.2% 16.0% 15.0%
October 1987 July 1988 12.2% 7.8% 14.5% 13.7%
April 1989 December 1989 13.2% 9.0% 14.1% 12.7%
March 1990 September 1990 9.7% 4.3% 13.5% Settled
January 1991 October 1991 13.1% 7.7% 13.2% 12.0%
November 1992 June 1993 17.6% 7.4% 12.9% Settled
On December 3, 1993, PSW filed a request with the PUC to increase its rates
by 14% or $14,000 on an annual basis. Included in this filing is a requested
return on common equity of 11.9%. In January 1994, the PUC suspended this
request and hearings on the merits of the request are expected in March and
April of 1994. The PUC is anticipated to rule on the rate request by August
1994.
In addition to the rate increases noted above, the PUC has adjusted rates
to reflect changes in the tax laws. Effective August 1991, PSW was allowed to
add a 4.1% surcharge to its bills in order to recover costs associated with an
increase in certain Pennsylvania tax rates. Initially, this surcharge allowed
PSW to recover during the seven-month period from August 1991 to March 1992,
most of the additional tax expenses that were incurred during the 15-month
period from January 1991 to March 1992. In accordance with PUC regulations, the
surcharge was recomputed to 2.03% for bills rendered from April 1992 to March
1993 and to 1.97% for bills rendered from April 1993 to May 1993, reflecting the
more timely recovery of these additional taxes. Recovery of the additional tax
expenses was incorporated into PSW's base rates which took effect on June 1,
1993 and the surcharge was no longer added to bills for water service subsequent
to that date. Revenues associated with the surcharge were $706 in 1993, $2,281
in 1992 and $1,292 in 1991.
'Sendout' represents the quantity of treated water delivered to the
distribution system and is used by management as an indicator of customer
demand. Consumption per customer is the sendout that was used by metered
customers and is based on the actual bills rendered during the year adjusted for
the estimated unbilled customer usage. Over the past five years, an average of
approximately 81.9% of the sendout was consumed by metered customers. The
majority of the balance was used through unmetered fixed-rate fire hydrants,
lost through leaks in water mains or used by PSW in its operations. PSW's ratio
of metered customer use to total sendout is consistent with industry statistics.
The percentage of water consumed by metered customers was 83.4% in 1993, 82.2%
in 1992 and 82.3% in 1991. The improvement in the percentage of sendout consumed
by metered customers is associated with fewer main breaks, particularly in the
past three years when the winter months were less severe, PSW's leak detection
and water main rehabilitation programs, and an increase in the number of newer
and more accurate meters.
In 1993, the average consumption per customer improved over 1992 but was
still slightly below the average for the years 1989 to 1991. While consumption
in 1993 improved significantly during the summer months, this improvement was
largely offset by decreases in consumption during the balance of the year. In
1992, average consumption decreased by 2.5% over 1991 and it is believed that
this
23
decrease was associated with the cool, wet weather experienced in the late
spring and early summer of that year. The recession, which impacted most classes
of customers, and conservation by customers also may have had an impact on
consumption in the past two years.
Water consumption tends to be impacted by weather conditions, particularly
during the late spring and summer months when nonessential and recreational use
of water is at its highest. Consequently, a higher proportion of annual
operating revenues is realized in the second and third quarters. Except for
1992, the average annual consumption per customer over the past five years was
relatively constant. The spring and summer of 1992 were characterized by cooler
weather with frequent rains and consumption declined. It is difficult to
establish an exact correlation between the weather and water consumption, since
conservation and even day-to-day variations in weather patterns can have an
effect. Conservation efforts and mandated water use restrictions in response to
drought conditions in prior years have also had an effect on water consumption.
Operating Expenses
Operating expenses of a water utility company may be grouped into the
general categories of collection, pumping, purification, distribution and
administration. These expenses for 1993, 1992 and 1991 totaled $44,480, $41,314
and $40,059, respectively. All elements of cost are subject to the effects of
inflation, as well as the effects of changes in water consumption and the degree
of treatment required due to variations in the quality of the raw water being
processed. The principal elements of operating costs are labor, electricity,
chemicals and maintenance expenses. Electricity and chemical expenses vary in
relationship to water consumption and raw water quality. Maintenance expenses
are sensitive to extreme cold weather, which can cause water mains to rupture.
PSW's operating expenses increased in 1993 over 1992 by 7.7% due to
increased wages and employee benefit costs; operating expenses associated with
the December 1992 acquisitions and the cost to process and distribute the
increased volume of water sold. The increase in 1992 over 1991 of 3.1% was
associated with wage increases offset in part by reductions in variable costs
due to the reduction in water sales.
Corporate costs related to continuing operations were 1%, 2% and 4% of the
Company's operating expenses in 1993, 1992 and 1991, respectively. Such expenses
include those unallocated general and administrative expenses associated with
maintaining a publicly-held company.
Depreciation and Amortization
Depreciation expense was $9,927, $8,646 and $7,612 in 1993, 1992 and 1991,
respectively, and has increased principally as a result of the significant
capital expenditures made to expand and modernize the water utility plant.
Depreciation expense was approximately 2.2% of the average utility plant in
service for all years. Amortization expense, which was $1,008, $800 and $641 in
1993, 1992 and 1991, respectively, increased in each of the last two years due
to the frequency of rate request filings and a decrease in the time frame over
which those costs are amortized.
Taxes Other than Income Taxes
Taxes other than income taxes increased by 6% in 1993 and by 7% in 1992
over the previous year. The majority of the increase in both years was
associated with increases in the bases on which the Pennsylvania Public Utility
Realty Tax (PURTA) and the Capital Stock Tax are calculated. The increase in
taxable base for the PURTA is due to the increases to utility plant over the
past two years, including the December 1992 and 1993 acquisitions, while the
increase in the Capital Stock Tax is due to the common equity raised over the
past two years.
24
Interest and Debt Expenses
Interest expense was $13,108, $15,068 and $14,781 in 1993, 1992 and 1991,
respectively. The decrease in 1993 was due to reductions in total debt
outstanding, the refinancing in the past two years of certain First Mortgage
Bonds at PSW with lower-cost debt and reductions in interest rates on borrowings
under PSW's revolving credit facility. The Company was able to reduce its
average outstanding debt in 1993 with the proceeds it received from the sale of
common stock and the discontinued operations. Interest expense increased in 1992
over 1991 due to higher average borrowings during that year, offset in part by
lower interest rates on borrowings under PSW's revolving credit facility.
Allowance for Funds Used During Construction
The allowance for funds used during construction ('AFUDC') was $805, $258
and $1,194 in 1993, 1992 and 1991, respectively, and has varied over the years
as a result of changes in the average balance of utility plant construction in
progress, to which AFUDC is applied, and, to a lesser extent, to changes in the
AFUDC rate.
The average balance of construction in progress to which AFUDC is applied
was $8,379, $3,197 and $14,372 in 1993, 1992 and 1991, respectively. The
variances in these average balances are primarily due to a $32,700 water
treatment plant placed in service in mid-1991 and an $11,500 treatment plant
placed in service in November 1993. AFUDC was no longer applied to these
projects after they were placed in service but was applied to an ever-increasing
base during the period they were under construction. The average cost of capital
on which the AFUDC rate was based, has declined since 1991 reflecting similar
decreases in interest rates and the allowed return on PSW's common equity.
Income Taxes
The Company's effective income tax rate was 43.0% in 1993 as compared to
43.1% in 1992 and 41.0% in 1991. The effective tax rate declined in 1993,
despite a 1% increase in the statutory federal tax rate, due to a reduction of
operating expenses at the parent company which are not deductible for state
income taxes. In 1992, the Company filed with the Internal Revenue Service
('IRS') a request to change its method of accounting with respect to interest
and overhead costs capitalized on utility plant construction. As a result of
this request, the Company incurred additional state income taxes which increased
the effective tax rate in 1992.
Discontinued Operations
As a result of deterioration in the operating results and backlog of future
work at the discontinued operations during 1992, and a substantial reduction in
the estimated net proceeds from the ultimate disposition of the businesses, a
charge of $5,500 was taken in the third quarter of 1992 to reflect the Company's
revised estimate of the ultimate loss on the disposition of these businesses. In
the third quarter of 1991, a similar charge of $5,000 was taken to reflect the
then current estimate as to the ultimate outcome of the Company's divestiture
effort. Both charges were based on estimates, which considered the facts and
circumstances known at the time the charges were taken, and included projections
of operating results through the expected disposition dates and estimates of the
net proceeds from the dispositions. Delays in finding suitable buyers, further
deterioration in operating performance and the resulting decline in the
estimated net proceeds from the disposition were the most significant variations
from the Company's previous projections as to the ultimate results of the
divestiture efforts. The timing and the net proceeds from the disposition of the
two businesses sold in the first quarter of 1993, and the operating losses
during the period they were owned by the Company were within the estimated
reserves established in the third quarter of 1992 and the Company does not
foresee the need for any further charges to income related to the discontinued
operations. The balance of the reserves for discontinued operations were
established to cover future additional costs associated
25
with these operations, including administrative, legal and tax services;
contingent legal and lease obligations and certain employee costs.
Summary
Operating income from continuing operations in 1993, 1992 and 1991 was
$37,430, $34,337 and $31,637, respectively, and income from continuing
operations was $13,835, $10,626 and $10,179, respectively, for the same periods.
On a per share basis, income from continuing operations in 1993, 1992 and 1991
was $1.27, $1.23 and $1.29, respectively. The increase in the per share income
from continuing operations in 1993 over 1992 was due to the aforementioned
improvements in profits offset in part by a 25.7% increase in the average number
of shares outstanding during the year.
Although the Company has experienced increased income from continuing
operations in the recent past, continued adequate rate increases reflecting
increased operating costs and new capital investments are important to the
future realization of improved profitability. This in turn will provide the
level of internal funds necessary to expand and modernize the utility plant.
Net income in 1993, 1992 and 1991 was $13,835, $4,292 and $4,889,
respectively. Net income in 1993 improved as compared to 1992 due to increased
income from continuing operations and to the absence of charges related to the
discontinued operations and the early retirement of debt. Net income in 1992
declined as compared to 1991 as a result of the losses related to the
discontinued operations and the extraordinary charge related to the early
retirement of parent company debt, offset by the improvement in income from
continuing operations.
Fourth Quarter Results
Income from continuing operations for the fourth quarter of 1993 increased
by $562 to $3,387 primarily as a result of a $2,551 increase in revenues and
reduced interest expense during this period. The increase in revenues is a
result of the 7.4% rate increase which took effect in June 1993 and to a slight
increase in water sales during the quarter. The increase in revenues was
partially offset by higher operating expenses, income taxes, depreciation,
amortization and taxes other than income taxes. Operating expenses increased as
a result of an increase in variable costs associated with the increase in water
sales, wage increases, an increase in costs associated with main breaks and to
expenses related to the December 1992 acquisitions. Depreciation increased due
to utility plant additions made since the fourth quarter of 1992. Amortization
increased primarily due to the amortization of costs associated with the June
1993 rate increase. Taxes other than income taxes increased primarily because of
the increase in the base on which the PURTA and Capital Stock Tax are computed.
Interest declined in the fourth quarter primarily as a result of the retirement
of $25,000 of parent company debt in the second half of 1992 and lower interest
rates.
Recent Events
In January and February 1994, the extreme cold weather experienced in PSW's
service territory caused an abnormally high number of water main breaks and as a
result, maintenance expenses have increased. In addition, sendout increased, and
while some of this increase is associated with the water main breaks, a portion
of the increase in sendout may be due to additional use by customers who allowed
water to run in order to keep pipes within their properties from freezing. Any
increase in revenues attributable to additional customer use will not be
determined until the end of the first quarter and consequently, the impact of
the weather on the results of operations during this period is unknown at this
time.
Effects of Inflation
The effects of inflation on the Company during the past several years have
not been significant. As a regulated enterprise, PSW's rates are established to
provide recovery of costs and a return on its investment. Recovery of the
effects of inflation through higher water rates is dependent upon receiving
adequate and timely rate increases. However, rate increases are not retroactive
and often lag increases
26
in costs caused by inflation. During periods of moderate to low inflation, as
has been experienced for the past several years, the effects of inflation on the
water utility's operating results are not significant.
Regulatory Asset
During the year, the Company adopted Statement of Financial Accounting
Standards No. 106, 'Employers' Accounting for Postretirement Benefits Other Than
Pensions' ('SFAS 106') and Statement of Financial Accounting Standards No. 109,
'Accounting for Income Taxes' ('SFAS 109'). These standards require PSW to
compute its income tax expense and its postretirement benefit costs other than
pensions ('PBOP') in a manner which differs from the computations used to
establish the recovery of expenses in the rate making process. A regulatory
asset was established during the year to defer the incremental costs related to
the adoption of the new standards and to recognize their expected recovery
through future water rates. During the year a regulatory asset of $51,229 was
recorded of which $1,696 relates to SFAS 106 and $49,533 relates to SFAS 109.
The use of regulatory accounts is permitted by Statement of Financial
Accounting Standards No. 71 'Accounting for the Effects of Certain Types of
Regulation' ('SFAS 71'), which recognizes that the economic effects of
regulations on a utility can sometimes require accounting which is different
from that applied to enterprises in general in order for the financial
statements to be presented fairly. A recent interpretation of SFAS 71 by the
Emerging Issues Task Force of the Financial Accounting Standards Board ('FASB'),
whose positions are a source of generally accepted accounting principles
('GAAP'), indicates that the use of a regulatory asset to offset the impact of
costs computed under SFAS 106 is appropriate only if certain conditions are met.
Primary among these conditions is the assessment that it is probable that the
PUC will allow costs as defined by SFAS 106, including amounts previously
deferred, to be recovered in the rates the Company charges its customers.
The Company's rate request filed on December 3, 1993 includes costs
computed under SFAS 106. In addition, during 1993, PSW requested and was granted
PUC approval to record the regulatory asset as it relates to SFAS 106. In
granting the request, the PUC declared the regulatory asset recorded pursuant to
their decision allowable for ratemaking purposes and concluded that the water
utility was allowed to make a claim to recover in rates both the annual SFAS 106
costs and the regulatory asset. These acknowledgements, coupled with the PUC's
1993 actions to approve SFAS 106 costs in other utility rate proceedings,
provide sufficient basis for the establishment of a regulatory asset for the
excess costs computed under SFAS 106.
In 1993, the Pennsylvania Office of Consumer Advocate, in response to the
PUC's approval of other utility requests for deferral or recovery of SFAS 106
costs, appealed selected cases to the Commonwealth Court. Should the Court
reverse the PUC's approval, the Company would likely cease deferring any cost
associated with SFAS 106 and all amounts previously deferred would be expensed.
However, since the Company does not intend to fund the excess of its SFAS 106
cost over the pay-as-you-go-cost if rate recovery is not provided, cash flow
from operations will not be impacted.
Income tax expense recognized in the rate making process has generally been
limited to current tax expense plus deferred Federal taxes as they related to
certain depreciable assets. The PUC has generally not recognized deferred income
tax expenses related to any state tax or on other differences between book and
taxable income. As a result, tax expense for rate making purposes has been
reduced resulting in rates which have been lower than they would have been had
financial accounting standards been used in establishing rates. Management
believes that the PUC will continue to follow its practice of allowing rate
recovery of current taxes and accordingly, recovery of the additional taxes
included in the regulatory asset will occur as the temporary differences
reverse.
27
Financial Condition
Cash Flow and Capital Expenditures
Net operating cash flow, dividends and capital expenditures, including
allowances for funds used during construction, for the five years ended December
31, 1993 are as follows:
NET
OPERATING CAPITAL
CASH FLOW DIVIDENDS EXPENDITURES
------------ --------- -----------
1989........................................... $ 17,432 $ 6,929 $ 32,331
1990........................................... 16,897 7,641 30,774
1991........................................... 19,121 7,859 22,335
1992........................................... 22,638 8,866 21,719
1993........................................... 26,940 11,629 27,958
------------ --------- -----------
$ 103,028 $ 42,924 $ 135,117
------------ --------- -----------
------------ --------- -----------
Of the $135,117 in capital expenditures made in the past five years,
$134,800 results from PSW's construction program. Included in PSW construction
expenditures are: $44,200 for the construction of two surface water treatment
plants; $18,684 for new water mains; and $16,750 for the rehabilitation of
existing water mains. During this five year period, PSW received $16,152 of
advances and contributions in aid of construction to finance new water mains. In
addition to its capital program, PSW has made sinking fund contributions
aggregating $5,850, replaced $40,981 of debt and has refunded $10,444 of
customer advances for construction over the past five years and expended $10,451
related to the December 1993 and 1992 acquisitions of three municipal water
systems.
Since net operating cash flow to PSW plus advances and contributions in aid
of construction have not been sufficient to fully fund its cash requirements,
PSW issued approximately $69,000 of long-term debt during the past five years,
$10,000 of preferred stock in 1991 and received $29,000 of equity investments
from the Company during 1993.
The Company funded its investment in PSW and the repayment of approximately
$35,000 of its debt in 1991 and 1992 with the proceeds from the sale of common
stock and the sale of its discontinued operations. In April 1993, the Company
sold 1,100,000 shares of common stock in a public offering for net proceeds of
$18,331. The Company has also sold 2,909,343 shares of common stock for net
proceeds of $42,248 since 1989 through three plans that allow existing
shareholders and customers of PSW to purchase shares of common stock directly
from the Company. The following table provides the net proceeds to the Company
and the shares issued under these plans:
28
CUSTOMER OPTIONAL
STOCK DIVIDEND STOCK
PURCHASE REINVESTMENT PURCHASE
PLAN PLAN PLAN TOTAL
------------- ------------ --------- -------------
Net proceeds:
1989................................................... $ 2,769 $ 283 $ 193 $ 3,245
1990................................................... 2,431 435 90 2,956
1991................................................... 2,651 494 172 3,317
1992................................................... 24,185 742 264 25,191
1993................................................... 5,465 1,491 583 7,539
------------- ------------ --------- -------------
$ 37,501 $ 3,445 $ 1,302 $ 42,248
------------- ------------ --------- -------------
------------- ------------ --------- -------------
Shares issued:
1989................................................... 227,333 20,474 14,686 262,493
1990................................................... 205,600 36,114 7,155 248,869
1991................................................... 193,775 37,247 11,997 243,019
1992................................................... 1,669,159 51,143 17,159 1,737,461
1993................................................... 298,940 86,704 31,857 417,501
------------- ------------ --------- -------------
2,594,807 231,682 82,854 2,909,343
------------- ------------ --------- -------------
------------- ------------ --------- -------------
Proceeds from the Customer Stock Purchase Plan ('CSPP') increased
dramatically in 1992 and, in order to better match future equity additions with
the need for additional capital, the Company amended this Plan in 1993 to
eliminate the 5% discount it previously offered customers and limited future
stock sales under this Plan to approximately 100,000 shares in each of the three
subscription periods during the year. The Dividend Reinvestment Plan ('DRP')
continues to offer a 5% discount to participants of this Plan.
PSW's 1994 capital program, exclusive of the costs of new mains financed by
advances and contributions in aid of construction, is estimated to be $27,115
which is expected to be financed, along with $850 of sinking fund obligations
and $4,034 of debt maturities, through internally-generated funds, a revolving
credit facility, equity investments from the Company, and issuance of new long-
term debt. PSW has also submitted a proposal to acquire a municipal water system
contiguous to its existing service territory for a purchase price in excess of
$20,000. The proposal is currently being evaluated by the municipality and, if
accepted, it is anticipated that the acquisition would be completed in the
second half of 1994. This acquisition would be funded initially with short-term
debt with subsequent repayment from the proceeds of long-term debt and issuance
of new equity.
Future utility construction in the period 1995 through 1998, including
recurring programs, such as the ongoing replacement of water meters, the
rehabilitation of water mains and additional transmission mains to meet customer
demands, exclusive of the costs of new mains financed by advances and
contributions in aid of construction, is estimated to require aggregate
expenditures of approximately $100,000. The Company anticipates that
approximately 50%of these expenditures will require external financing,
including additional investments from the Company. The estimates discussed above
do not include any amounts for possible future acquisitions of water systems or
the financing necessary to support them.
PSW's ability to finance its future construction programs depends on its
ability to attract the necessary external financing and maintain or increase
internally-generated funds. Rate orders permitting compensatory rates of return
on invested capital and timely rate adjustments will be required to allow PSW to
achieve an adequate level of earnings to enable it to attract capital, maintain
satisfactory debt coverage ratios and maintain the water utility's financial
position at a level sufficient to secure attractively priced capital.
Operating cash flow from the water utility along with external financings
will enable the Company to pursue its capital expenditure programs, pay
dividends and supply the working capital required by the Company in 1994.
Management believes, that with the improvement in the Company's
29
capitalization ratios over the past two years, it will be able to obtain the
external financing that it will need.
Capitalization
The following table summarizes PSC's capitalization during the past five
years:
DECEMBER 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
--------- --------- --------- --------- ---------
Long-term debt, including current portion............................ 50.7% 58.1% 64.4% 68.6% 65.7%
Preferred stock with mandatory redemption............................ 3.4 3.6 3.7 -- --
Common stockholders' equity.......................................... 45.9 38.3 31.9 31.4 34.3
--------- --------- --------- --------- ---------
100.0% 100.0% 100.0% 100.0% 100.0%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
The changes in the capitalization ratios result from the issuance of common
stock over the past five years, preferred stock in 1991, the retirement of
parent company debt in 1992 and 1991 and the issuance of debt by PSW to finance
its capital program.
Impact of Recent Accounting Pronouncements
In November 1992, the FASB issued Statement of Financial Accounting
Standards No. 112, 'Employers' Accounting for Postemployment Benefits' ('SFAS
112') which requires the Company to accrue the expected cost of providing
postemployment benefits during the years that employees render services to the
Company. The Company intends to adopt this standard as required in the first
quarter of 1994. Historically, the Company has experienced minimal
postemployment medical costs and the Company has already established adequate
reserves for other costs which are accruable under this standard. Consequently,
the implementation of SFAS 112 is expected to have little or no impact on the
results of operations or financial position of the Company.
Dividends on Common Stock
Following is a recent history of income from continuing operations and
dividends of the Company:
INCOME PER
SHARE FROM
CASH DIVIDEND CONTINUING PAYOUT
PER SHARE OPERATIONS RATIO
--------------- ------------- -----------
1989............................................. $ .94 $ 1.25 75%
1990............................................. 1.00 1.27 79
1991............................................. 1.00 1.29 78
1992............................................. 1.04 1.23 85
1993............................................. 1.07 1.27 84
Dividends have averaged approximately 80% of income from continuing
operations during this period. In March 1993, the annual dividend increased by
4% to $1.08 beginning with the June 1993 dividend.
30
SUMMARY OF SELECTED FINANCIAL DATA
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 1993 1992 1991 1990 1989
------------------------ ---------- ---------- ---------- ---------- ----------
PER COMMON SHARE:
Income from continuing operations (a).............. $ 1.27 $ 1.23 $ 1.29 $ 1.27 $ 1.25
Net income......................................... 1.27 0.50 0.62 0.53 1.05
Cash dividends..................................... 1.07 1.04 1.00 1.00 0.94
Return on average shareholders' equity (b)......... 11% 11% 12% 11% 11%
Book value at year end............................. $ 11.89 $ 10.88 $ 10.66 $ 10.95 $ 11.39
Market value at year end........................... 18.38 16.00 15.75 12.13 13.88
---------- ---------- ---------- ---------- ----------
INCOME STATEMENT HIGHLIGHTS:
Earned revenues (b)................................ $ 101,244 $ 93,307 $ 88,648 $ 82,267 $ 75,993
Interest and debt expenses (b)(c).................. 13,169 15,676 14,377 12,174 11,448
Income before income taxes (b)..................... 24,261 18,661 17,260 15,569 14,776
Provision for income taxes (b)..................... 10,426 8,035 7,081 5,833 5,498
Income from continuing operations (a).............. 13,835 10,626 10,179 9,736 9,278
Net income......................................... 13,835 4,292 4,889 4,089 7,786
---------- ---------- ---------- ---------- ----------
BALANCE SHEET HIGHLIGHTS:
Total assets....................................... $ 439,679 $ 365,949 $ 350,560 $ 352,037 $ 328,267
Property, plant and equipment, net (b)............. 366,230 345,610 320,974 306,702 284,040
Common stockholders' equity........................ 135,934 106,971 85,621 85,456 85,886
Preferred stock with mandatory redemption.......... 10,000 10,000 10,000 -- --
Long-term debt..................................... 145,292 153,508 168,076 175,885 163,007
Total debt......................................... 150,995 163,048 172,786 187,755 166,459
---------- ---------- ---------- ---------- ----------
ADDITIONAL INFORMATION:
Capital additions (b)(d)........................... $ 27,958 $ 21,719 $ 22,335 $ 30,774 $ 32,331
Dividends on common stock.......................... 11,629 8,866 7,859 7,641 6,929
Number of metered water customers.................. 247,195 244,788 236,616 235,460 234,030
Number of shareholders of common stock............. 10,811 9,863 6,408 6,373 6,261
Common shares outstanding (000).................... 11,430 9,832 8,034 7,804 7,538
Employees (full-time) (b).......................... 523 526 526 523 517
---------- ---------- ---------- ---------- ----------
- ------------------
(a) 1992 operating results are before extraordinary charge of $834 or 0.10 per
share.
(b) Represents continuing operations only.
(c) Includes dividend on preferred stock and is net of allowance for funds used
during construction.
(d) Excludes payments for acquired water systems of 1,323 in 1993 and 9,128 in
1992.
31
EXHIBIT 22
(UNAUDITED)
PHILADELPHIA SUBURBAN CORPORATION AND SUBSIDIARIES
The following table lists all of the subsidiaries of the Company at
December 31, 1993:
Philadelphia Suburban Water Company (Pa.)
Utility & Municipal Services, Inc. (Pa.)
PSC Services, Inc. (Del.)
1
EXHIBIT 24
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Philadelphia Suburban Corporation
We consent to incorporation by reference in the Registration Statements on Form
S-8 (1994 Employee Stock Purchase Plan No. 033-52557), (1988 Stock Option
No.33-27032), (1982 Stock Option Plan No.2-81757); Post-Effective Amendment
No. 1 on Form S-3 (Dividend Reinvestment and Optional Stock Purchase Plan)
to Form S-3 (No. 33-26791) and to Form S-2 (No. 33-26792); and on Post-
Effective Amendment No. 2 on Form S-3 (Customer Stock Purchase Plan) to
Form S-2 (No. 33-54292) of Philadelphia Suburban Corporation of our report
dated February 1, 1994, related to the consolidated balance sheets of
Philadelphia Suburban Corporation and subsidiaries as of December 31, 1993
and 1992 and the related consolidated statements of income and cash flows for
each of the years in the three-year period ended December 31, 1993, which
report is incorporated by reference in the December 31, 1993 Annual Report on
Form 10-K of Philadelphia Suburban Corporation.
KPMG PEAT MARWICK
Philadelphia, Pennsylvania
March 29, 1994
EXHIBIT 28
The undertaking set forth below is filed for the purposes of incorporation
by reference into Part II of the registration statements on Form S-8, File Nos.
2-81757, 33-27032 and 33-52557.
ITEM 9. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities rising under the Securities Act
of 1933 (the 'Securities Act') may be permitted to directors, officers or
persons controlling the registrant pursuant to the provisions described in
this registration statement, or otherwise, Philadelphia Suburban Corporation
(the 'Company') has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final adjudication of such
issue.
